| Rio Tinto 2003 Annual report and financial statements | 37ORE RESERVES (under Industry Guide 7) continued (m) | The term 'undeveloped reserves' is used here to describe material that is economically viable on the basis of technical and economic studies but for which construction and commissioning have yet to commence. | (n) | The increase in reserves at Escondida and Escondida Norte results from updated models following increased drilling and the application of new economic parameters, which transferred mineralised material to reserves. Oxide material has been transferred to sulphide leach following the start up of new processing facilities. | (o) | Under the terms of a joint venture agreement between Rio Tinto and Freeport-McMoRan Copper & Gold (FCX), Rio Tinto is entitled to a direct 40 per cent share in reserves discovered at Grasberg after 31 December 1994 and it is this entitlement that is shown. | (p) | Reserves at Palabora have decreased following detailed remodelling of both grade and block cave models, and the effect of diluting material from the open pit. The conversion of debentures into ordinary shares continued during 2006 with Rio Tinto participating, ending the year with a 57.7 per cent interest. | (q) | The successful completion of feasibility studies and change in economic parameters has increased reserves at Argyle. | (r) | Production depletion and refinement of mine design at Diavik, that reduced dilution, results in the reduced reserve. | (s) | Portions of the Pipeline and Crossroads extension reserves were reclassified as mineralised material following technical and economic review. | (t) | Following the acquisition of a 50 per cent interest in the Hope Downs iron ore project, reserves are presented here for the first time. | (u) | Mt Tom Price reserves have increased following the upgrading of mineralised material and approved mine design extensions into a new area. | (v) | Following a reassessment of economic and design criteria a proportion of reserves were reclassified as mineralised material at several of the talc operations. Rio Tinto Minerals - talc was formerly known as the Luzenac Group. | (w) | The reserve model was updated on receipt of new data, which including depletion, resulted in a reduction of reserves at QIT. | (x) | Improvements in processing and economic parameters enabled lower grade stockpile material to be added to the reserves at Ranger #3. |
Rio Tinto 2006 Form 20-F | 33 |
Back to Contents Operational review continuedLOCATION OF GROUP OPERATIONS as at June 2007 (wholly owned unless stated otherwise) | | | | |
| | 36 million tonne ALUMINIUM | | | Operating sites | 1 | | Anglesey Aluminium (51%) | 2 | | Bell Bay | 3 | | Boyne Island (59%) | 3 | | Gladstone Power Station (42%) | 3 | | Queensland Alumina (39%) | 4 | | Tiwai Point (79%) | 5 | | Weipa | 3 | | Yarwun (formerly Comalco | | | Alumina Refinery) | | | BORATES | | | Operating sites | 6 | | Boron | 7 | | Coudekerque Plant | 8 | | Tincalayu | 9 | | Wilmington Plant | | | COAL | | | Operating sites | 10 | | Antelope | 11 | | Bengalla (30%) | 12 | | Blair Athol (71%) | 13 | | Colowyo (20%) | 10 | | Cordero Rojo | 14 | | Decker (50%) | 12 | | Hail Creek (82%) | 15 | | Hunter Valley Operations (76%) | 10 | | Jacobs Ranch | 16 | | Kestrel (80%) | 15 | | Mt Thorley Operations (61%) | 14 | | Spring Creek | 17 | | Tarong | 15 | | Warkworth (42%) | | | | | | Projects | 12 | | Clermont (50%) | 11 | | Mt Pleasant (76%) |
| | COPPER AND GOLD | | | Operating sites | 18 | | Bougainville (not operating) (54%) | 19 | | Cortez/Pipeline (40%) | 20 | | Escondida (30%) | 21 | | Grasberg joint venture (40%) | 22 | | Kennecott Utah Copper | 23 | | Northparkes (80%) | 24 | | Palabora (58%) | 25 | | Rawhide (51%) | | | | | | Projects | 26 | | La Granja | 27 | | Oyu Tolgoi (10%) | 28 | | Pebble (20%) | 29 | | Resolution (55%) | | | | | | DIAMONDS | | | Operating sites | 30 | | Argyle | 31 | | Diavik (60%) | 32 | | Murowa (78%) |
| | IRON ORE | | | Operating sites | 33 | | Corumbá | 34 | | Hamersley Iron mines: | | | Brockman | | | Marandoo | | | Mt Tom Price | | | Nammuldi | | | Paraburdoo | | | Yandicoogina mine expansion is expected in early 2005. Completion of the port expansion is scheduled for late 2005, with progressive commissioning from early 2006.
Studies are continuing into providing additional rail, power and other infrastructure to complement the new port and mine requirements. Studies into further new mine capacity to meet future growth in demand are also being advanced.
Construction of the US$64 million | | | Channar (60%) | | | Eastern Range mine continued on target for a production start in early 2004. Located ten kilometres east of Paraburdoo, the mine will service an unincorporated joint venture between Hamersley Iron and Shanghai Baosteel Group Corporation, China’s largest iron and steel maker. The joint venture, in which Hamersley Iron holds a 54 per cent equity share, will supply about ten million tonnes of standard Hamersley Iron ore products per year over 20 years.(54%) | 2003 operating performance35 | | HIsmelt®(60%)
| Hamersley Iron’s total production in 2003 was a record 73.4 million tonnes, 5.2 million tonnes more than in 2002. Rio Tinto’s share of this production was 69.3 million tonnes.34
Shipments by Hamersley Iron totalled a record 74.3 million tonnes, including sales through joint ventures. Hamersley Iron’s shipments to China also reached a record level at 33.9 million tonnes, making China by far the single largest destination for Hamersley Iron ore.
Production from all mines was stretched to achieve these levels, placing cost and other operating stresses on the Hamersley Iron system. Maintenance programmes were maintained to ensure continued ability to service growing market demand, including the first changeout of the Channar mine’s 20 kilometre conveyor belt since the mine began production in 1990.
The Brockman mine reopened in February 2003, following a major refit to lift capacity to approximately eight million tonnes per year, allowing it to service the adjacent Nammuldi mine.
The Pilbara Rail Company, formed in 2002, which effectively integrates the rail networks of Hamersley Iron and | | Robe River into a single operation, continued to deliver operating savings through rolling stock, track maintenance and operational efficiencies. Further new track was built in 2003 to duplicate a 50 kilometre section of the main line, and additional locomotives and ore cars were commissioned to enhance the overall system capacity.
In the spirit of closer cooperation with Robe, Hamersley Iron for the first time shipped product from its Yandicoogina mine through Robe’s Cape Lambert port facilities in October, increasing operational flexibility and helping to relieve congestion at Dampier.
The US$55 million structured cost saving programme begun in 2001 was completed in 2003, but was offset by higher costs incurredto stretch output. Key sustainable savings achieved included: ongoing operational improvements including benefits realised from Pilbara Rail; continued improvement in labour productivity, including benefits flowing from the consolidation of information technology and accounting resources into a shared services group for Rio Tinto in Western Australia; and savings accrued from a large number of targeted projects including rescheduling of operations, procurement benefits and capital investment. Additional costs arose from the need to ensure competitive remuneration in the Pilbara.
Hamersley Iron continued to work sustainable development principles into its daily operations throughout the year, using a modified version of its decision making methodology to enhance stakeholder engagement in the port and Yandicoogina expansion projects. In November 2003, Hamersley Iron also achieved certification under ISO 14001 for its environmental management system.
Ore reserves changed in line with delineation drilling to improve confidence, annual extraction and updated mine planning. Ore reserves are now expressed by material type to clarify their likely use.
mines: (53%) | | | West Angelas | | | Pannawonica | Hamersley Iron’s total sales of iron ore to major markets in 200335 | Million tonnes |
|
| China | 33.9 | Japan | 19.0 | Other Asia | 16.0 | Europe | 5.4 | Total | 74.3 |
|
| Note: This table includes 100 per cent of all sales through joint ventures. |
Robe River Iron Associates(Rio Tinto: 53 per cent)
Robe River Iron Associates (Robe) is an unincorporated joint venture in which Mitsui (33 per cent), Nippon Steel (10.5 per cent) and Sumitomo Metal Industries (3.5 per cent) also have interests. Robe is the world’s fourth largest seaborne trader in iron ore, employing approximately 735 people.
The company operates two open pit mining operations in Western Australia. Mesa J is located in the Robe Valley, north of the town of Pannawonica. The mine produces Robe River fines and lump, which are pisolitic iron ore products. The West Angelas mine, opened in 2002, is located approximately 100 kilometres west of the town of Newman. The mine produces West Angelas fines and lump, which are Marra Mamba iron ore products.
The mine schedule for West Angelas production capacity is being accelerated. Mine production reached an annualised rate of 18 million tonnes per year in December 2003, and West Angelas is on schedule to reach its original design rate of 20 million tonnes per year by the end of the first quarter of 2004, two years earlier than planned. This
will increase Robe’s production capacity to a nominal 50 million tonnes per year. In 2003, Robe obtained approval to expand West Angelas to 25 million tonnes per year. Work is scheduled to begin on the US$105 million expansion in early 2004 and is expected to be complete by mid 2005.
Robe uses a dedicated rail system, operated by Pilbara Rail, to transport ore from its mines to the company’s deepwater port facilities at Cape Lambert for export.
Robe exports under medium and long term supply contracts with major integrated steel mill customers in Japan, Europe, South Korea and China.
2003 operating performance
Robe’s total production in 2003 was a record 45.1 million tonnes, comprising 32 million tonnes from Pannawonica, and 13.1 million tonnes from West Angelas.
Total sales were 43.9 million tonnes, with strong demand for Robe products in all major markets. Sales included 31.1 million tonnes from Pannawonica and 12.8 million tonnes of West Angelas. Sales growth was based on increased West Angelas tonnage availability, and focused primarily on Japan, where all customers exercised their tonnage options. Further penetration of the Chinese market was also achieved. Increased marketing effort in China resulted in the signing of long term agreements with large steel mill customers. The mine development schedule for West Angelas has been accelerated in response to high customer demand.
The business met the challenges presented by the accelerated West Angelas production schedule, along with the introduction of new processes at the port and business improvement activities occurring at all sites. At both Pannawonica and West Angelas increased focus was placed on waste stripping and improved equipment availability. This year improved business planning processes were introduced to ensure effective communication and coordination between the sites.
Robe’s safety performance continued to improve, with sustained use of behaviour based safety tools such as peer observations and hazard identifications. Increased priority has been placed on prompt reporting and investigation of near misses.
Robe’s total sales of iron ore to major markets in 2003
| Million tonnes |
|
| Japan | 26.2 | Europe | 9.4 | Other Asia | 3.1 | China | 5.2 | Total | 43.9 |
|
|
Iron Ore Company of | | | Canada (59%) | | | | | | Projects | 34 | | Hope Downs (50%) | 37 | | IOC Pellet Plant (59%) | 38 | | Orissa (51%) | 39 | | Simandou (95%) | | | | | | NICKEL | | | Projects | 40 | | Eagle | | | | | | POTASH | | | Projects | 41 | | Rio Colorado Potash | | | | | | SALT | | | Operating sites | 42 | | Dampier (65%) | 43 | | Lake MacLeod (65%) | 42 | | Port Hedland (65%) |
| | TALC | | | Operating sites | | | (only major sites areshown) | | | | 44 | | Ludlow | 45 | | Talc de Luzenac | 46 | | Yellowstone | 47 | | Three Springs | | | | | | TITANIUM DIOXIDE | | | FEEDSTOCK | | | Operating sites | 48 | | QIT-Fer et Titane Lac Allard | 49 | | QIT-Fer et Titane Sorel | | | Plant | 50 | | Richards Bay Minerals (50%) | | | | | | Projects | 51 | | QIT Madagascar Minerals (80%) | | | | | | URANIUM | | | Operating sites | 52 | | ERA (68%) | 53 | | Rössing (69%) | | | | | | Projects | 54 | | Kintyre | 55 | | Sweetwater | | | | | | ZINC, LEAD, SILVER | | | Operating sites | 56 | | Greens Creek (70%) |
| • | Mines and mining projects | | | | | • | Smelters, refineries and processing plants remote from mine |
Rio Tinto: 58.7 per cent) Following a capital restructuring, Rio Tinto’s interest in Iron Ore Company of Canada (IOC) increased from 56.1 per cent to 58.7 perTinto 2006Form 20-F |
3834 | Rio Tinto 2003Annual report and financial statements |
Back to Contents cent in December 2002. Mitsubishi (26.2 per cent)Item 4A. | Unresolved Staff Comments |
As far as Rio Tinto is aware there are no unresolved written comments from the SEC staff regarding its periodic reportsunder the Exchange Act received more than 180 days before 31 December 2006. Item 5. | Operating and Financial Review and Prospects | | | This Item contains forward looking statements and attention is drawn to the Labrador Iron Ore Royalty Income Fund (15.1 per cent) are also shareholders in IOC, Canada’s largest iron ore pellet producer. IOC operates an open pit mine, concentrator and pellet plant at Labrador City, Newfoundland, together withCautionary statement on page 6. This Item includes a 420 kilometre railway to port facilities and the partially refurbished pellet plant at Sept-Iles, Quebec.
Products are transported on IOC’s Quebec North Shore and Labrador Railway to Sept-Iles. The port is open all year and handles ore carriers of up to 255,000 tonnes. IOC exports its concentrate and pellet products to major North American, European and Asia Pacific steel makers.
The Sept-Iles pellet plant remains closed, following the suspension in September 2001discussion of the US$240 million refurbishment project. IOC employs approximately 1,900 people andmain factors affecting the Group’s “Profit for the year”, as measured in April 1999, signed a five year agreementaccordance with International Financial Reporting Standards as adopted by the United Steelworkers of America. This is due for renegotiation atEuropean Union (‘EU IFRS’). In monitoring its financial performance, the end of February 2004.2003 operating performance
The year was another challenging one for IOC. Difficult market conditions continued in North America as the steel industry there continued to restructure. Despite this, pellet sales volumes reached a record high through increased sales to existing customers in Europe and the Asia/Pacific.
Pellet production returned to 2001 levels, well above 2002. However, IOC experienced operational difficulties, particularly with the commissioningGroup also focuses on that part of the control system on its ATO (Automatic Train Operation) system in the first half. This lead to a shortfall in planned concentrate productionProfit for the year.
During 2003, IOC maintained its focus on the cost reduction programme that commenced in 2002 and workforce reductions continued as planned under the accelerated retirement programme. IOC also made gains in improving the reliability of key production systems, positioning it for 2004. Emphasis on improved safety performance continues.
IOC’s total sales of iron ore to major markets in 2003 | | | | Million tonnes |
|
| North America | 4.7 | Europe | 6.5 | Asia Pacific | 3.7 | Total | 14.9 |
|
|
IRON ORE GROUP PROJECTS
HIsmelt®(Rio Tinto: 60 per cent)
Construction began in January 2003 on a HIsmelt®plant at Kwinana in Western Australia. The HIsmelt®process is a revolutionary direct iron smelting technology developed largely by Rio Tinto that will convert iron ore fines into high quality pig iron (96 per cent iron content) without the use of coke ovens and sinter plants. Notably, the
technology allows efficient processing of ore fines with higher levels of impurities, the current market for which is limited using standard blast furnace technology and operating techniques.
The HIsmelt®project at Kwinana is a joint venture between Rio Tinto (60 per cent interest through its subsidiary, HIsmelt®Corporation), US steelmaker Nucor Corporation (25 per cent), Mitsubishi Corporation (ten per cent), and Chinese steel maker Shougang Corporation (five per cent).
The plant will have a production capability of 800,000 tonnes per year and the project is on budget and on scheduleattributable to commence production at the end of 2004.
In 2003, HIsmelt®signed a process licence agreement with the Laiwu Steel Group Ltd. of China to allow for the development of an iron making facility using HIsmelt®technology.
Rio Tinto 2003Annual report and financial statements | 39
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Operational review continued
Energy group
Coal | Coal | (Rio Tinto share) | (Rio Tinto share) | million tonnes | million tonnes | MINED | RESERVES |
Energy
Earnings contribution
US$m
Note: 2003 and 2002
exclude exceptional items
Rio Tinto Energy group’s coal interests are in Australia and the US. They supply internationally traded and domestic US and Australian markets. Following the disposal of Rio Tinto’s coal interest in Colombia in early 2000, acquisitions in late 2000 and early 2001 enhanced the existing interests in New South Wales, Australia. During 2003, Rio Tinto’s 50 per cent interest in Kaltim Prima Coal was sold to an Indonesian company. The group also includes Rössing in Namibia and Energy Resources of Australia. Both companies supply uranium oxide for use in electricity generation.
In 2003, Rio Tinto formed a single management organisation to manage the Energy group’s coal assets in Australia. Rio Tinto and Coal & Allied Industries (Rio Tinto 75.7 per cent) agreed to combine Coal & Allied corporate and service functions with those of Pacific Coal to increase efficiencies and lower costs. Pacific Coal (Rio Tinto 100 per cent) was renamed Rio Tinto Coal Australia (RTCA). Effective 1 February 2004, RTCA will manage both Pacific Coal’s existing assets and Coal & Allied’s assets in the Hunter Valley in a centralised management structure which provides for shared costs.
At 31 December 2003, the Energy group accounted for 14 per cent of Group operating assets and, in 2003, contributed 20 per cent of Rio Tinto’s turnover and 11 per cent of adjusted earnings. Adjusted earnings are explained on page 32.
Preston Chiaro, chief executive Energy, is based in London.
FINANCIAL PERFORMANCE 2003
compared with 2002
The Energy group’s 2003 contribution to earnings was US$157 million, US$196 million lower than in 2002.
In Indonesia, earnings from Kaltim Prima Coal up to the time of its sale to Indonesian interests in October were US$31 million.
2002 compared with 2001
The Energy group’s earnings contribution in 2002 at US$353 million was US$20 million lower than in 2001.A strengthening Australian dollar and higher costs associated with flooding and high wall instability at Cordero Rojo were the main components of the lower result.
Kennecott Energy(Rio Tinto: 100 per cent) Kennecott Energy (KEC) wholly owns and operates four open cut coal mines in the Powder River Basin of Montana and Wyoming, US and has a 50 per cent interest in, but does not operate, the Decker mine in Montana. KEC also manages the Group’s interest in Colowyo Coal LP in Colorado, US and in total employs approximately 1,700 people.
One of the largest US producers, KEC sells to electricity generators predominantly in mid-western and southern states. Sales are made under multiple year contracts and on a spot basis for one year or less.
The domestic US market for low sulphur coal continues to grow due to its competitive
cost per delivered energy unit and restrictions on sulphur emissions by utilities. In the longer term, continued strong demand for low sulphur coal is projected following the announcement of construction of new coal fired generating capacity in the US.
2003 operating performance
KEC’s attributable production of 108 million tonnes of coal was three per cent higher than in 2002 as a result of higher demand for Antelope and Jacobs Ranch coals, partially offset by lower production at Cordero Rojo and Colowyo. Geotechnical instability at Cordero Rojo resulted in a change in mining methods that reduced production whilst Colowyo reduced production in line with market demand. Earnings of US$88 million were slightly lower than 2002 earnings of US$90 million. This decrease represents higher volumes that were offset by higher costs to mine at Cordero Rojo and higher fuel prices.
In November 2003, KEC streamlined administrative staffing among its five operating mines and its headquarters office to improve the efficiency of operations.
KEC demonstrated a considerably better safety performance in 2003, with a 39 per cent improvement in the lost time injury frequency rate.
Rio Tinto Coal Australia (RTCA)
(Rio Tinto: 100 per cent)
RTCA, formerly Pacific Coal, manages the Group’s Australian coal interests. These comprise Blair Athol (Rio Tinto 71 per cent), Kestrel (Rio Tinto 80 per cent), Tarong (Rio Tinto 100 per cent) and Hail Creek coal mines (Rio Tinto 92 per cent) and the Clermont deposit (Rio Tinto 50 per cent). Effective 1 February 2004, RTCA will also provide management services to Coal & Allied for day to day operation of its four mines.
Around 60 per cent of Blair Athol thermal coal is sold under contracts extending to 2010 to its two Japanese joint venture partners. The rest is sold by long term and annual agreements to European and Southeast Asian customers.
Production from the wholly owned Tarong mine is sold to Tarong Energy Corporation, an adjacent State owned power utility. A ten year contract for up to seven million tonnes annually expires in 2011.
Kestrel is an underground mine where thermal and metallurgical coal production recommenced in June 1999. Sales to customers in Japan, south east Asia, Europe and Central America are generally on annual agreements.
Construction of the 5.5 million tonnes per annum Hail Creek metallurgical coal project is essentially complete. Development of the project in central Queensland commenced in 2001 and the mine was officially opened on 5 November 2003. Production of high quality metallurgical coal commenced in July 2003 with commercial shipments beginning in October. Market acceptance has been strong in all markets, particularly China.
RTCA employs some 1,052 people (including regular contractors).
40 | Rio Tinto 2003Annual report and financial statements |
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2003 operating performance
RTCA’s earnings of US$70 million were 48 per cent lower than in 2002 due to the unfavourable exchange rate movement and lower thermal coal prices. Export prices were down seven per cent and domestic prices down 25 per cent. There were also increased costs at Kestrel and Tarong.
Production at Blair Athol increased from 11.8 million tonnes to 12.5 million tonnes while sales were 12.6 million. Kestrel’s production decreased by 19 per cent to 3.3 million tonnes while shipments of 3.7 million tonnes of coking and thermal coal were in line with 2002. Production in 2003 was impacted by poorer mining conditions in the last longwall panels in the 200 series mining area. Mining from the new Ti Tree area, predominantly coking quality coal, commenced in January 2004. At Tarong, production increased to 6.5 million tonnes in line with increased demand at Tarong Energy Corporation. Hail Creek production commenced in July 2003. Production and sales were 0.9 million tonnes of which 0.7 million tonnes were shipped.
�� In late 2002, Hail Creek commenced the recruitment of its operating employees. The 16 former employees retrenched from Blair Athol in 1997 applied but were unsuccessful in gaining employment at Hail Creek. The Construction, Forestry, Mining and Energy Union (CFMEU) successfully applied to the Australian Industrial Relations Commission for an Exceptional Matters Order that requires Hail Creek to grant preferential employment to the former employees unless the company is able to satisfy the Commission that the employees are not suitable.
The company has challenged the order before the Federal Court of Australia. The hearing is scheduled for February 2004. Until this challenge is determined, Hail Creek must comply with the order.
The improved safety performance of 2002 was not sustained. Safety performance during 2003 returned to the levels of 2001.
Coal & Allied Industries
(Rio Tinto: 75.7 per cent)
Coal & Allied Industries (Coal & Allied) is publicly listed on the Australian Stock Exchange and had a market capitalisation of A$2.0 billion (US$1.5 billion) at 31 December 2003. In 2003, Coal & Allied, through a committee of independent directors, negotiated an agreement with Rio Tinto to combine Coal & Allied’s corporate and management functions with thoseequity shareholders of Rio Tinto, Coal Australia.which is referred to as “Net earnings”, and on an additional measure called “Underlying earnings”. The combined management organisation reduces costs, achieves economies of scale and removes duplicated functions for both Coal & Allied andlatter measure, which is also based on the amounts attributable to Rio Tinto.
Coal & Allied’s assets are all located within the Hunter Valley in New South Wales, Australia. It wholly owns Hunter Valley Operations, has an 80 per cent interest in Mount Thorley Operations and a 55.57 per cent interest in the contiguous Warkworth mine, and a 40 per cent interest in the Bengalla mine which abuts its wholly owned Mount Pleasant development project. Coal &
Allied also has a 37 per cent interest in Port Waratah Coal Services.
Coal & Allied produces thermal and semi soft coal. Most of its thermal coalTinto shareholders, is sold under contractsreported to electrical or industrial customers in Japan, Korea and elsewhere in Asia. The balance is sold in Europe and in Australia. Coal & Allied’s semi soft coal is exported to steel producing customers in Asia and Europe under a combination of long term contracts and spot business.
2003 operating performance
A loss of US$24 million was incurred as a resultprovide greater understanding of the stronger Australian dollar, lower coal prices and increased demurrage costs, compared with earningsunderlying business performance of US$68 million in 2002. Good progress was made in implementing operational cost reductions including the agreement to combine corporate and management functions with those of RTCA in order to improve performance in 2004 and beyond.
Rio Tinto’s share of coal production was 15.4 million tonnes, a reduction of 13 per cent on 2002, principally resulting from divestments in 2002 and operational changes in 2003 to reduce saleable production to align with market conditions.
Abnormal vessel queues at the port of Newcastle and rail congestion in the Hunter Valley rail system increased demurrage costs. Coal & Allied is working with the other parties to increase the productivity of the logistical chains in the Hunter Valley. However, congestion remains an issue for 2004.
Agreement was reached with the joint venture partners at Mount Thorley and Warkworth to integrate operations to improve efficiencies and reduce costs. Workforce agreements were agreed at Warkworth, Mount Thorley and Hunter Valley operations in late 2003.
Rössing Uranium(Rio Tinto: 68.6 per cent)
Rössing produces and exports uranium oxide from Namibia to European, US and Asia Pacific electricity producers. Production has been lower than the 4,500 tonnes per year capacity for some years due to market conditions. Rössing employs approximately 800 people.
2003 operating performance
Total production of 2,401 tonnes of uranium oxide was lower than 2002 as a result of a shutdown at the start of the year to install a new tailings conveyor system. Expiring long term higher priced sales contracts were replaced by contracts in line with 2003 market prices. These lower realised prices combined with the strengthening of the Namibian dollar against the US dollar resulted in a loss of US$19 million compared with a US$23 million profit in 2002. Initiatives to deliver cost savings continued. Plans to extend the current open pit for production beyond 2007 were suspended.
In 2003, Rössing’s safety performance continued to improve with a 41 per cent reduction in the lost time injury frequency rate.
Energy Resources of Australia
(Rio Tinto: 68.4 per cent)
Energy Resources of Australia Ltd (ERA) is publicly listed and had a market capitalisation of A$0.6 billion (US$0.5 billion) at 31 December 2003. ERA employs approximately 240 people with 12 per cent of the operational workforce represented by Aboriginal people.
ERA produces uranium oxide at the Ranger open pit mine, 260 kilometres east of Darwin in the Northern Territory. ERA also has title to the nearby Jabiluka mineral lease, which in 2003 was put on long term care and maintenance. Ranger has a 5,500 tonnes per year capacity and began production in 1981. Estimated ore reserves are sufficient for more than eight years at current mining rates. ERA’s operations including Jabiluka have been progressively surrounded by, but remain separate from, the World Heritage listed Kakadu National Park and especially stringent environmental requirements and governmental oversight apply. ERA in 2003 was certified under ISO 14001 for its environment management system. Uranium oxide from Ranger is sold to base load electricity utilities in Japan, Korea, Europe and North America.
2003 operating performance
Uranium oxide production totalling 5,134 tonnes was higher than the previous year in response to greater sales commitments. Stronger prices were offset by the strengthening Australian dollar and resulted in earnings of US$11 million, a reduction of US$1 million from 2002.
Safety performance for 2003 deteriorated against 2002 in terms of lost time injuries.
ENERGY GROUP PROJECTS
Clermont Coal(Rio Tinto: 50 per cent)
The Clermont deposit is near RTCA’s Blair Athol mine. It is suited to open cut development. A prefeasibility study of the project was completed in 2003. A feasibility study is planned to commence in 2004. Integration options with Blair Athol are available following the signing of a strategic alliance agreement by the Blair Athol and Clermont Joint Ventures. JPower (EPDC) joined the Clermont Joint Venture after acquiring a 15 per cent interest from Rio Tinto and Mitsubishi.
Mount Pleasant(Rio Tinto: 75.7 per cent) Development ofoperations. This measure is used by management to track the Mount Pleasant project continued with a prefeasibility study being undertaken in 2002 and further optimisation work in 2003.
Rio Tinto 2003 Annual report and financial statements | 41 |
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Operational review continued
Industrial Minerals group
Borates | Borates | (Rio Tinto share) | (Rio Tinto share) | ’000 tonnes B2O3 content | ’000 tonnes B2O3 content | PRODUCTION | RESERVES |
Titanium dioxide | Titanium dioxide | (Rio Tinto share) | (Rio Tinto share) | ’000 tonnes | ’000 tonnes | PRODUCTION | RESERVES |
Industrial Minerals | | Earnings contribution | | US$m | |
Rio Tinto’s Industrial Minerals group produces borates, industrial salt, talc and titanium dioxide feedstock. Rio Tinto Borax, Rio Tinto Iron & Titanium, Luzenac’s talc operations and Dampier Salt, its principal businesses, are leading suppliers of their products.
The Industrial Minerals group employed approximately 7,000 people in 2003.
At 31 December 2003, the Industrial Minerals group accounted for 13 per centperformance of the Group’s operating assets and contributed approximately 15 per cent of Rio Tinto’s turnover and 11 per cent of adjusted earnings in 2003. Adjusted earnings are explained on page 32.
Tom Albanese, chief executive Industrial Minerals, is based in London.
FINANCIAL PERFORMANCE
2003 compared with 2002
Industrial Minerals’ contribution to 2003 earnings was US$154 million, 46 per cent lower than in 2002, reflecting the significant weakening of the US dollar against both the Canadian dollar and South African rand and continued weakness across North American and European markets.
Rio Tinto Borax earnings were eight per cent lower at US$80 million. The cost base was negatively impacted by higher natural gas and diesel prices, rising employee benefit costs in California and net one off charges.
Rio Tinto Iron & Titanium earnings at US$47 million were 71 per cent lower than in 2002 due to the effect of the weak US dollar, soft market conditions and a charge associated with the writedown of a customer receivable in 2003.
2002 compared with 2001
Industrial Minerals’ contribution to earnings in 2002 was US$286 million, 11 per cent lower than in 2001, reflecting weaker market conditions and reduced pension credits.
Rio Tinto Borax’s 2002 earnings were 15 per cent lower at US$87 million. Cost improvements were more than offset by reduced pension credits on lower market returns and a higher effective tax rate.
Rio Tinto Iron & Titanium (RIT) earnings at US$161 million in 2002 were 11 per cent lower than in 2001 due both to market conditions and the effect of reduced pigment demand in 2001.
Rio Tinto Borax(Rio Tinto: 100 per cent)
Rio Tinto Borax’s Boron mine in California’s Mojave Desert is the world’s largest borate mine. Borates are used in the US for vitreous applications, such as fibreglass, glass wool, high temperature glasses and enamels. The perborate industry, a major market in Europe, uses borates as bleach in detergents. Other uses include ceramics, fertilisers, flame retardants, wood preservatives and corrosion inhibitors.
Rio Tinto Borax’s US and UK research laboratories provide technical support and participate in collaborative projects with customers.
2003 operating performance
Net earnings from Rio Tinto Borax atUS$80 million were eight per cent below the previous year. Production of borates was six per cent higher than 2002 at 559,000 tonnes. Sales were four per cent higher than 2002, due to the combined impact of euro denominated sales and volume growth in the North American and Asian markets. The cost base was affected by higher natural gas and diesel prices, rising employee benefit costs in California and net one off charges.
An expansion of boric acid capacity at Boron was announced in 2003 and is scheduled to come on stream in 2005 to meet rising global demand for boric acid.
Rio Tinto Iron & Titanium
(Rio Tinto: 100 per cent)
Rio Tinto Iron & Titanium (RIT) comprises the wholly owned QIT-Fer et Titane (QIT) in Quebec, Canada and the 50 per cent interest in Richards Bay Minerals (RBM) in KwaZulu-Natal, South Africa. Both produce titanium dioxide feedstock used by customers to manufacture pigments for paints and surface coatings, plastics and paper, as well as iron and zircon co-products.
QIT’s proprietary process technology enables it to supply both the sulphate and chloride pigment manufacturing methods. Its upgraded slag (UGS) plant supplies the growing chloride sector and is designed for expansion in line with demand up to a capacity of 600,000 tonnes per year from its current level of 250,000 tonnes. During 2003, RIT announced an expansion of its UGS plant to 325,000 tonnes per annum, with new production scheduled to commence by early 2005.
RBM’s ilmenite has a low alkali content which makes its feedstock suitable for the chloride pigment process. RBM can sustain one million tonnes of feedstock production annually.
2003 operating performance
Earnings from Rio Tinto Iron & Titanium (RIT) of US$47 million were 71 per cent lower than in 2002. The weakening US dollar had a significant adverse effect on the result, as did the combined impact of the absence of a one off benefit in 2002 and a charge associated with the write down of a customer receivable in 2003.
Titanium dioxide pigment demand decreased slightly in 2003. The titanium dioxide feedstock side of the industry continued to be affected by the oversupply of conventional grade chloride feedstocks and persistent high feedstock inventory levels at some pigment producers. In contrast, demand for very high grade feedstock products, such as UGS, remains strong. Overall, RIT shipments of titanium dioxide feedstocks were lower in 2003, reflecting both market conditions and the effect of new capacity in the market. Production at both QIT and RBM was curtailed accordingly.
42 | Rio Tinto 2003 Annual report and financial statements |
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Demand for iron and steel co-products improved during 2003, with increased demand and higher prices. Zircon markets continued to tighten, with demand from China being particularly strong.
Dampier Salt(Rio Tinto: 64.9 per cent)
Dampier Salt (DSL), now the world’s largest salt exporter, produces industrial salt by solar evaporation at Dampier, Port Hedland and Lake MacLeod, and also mines gypsum at Lake MacLeod, in Western Australia.
The chemical industry in Asia is the principal customer for DSL’s salt whilst gypsum’s main use is in wallboard and cement manufacture.
2003 operating performance
Dampier Salt’s earnings were US$10 million in 2003, 58 per cent lower than 2002. While shipments of salt and gypsum increased by four and 13 per cent respectively, margins were severely eroded by the rise of the Australian dollar, the extremely tight freight market and excess salt supply capacity. Salt production was in line with 2002, at 7.1 million tonnes (Rio Tinto share: 4.6 million tonnes).
A new process plant at Dampier was approved to reduce costs and improve product quality. Construction should be complete by the end of 2004.
Luzenac Group(Rio Tinto: 99.9 per cent)
The Luzenac Group operates talc mines, including the world’s largest in south west France, and processing facilities in Australia, Austria, Belgium, Canada, France, Italy, Japan, Mexico, Spain, the UK and the US.
Luzenac products are used internationally. Principal uses are in paper, paints, cosmetics, ceramics, agricultural and plastics industries.
2003 operating performance
Earnings in 2003 at US$17 million were 21 per cent higher than the previous year. Luzenac’s production in 2003 was two per cent higher than 2002 at 1.36 million tonnes.
Sales volumes were maintained from 2002, while improvements in pricing were partially offset by the effect of the sales mix.
The key paper and polymer markets remained weak in 2003 on both sides of the Atlantic, while Asia continued to demonstrate strong volume growth.
There was continued rationalisation of operating and service sites, which contributed a number of one off redundancy and restructuring charges.
INDUSTRIAL MINERALS GROUP
PROJECTS
QIT Madagascar Minerals
(Rio Tinto: 80 per cent)
RIT manages QIT Madagascar Minerals (QMM), in which an agency of the Government of Madagascar has a 20 per cent interest. QMM was formed to evaluate and, if appropriate, develop large mineral sand deposits in the south east of Madagascar.
In November 2001, QMM was granted an environmental permit by the Government for the proposed minerals sands project. The permit requires QMM to comply with a full range of social and environmental obligations throughout the life of a project.
A feasibility study is progressing and RIT is working with the Government, as well as all other interested and affected parties, with a view to developing the project.
Rio Colorado Potash(Rio Tinto: Option to acquire 100 per cent)
In 2003, Rio Tinto entered into an option agreement to acquire 100 per cent of Potasio Rio Colorado SA, an Argentine company holding the mineral rights and other assets of the Rio Colorado potash project. The project is located 1,000 kilometres south west of Buenos Aires, in the provinces of Mendoza and Neuquen. The option runs until late 2005, during which time Rio Tinto will evaluate the commercial potential for developing the project.
Rio Tinto 2003 Annual report and financial statements | 43 |
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Operational review continued
Aluminium
group
Weipa bauxite | | Weipa bauxite | (Rio Tinto share) | | (Rio Tinto share) | million tonnes | | million tonnes | MINED | | RESERVES |
Alumina | | Aluminium | (Rio Tinto share) | | (Rio Tinto share) | ’000 tonnes | | ’000 tonnes | PRODUCTION | | PRODUCTION |
Rio Tinto Aluminium
Earnings contribution
US$m
Rio Tinto’s Aluminium group encompasses its wholly owned, integrated aluminium subsidiary, Comalco and its 51 per cent share in Anglesey Aluminium. Rio Tinto acquired the publicly held 27.6 per cent of Comalco in 2000. Management responsibility for Anglesey Aluminium was transferred from the Copper group to Aluminium in June 2003.
At 31 December 2003, the Aluminium group accounted for 21 per cent of Rio Tinto’s operating assets and in 2003 contributed 16 per cent of Group turnover and 14 per cent of adjusted earnings. Adjusted earnings are explained on page 32.
Sam Walsh, chief executive Aluminium, is based in Brisbane, Queensland.
FINANCIAL PERFORMANCE
2003 compared with 2002
Rio Tinto Aluminium’s contribution to 2003 earnings was US$200 million, a decrease of 22 per cent.
Stronger aluminium prices increased earnings by US$51 million with the average three month price in 2003 at 65 US cents per pound compared with 61 US cents per pound in 2002. The effect of the weakening US currency reduced Rio Tinto Aluminium’s earnings by US$111 million.
2002 compared with 2001
Rio Tinto Aluminium’s contribution to 2002 earnings was US$256 million, a decrease of 22 per cent from 2001.
Lower prices reduced earnings by US$44 million with the average three month aluminium price in 2002 at 61 US cents per pound compared with 66 US cents in 2001. The strengthening Australian and New Zealand currencies reduced Rio Tinto Aluminium’s earnings by US$13 million.
Rio Tinto Aluminium
(Rio Tinto: 100 per cent)
Rio Tinto Aluminium is a major supplier of bauxite, alumina and primary aluminium to world markets. It employs some 4,200 people.
Rio Tinto Aluminium has a large, wholly owned bauxite mine on Cape York Peninsula, Queensland. Approximately 90 per cent of the bauxite from Weipa is shipped to alumina refineries at Gladstone, Queensland and Sardinia, Italy. It is also entitled to four per cent of bauxite output from the Boké mine, Guinea, West Africa.
Rio Tinto Aluminium has a 56.2 per cent consortium interest in Eurallumina and increased its interest in Queensland Alumina Limited (QAL) from 30.3 to 38.6 per cent for US$189 million in September 2001.
In January 2002, construction of a wholly owned, US$750 million alumina refinery commenced. The Comalco Alumina Refinery will produce 1.4 million tonnes of alumina annually at Gladstone, Queensland.
In 2003, Comalco signed a long term alumina supply agreement with Norsk Hydro, the Norwegian industrial group, to initially supply 300,000 tonnes of alumina in 2005
and then 500,000 tonnes of alumina per year for more than 20 years to Hydro Aluminium’s smelters in Australia and elsewhere. The alumina will be sourced from QAL and the new Comalco Alumina Refinery at Gladstone.
In July 2002, Comalco completed the acquisition of an additional 9.5 per cent of lines 1 & 2 at Boyne Island smelter for US$78.5 million. This increased Comalco’s overall ownership of the Boyne Island smelter from 54.2 per cent to 59.4 per cent.
In addition to the Boyne Island smelter, smelters at Bell Bay (100 per cent) in Tasmania, Tiwai Point (79.4 per cent) in New Zealand and Anglesey Aluminium (51 per cent) in Wales, produce Rio Tinto Aluminium’s primary aluminium.
2003 operating performance
Bauxite production at Weipa was 11.9 million tonnes, six per cent higher than in 2002. This was due to improved performance and to facilitate a build in inventory in advance of the requirement to supply the Comalco Alumina Refinery which will be commissioned during the second half of 2004. Weipa bauxite shipments at 11.4 million tonnes increased slightly compared with 2002 levels.
QAL production was four per cent above 2002 due largely to record process flows notwithstanding the adverse impacts of external power outages in both years. Eurallumina production increased marginally over 2002 levels.
At Gladstone in Australia, drought conditions continued into 2003 with all operations continuing to achieve the required 25 per cent cutback in water use with no interruption to production. All operations have voluntarily retained these reduced water levels despite restrictions being lifted due to abundant rainfall in the local catchment.
Rio Tinto Aluminium’s share of aluminium production from its four smelters at 818,000 tonnes was 23,000 tonnes above 2002 production. This includes the first full year of the additional share of the Boyne Island smelter that was purchased in 2002. These figures also take into account production at the Anglesey Aluminium smelter for both years.
Production at the Tiwai Point smelter was constrained by high spot electricity prices in New Zealand in the first half of 2003. This was more than offset by record production in the second half of the year following the resumption of spot electricity purchases in June 2003. Production at Bell Bay and Anglesey Aluminium was marginally higher than in 2002.
Attributable metal shipments of 820,000 tonnes went to similar destinations as 2002, being primarily Japan, Australia, Europe and Korea.
44 | Rio Tinto 2003 Annual report and financial statements
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ALUMINIUM GROUP PROJECTS
Comalco Alumina Refinery
(Rio Tinto: 100 per cent)
Following approval in October 2001 and ground work preparation in December, large scale construction of the US$750 million first stage of a new greenfield alumina refinery at Gladstone began in January 2002. The refinery will enable Rio Tinto Aluminium to add further value to the Weipa bauxite deposit and strengthen both Rio Tinto Aluminium’s and Australia’s positions in the world alumina market.
The majority of the refinery’s output will go into Rio Tinto Aluminium smelters. The balance will be placed in the traded alumina market. Rio Tinto Aluminium will, however, become a more significant player in the traded alumina market after the 1.4 million tonnes per year refinery comes into production.
During 2003, work continued on schedule and within budget with engineering design work concluded and construction 58 per cent complete by year end. First production is due in the fourth quarter of 2004, with initial shipments in the first quarter of 2005 and full capacity by the end of 2006. There is potential for the refinery capacity to increase to over four million tonnes per year when market conditions allow.
Weipa mine expansion
(Rio Tinto: 100 per cent)
A US$150 million expansion of the Weipa bauxite operation was started in 2003 to increase output of beneficiated bauxite to 16.5 million tonnes per year. The increase in production will help meet the demands of the new Comalco Alumina Refinery. The majority of the expenditure is on a 9.5 million tonne beneficiation plant to allow mining of lower grade fine ores.monthly basis. The NeWeipa expansion project is due for completion in 2004.
Rio Tinto 2003 Annual report and financial statements | 45 |
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Operational review continued
Copper group
Copper | | Copper | (Rio Tinto share) | | (Rio Tinto share) | ’000 tonnes | | ’000 tonnes | MINED | | RESERVES |
Copper | | Copper | (Rio Tinto share) | | Earnings contribution | ’000 tonnes | | US$m | REFINED | | |
Note: 2003, 2002 and 2001 exclude
exceptional items
Gold | | Gold | (Rio Tinto share) | | (Rio Tinto share) | ’000 tonnes | | ’000 ounces | MINED | | RESERVES |
Rio Tinto’s Copper group comprises Kennecott Utah Copper in the US and interests in the copper mines of Escondida in Chile, Grasberg in Indonesia, Neves Corvo in Portugal, Northparkes in Australia and Palabora in South Africa. The group also includes the Zinkgruvan zinc mine in Sweden, Kennecott Minerals in the US and Rio Tinto Brasil as well as Kennecott Land.
In 2003, Rio Tinto divested its interests in the Alumbrera and Peak Gold mines for US$210 million.
At 31 December 2003, the Copper group, which produces gold as a significant co-product, accounted for 21 per centearnings of the Group’s operating assetsproduct groups as reviewed by management exclude amounts that are outside the scope of underlying earnings. Underlying earnings is defined and in 2003, contributed approximately 23 per cent of Rio Tinto’s turnover, of which 55 per cent was from copper and the remainder mostly from gold. It accounted for 32 per cent of adjustedreconciled with Net earnings in 2003. Adjustednote 2 to the 2006 financial statements. Significant movements in the items excluded from Underlying earnings are explaineddiscussed on page 32.pages 40 to 41.
Oscar Groeneveld, In this report, the sales revenue of the parent companies and their subsidiaries is referred to as ‘Consolidated sales revenue’. Rio Tinto also reports a sales revenue measure that includes its share of jointly controlled entities and associates, which is referred to as ‘Gross sales revenue’. This latter measure is considered informative because a significant part of the Group's business is conducted through operations that are subject to equity accounting.
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| This Item is comprised of the following: | • | Chairman’s message providing a high level review of the Group | • | Interview with the chief executive Copper, is based in London.FINANCIAL PERFORMANCE
2003 compared with 2002
The Copper group’s contribution to earnings was US$440 million, US$99 million higher than in 2002. The average price of copper was 80 US cents per pound compared to71 US cents in 2002. The average gold price of US$363 per ounce increased by 17 per cent.
Kennecott Utah Copper’s contribution to earnings of US$88 million was broadly in line with 2002.
Earnings at Escondida increased to US$122 million despite constrained output in response to weak market demand. Mined production of copper was up 32 per cent (Rio Tinto share) due to the commissioningproviding a high level review of the new Laguna Seca concentrator.
Freeport’s earnings contribution decreased by US$5 million to US$127 million chiefly as a resultGroup’s operations
| • | Group financial performance | • | Operating reviews for each of the slippage in October. This had an adverse effect on both volumesprincipal product groups and costs. In the fourth quarter, lower grade material was mined from the open pit and near term mine operations are being directed to accelerating the removal of waste material to ensure the restoration of safe access to the higher grade areas. Despite full production from the underground mine, mill throughput was significantly below capacity.
Earnings at Palabora decreased to US$1 million in 2003 due to the negative effectglobal support groups | • | Financial review of the stronger rand in relation to the US dollar combined with lower volumes and higher costs resulting from delays in reaching capacity in the underground mine.2002 compared with 2001
The Copper group’s contribution to earnings in 2002 was US$341 million, US$35 million higher than in 2001. The average price of copper was 71 US cents per pound compared to 72 US cents in 2001. The average gold price of US$309 per ounce increased by 14 per cent.
Kennecott Utah Copper’s contribution to earnings of US$86 million in 2002 was broadly in line with 2001. Adjusted earnings exclude the effect of exceptional charges relating to asset write downs and a provision for environmental remediation. A downward revision to the Group’s long term copper price assumption resulted in an exceptional charge of US$480 million relating to the impairment of asset carrying values. KUC has been investigating the treatment of contaminated groundwater in the vicinity of Bingham Canyon since before 1989, when Rio Tinto acquired the business. Group
| As a result of changesadopting IAS 32, IAS 39 and IFRS 5 on 1 January 2005, the Group changed its method of accounting forfinancial instruments and non-current assets held for sale. In line with the relevant transitional provisions, the priorperiod comparatives have not been re-stated. See Note 1 to the treatment plan, an additional provision2006 financial statements for further discussion. |
CHAIRMAN’S MESSAGE We continued to experience strong global demand and high prices across our product groups in 2006 and are pleased to report a third successive year of record earnings. This performance reflects the underlying quality of the Rio Tintoportfolio, which has proved robust across the economic cycle. I have warned in previous messages about the risk of complacency that can flow from a period of strong markets and sustained success. We remain alert to this and recognize the long term cyclical nature of our industry. In responsewe continue to focus on rigorous investment discipline, operational excellence and pursuing all opportunities to enhancethe underlying performance of our business. Results and dividends The Group’s underlying earnings in 2006 were US$7,338 million, US$2,383 million or 48 per cent above 2005. Netearnings were US$7,438 million, compared with US$5,215 million in 2005. Cash flow from operations increased 36 percent to [US$10,923]* million. The final dividend declared for 2006 of 64 US cents per share brings the total for 2006 to 104 US cents, anincrease of 30 per cent. We have a long standing policy of progressive dividend delivery and maintaining it remains apriority. In addition, our strong operational cash flows have enabled us to return US$2.4 billion to shareholders through the buyback of shares and the payment of US$1.5 billion special dividend. We have recently announced, subject tomarket conditions, our intention to return a further US$3 billion to be completed by the end of 2007, while still retaining the financial flexibility to take up growth opportunities as they arise. Our main priority for the use of cash generated continues to be profitable investment in the growth of thebusiness with particular emphasis on our portfolio of economically robust projects. Our capital investment grew from US$2.5 billion in 2005 to US$3.9 billion in 2006. Our pipeline of project opportunities will see this grow to aroundUS$5 billion in 2007. Rio Tinto 2006Form 20-F | 35 |
Back to Contents Strategy Our strategy remains to focus on large, long life, low cost ore bodies capable of delivering superior returns across theeconomic cycle. Creating value for shareholders is our primary objective and will remain so. We are fortunate to have a geographical portfolio weighted towards large, mature and growing economies. However, we recognise that pursuit offuture value growth will see us operating in a wider range of countries than in the past. Recent projects and investmentsin Russia, Madagascar, Peru and Mongolia are evidence of this. We are also focused on driving productivity and performance improvements across all our primary businessprocesses, thereby adding to the resilience of our portfolios in more challenging markets. We made significant progresstowards that objective in 2006. Sustainable development Rio Tinto is in a long term, capital intensive business and our investments typically have life spans of 30 years or more and are often in remote locations. Without economic and social stability we cannot deliver economic returns to our host governments, local communities and our shareholders. We therefore remain committed to the principles of sustainable development, which is fully reflected in all aspects of our business. It facilitates access to new opportunities, improves business performance and inspires our own people, who fully share this commitment. As we move into new geographical areas, meeting economic, social and environmental challenges simultaneously will be an increasingly critical feature of our business. I am pleased that our way of doing business has received positive recognition and support from our various stakeholders in these environments. New chief executive We have announced that Tom Albanese will succeed Leigh Clifford as chief executive on 1 May 2007. Leigh has made an outstanding contribution to Rio Tinto for almost 37 years. His seven years as chief executive have seen significantgrowth in the profitability and value of the business and major enhancements in our operational performance. We thankhim for all he has done for Rio Tinto and wish him well for the future. Tom brings a broad based experience of the mining industry developed in a sequence of challenging roles in Rio Tinto. He has been a key player in a number of important initiatives over recent years and in shaping our strategicdirection. We have plans in place for a smooth handover from Leigh to Tom and the board is confident that, under hisleadership, Rio Tinto will continue to deliver profitable growth and increased value for shareholders. Board developments Michael Fitzpatrick joined the board in June 2006 after a successful period in investment fund management. He brings along experience of entrepreneurial activity to the board and is a valuable addition to our Australian representation. Weare fortunate to have an experienced and diverse board which provides strong support and constructive challenge to ourexecutive team. Forward outlook The global economy remains resilient in the face of a range of political and economic risks. We expect a continuation of positive economic growth in 2007 in most of the major economies. China’s strong, growing demand for metals and minerals, which has been a key driver of market strength, seems set to continue. On the supply side, a number of constraints, ranging from shortages of key consumables, like truck tyres andexplosives, to the tight supply of skilled technical managers and tradesmen, have limited the growth of new productioncapacity. Stocks of most products have remained low, resulting in tight markets. This has reinforced the strength of the current cycle and we expect prices in 2007 to continue at levels significantly above the long term trend. Our people Despite the benefit of strong markets, 2006 was very challenging in operational terms. We have faced daily pressures inmeeting the requirements of our customers and developing new projects within tight timetables and budgets. Our recordresults would not have been possible without the commitment, dedication and hard work of our global workforce. Once again, on behalf of the board and you, our shareholders, I thank them for all they have achieved in an excellent year forRio Tinto. Paul Skinner Chairman 23 February 2007 * | Adjusted following a reclassification post publication in the 2006 Annual report and financial statements. |
Rio Tinto 2006Form 20-F | 36 |
Back to Contents INTERVIEW WITH THE CHIEF EXECUTIVE How would you describe the past year? Underlying earnings in 2006 were a record US$7.3 billion. Not only were prices for metals and minerals higher, but wewere able to make the most of the situation with increased production at many of our operations – maximising deliveryinto strong markets. With our strong balance sheet we are in a position to invest heavily in growth and to return capital to shareholders. Through our business improvement programme,Improving performance together(IPT), we are seeinga significant change in the way business units cooperate and share best practice. IPT resulted in substantial additionalcash flow in 2006 and should deliver very large value enhancements in the future. Health, safety and environment indicators generally showed steady improvement, but unfortunately the year was marred by three fatalities at Rio Tintomanaged operations. Why are markets this good? Economic growth and development around the world, particularly in China and India, mean an increased need for minerals. The mining industry is struggling to keep pace with demand. There is normally a quicker supply response when demand rises. However, because of previous under investment in exploration, the next generation of large world class deposits is only now being identified and evaluated. These deposits are often in remote locations, present new technical challenges and will take some years to come into production. The delivery times for major items of equipment have also significantly increased. While we believe a new higher base level of prices has developed for most commodities, this is mirrored by higher operating and development costs. Rio Tinto’s volume growth has typically been six to seven per cent a year – where to now? We concentrate on what we do best, which is mining – the first stage of the supply chain. Rio Tinto operates or shares in some of the largest deposits in the world. That is partly why we are enjoying financial success at a time of strongprices, although all our product groups generate strong cash flow at all points of the cycle. Large long life deposits alsogive us the opportunity to increase production in line with demand, a great advantage in the current environment. Ours is a simple strategy and it works. While most of our existing assets are in OECD countries, we are responding to new opportunities in the developing world – Peru, Guinea and Indonesia to name a few – and in countries that are only now opening up to mining investment, like Madagascar, Russia and Mongolia. We are always alert to merger and acquisition opportunities, but growth is often ab out choosing between buyingand building. When you build a new project you should know what you’re getting if you execute the project well, butwhen you buy you may find not all the assets are jewels. The key is to make value creating decisions – not just increase volume. We are willing to make the big bets, as we have in iron ore and copper, but the key factor in the execution ofour strategy is discipline: discipline in analysis and discipline in execution. How are you responding to cost pressures? We work very hard to manage costs related to operational inputs, supplies, wages, energy and higher material coststhrough the excellent work of our global procurement team and our strong supplier relationships. However, the prices of many key inputs, including labour, have risen sharply in recent times. Of course our exploration and project evaluationcosts feeding our development pipeline are in the nature of investments in the future. Can you say a little more on theImproving performance togetherinitiative? We need to permanently change the way we run our individual operations, replicating best performance across everything we do –project analysis, project development, mine planning, mining, processing and marketing. We are aglobal Group and we need to work across functions and international borders to solve problems together instead ofbusinesses going it alone. By creating a standard operating model with common systems, standards and metrics we will ensure that we capture the best ways of operating and reproducing these across the Group. The substantial additionalcash flow we achieved in 2006 is the start to adding considerable value to the Group over time. You spent about US$4 billion in new capital in 2006. How are the major projects going? Overall, our new projects are coming along well. Our iron ore expansion projects in Western Australia remain ourbiggest current capital investment. The challenge of operating and expanding ten mines, three ports and more than 1,600km of rail line in the Pilbara at a time of buoyant market conditions should not be underestimated. With totalexpenditure of US$3 billion, by the end of 2007 our port and rail infrastructure will be capable of handling up to 195 million tonnes of iron ore annually. The recently announced expansion of Cape Lambert port, at a cost of US$860 million, will further expand capacity to 220 million tonnes. The Yandicoogina mine will expand to 52 million tonnes a year in the same period and the Hope Downs project will start production in 2008 with output of 22 million tonnes, rising to 30 million tonnes in stage two. From negotiation of the agreement on Hope Downs to first deliveries will be only three years. Our ilmenite project in Madagascar is on schedule, and construction of basic infrastructure by local contractors is under way. The port contract has been awarded, enabling us to finalise a definitive cost estimate of US$850 million for the total project including the building of additional processing capacity in Canada. First production is scheduled for2008, when we believe there will be growing demand for the high quality ilmenite that Madagascar will produce for 40 years. Rio Tinto 2006Form 20-F | 37 |
Back to Contents Development continues at the Argyle Diamond mine in Western Australia, Diavik in Canada and Cortez in Nevada, as does the extension of the life of the Rössing Uranium mine in Namibia. Earlier this year we announced thedevelopment of the Clermont thermal coal mine in Queensland, and we completed significant investment to expandcapacity at the Weipa bauxite mine in Queensland. What about new opportunities? We have acquired interests in three promising copper projects: La Granja in Peru, the Pebble project in Alaska and OyuTolgoi (Turquoise Hill) in Mongolia which, together with Resolution Copper in the US, give us an interest in four world class undeveloped copper mineral deposits. The investment in Mongolia represents a phased, risk managed entry into apotentially outstanding resource. La Granja has been given the go ahead for a US$95 million pre-feasibility study. We are encouraged by the exploration potential on ERA leases in Australia and the expansion possibilities at Rössing Uranium in Namibia. These, together with the potential of Kintyre in Western Australia and Sweetwater in Wyoming, US, mean we are well placed to extend uranium reserves in the near future. In addition we have an extensive global exploration programme, spending a total of US$345 million in 2006, and we continue to evaluate numerous development opportunities, often with others. Much is being made of a skills shortage. What is your view? Technical skills in mining, metallurgy and geological sciences are in short supply and there is strong competition for recent graduates, experienced engineers and artisans as well as supervisors. However, I believe we are better placedthan most. Global graduate recruitment is a high priority and we are doing well in attracting good quality people. Weare seen as an organisation that can provide exciting international experience, good training and lots of opportunity. We are also being more creative in retaining the skills and experience of staff in the later stages of their career. All that said ,I think the mining industry as a whole needs to sell itself as an attractive employer more effectively. We need toconsider changes to career structures to retain staff by offering greater flexibility and to identify “adventurous” people at the recruitment stage. Any reflections on your handover to Tom Albanese? I am fortunate to have worked for Rio Tinto for almost 37 years. It has given me a diverse and interesting career duringwhich I have met and worked with many different people who form this great team that is Rio Tinto. In Tom Albanese we have a very able, experienced and committed individual to continue Rio Tinto’s success. I would like to take this opportunity of wishing him well, and to thank all my colleagues around the world for the strong support they have given me in the many roles over my career. Leigh Clifford Chief executive 23 February 2007 Rio Tinto 2006 Form 20-F | 38 |
Back to Contents GROUP FINANCIAL PERFORMANCE Underlying earnings is the key financial performance indicator which management use internally to assess performance. It is presented here as an additional measure of earnings to provide greater understanding of the underlying businessperformance of the Group’s operations. The categories of items excluded from net earnings to arrive at underlyingearnings are explained in note 2 to the 2006 financial statementstogether with information on a minor change in the definition of underlying earnings. Both net earnings and underlying earnings deal with amounts attributable to equity shareholders of Rio Tinto.However, EU IFRS requires that the profit for the period reported in the income statement should also include earnings attributable to outside shareholders in subsidiaries. The profit for the period is reconciled to net earnings and tounderlying earnings as follows: | 2006 | | 2005 | | 2004 | | | US$m | | US$m | | US$m | |
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| | Profit for the year | 7,867 | | 5,498 | | 3,244 | | Less: attributable to outside equity shareholders | (429 | ) | (283 | ) | 53 | |
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| | Attributable to equity shareholders of Rio Tinto (net earnings) | 7,438 | | 5,215 | | 3,297 | | Less: exclusions from underlying earnings | (100 | ) | (260 | ) | (1,025 | ) |
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| | Underlying earnings attributable to shareholders of Rio Tinto | 7,338 | | 4,955 | | 2,272 | |
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Amounts attributable to outside equity shareholders increased in 2006 largely because of improved results at Palaboraand the reversal of impairment at IOC. Amounts attributable to outside equity shareholders increased in 2005 because of improved results at Robe River, IOC, Coal & Allied, Rio Tinto Iron & Titanium and Palabora. In addition, in 2004outside equity shareholders’ interests included a US$129 million charge for impairments. Earnings contributions from Group businesses and business segments are based on underlying earnings. Amounts excluded from net earnings in arriving at underlying earnings are summarised in the following table and discussed further below. | 2006 | | 2005 | | 2004 | | | US$m | | US$m | | US$m | |
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| | Profit less losses on disposal of interests in businesses | 3 | | 311 | | 1,175 | | Impairment reversals less charges | 44 | | 4 | | (321 | ) | Adjustment to environmental remediation provision | 37 | | 84 | | — | | Exchange gains/(losses) on external net debt and intragroup balances (including those relating to equity accounted units) | (14 | ) | (99 | ) | 159 | | Gains/(losses) on currency and interest rate derivatives not qualifying for hedge | | | | | | | accounting (including those relating to equity accounted units) | 30 | | (40 | ) | 12 | |
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| | Total excluded in arriving at underlying earnings | 100 | | 260 | | 1,025 | |
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Changes in underlying earnings 2004 - 2006 | US$m | |
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| | 2004 Underlying earnings | 2,272 | | Effect of US$116 million was raised during 2002. This provision relates to costs to be incurred over a numberchanges in: | | | Prices | 2,374 | | Exchange rates | (123 | ) | General inflation | (141 | ) | Volumes | 1,140 | | Costs | (598 | ) | Tax and other | 31 | |
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| | 2005 Underlying earnings | 4,955 | | Effect of years.
Earnings at Escondida in 2002 decreased 22 per cent to US$32 million as output was constrained in response to weak market demand. Freeport’s earnings contribution in 2002 increased by US$40 million to US$132 million as a result of higher copper gradeschanges in: | | | Prices | 3,068 | | Exchange rates | (35 | ) | General inflation | (174 | ) | Volumes | (135 | ) | Costs | (741 | ) | Tax and recoveries and higher gold prices, partly offset by lower gold volumes.other | 400 | |
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| | 2006 Underlying earnings | 7,338 | |
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2006 compared with 2005 Net earnings of US$7,438 million in 2006 were US$2,223 million above 2005, an increase of 43 per cent. Underlyingearnings of US$7,338 million were US$2,383 million above 2005, an increase of 48 per cent. Underlying earnings pershare, which increased by 52 per cent, also reflected the lower number of shares resulting from the share buyback programme. The principal factors explaining the changes in underlying earnings are shown in the table above. Rio Tinto 2006
Earnings at Palabora decreased marginally to US$12 million in 2002. Form 20-F | 39 |
Back to Contents Changes in underlying earnings The positive effect of price movements on all major commodities was to increase underlying earnings by US$3,068 million.Prices for the major products remained strong throughout the year and were considerably higher than those experiencedin 2005: average copper prices were 84 per cent higher whilst average aluminium prices were 35 per cent higher. The strength of the global iron ore market was reflected in the 19 per cent increase in the benchmark price, mainly effectivefrom 1 April 2006. The seaborne thermal coal market was also strong, although it weakened in the second half. Molybdenum prices averaged US$25/lb throughout 2006, a decline of 20 per cent compared with the prior year. The net effect of changes in average levels of exchange rates against the US dollar for those currencies influencing the Group’s costs was to reduce underlying earnings relative to 2005 by US$35 million. Lower sales volumes decreased underlying earnings by US$135 million compared with 2005. As anticipated, significantly reduced volumes from lower grades at Grasberg impacted earnings by US$355 million year on year. Thismore than offset higher volumes at other operations. The ramp up of new projects in iron ore (including the Yandicoogina and brownfields expansions), higher copper in concentrate volumes from improved grades andthroughput at Northparkes, higher ore grades and the commencement of sulphide leach production at Escondida, alongwith higher molybdenum and gold production at Kennecott Utah Copper (KUC), were the main contributors. Record volumes of thermal coal sales at Rio Tinto Energy America and alumina at Yarwun (formerly Comalco AluminaRefinery), also contributed to higher volumes. Lower sales volumes were recorded at Argyle with a build up ofdiamond inventories due to softer market conditions, at Kennecott Minerals from lower grades at Cortez, and at Hail Creek from lower coking coal volumes in response to lower customer demand. Excluding the effects of general inflation, higher costs reduced underlying earnings by US$741 million, of whichUS$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 KUC were affected by an extended, scheduled smeltermaintenance shutdown whilst Escondida experienced higher wages, following the strike in August. Significant shippingcongestion at the port of Newcastle affected coal sales in the second half of the year with a resulting impact on costs at Rio Tinto Coal Australia, through higher demurrage and a higher unit cost of sale. 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 recognition of US$335 million of US Alternative Minimum Tax (AMT) credits now expected to be utilised in future years. This reflected improved projections of long term taxable earnings from our US operations. Additionally, the high levels of profit generated by the Group’s US operations in 2006 resulted in the realisation of US$140 million of previously unrecognised deferred tax assets in the year. Deferred tax provisions decreased by US$46 million as a result of a reduction in Canadian tax rates. These favourable tax variances are includedwithin the favourable variance of US$400 million for ‘Tax and other items’. Exclusions in arriving at underlying earnings In 2006 a US$3 million gain was realised from disposals of interests in non core businesses, compared with gains from disposals of US$311 million in 2005. In 2005, the gains related mainly to the sale of Rio Tinto’s interests in the Labrador Iron Ore Royalty Income Fund and in Lihir Gold. Net earnings in 2006 included net impairment reversals totalling US$44 million. Impairments were reversed atKUC and IOC which more than offset impairment charges at Argyle and Tarong Coal. The valuation of the Argyleunderground project is being kept under review, given the continuing pressure on mine development costs resultingfrom acute shortages in the mining industry and more challenging mining conditions than expected. In addition, net earnings in 2006 include a reduction of US$37 million (2005: US$84 million) in an environmental remediationprovision at KUC, reversing an exceptional charge taken up in 2002 (which was excluded from adjusted earnings in thatyear). Exchange gains and losses on external net debt and intragroup balances that are recorded in the US dollar incomestatement, together with gains and losses on currency and interest rate derivative contracts that do not qualify as hedges under EU IFRS, are excluded from underlying earnings. In 2006, these items represented a gain of US$16 million (2005: a loss of US$139 million). The effective tax rate on net earnings, excluding equity accounted units was 26.8 per cent compared with 27.8 per cent in 2005. There were significant untaxed gains in 2005 which lowered the effective tax rate and the tax benefits referred to above reduced the tax rate for 2006. 2005 financial results compared with 2004 Net earnings of US$5,215 million in 2005 were US$1,918 million above 2004, an increase of 58 per cent. Underlyingearnings of US$4,955 million were US$2,683 million above 2004, an increase of 118 per cent. The increase of 120 per cent in underlying earnings per share also reflected the lower number of shares resulting from the share buybackprogramme. The principal factors explaining the changes in underlying earnings are shown in the table above. Changes in underlying earnings The effect of price movements on all major commodities was to increase earnings by US$2,374 million. Prices for the major products remained strong throughout the year and were appreciably higher than those experienced in 2004: average copper prices were 28 per cent higher whilst average aluminium prices were ten per cent higher. The strength of the global iron ore market was reflected in the 71.5 per cent increase in the benchmark price, mainly effective from 1 April 2005. The seaborne thermal and coking coal markets were also strong. Rio Tinto 2006 Form 20-F | 40 |
Back to Contents Molybdenum prices, which had generally been below US$5 per pound over the previous ten years, averaged over US$30 per pound during 2005, although they did soften towards the end of that year. The US dollar was generally weaker than in 2004 relative to the currencies in which the Group incurs themajority of its costs. The average levels of the Australian and Canadian dollars strengthened against the US dollar by four per cent and eight per cent, respectively. The effect of this, together with other currency movements, was to reduceunderlying earnings relative to 2004 by US$123 million. Over 40 per cent of the underlying earnings increase year on year came from higher sales volumes, resulting in a favourable variance of US$1,140 million compared with 2004. The West Angelas and Yandicoogina mine expansions(to 36 million tonnes per annum) were completed in 2005 whilst strong operational performance led to majorproduction gains at many operations including IOC and Argyle. The improvement over 2004 also reflected the following adverse influences on that earlier year: the Grasberg slippage, the ten week strike at IOC and the effects ofCyclone Monty at Hamersley Iron and Robe River. To take advantage of the strong market for molybdenum, the mine sequencing at KUC was optimised to maximise molybdenum production. This, together with modifications to themolybdenum circuit at the concentrator, boosted production volumes by 130 per cent. Excluding the effects of inflation, higher costs reduced earnings by US$598 million. Of this, US$130 million was due to higher energy costs and US$46 million was attributable to increased exploration expenditure from brownfieldexploration and further evaluation work. More generally, costs were influenced by the strong price environment beingenjoyed by the mining industry. This led to rising mining input costs caused by supply constraints for skilled labour, steel, tyres, explosives, freight and other mining related goods and services. Costs at KUC were affected by a scheduled17 day smelter maintenance shutdown in the first half of 2005 whilst continued port congestion at Dalrymple Bay,Queensland, fed through to higher demurrage charges. Higher non cash costs reflected increased depreciation at KUC following the changes in the mine plan at the endof 2004. Increases in closure cost provisions resulted in higher depreciation charges on the amounts capitalised. One-offcosts included restructuring costs of US$30 million relating to the formation of the Rio Tinto Minerals organisation. The effective tax rate on underlying earnings, excluding equity accounted units, was 29.2 per cent compared with27.1 per cent in 2004 because of higher rates on increased profits in Canada and Indonesia and higher withholdingtaxes. In total “Tax and other items” improved by US$31 million. Within that total, the net after tax interest expense ofUS$44 million was US$25 million lower than in 2004 due to lower levels of net debt. Also within “Tax and other items”, 2004 underlying earnings included contributions totalling US$88 million from the operations of businesses that were sold during that year. Earnings in 2005 benefited from an improvement in the net impact of insurance items,including lower claims on the captive insurers due to the absence of cyclone related damages experienced in 2004. Exclusions in arriving at underlying earnings In 2005 the net profit on the disposal of interests in businesses was US$311 million relating mainly to the sale of Rio Tinto’s interests in the Labrador Iron Ore Royalty Income Fund and in Lihir Gold. Disposals in 2004, principally the holding in Freeport-McMoRan Copper & Gold, resulted in gains of US$1,175 million. Net earnings in 2005 include a reduction of US$84 million in an environmental remediation provision atKennecott Utah Copper, reversing part of an exceptional charge taken up in 2002 (which was excluded from adjustedearnings in that year). Net earnings in 2004 included an impairment charge of US$160 million relating to the Colowyocoal operation and of US$161 million for the write down of Palabora’s copper assets. Exchange gains and losses on external net debt and intragroup balances that are recorded in the US dollar incomestatement, together with gains and losses on currency and interest rate derivative contracts that do not qualify as hedgesunder EU IFRS, are excluded from underlying earnings. In 2005, these items represented a loss of US$139 million (2004: a gain of US$171 million). The effective tax rate on net earnings, excluding equity accounted units was 27.8 per cent compared with 18.5per cent in 2004. There were very significant untaxed gains in 2004 which lowered the effective tax rate. There was a smaller amount of untaxed gains in 2005 which, together with the adverse 2005 tax effects referred to above, resultedin a higher effective tax rate. Rio Tinto 2006 Form 20-F | 41 |
Back to Contents Group financial results by product group The table below summarises the Group’s underlying earnings by product group for each of the three years to 2006. | 2006 | | 2005 | | 2004 | | | US$m | | US$m | | US$m | |
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| | Iron Ore | 2,279 | | 1,722 | | 565 | | Energy | 711 | | 733 | | 431 | | Industrial Minerals | 243 | | 187 | | 243 | | Aluminium | 746 | | 392 | | 331 | | Copper | 3,562 | | 2,020 | | 860 | | Diamonds | 205 | | 281 | | 188 | | Other operations | 33 | | 40 | | 25 | | Exploration and evaluation | (163 | ) | (174 | ) | (128 | ) | Other items | (261 | ) | (202 | ) | (174 | ) | Net interest | (17 | ) | (44 | ) | (69 | ) |
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| | Group underlying earnings | 7,338 | | 4,955 | | 2,272 | | Exclusions from underlying earnings | 100 | | 260 | | 1,025 | |
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| | Net earnings | 7,438 | | 5,215 | | 3,297 | |
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Trend information The demand for the Group’s products is closely aligned with changes in global GDP. Changes in the GDP of developing countries are expected to have greater impact on materials such as iron ore and coal that can be used toimprove infrastructure whereas changes in the GDP of developed countries are expected to have greater impact onindustrial minerals that have many applications in consumer products. Copper is used in a wide range of applications from infrastructure to consumer electronics and demand for it has tended to grow in line with or slightly faster than global GDP. Trends in production of the Group’s minerals and metals, gross sales revenue and underlying earnings are set out in thisOperating and financial review. Rio Tinto 2006 Form 20-F | 42 |
Back to Contents IRON ORE GROUP Production | Rio Tinto share | | | million tonnes | |
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| | 2002 | 91.0 | | 2003 | 102.6 | | 2004 | 107.8 | | 2005 | 124.5 | | 2006 | 132.8 | |
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| | | | | Underlying earnings contribution* | US$m | |
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| | 2004 | 565 | | 2005 | 1,722 | | 2006 | 2,279 | |
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| | | | | Changes in underlying earnings 2004 - 2006 | US$m | |
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| | 2004 Underlying earnings | 565 | | Effect of changes in: | | | Prices and exchange rates | 968 | | General inflation | (18 | ) | Volumes | 270 | | Costs | (51 | ) | Tax and other | (12 | ) |
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| | 2005 Underlying earnings | 1,722 | | Effect of changes in: | | | Prices and exchange rates | 616 | | General inflation | (25 | ) | Volumes | 156 | | Costs | (220 | ) | Tax and other | 30 | |
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| | 2006 Underlying earnings | 2,279 | |
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* | A reconciliation of the weaker rand was more than offset by lower volumesnet earnings with underlying earnings for 2004, 2005 and higher costs2006 as the operation moved from the open pit to the underground.determined under EU IFRS is set out on page 39 |
Rio Tinto’s Iron Ore group (RTIO) comprises iron ore operations in Australia, Canada and Brazil and development projects in Guinea (west Africa) and India. The portfolio also includes a HIsmelt®plant in Australia, which is arevolutionary process that converts iron ore fines into high quality pig iron. At 31 December 2006, the iron ore group accounted for 32 per cent of Rio Tinto’s operating assets, and in 2006contributed 27 per cent of the Group’s gross sales revenue and 31 per cent of underlying earnings. RTIO employs 4,800 people in Western Australia and approximately 7,000 worldwide. RTIO recruited strongly during the year and in a highly contested recruitment market in Western Australia hired 1,400 new starters, in additionto making a large number of internal transfers, secondments and promotions. Work progressed on a number of safety and environmental initiatives, and particularly focused on the issues surrounding contractor management and the operation of heavy mobile equipment. Final steps were taken for the next stage of the group’s expansion, with infrastructure now in place or approved to handle up to 220 million tonnes of iron ore exports annually. The growth strategy has seen approximately US$5 billion committed to port, rail, power and mine assets since 2003, resulting in a world class, integrated iron ore networkable to capitalise on continued strong demand internationally. In April 2006, RTIO’s 50:50 joint venture with Hancock Prospecting for the development of the Hope Downs project was ratified following State Government approval. Construction of the US$980 million, 22 million tonnes perannum stage one Hope Downs mine has started, with production expected to commence in early 2008. Sam Walsh, chief executive Iron Ore, is based in Perth, Western Australia. Financial performance 2006 compared with 2005 RTIO’s contribution to 2006 underlying earnings was US$2,279 million, US$557 million higher than in 2005. Demand for iron ore remained extremely strong across the product range throughout 2006, driven by the continuing strong growth in global steel demand and production. Total Chinese iron ore imports rose from 275 million tonnes to 326 million tonnes. Hamersley Iron, Robe River, Iron Ore Company of Canada and Corumbá in Brazil all operated at record or near record levels of production in 2006. For the contract year commencing April 2006, RTIO reached agreement with customers on price increases of19 per cent for all products following on from the previous agreement of a 71.5 per cent increase. In December 2006,prices for the 2007 contract year were agreed with Baosteel of China, for a 9.5 per cent increase to the benchmark price.Similar price increase agreements were subsequently reached with other steelmakers. Rio Tinto 2006 Form 20-F | 43 |
Back to Contents 2005 compared with 2004 RTIO’s contribution to 2005 underlying earnings was US$1,722 million, US$1,157 million higher than in 2004. Demand for iron ore continued to be extremely strong across the product range throughout 2005, driven by continued strong growth in global steel production and improvements in steel demand. Chinese iron ore imports rose 30 per cent year on year, and Hamersley Iron, Robe River, IOC and Corumbá all achieved record production in 2005. Operations Kennecott Utah Copper
(Rio Tinto: 100 per cent)
Kennecott Utah Copper (KUC) operates the Bingham Canyon mine, Copperton concentrator and Garfield smelter complex, near | | Near Salt Lake City, US.Utah, US | | Pipeline, road and rail | | Owned | Bingham Canyon | | | | | | |
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| Northparkes(80%)
| | Goonumbla, New South Wales, Australia | | Road and rail | | State Government mining lease issued in 1991 for 21 years |
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| KUC supplies more than ten per centPalabora(58%) | | Phalaborwa, Northern Province, South Africa | | Rail and road | | Lease from South African Government valid until deposits exhausted. Base metal claims owned by Palabora |
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| DIAMONDS | | | | | | |
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| Argyle Diamonds | | Kimberley Ranges, Western Australia | | Road and air | | Mining tenement held under Diamond (Argyle Diamond Mines Joint Venture) Agreement Act 1981-83; lease extended for 21 years from 2004 |
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| Diavik(60%) | | Northwest Territories, Canada | | Air, ice road in winter | | Mining leases from Canadian federal government |
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| Murowa(78%) | | Zvishavane, Zimbabwe | | Road and air | | Claims and mining leases |
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| ENERGY | | | | | | |
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| Energy Resources of | | Northern Territory, Australia | | Road | | Leases granted by State | Australia(68%) | | | | | | | Ranger | | | | | | |
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Rio Tinto 2006 Form 20-F | 14 |
Back to Contents GROUP MINES Mine | | History | | Type of mine | | Power source |
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| ALUMINIUM | | | | | | |
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| Rio Tinto Aluminium Weipa | | Bauxite mining commenced in 1961. Major upgrade completed in 1998. Rio Tinto interest increased from 72.4% to 100% in 2000. In 2004 a mine expansion was completed that has lifted annual US refined copper requirements and employs approximately 1,400 people. Negotiation of a new labourcapacity to 16.5 million tonnes. Mining commenced on the adjacent Ely mining lease in 2006, in accordance with the 1998 agreement to last until September 2009, was concluded in June. The new agreement provides for greater flexibility in deployment of personnel and assignment of work.
Options forwith Alcan. A second shiploader that increases the extension of open pit mining beyond the current pit plan of 2013 are under active investigation.
Mining and milling at Barneys Canyon ended in 2001 but gold production continues until 2005. The operation employs about 20 people.
KUC, as the owner of 53 per centshipping capability of the undeveloped landWeipa operation was commissioned in 2006 | | Open cut | | On site generation; newpower station underconstruction |
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| COPPER | | | | | | |
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| Escondida(30%) | | Production started in 1990 and expanded in phases to 2002 when new concentrator was completed; production from Norte commenced in 2005 and the Salt Lake Valley of Utah, has formed Kennecott Land to develop about 16,000 hectares ofsulphide leach produced the 37,200 hectares owned. The initial 1,800 hectare Daybreak project site lies in the path of expanding residential areas. Kennecott Land has the right to build roads, make utility connectionsfirst cathode during 2006 | | Open pit | | Supplied from SING gridunder various contracts with Norgener Gas Atacama and prepare the land for sale to builders who will construct houses for 30,000 people. Rio Tinto is initially investing US$50 million with revenues expected to start in 2004.
46 | Rio Tinto 2003 EdelnorAnnual report and financial statements
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| 2003 operating performanceGrasberg joint venture
Earnings of US$88 million were US$2 million above 2002. Higher copper, gold and molybdenum prices more than offset lower by product grades even though these resulted in lower gold and molybdenum volumes. By product grades will return(40%) | | Joint venture interest acquired 1995; capacity expanded to life of mine averages in 2005.
Refined copper production was 21 per cent lower than in 2002. Production in the first half of the year was adversely affected by a failure in the final absorption tower of the acid plant which stopped smelter production for three weeks. Smelter efficiency was affected throughout the year by the processing of lower grade concentrate with lower copper to sulphur ratios.
The negotiation of a new labour agreement was concluded in June 2003. The new agreement has increased flexibility for personnel and work assignments. Work practice changes at the mine, together with the implementation of 12 hour shifts has resulted in 12 haul trucks being stood down and a 20 per cent improvement in truck productivity. The new agreement will enable changes to further increase the efficiency of operations.Principal operating statistics at KUC 2001-2003 | | 2001 | | 2002 | | 2003 |
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| Rock mined (’000 tonnes) | 159,908 | | 150,331 | | 135,204 | Ore milled (’000 tonnes) | 48,566 | | 40,720 | | 46,105 | Head grades: | | | | | | Copper (%) | 0.73 | | 0.69 | | 0.67 | Gold (g/t) | 0.54 | | 0.44 | | 0.29 | Silver (g/t) | 3.67 | | 3.42 | | 3.02 | Molybdenum (%) | 0.042 | | 0.034 | | 0.027 | Copper concentrates produced | | | | | (’000 tonnes) | 1,108 | | 992 | | 1,147 | Production of metals in copper concentrates | | | Copper (’000 tonnes) | 312.7 | | 260.2 | | 281.8 | Gold (’000 ounces)* | 592 | | 412 | | 305 | Silver (’000 ounces) | 4,475 | | 3,663 | | 3,548 | Molybdenum concentrates produced | | | | | (’000 tonnes) | 14.5 | | 11.2 | | 8.8 | Contained molybdenum | | | | | | (’000 tonnes) | 8.1 | | 6.1 | | 4.6 | Concentrate smelted on site | | | | | | (’000 tonnes) | 975 | | 1,096 | | 1,060 | Production of refined metals | | | | | | Copper (’000 tonnes) | 234.3 | | 293.7 | | 230.6 | Gold (’000 ounces) | 389 | | 488 | | 308 | Silver (’000 ounces) | 2,882 | | 4,037 | | 2,963 |
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| * excludes Barneys Canyon. | | | | | |
Grasberg(Rio Tinto: 40 per cent of joint venture plus 12 per cent of the balance through its interest in FCX)
Grasberg, in Papua, Indonesia, is one of the world’s largest copper and gold mines in terms of reserves and production. It is owned and operated by Freeport Indonesia (PTFI), the principal and 91 per cent owned subsidiary of the US based Freeport-McMoRan Copper & Gold (FCX). Rio Tinto has a 13 per cent direct interest in FCX.
At least one per cent of Grasberg’s net sales revenues has been committed to support village based programmes. In addition, two new trust funds were
established in 2001 in recognition of the traditional land rights of the local Amungme and Komoro tribes. In 2003, PTFI contributed US$18 million (net of Rio Tinto portion) and Rio Tinto US$4 million in total to the funds.
As a result of training and educational programmes, Papuans represented more than a quarter of PTFI’s approximately 9,000 workforce by the end of 2003.
2003 operating performance
In October a slippage of approximately two million tonnes of saturated partially consolidated rock occurred in the Grasberg open pit, tragically killing eight employees. This was followed by a debris flow ofover 200,000 tonnes of similar material in December. These occurrences resulted in disruption of ore production and the deferral into late 2004 and 2005 of a portion of metal previously forecast to be produced in the fourth quarter of 2003 and the first quarter of 2004. Detailed planning is in progress to resume full production as soon as it is safe to do so.
The disruptions resulted in lower copper production than 2002 but due to significantly higher gold grades, gold production exceeded 2002 by eight per cent. Rio Tinto’s overall share of copper production decreased by 24 per cent to 193,000 tonnes, but for gold increased by six per cent to 1,076,000 ounces.
Production from the DOZ (deep ore zone) achieved design capacity of 25,000 tonnes per day in the third quarter1998 with addition of 2002, one year earlier than anticipated, and has exceeded capacity since then. Expansionunderground production of production to more than 35,000 tonnes per day was achieved in the first quarter of 2003, and during the year exceeded 40,000 tonnes per day. A further expansion is under study.
Principal operating statistics for PTFI 2001-2003 | | 2001 | | 2002 | | 2003 |
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| Ore milled (’000 tonnes) | 86,787 | | 86,001 | | 74,103 | Head grades: | | | | | | Copper (%) | 1.00 | | 1.14 | | 1.09 | Gold (g/t) | 1.41 | | 1.24 | | 1.54 | Silver (g/t) | 3.20 | | 3.60 | | 4.03 | Production of metals in concentrates | | | | | Copper (’000 tonnes) | 749.4 | | 864.4 | | 715.8 | Gold (’000 ounces) | 3,596 | | 3,030 | | 3,262 | Silver (’000 ounces) | 5,545 | | 6,402 | | 6,474 |
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Escondida(Rio Tinto: 30 per cent)
The Escondida copper mine in Chile is the largest copper mine in the world, with a mine life expected to exceed 30 years at current rates of production. The mine is 57.5 per cent owned and managed by BHP Billiton.
Work on the US$1.0 billion Phase 4 expansion project was completed in 2002, increasing annual production capacity by an average of 400,000 tonnes. Production in 2003 was projectedwith an expansion to be 1.2 million tonnesa sustained rate of copper, of which 1.05 million tonnes would have been in concentrate.
In response to market conditions, however, a decision to process lower grade
ore from November 2001 until the third quarter of 2002 curtailed copper output by approximately ten per cent. A further curtailment of 200,000 tonnes of copper in 2003 was announced in late 2002. Full production was resumed from the beginning of 2004. The Escondida oxide plant was expanded by eight per cent to 150,000 tonnes of copper per year capacity from March 2001.
Approval was given in 2003 for the US$400 million Escondida Norte project. The satellite deposit will provide mill feed to maintain capacity at Escondida above 1.2 million tonnes per annum of copper. First production from Norte is expected in the fourth quarter of 2005. Rio Tinto’s share of the project cost is US$120 million.
Escondida employs approximately 2,400 people.
2003 Operating performance
Mobile equipment performance improved in the latter part of the year. Slow settling of sediment in water in the tailings dam caused production restrictions in the Phase 4 project but this is being progressively resolved. The Phase 4 project achieved an average throughput of 85,200 tonnes of ore50,000 tones per day in 2003.
Copper production in 2003 was 36 per cent higher than in 2002 due to Phase 4.by mid 2007
| | Open pit and underground | | Long term contract withUS-Indonesian consortium operated, purpos e built, coalfired generating stationPrincipal operating statistics at Escondida | | | 2000-2002 | | | | | | | 2001 | | 2002 | | 2003 |
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| Rock mined (’000 tonnes) | 321,968 | | 306,620 | | 300,386 | Ore milled (’000 tonnes) | 43,042 | | 46,536 | | 70,347 | Head grade: | | | | | | Copper (%) | 1.81 | | 1.58 | | 1.43 | Production of metals in concentrates | | | | | Copper (’000 tonnes) | 643.1 | | 622.6 | | 847.0 | Gold (’000 ounces) | 101 | | 126 | | 184 | Silver (’000 ounces) | 3,198 | | 2,981 | | 4,728 | Copper cathode (’000 tonnes) | 151.0 | | 138.7 | | 147.6 |
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| PalaboraKennecott Minerals
(Rio Tinto: 49.2 per cent)
Palabora Mining Company (Palabora) is publicly quoted with a market capitalisation of two billion rand (US$299 million)Cortez/Pipeline (40%) | | Gold production started at 31 December 2003. Rio Tinto acquired an additional 0.7 per cent interestCortez in Palabora through the market1969, Pipeline in July 2001.
Palabora has developed a US$460 million underground mine with a planned production rate of 30,000 tonnes per day of ore.Approximately 1.6 million tonnes of copper are expected to be produced over its 20 year life.
In July, Palabora proceeded with a rights offer of debentures which successfully raised approximately US$115 million to service existing debt commitments1997 and allow for completion of the underground project.
Palabora supplies most of South Africa’s copper needs and exports the balance. It employs approximately 2,000 people and labour agreements are negotiated annually.
Cortez Hills was approved in 2005. | Open pit | | Public utility |
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| Rio Tinto 2003 Annual report and financial statements | 47 |
Back to Contents
Operational review continued
2003 operating performance
Mining of the open pit ceased in 2002 apart from recovery of ore from the ramps that continued until November 2003. This supplemented concentrator feed as the underground mine ramped up production. The ramp up was hindered by poor performance of remote rock breaking equipment. The target production rate of 30,000 tonnes per day was achieved on several occasions during the fourth quarter and there is confidence of achieving design capacity on an ongoing basis.
The aggregate impact of the limited production from the underground mine, the strength of the rand against the US dollar, partly offset by cost saving actions, reduced earnings and led to additional borrowing requirements.
Principal operating statistics at Palabora | | | 2001-2003 | | | | | | | 2001 | | 2002 | | 2003 |
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| Ore milled (’000 tonnes) | 14,522 | | 9,933 | | 11,415 | Head grade: | | | | | | Copper (%) | 0.66 | | 0.63 | | 0.59 | Copper concentrates | | | | | | produced (’000 tonnes) | 233.5 | | 167.9 | | 163.3 | Contained copper | | | | | | (’000 tonnes) | 78.4 | | 52.2 | | 52.4 | New concentrates smelted | | | | | | on site (’000 tonnes) | 310.4 | | 258.6 | | 267.6 | Refined copper produced | | | | | | (’000 tonnes) | 86.9 | | 81.6 | | 73.4 |
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Northparkes(Rio Tinto: 80 per cent)
Rio Tinto’s interest in the Northparkes copper gold mine resulted from the acquisition of North. Northparkes is a joint venture with the Sumitomo Group (20 per cent).
Following an initial open pit operation at Northparkes in central New South Wales, Australia, underground block cave mining began in 1997. With present and future developments, the operation has a life of about 14 years at current production rates.
The copper concentrate produced is shipped to smelters in Japan (67 per cent), Australia (14 per cent) and other countries (19 per cent).
Northparkes employs approximately 160 people.
2003 operating performance
Production from the Lift 1 block cave ceased in early 2003 and is being replaced by the Lift 2 block cave which is scheduled to commence production in 2004. Progress with mine development for Lift 2 has been hampered by high rock stresses which adversely affected mine development but will assist in the caving of the orebody with good fragmentation. Costs were higher than projected.
Principal operating statistics at Northparkes | 2001-2003 | | | | | | | 2001 | | 2002 | | 2003 |
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| Ore milled (’000 tonnes) | 5,425 | | 5,364 | | 5,168 | Head grade: | | | | | | Copper (%) | 1.16 | | 0.86 | | 0.67 | Gold (g/t) | 0.32 | | 0.35 | | 0.44 | Production of contained metals | | | | | Copper (’000 tonnes) | 55.1 | | 38.4 | | 27.1 | Gold (’000 ounces) | 41.5 | | 40.8 | | 48.6 |
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Neves Corvo(Rio Tinto: 49 per cent) Sociedade Minera de Neves-Corvo (Somincor) owns and operates the high grade Neves Corvo copper and tin mine in Portugal. The process begun, in 2002, to sell Rio Tinto’s interest continued in 2003.
2003 operating performance
Programmes to improve operational efficiency continued to reduce costs. Employee numbers have decreased from 1,000 at the beginning of 2002 to 830 at the end of the year. Copper production was similar to last year.
Principal operating statistics at Neves Corvo | 2001-2003 | | | | | | | 2001 | | 2002 | | 2003 |
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| Ore milled (’000 tonnes): | | | | | | Copper* | 2,021 | | 1,756 | | 1,700 | Tin | 190 | | 16 | | 22 | Head grades: | | | | | | Copper (%) | 4.8 | | 5.1 | | 5.3 | Tin (% tin ores only) | 1.6 | | 3.3 | | 2.2 | Copper concentrates | | | | | | produced (’000 tonnes) | 344.3 | | 319.4 | | 329.6 | Contained copper | | | | | | (’000 tonnes) | 82.9 | | 77.2 | | 77.5 | Tin concentrates | | | | | | produced (’000 tonnes) | 2.1 | | 0.6 | | 0.3 | Contained tin (’000 tonnes) | 1.2 | | 0.3 | | 0.2 |
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| * Total ore treated for both copper and tin production. |
OTHER MINERALS
Zinkgruvan(Rio Tinto: 100 per cent)
Rio Tinto’s ownership of the Zinkgruvan underground zinc, lead and silver mine resulted from the acquisition of North. Zinkgruvan is located in south central Sweden and employs approximately 300 people. The mine has been in continuous production for 140 years. It produces a high quality zinc concentrate as well as a lead and silver concentrate which are sold to European smelters.
2003 operating performance
The difficulties experienced with introducing paste backfill into the mine in 2002 were overcome and the backlog of stope filling was steadily reduced. Production of zinc and lead in 2003 were 34 per cent and 29 per cent higher than in 2002 due to increased mill throughput and head grades.
Kennecott Minerals
(Rio Tinto: 100 per cent)
Kennecott Minerals, | | Redeveloped in the US, manages the 1997 | | Underground / drift and fill | | On site diesel generators | Greens Creek (70%) | | | | | | |
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| Kennecott Utah Copper Bingham Canyon | | Interest acquired in 1989; modernisation includes smelter complex and expanded tailings dam | | Open pit | | On site generationsupplemented by long term contracts with Utah Powerand Light |
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| Northparkes(80%) | | Interest acquired in 2000; production started in 1995 | | Open pit and underground | | Supplied from State grid |
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| Palabora(58%) | | Development of 20 year underground mine (Rio Tinto: 70 per cent) in Alaska and the Rawhide mine (Rio Tinto:51 per cent) in Nevada. It also holds the Group’s interest in Cortez/Pipeline (Rio Tinto: 40 per cent), also in Nevada. At Cortez Hills a significant new gold discoverycommenced 1996 with open pit closure in 2003 will add several million ounces
| | Underground | | Supplied by ESCOM via grid network |
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| DIAMONDS | | | | | | |
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| Argyle Diamonds | | Interest increased from 59.7% following purchase of new reservesAshton Mining in 2000. Underground mine project approved in 2005 to extend mine life to 2018 | | Open pit | | Long term contract withOrd Hydro Consortium andon site generation back up |
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| Diavik(60%) | | Deposits discovered 1994-1995; construction approved 2000; diamond production started 2003. Second dyke closed off in 2005 for mining of additional orebody | | Open pit to underground in future | | On site diesel generators; installed capacity 27MW |
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| Murowa(78%) | | Discovered 1997; small scale production started 2004 | | Open pit | | Supplied by ZESA |
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| ENERGY | | | | | | |
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| Energy Resources ofAustralia (68%) Ranger | | Mining commenced 1981; interest acquired through North in 2000; life of mine extension to 2014 announced in 2005 | | Open pit | | On site diesel/steam power generation |
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Rio Tinto 2006 Form 20-F | 15 |
Back to Contents GROUP MINES Mine | | Location | | Access | | Title/lease |
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| ENERGY(continued) | | | | | | |
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| Rio Tinto Coal Australia Bengalla (30%) Blair Athol (71%) Hail Creek (82%) Hunter Valley Ops. (76%) Kestrel (80%) Mount Thorley Ops. (61%) Tarong Coal Warkworth (42%) | | New South Wales and Queensland, Australia | | Road, rail conveyor and port | | Leases granted by State |
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| Rio Tinto Energy America Antelope Colowyo (20%) Cordero Rojo Decker (50%) Jacobs Ranch Spring Creek | | Wyoming, Montana and Colorado, US | | Rail and road | | Leases from US and State Governments and private parties, with minimum coal production levels, and adherence to permit requirements and statutes |
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| Rössing Uranium(69%) | | Namib Desert, Namibia | | Rail, road and port | | Federal lease |
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| INDUSTRIAL MINERALS | | | | | | |
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| Rio Tinto Minerals -Boron | | California, US | | Road, rail and port | | Owned |
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| Rio Tinto Minerals - salt(65%) | | Dampier, Lake MacLeod and Port Hedland, Western Australia | | Road and port | | Mining leases expiring in 2013 at Dampier, 2018 at Port Hedland and 2021 at Lake MacLeod with options to renew in each case |
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| Rio Tinto Minerals - talc | | Trimouns, France (other smaller operations in Australia, Europe and North America) | | Road and rail | | Owner of ground (orebody) and long term lease agreement to 2012 |
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| QIT-Fer et Titane | | Saguenay County, Quebec, Canada | | Rail and port (St Lawrence River) | | Mining covered by two Concessions granted by State in 1949 and 1951 which, subject to certain Mining Act restrictions, confer rights and obligations of an owner |
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| Richards Bay Minerals(50%) | | Richards Bay, KwaZulu - Natal, South Africa | | Rail, road and port | | Long term renewable leases ; State lease for Reserve 4 initially runs to end 2022; Ingonyama Trust lease for Reserve 10 runs to 2010 |
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| IRON ORE | | | | | | |
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| Hamersley Iron Brockman Marandoo Mount Tom Price Nammuldi Paraburdoo Yandicoogina Channar (60%) Eastern Range (54%) | | Hamersley Ranges, Western Australia | | Railway and port (owned by Hamersley Iron and operated by Pilbara Iron) | | Agreements for life of mine with Government of We stern Australia |
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| Iron Ore Company ofCanada (59%) | | Labrador City, Province of Labrador and Newfoundland | | Railway and port facilities in Sept-Iles, Quebec (owned and operated by IOC) | | Sublease with the mine life. Labrador Iron Ore extraction from Rawhide was completed in October 2002Royalty Income Fund which has lease agreements with the Government of Newfoundland and reclamation work has started. Processing of stockpiles will continue.
At the former Flambeau, Wisconsin, copper mine, monitoring continues following the 1999 rehabilitation and replanting programme. In 2002, an agreement was reached for the reclaimed Ridgeway, South Carolina, gold mineLabrador that are due to be used for environmental educationrenewed in 2020 and research.
Kennecott Minerals employs approximately 300 people.2003 operating performance
Overall gold production decreased by one per cent due to declining grades at the Cortez/Pipeline gold mine and reduced throughput at Rawhide. Net earnings of US$60 million were US$22 million above 2002, benefiting from higher gold prices.
Greens Creek(Rio Tinto: 70 per cent)
In addition to gold, the Kennecott Greens Creek mine on Admiralty Island in Alaska, produces silver, zinc and lead.
2003 operating performance
Mill throughput was seven per cent higher than in 2002, but due to lower grades, silver and zinc production was approximately the same as in 2002.
2022 |
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| Rio Tinto Brasil(Corumbá | | Matto Grosso do Sul, Brazil | | Road, air and river | | Government licence for undetermined period |
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| Robe River Iron Associates (53%) Mesa J West Angelas | | Pilbara region, Western Australia | | Railway and port (owned by Robe River and operated by Pilbara Iron) | | Agreements for life of mine with Government of We stern Australia |
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Rio Tinto: 100 per cent)Tinto 2006 Form 20-F | 16 |
Back to Contents GROUP MINES Mine | | History | | Type of mine | | Power source |
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| ENERGY(continued) | | | | | | |
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| Rio Tinto Coal Australia Bengalla (30%) Blair Athol (71%) Hail Creek (82%) Hunter Valley Ops. (76%) Kestrel (80%) Mount Thorley Ops. (61%) Tarong Coal Warkworth (42%) | | Peabody Australian interests acquired in 2001. Production started for export at Blair Athol and adjacent power station at Tarong in 1984. Kestrel acquired and recommissioned 1999. Hail Creek started 2003. | | Open cut and underground (Kestrel) | | State owned grid |
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| Rio Tinto Energy America Antelope Colowyo (20%) Cordero Rojo Decker (50%) Jacobs Ranch Spring Creek | | Antelope, Spring Creek, Decker and Cordero acquired in 1993, Colowyo in 1995, Caballo Rojo in 1997, Jacobs Ranch in 1998 and West Antelope in 2004 | | Open cut | | Supplied by IPPs andCooperatives through national grid service |
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| Rössing Uranium(69%) | | Production began in 1978. Life of mine extension to 2016 approved in 2005 | | Open pit | | Namibian National Power |
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| INDUSTRIAL MINERALS | | | | | | |
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| Rio Tinto Minerals - Boron | | Deposit discovered in 1925, acquired by Rio Tinto in 1967 | | Open pit | | On site co-generation units |
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| Rio Tinto Minerals - salt(65%) | | Construction of the Dampier field started in 1969; first shipment in 1972. Lake MacLeod was acquired in 1978 as an operating field | | Solar evaporation of seawater (Dampier and Port Hedland) and underground brine (Lake MacLeod); dredging of gypsum from surface of Lake MacLeod | | Dampier supply from Hamersley Iron Power; Lake MacLeod from Western Power and on site generation units; Port Hedland from Western Power |
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| Rio Tinto Minerals - talc | | Production started in 1885; acquired in 1988. (Australian mine acquired in 2001) | | Open pit | | Supplied by EdF and on site generation units |
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| QIT-Fer et Titane | | Production started 1950; interest acquired in 1989 | | Open pit | | Long term contract with Quebec Hydro |
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| Richards Bay Minerals (50%) | | Production started 1977; interest acquired 1989; fifth dredge commissioned 2000 | | Beach sand dredging | | Contract with ESCOM |
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| IRON ORE | | | | | | |
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| Hamersley Iron Brockman Marandoo Mount Tom Price Nammuldi Paraburdoo Yandicoogina Channar (60%) Eastern Range (54%) | | Annual capacity increased to 68 million tonnes during 1990s; Yandicoogina first ore shipped in 1999 and port capacity increased; Eastern Range mine started 2004 | | Open pits | | Supplied through theintegrated Hamersley and Robe power network operated by Pilbara Iron |
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| Iron Ore Company of Canada (59%) | | Current operation began in 1962 and has processed over one billion tonnes of crude ore since; annual capacity now 17.5 million tonnes of concentrate of which 13.5 million tonnes can be pelletised. Interest acquired in 2000 through North | | Open pit | | Supplied by NewfoundlandHydro under long term contract |
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| Rio Tinto Brasil manages Corumbá | | Iron ore production started 1978; interest acquired in 1991 | | Open pit | | Supplied by ENERSUL |
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| Robe River Iron Associates (53%) Mesa J West Angelas | | First shipment in 1972; annual sales reached 30 million tonnes in late 1990s; interest acquired in 2000 through North; West Angelas first ore shipped in 2002 and mine expanded in 2005 | | Open pit | | Supplied through the Morro do Ouro gold mine (Riointegrated Hamersley and Robe power network operated by Pilbara Iron |
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Rio Tinto 512006 Form 20-F | 17 |
Back to Contents GROUP SMELTERS
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| Smelter, refinery or plant | | Location | | Title/lease | | Plant type/product | | Capacity |
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| ALUMINIUM GROUP | | | | | | | | |
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| Anglesey Aluminium(51%) | | Holyhead, Anglesey, Wales | | 100% Freehold | | Aluminium smelter producing aluminium billet, block, sow | | 145,000 tonnes per cent)year aluminium |
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| Bell Bay | | Bell Bay, Northern Tasmania, Australia | | 100% Freehold | | Aluminium smelter producing aluminium ingot, block, t-bar | | 178,000 tonnes per year aluminium |
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| Boyne Smelters(59%) | | Boyne Island, Queensland, Australia | | 100% Freehold | | Aluminium smelter producing aluminium ingot, billet, t-bar | | 545,000 tonnes per year aluminium |
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| Yarwum(previouslyComalco Alumina Refinery) | | Gladstone, Queensland, Australia | | 97% Freehold 3% Leasehold (expiring in 2101 and the Corumbafter) | | Refinery producing alumina | | 1,400,000 tonnes per year alumina |
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| Gladstone Power Station (42%) | | Gladstone, Queensland, Australia | | 100% Freehold | | Thermal power station | | 1,680 megawatts |
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| New Zealand Aluminium Smelters (NZAS) (79%) | | Tiwai Point, Southland, New Zealand | | 19.6% Freehold 80.4% Leasehold (expiring in 2029 anduse of certain Crown land) | | Aluminium smelter producing aluminium ingot, billet, t-bar | | 352,000 tonnes per year aluminium |
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| Queensland Alumina (39%) | | Gladstone, Queensland, Australia | | 73.3% Freehold 26.7% Leasehold (of which more than 80% expires in 2026 and after) | | Refinery producing alumina | | 3,953,000 tonnes per year alumina |
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| COPPER GROUP | | | | | | | | |
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| Kennecott Utah Copper | | Magna, Salt Lake City, Utah, US | | 100% Freehold | | Flash smelting furnace / Flash convertor furnace copper refinery | | 335,000 tonnes per year refined copper |
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| Palabora(58%) | | Phalaborwa, South Africa | | 100% Freehold | | Reverberatory Pierce Smith copper refinery | | 130,000 tonnes per year refined copper |
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| áINDUSTRIAL | | | | | | | | | MINERALS | | | | | | | | |
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| Boron | | California, US | | 100% Freehold | | Borates refinery | | 584,000 tonnes per year boric oxide |
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| QIT-Fer et Titane Sorel Plant | | Sorel-Tracy, Quebec, Canada | | 100% Freehold | | Ilmenite smelter | | 1,100,000 tonnes peryear titanium dioxide slag 900,000 tonnes per year iron |
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| Richards Bay Minerals (50%) | | Richards Bay, South Africa | | 100% Freehold | | Ilmenite smelter | | 1,060,000 tonnes peryear titanium dioxide slag |
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| IRON ORE GROUP | | | | | | | | |
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| Hlsmelt®(60%) | | Kwinana, Western Australia | | 100% Leasehold (expiring in 2010 with rights of renewal for two further 25 year terms) | | Hlsmelt®ironmaking plant producing pig iron | | 800,000 tonnes per year pig iron |
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| IOC Pellet Plant (59%) | | Labrador City, Newfoundland, Canada | | 100% Leaseholds (expiring in 2020, 2022 and 2025 with rights of renewal for further terms of 30 years) | | Pellet induration furnaces producing multiple iron ore operation. The wholly owned Fortaleza nickel complex was soldpellet types | | 13,500,000 tonnes per year pellet |
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Rio Tinto 2006 Form 20-F | 18 |
Back to Contents METALS AND MINERALS PRODUCTION | | | 2004 | | 2005 | | 2006 | | | | | Production (a) | | Production (a) | | Production(a) | |
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| | | Rio Tinto | | Total | | Rio Tinto | | Total | | Rio Tinto | | Total | | Rio Tinto | | | % share (b) | | | | share | | | | share | | | | share | |
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| | ALUMINA (’000 tonnes) | | | | | | | | | | | | | | | Eurallumina (Italy) (c) | — | | 1,064 | | 597 | | 1,070 | | 601 | | 914 | | 513 | | Queensland Alumina (Australia) | 38.6 | | 3,778 | | 1,459 | | 3,953 | | 1,526 | | 3,871 | | 1,494 | | Yarwun (Australia) (d) | 100.0 | | 175 | | 175 | | 835 | | 835 | | 1,240 | | 1,240 | |
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| | Rio Tinto total | | | | | 2,231 | | | | 2,963 | | | | 3,247 | |
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| | ALUMINIUM (refined) (’000 tonnes) | | | | | | | | | | | | | | | Anglesey (UK) | 51.0 | | 144.8 | | 73.8 | | 143.9 | | 73.4 | | 143.8 | | 73.3 | | Bell Bay (Australia) | 100.0 | | 162.0 | | 162.0 | | 173.8 | | 173.8 | | 177.5 | | 177.5 | | Boyne Island (Australia) | 59.4 | | 540.5 | | 321.2 | | 544.9 | | 326.2 | | 545.1 | | 325.0 | | Tiwai Point (New Zealand) | 79.4 | | 350.3 | | 279.5 | | 351.4 | | 280.3 | | 337.3 | | 268.9 | |
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| | Rio Tinto total | | | | | 836.5 | | | | 853.7 | | | | 844.7 | |
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| | BAUXITE (’000 tonnes) | | | | | | | | | | | | | | | Boké (Guinea) (e) | — | | 5,773 | | 179 | | — | | — | | — | | — | | Weipa (Australia) | 100.0 | | 12,649 | | 12,649 | | 15,474 | | 15,474 | | 16,139 | | 16,139 | |
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| | Rio Tinto total | | | | | 12,828 | | | | 15,474 | | | | 16,139 | |
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| | BORATES (’000 tonnes)(f) | | | | | | | | | | | | | | | Rio Tinto Minerals - Boron (US) | 100.0 | | 543 | | 543 | | 540 | | 540 | | 538 | | 538 | | Rio Tinto Minerals (Argentina) | 100.0 | | 22 | | 22 | | 20 | | 20 | | 15 | | 15 | |
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| | Rio Tinto total | | | | | 565 | | | | 560 | | | | 553 | |
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| | COAL – HARD COKING (’000 tonnes) | | | | | | | | | | | | | | | Rio Tinto Coal Australia(g) | | | | | | | | | | | | | | | Hail Creek Coal (Australia) (h) | 82.0 | | 5,104 | | 4,633 | | 5,900 | | 4,838 | | 4,544 | | 3,726 | | Kestrel Coal (Australia) | 80.0 | | 2,659 | | 2,127 | | 2,946 | | 2,357 | | 2,729 | | 2,183 | |
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| | Rio Tinto total hard coking coal | | | | | 6,760 | | | | 7,195 | | | | 5,909 | |
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| | COAL – OTHER* (’000 tonnes) | | | | | | | | | | | | | | | Rio Tinto Coal Australia(g) | | | | | | | | | | | | | | | Bengalla (Australia) | 30.3 | | 5,312 | | 1,609 | | 5,965 | | 1,806 | | 5,544 | | 1,679 | | Blair Athol (Australia) | 71.2 | | 12,229 | | 8,712 | | 10,600 | | 7,551 | | 10,190 | | 7,259 | | Hunter Valley Operations (Australia) | 75.7 | | 13,269 | | 10,046 | | 12,374 | | 9,369 | | 12,024 | | 9,104 | | Kestrel Coal (Australia) | 80.0 | | 623 | | 499 | | 774 | | 619 | | 863 | | 691 | | Mount Thorley Operations (Australia) | 60.6 | | 3,548 | | 2,149 | | 3,962 | | 2,400 | | 3,895 | | 2,359 | | Tarong Coal (Australia) | 100.0 | | 7,004 | | 7,004 | | 6,470 | | 6,470 | | 6,979 | | 6,979 | | Warkworth (Australia) | 42.1 | | 6,954 | | 2,926 | | 6,293 | | 2,647 | | 7,342 | | 3,089 | |
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| | Total Australian other coal | | | | | 32,943 | | | | 30,863 | | | | 31,159 | |
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| | Rio Tinto Energy America(i) | | | | | | | | | | | | | | | Antelope (US) | 100.0 | | 26,928 | | 26,928 | | 27,174 | | 27,174 | | 30,749 | | 30,749 | | Colowyo (US) | (j) | | 5,788 | | 5,788 | | 5,325 | | 5,325 | | 5,754 | | 5,754 | | Cordero Rojo (US) | 100.0 | | 35,233 | | 35,233 | | 34,234 | | 34,234 | | 36,094 | | 36,094 | | Decker (US) | 50.0 | | 7,831 | | 3,916 | | 6,288 | | 3,144 | | 6,449 | | 3,225 | | Jacobs Ranch (US) | 100.0 | | 34,979 | | 34,979 | | 33,823 | | 33,823 | | 36,258 | | 36,258 | | Spring Creek (US) | 100.0 | | 10,892 | | 10,892 | | 11,881 | | 11,881 | | 13,181 | | 13,181 | |
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| | Total US coal | | | | | 117,734 | | | | 115,580 | | | | 125,260 | |
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| | Rio Tinto total other coal | | | | | 150,677 | | | | 146,443 | | | | 156,418 | |
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* | Coal – other includes thermal coal, semi-soft coking coal and semi-hard coking coal. | See notes on page 22 |
Rio Tinto 2006Form 20-F | 19 |
Back to Contents METALS AND MINERALS PRODUCTION continued | | | 2004 | | 2005 | | 2006 | | | | | Production (a) | | Production (a) | | Production(a) | |
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| | | Rio Tinto | | Total | | Rio Tinto | | Total | | Rio Tinto | | Total | | Rio Tinto | | | % share (b) | | | | share | | | | share | | | | share | |
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| | COPPER (mined) (’000 tonnes) | | | | | | | | | | | | | | | Bingham Canyon (US) | 100.0 | | 263.7 | | 263.7 | | 220.6 | | 220.6 | | 265.6 | | 265.6 | | Escondida (Chile) | 30.0 | | 1,207.1 | | 362.1 | | 1,270.2 | | 381.1 | | 1,313.4 | | 394.0 | | Grasberg – FCX (Indonesia) (k) | — | | 396.4 | | 5.5 | | — | | — | | — | | — | | Grasberg – Joint Venture (Indonesia) (k) | 40.0 | | 120.0 | | 48.0 | | 273.9 | | 109.6 | | 115.5 | | 46.2 | | Neves Corvo (Portugal) (l) | — | | 46.9 | | 23.0 | | — | | — | | — | | — | | Northparkes (Australia) | 80.0 | | 30.0 | | 24.0 | | 54.0 | | 43.2 | | 83.3 | | 66.6 | | Palabora (South Africa) (m) | 57.7 | | 54.4 | | 26.8 | | 61.2 | | 30.0 | | 61.5 | | 31.1 | |
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|
|
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| | Rio Tinto total | | | | | 753.1 | | | | 784.4 | | | | 803.5 | |
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| | COPPER (refined) (’000 tonnes) | | | | | | | | | | | | | | | Atlantic Copper (Spain) (k) | — | | 58.4 | | 7.0 | | — | | — | | — | | — | | Escondida (Chile) | 30.0 | | 152.1 | | 45.6 | | 143.9 | | 43.2 | | 134.4 | | 40.3 | | Kennecott Utah Copper (US) | 100.0 | | 246.7 | | 246.7 | | 232.0 | | 232.0 | | 217.9 | | 217.9 | | Palabora (South Africa) (m) | 57.7 | | 67.5 | | 33.2 | | 80.3 | | 39.3 | | 81.2 | | 40.9 | |
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|
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| | Rio Tinto total | | | | | 332.6 | | | | 314.5 | | | | 299.2 | |
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| | DIAMONDS (’000 carats) | | | | | | | | | | | | | | | Argyle (Australia) | 100.0 | | 20,620 | | 20,620 | | 30,476 | | 30,476 | | 29,078 | | 29,078 | | Diavik (Canada) | 60.0 | | 7,575 | | 4,545 | | 8,272 | | 4,963 | | 9,829 | | 5,897 | | Murowa (Zimbabwe) (n) | 77.8 | | 47 | | 36 | | 251 | | 195 | | 240 | | 187 | |
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| | Rio Tinto total | | | | | 25,202 | | | | 35,635 | | | | 35,162 | |
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| | GOLD (mined) (’000 ounces) | | | | | | | | | | | | | | | Barneys Canyon (US) | 100.0 | | 22 | | 22 | | 16 | | 16 | | 15 | | 15 | | Bingham Canyon (US) | 100.0 | | 308 | | 308 | | 401 | | 401 | | 523 | | 523 | | Cortez/Pipeline (US) | 40.0 | | 1,051 | | 421 | | 904 | | 361 | | 444 | | 178 | | Escondida (Chile) | 30.0 | | 217 | | 65 | | 183 | | 55 | | 170 | | 51 | | Grasberg – FCX (Indonesia) (k) | — | | 1,377 | | 14 | | — | | — | | — | | — | | Grasberg – Joint Venture (Indonesia) (k) | 40.0 | | 207 | | 83 | | 1,676 | | 670 | | 238 | | 95 | | Greens Creek (US) | 70.3 | | 86 | | 61 | | 73 | | 51 | | 63 | | 44 | | Kelian (Indonesia) | 90.0 | | 328 | | 295 | | 43 | | 38 | | — | | — | | Lihir (Papua New Guinea) (o) | — | | 599 | | 87 | | 424 | | 61 | | — | | — | | Morro do Ouro (Brazil) (p) | — | | 188 | | 96 | | — | | — | | — | | — | | Northparkes (Australia) | 80.0 | | 79 | | 63 | | 57 | | 46 | | 95 | | 76 | | Rawhide (US) | 51.0 | | 50 | | 25 | | 35 | | 18 | | 26 | | 13 | | Rio Tinto Zimbabwe (Zimbabwe) (q) | — | | 11 | | 6 | | — | | — | | — | | — | | Others | — | | 13 | | 7 | | 15 | | 7 | | 18 | | 9 | |
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| | Rio Tinto total | | | | | 1,552 | | | | 1,726 | | | | 1,003 | |
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| | GOLD (refined) (’000 ounces) | | | | | | | | | | | | | | | Kennecott Utah Copper (US) | 100.0 | | 300 | | 300 | | 369 | | 369 | | 462 | | 462 | |
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| | IRON ORE (’000 tonnes) | | | | | | | | | | | | | | | Channar (Australia) | 60.0 | | 9,759 | | 5,855 | | 8,644 | | 5,186 | | 9,798 | | 5,879 | | Corumbá (Brazil) | 100.0 | | 1,301 | | 1,301 | | 1,410 | | 1,410 | | 1,982 | | 1,982 | | Eastern Range (Australia) | (r) | | 2,970 | | 2,970 | | 6,559 | | 6,559 | | 8,215 | | 8,215 | | Hamersley Iron (Australia) | 100.0 | | 65,407 | | 65,407 | | 74,387 | | 74,387 | | 79,208 | | 79,208 | | Iron Ore Company of Canada (Canada) | 58.7 | | 11,139 | | 6,541 | | 15,647 | | 9,188 | | 16,080 | | 9,442 | | Robe River (Australia) | 53.0 | | 48,459 | | 25,684 | | 52,385 | | 27,764 | | 52,932 | | 28,054 | |
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| | Rio Tinto total | | | | | 107,757 | | | | 124,494 | | | | 132,780 | |
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| | See notes on page 22 | | | | | | | | | | | | | | |
Rio Tinto 2006Form 20-F | 20 |
Back to Contents METALS AND MINERALS PRODUCTION continued | | | 2004 | | 2005 | | 2006 | | | | | Production (a) | | Production (a) | | Production(a) | |
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| | | Rio Tinto | | Total | | Rio Tinto | | Total | | Rio Tinto | | Total | | Rio Tinto | | | % share (b) | | | | share | | | | share | | | | share | |
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| | LEAD (’000 tonnes) | | | | | | | | | | | | | | | Greens Creek (US) | 70.3 | | 19.8 | | 13.9 | | 16.9 | | 11.9 | | 16.9 | | 11.9 | | Zinkgruvan (Sweden) (s) | — | | 11.2 | | 11.2 | | — | | — | | — | | — | |
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| | Rio Tinto total | | | | | 25.1 | | | | 11.9 | | | | 11.9 | |
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| | MOLYBDENUM (’000 tonnes) | | | | | | | | | | | | | | | Bingham Canyon (US) | 100.0 | | 6.8 | | 6.8 | | 15.6 | | 15.6 | | 16.8 | | 16.8 | |
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| | NICKEL (refined) (’000 tonnes) | | | | | | | | | | | | | | | Empress (Zimbabwe) (q) | — | | 2.9 | | 1.6 | | — | | — | | — | | — | |
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| | PIG IRON (’000 tonnes) | | | | | | | | | | | | | | | HIsmelt®(Australia) (t) | 60.0 | | — | | — | | 9 | | 5 | | 89 | | 53 | |
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| | SALT (’000 tonnes) | | | | | | | | | | | | | | | Rio Tinto Minerals - salt (Australia) | 64.9 | | 7,380 | | 4,792 | | 8,480 | | 5,507 | | 8,323 | | 5,405 | |
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| | SILVER (mined) (’000 ounces) | | | | | | | | | | | | | | | Bingham Canyon (US) | 100.0 | | 3,584 | | 3,584 | | 3,958 | | 3,958 | | 4,214 | | 4,214 | | Escondida (Chile) | 30.0 | | 5,747 | | 1,724 | | 6,565 | | 1,970 | | 6,646 | | 1,994 | | Grasberg – FCX (Indonesia) (k) | — | | 3,077 | | 79 | | — | | — | | — | | — | | Grasberg – Joint Venture (Indonesia) (k) | 40.0 | | 1,961 | | 784 | | 3,410 | | 1,364 | | 1,675 | | 670 | | Greens Creek (US) | 70.3 | | 9,707 | | 6,821 | | 9,664 | | 6,791 | | 8,866 | | 6,230 | | Zinkgruvan (Sweden) (s) | — | | 651 | | 651 | | — | | — | | — | | — | | Others | — | | 2,025 | | 1,187 | | 1,422 | | 843 | | 1,345 | | 861 | |
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|
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| | Rio Tinto total | | | | | 14,830 | | | | 14,926 | | | | 13,968 | |
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| | SILVER (refined) (’000 ounces) | | | | | | | | | | | | | | | Kennecott Utah Copper (US) | 100.0 | | 3,344 | | 3,344 | | 3,538 | | 3,538 | | 4,152 | | 4,152 | |
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| | TALC (’000 tonnes) | | | | | | | | | | | | | | | Rio Tinto Minerals – talc (Australia/Europe/N. America) (u) | 100.0 | | 1,444 | | 1,443 | | 1,364 | | 1,364 | | 1,392 | | 1,392 | |
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| | TIN (tonnes) | | | | | | | | | | | | | | | Neves Corvo (Portugal) (l) | — | | 120 | | 59 | | — | | — | | — | | — | |
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| | TITANIUM DIOXIDE FEEDSTOCK (‘000 tonnes) | | | | | | | | | | | | | | | Rio Tinto Iron & Titanium (Canada/South Africa) (v) | 100.0 | | 1,192 | | 1,192 | | 1,312 | | 1,312 | | 1,415 | | 1,415 | |
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| | URANIUM (tonnes U3O8) | | | | | | | | | | | | | | | Energy Resources of Australia (Australia) | 68.4 | | 5,143 | | 3,517 | | 5,903 | | 4,037 | | 4,704 | | 3,217 | | Rössing (Namibia) | 68.6 | | 3,582 | | 2,457 | | 3,711 | | 2,545 | | 3,617 | | 2,481 | |
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|
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| | Rio Tinto total | | | | | 5,974 | | | | 6,582 | | | | 5,698 | |
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| | ZINC (mined) (’000 tonnes) | | | | | | | | | | | | | | | Greens Creek (US) | 70.3 | | 62.7 | | 44.1 | | 52.9 | | 37.2 | | 47.5 | | 33.4 | | Zinkgruvan (Sweden) (s) | — | | 29.7 | | 29.7 | | — | | — | | — | | — | |
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| | Rio Tinto total | | | | | 73.8 | | | | 37.2 | | | | 33.4 | |
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|
|
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|
|
|
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|
| | See notes on page 22 | | | | | | | | | | | | | | |
Rio Tinto 2006Form 20-F | 21 |
Back to Contents METALS AND MINERALS PRODUCTION continued Notes | (a) | Mine production figures for metals refer to the total quantity of metal produced in concentrates or doré bullion irrespective of whether these products are then refined onsite, except for the data for iron ore and bauxite which represent production of saleable quantities of ore. | (b) | Rio Tinto percentage share, shown above, is as at the end of 2006 and has applied over the year.Morro do Ouro(period 2004 – 2006 except for those operations where the share has varied during the year and the weighted average for them is shown below. The Rio Tinto:Tinto share varies at individual mines and refineries in the “Others” category and thus no value is shown.
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| | | | | | | | | | | Rio Tinto share % | | | | | | | | | | Operation | See Note | | 2004 | | 2005 | | 2006 | | |
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| | | Atlantic Copper | (k) | | 12.0 | | — | | — | | | Grasberg | (k) | | 10.8 | | — | | — | | | Hail Creek | (h) | | 90.8 | | 82.0 | | 82.0 | | | Palabora | (m) | | 49.2 | | 49.0 | | 50.5 | | |
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| |
(c) | Rio Tinto sold its 56.2 per cent share in Eurallumina with an effective date of 31 October 2006 and production data are shown up to that date. | (d) | Yarwun, previously known as Comalco Alumina Refinery, started production in October 2004. | (e) | Rio Tinto completed the sale of its four per cent interest in the Boké mine on 25 June 2004. Production data are shown up t o the date of sale. | (f) | Borate quantities are expressed as B2O3. | (g) | Rio Tinto Coal Australia manages all the Australian coal operations including the mines which were previously reported separately under the Coal & Allied name. | (h) | Rio Tinto reduced its shareholding in Hail Creek from 92.0 per cent to 82.0 per cent on 15 November 2004. | (i) | Rio Tinto Energy America was previously known as Kennecott Energy. | (j) | In view of Rio Tinto Energy America’s responsibilities under a management agreement for the operation of the Colowyo mine, all of Colowyo’s output is included in Rio Tinto’s share of production. | (k) | From mid 1995 until 30 March 2004, Rio Tinto held 23.93 million shares of Freeport-McMoRan Copper & Gold (FCX) common stock from which it derived a share of production. This interest was sold to FCX on 30 March 2004. Also, through a joint venture agreement with FCX, Rio Tinto is entitled, as shown separately in the above tables, to 40 per cent of additional material mined as a consequence of expansions and developments of the Grasberg facilities since 1998. | (l) | Rio Tinto completed the sale of its 49 per cent interest in Somincor on 18 June 2004. Production data are shown up to the d ate of sale. | (m) | During the second half of 2005, the conversion of debentures into ordinary shares resulted in a dilution of Rio Tinto’s shareholding in Palabora from 49.2 per cent to 47.2 per cent. The conversions, which continued during 2006, were completed during the third quarter when Rio Tinto also participated, ending the year with a 57.7 per cent interest. | (n) | Ore mining and processing at Murowa commenced during the third quarter of 2004. | (o) | On 30 November 2005, Rio Tinto sold its 14.5 per cent in Lihir Gold; it had agreed in September 2005 to relinquish the management agreement for Lihir. The production data are shown up to 30 September 2005, from which date the Rio Tinto interest in Lihir was held as an investment rather than being equity accounted.. | (p) | Rio Tinto sold its 51 per cent)
At thecent interest in Morro do Ouro mineon 31 December 2004. Production data are shown up to the date of sale. | (q) | As a result of the corporate restructuring completed on 8 July 2004, Rio Tinto has ceased to be an ordinary shareholder in the staterenamed RioZim but will retain a reduced cash participation in its gold and nickel assets for a period of Minas Gerais, a feasibility study is under way to expand goldten years. | (r) | Rio Tinto’s share of production to 320,000 ouncesincludes 100 per year in 2007 by increasing mill throughput.
Morro do Ouro employs approximately 570 people, mostcent of themthe production from the nearby townEastern Range mine, which commenced production in March 2004. Under the terms of Paracatu.2003 operating performance
Goldthe joint venture agreement (Rio Tinto 54 per cent), Hamersley Iron manages the operation and is obliged to purchase all mine production was 11 per cent lower due to lower head grades while throughput was similar.
Fortaleza(Rio Tinto: 100 per cent) from the joint venture.
| (s) | Rio Tinto Brasil agreedcompleted the sale of Fortaleza nickel mine and smelterits 100 per cent interest in the StateZinkgruvan mine on 2 June 2004. Production data are shown up to the date of Minas Geraissale. | (t) | HIsmelt® commenced production during September 2005. | (u) | Talc production includes some products derived from purchased ores. | (v) | Quantities comprise 100 per cent of QIT and 50 per cent of Richards Bay Minerals’ production. |
Rio Tinto 2006Form 20-F | 22 |
Back to Contents ORE RESERVES (under Industry Guide 7) Reserves have been prepared in accordance with Industry Guide 7 under the United States Securities Act of 1933 and the following definitions: | • | An ‘Ore Reserve’ means that part of a Brazilian mining companymineral deposit that can be economically and legally extracted orproduced at the endtime of the year.reserves determination. To establish this, studies appropriate to the type of mineraldeposit involved have been carried out to estimate the quantity, grade and value of the ore mineral(s) present. Inaddition, technical studies have been completed to determine realistic assumptions for the extraction of theminerals including estimates of mining, processing, economic, marketing, legal, environmental, social andgovernmental factors. The final consideration,degree of these studies is sufficient to demonstrate the technical and economicfeasibility of the project and depends on whether or not the project is an extension of an existing project oroperation. The estimates of minerals to be produced include allowances for ore losses and the treatment ofunmineralised materials which is dependent onmay occur as part of the forward nickelmining and processing activities. Ore Reserves are sub-divided in order of increasing confidence into Probable Ore Reserves and Proven Ore Reserves as defined below. | • | The term “economically”, as used in the definition of reserves, implies that profitable extraction or productionunder defined investment assumptions has been established through the creation of a mining plan, processingplan and cash flow model. The assumptions made must be reasonable, including costs and operating conditionsthat will prevail during the life of the project. | • | Ore reserves presented in accordance with SEC Industry Guide 7 do not exceed the quantities that, it isestimated, could be extracted economically if future prices were to be in line with the average of historical pricesfor the three years to 30 June 2006, or contracted prices where applicable. For this purpose, contracted prices areapplied only to future sales volumes for which the price is predetermined by an existing contract; and theaverage of historical prices is applied to expected sales volumes in excess of such amounts. Moreover, reportedore reserve estimates have not been increased above the levels expected to be economic based on Rio Tinto'sown long term price assumptions. | • | The term “legally”, as used in the definition of reserves, does not imply that all permits needed for mining andprocessing have been obtained or that other legal issues have been completely resolved. However, for reservesto exist, there is reasonable assurance of the issuance of these permits or resolution of legal issues. Reasonableassurance means that, based on applicable laws and regulations, the issuance of permits or resolution of legalissues necessary for mining and processing at least a particular deposit will be accomplished in the ordinary courseand in a timeframe consistent with the Company’s current mine plans. | • | The term “proven reserves” means reserves for which (a) quantity is computed from dimensions revealed inoutcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailedsampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologiccharacter is so well defined that size, shape, depth and mineral content of reserves are well established. Provenreserves represent that part of an orebody for which there exists the highest level of confidence in data regardingits geology, physical characteristics, chemical composition and probable processing requirements. | • | The term “probable reserves” means reserves for which quantity and grade and/or quality are computed frominformation similar to that used for proven reserves, but the sites for inspection, sampling and measurement arefarther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that forproven reserves, is high enough to assume continuity between points of observation. This means that probablereserves generally have a wider drill hole spacing than for proven reserves. | • | The amount of proven and probable reserves shown below does not necessarily represent the amount of materialcurrently scheduled for extraction, because the amount scheduled for extraction may be derived from a life ofmine plan predicated on prices and other assumptions which are different to those used in the life of mine planprepared in accordance with Industry Guide 7. | • | The estimated ore reserve figures in the following tables are as of 31 December 2006. Metric units are usedthroughout. The figures used to calculate Rio Tinto's share of reserves are often more precise than the roundednumbers shown in the tables, hence small differences might result if the calculations are repeated using thetabulated figures. Commodity price information is given in footnote (a). |
Rio Tinto 2006Form 20-F | 23 |
Back to Contents ORE RESERVES (under Industry Guide 7) continued | | | | | | | | | | | | Type of | | Total ore reserves at end 2006 | | | | | | | mine | |
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| | Interest | | Rio Tinto | | | (b) | | Tonnage | | Grade | | % | | share | |
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| | | | | | | | | | | Recoverable | | | | | | | | | | | mineral | | | | | millions | | | | | | millions | | BAUXITE (d) | | | of tonnes | | %Al2O3 | | | | of tonnes | | Reserves at operating mine | | | | | | | | | | | Weipa (Australia) | O/P | | 1,193 | | 53.7 | | 100.0 | | 1,193 | |
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| | | | | | | | | | | | | | | | | | | | Marketable | | | | | | | | | | | product | | | | | millions | | | | | | millions | | BORATES (e) | | | of tonnes | | | | | | of tonnes | | Reserves at operating mine | | | | | | | | | | | Rio Tinto Minerals - Boron (US) (j) | | | | | | | | | | | – mine | O/P | | 19.8 | | | | 100.0 | | 19.8 | | – stockpiles (i) | S/P | | 2.1 | | | | 100.0 | | 2.1 | |
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| | Rio Tinto total | | | | | | | | | 21.9 | |
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| | | | | | | | | | | | | | | | Coal type | | Marketable | | Marketable coal quality | | | | | | | | | (g) | | reserves | | (h) | | (h) | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | Marketable | | | | | | | | | Calorific | | Sulphur | | | | reserves | | | | | | | millions | | value | | content | | | | millions | | COAL (f) | | | | | of tonnes | | MJ/kg | | % | | | | of tonnes | | Reserves at operating mines | | | | | | | | | | | | | | | Rio Tinto Energy America(k) | | | | | | | | | | | | | | | Antelope (US) | O/C | | SC | | 359 | | 20.59 | | 0.24 | | 100.0 | | 359 | | Colowyo (US) (l) | O/C | | SC | | 14 | | 24.39 | | 0.39 | | 100.0 | | 14 | | Cordero Rojo (US) | O/C | | SC | | 285 | | 19.59 | | 0.31 | | 100.0 | | 285 | | Decker (US) | O/C | | SC | | 18 | | 22.10 | | 0.38 | | 50.0 | | 9 | | Jacobs Ranch (US) | O/C | | SC | | 418 | | 20.35 | | 0.43 | | 100.0 | | 418 | | Spring Creek (US) | O/C | | SC | | 199 | | 21.75 | | 0.33 | | 100.0 | | 199 | |
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| | Total US coal | | | | | | | | | | | | | 1,283 | |
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| | Rio Tinto Coal Australia | | | | | | | | | | | | | | | Bengalla (Australia) | O/C | | SC | | 150 | | 28.12 | | 0.48 | | 30.3 | | 45 | | Blair Athol (Australia) | O/C | | SC | | 42 | | 27.13 | | 0.30 | | 71.2 | | 30 | | Hail Creek (Australia) | O/C | | MC | | 179 | | 32.20 | | 0.35 | | 82.0 | | 146 | | Hunter Valley Operations | O/C | | SC + MC | | 308 | | 28.94 | | 0.57 | | 75.7 | | 233 | | (Australia) | | | | | | | | | | | | | | | Kestrel (Australia) | U/G | | SC + MC | | 112 | | 32.20 | | 0.65 | | 80.0 | | 90 | | Mount Thorley Operations | O/C | | SC + MC | | 23 | | 29.48 | | 0.46 | | 60.6 | | 14 | | (Australia) | | | | | | | | | | | | | | | Warkworth (Australia) | O/C | | SC + MC | | 251 | | 28.87 | | 0.45 | | 42.1 | | 106 | |
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| | Total Australian coal | | | | | | | | | | | | | 664 | |
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| | Rio Tinto total reserves at operating mines | | | | | | | | | | | | | 1,946 | |
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| | Undeveloped reserves(m) | | | | | | | | | | | | | | | Rio Tinto Coal Australia | | | | | | | | | | | | | | | Clermont (Australia) | O/C | | SC | | 189 | | 27.90 | | 0.33 | | 50.1 | | 95 | | Mount Pleasant (Australia) | O/C | | SC | | 350 | | 26.73 | | 0.51 | | 75.7 | | 265 | |
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| | Rio Tinto total undeveloped reserves | | | | | | | | | | | | | 360 | |
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|
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|
|
|
|
|
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| | See notes on pages 32 to 33 | | | | | | | | | | | | | | |
Rio Tinto 2006Form 20-F | 24 |
Back to Contents ORE RESERVES (under Industry Guide 7) continued | | | Total ore reserves | | Average | | | | | | | Type of | | at end 2006 | | mill | | | | | | | mine | |
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| | recovery | | Interest | | Rio Tinto | | | (b) | | Tonnage | | Grade | | % | | % | | share | |
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| | | | | | | | | | | | | Recoverable | | | | | | | | | | | | | metal | | | | | millions | | | | | | | | millions | | COPPER | | | of tonnes | | %Cu | | | | | | of tonnes | | Reserves at operating mines | | | | | | | | | | | | | Bingham Canyon (US) | | | | | | | | | | | | | – mine | O/P | | 604 | | 0.54 | | 86 | | 100.0 | | 2.802 | | – stockpiles (i) | S/P | | 37 | | 0.33 | | 86 | | 100.0 | | 0.107 | | Escondida (Chile) (n) | | | | | | | | | | | | | – sulphide mine | O/P | | 1,360 | | 1.06 | | 85 | | 30.0 | | 3.681 | | – sulphide leach mine | O/P | | 1,412 | | 0.51 | | 34 | | 30.0 | | 0.744 | | – oxide mine | O/P | | 21 | | 0.74 | | 75 | | 30.0 | | 0.035 | | – sulphide stockpiles (i) | S/P | | 17 | | 1.23 | | 85 | | 30.0 | | 0.053 | | – sulphide leach stockpiles (i) | S/P | | 131 | | 0.49 | | 34 | | 30.0 | | 0.067 | | – oxide stockpiles (i) | S/P | | 57 | | 0.67 | | 75 | | 30.0 | | 0.086 | | Escondida Norte (Chile) (n) | | | | | | | | | | | | | – sulphide mine | O/P | | 455 | | 1.40 | | 85 | | 30.0 | | 1.621 | | – sulphide leach mine | O/P | | 604 | | 0.60 | | 34 | | 30.0 | | 0.371 | | – oxide mine | O/P | | 22 | | 1.55 | | 75 | | 30.0 | | 0.076 | | – sulphide stockpiles (i) | S/P | | 0.1 | | 4.07 | | 85 | | 30.0 | | 0.001 | | – sulphide leach stockpiles (i) | S/P | | 1.5 | | 0.52 | | 34 | | 30.0 | | 0.001 | | – oxide stockpiles (i) | S/P | | 3.3 | | 0.96 | | 75 | | 30.0 | | 0.007 | | Grasberg (Indonesia) | O/P + U/G | | 2,813 | | 1.04 | | 88 | | (o) | | 7.584 | | Northparkes (Australia) | | | | | | | | | | | | | – mine | U/G | | 46 | | 1.06 | | 91 | | 80.0 | | 0.355 | | – stockpiles (i) | S/P | | 3.8 | | 0.67 | | 85 | | 80.0 | | 0.017 | | Palabora (South Africa) (p) | | | | | | | | | | | | | – mine | U/G | | 118 | | 0.64 | | 88 | | 57.7 | | 0.381 | |
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| | Rio Tinto total | | | | | | | | | | | 17.989 | |
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| |
| | | | | | | | | | | | | | | | | | | | | | | | Recoverable | | | | | | | | | | | | | diamonds | | | | | millions | | carats | | | | | | millions | | DIAMONDS (d) | | | of tonnes | | per tonne | | | | | | of carats | | Reserves at operating mines | | | | | | | | | | | | | Argyle (Australia) | | | | | | | | | | | | | – AK1 pipe mine (q) | O/P + U/G | | 102 | | 2.1 | | | | 100.0 | | 215.5 | | – AK1 pipe stockpiles (i) | S/P | | 3.9 | | 1.3 | | | | 100.0 | | 5.0 | | Diavik (Canada) (r) | O/P + U/G | | 25 | | 3.3 | | | | 60.0 | | 49.0 | | Murowa (Zimbabwe) | | | | | | | | | | | | | – mine | O/P | | 22 | | 0.7 | | | | 77.8 | | 11.8 | | – stockpiles (i) | S/P | | 0.1 | | 1.2 | | | | 77.8 | | 0.1 | |
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| | Rio Tinto total | | | | | | | | | | | 281.5 | |
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| | | | | | | | | | | | | | | | | | | | | | | | Recoverable | | | | | | | | | | | | | metal | | | | | millions | | grammes | | | | | | millions | | GOLD | | | of tonnes | | per tonne | | | | | | of ounces | | Reserves at operating mines | | | | | | | | | | | | | Bingham Canyon (US) | | | | | | | | | | | | | – mine | O/P | | 604 | | 0.31 | | 64 | | 100.0 | | 3.882 | | – stockpiles (i) | S/P | | 37 | | 0.20 | | 64 | | 100.0 | | 0.151 | | Cortez/Pipeline (US) (s) | | | | | | | | | | | | | – mine | O/P | | 125 | | 1.83 | | 73 | | 40.0 | | 2.131 | | – stockpiles (i) | S/P | | 1.1 | | 4.30 | | 86 | | 40.0 | | 0.052 | | Grasberg (Indonesia) | O/P + U/G | | 2,813 | | 0.90 | | 69 | | (o) | | 13.751 | | Greens Creek (US) | U/G | | 7.0 | | 3.86 | | 69 | | 70.3 | | 0.417 | | Northparkes (Australia) | | | | | | | | | | | | | – mine | U/G | | 46 | | 0.46 | | 74 | | 80.0 | | 0.407 | | – stockpiles (i) | S/P | | 3.8 | | 0.58 | | 76 | | 80.0 | | 0.043 | |
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| | Rio Tinto total | | | | | | | | | | | 20.834 | |
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|
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|
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| | See notes on pages 32 to 33 | | | | | | | | | | | | |
Rio Tinto 2006Form 20-F | 25 |
Back to Contents ORE RESERVES (under Industry Guide 7) continued | | | Total ore reserves | | Average | | | | | | | Type of | | at end 2006 | | mill | | | | | | | mine | |
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| | recovery | | Interest | | Rio Tinto | | | (b) | | Tonnage | | Grade | | % | | % | | share | |
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| | | | | | | | | | | | | Marketable | | | | | | | | | | | | | product | | | | | millions | | | | | | | | millions | | IRON ORE (d) | | | of tonnes | | %Fe | | | | | | of tonnes | | Reserves at operating mines | | | | | | | | | | | | | and mines under construction | | | | | | | | | | | | | Channar (Australia) | | | | | | | | | | | | | – Brockman Ore | O/P | | 100 | | 63.5 | | | | 60.0 | | 60 | | Corumbá (Brazil) | | | | | | | | | | | | | – mine | O/P | | 213 | | 67.2 | | | | 100.0 | | 213 | | – stockpiles (i) | S/P | | 1 | | 66.7 | | | | 100.0 | | 1 | | Eastern Range (Australia) | | | | | | | | | | | | | – Brockman Ore | O/P | | 91 | | 62.9 | | | | 54.0 | | 49 | | Hope Downs (Australia) (t) | | | | | | | | | | | | | – Marra Mamba Ore | O/P | | 344 | | 61.6 | | | | 50.0 | | 172 | | Hamersley (Australia) | | | | | | | | | | | | | – Brockman 2 (Brockman Ore) | O/P | | 30 | | 62.6 | | | | 100.0 | | 30 | | – Brockman 4 (Brockman Ore) | O/P | | 449 | | 62.2 | | | | 100.0 | | 449 | | – Marandoo (Marra Mamba Ore) | O/P | | 67 | | 61.6 | | | | 100.0 | | 67 | | – Mt Tom Price (Brockman Ore) | | | | | | | | | | | | | – mine | O/P | | 109 | | 64.6 | | | | 100.0 | | 109 | | – stockpiles (i) | S/P | | 17 | | 64.5 | | | | 100.0 | | 17 | | – Mt Tom Price (Marra Mamba Ore)(u) | O/P | | 35 | | 61.2 | | | | 100.0 | | 35 | | – Paraburdoo (Brockman Ore) | O/P | | 12 | | 63.6 | | | | 100.0 | | 12 | | – Paraburdoo (Marra Mamba Ore) | O/P | | 0.5 | | 63.2 | | | | 100.0 | | 0.5 | | – Nammuldi (Marra Mamba Ore) | O/P | | 31 | | 61.4 | | | | 100.0 | | 31 | | – Yandicoogina (Pisolite Ore HG) | | | | | | | | | | | | | – mine | O/P | | 327 | | 58.7 | | | | 100.0 | | 327 | | – stockpiles (i) | S/P | | 1.5 | | 58.1 | | | | 100.0 | | 1 | | – Yandicoogina (Process Product) | | | | | | | | | | | | | – mine | O/P | | 109 | | 58.4 | | | | 100.0 | | 109 | | Iron Ore Company of Canada | O/P | | 416 | | 65.0 | | | | 58.7 | | 244 | | (Canada) | | | | | | | | | | | | | Robe River (Australia) | | | | | | | | | | | | | – Pannawonica (Pisolite Ore) | | | | | | | | | | | | | – mine | O/P | | 327 | | 57.2 | | | | 53.0 | | 174 | | – stockpiles (i) | S/P | | 17 | | 56.9 | | | | 53.0 | | 9 | | – West Angelas (Marra Mamba Ore) | | | | | | | | | | | | | – mine | O/P | | 403 | | 61.9 | | | | 53.0 | | 213 | | – stockpiles (i) | S/P | | 6 | | 59.3 | | | | 53.0 | | 3 | |
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| | Rio Tinto total | | | | | | | | | | | 2,326 | |
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| | | | | | | | | | | | | | | | | | | | | | | | Recoverable | | | | | | | | | | | | | metal | | | | | millions | | | | | | | | millions | | LEAD | | | of tonnes | | %Pb | | | | | | of tonnes | | Reserves at operating mine | | | | | | | | | | | | | Greens Creek (US) | U/G | | 7.0 | | 3.98 | | 67 | | 70.3 | | 0.131 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | Recoverable | | | | | | | | | | | | | metal | | | | | millions | | | | | | | | millions | | MOLYBDENUM | | | of tonnes | | %Mo | | | | | | of tonnes | | Reserves at operating mine | | | | | | | | | | | | | Bingham Canyon (US) | | | | | | | | | | | | | – mine | O/P | | 604 | | 0.047 | | 61 | | 100.0 | | 0.175 | | – stockpiles (i) | S/P | | 37 | | 0.032 | | 61 | | 100.0 | | 0.007 | |
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| | Rio Tinto total | | | | | | | | | | | 0.183 | |
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| | See notes on pages 32 to 33 | | | | | | | | | | | | |
Rio Tinto 2006Form 20-F | 26 |
Back to Contents ORE RESERVES (under Industry Guide 7) continued | | | Total ore reserves | | Average | | | | | | | Type of | | at end 2006 | | mill | | | | | | | mine | |
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| | recovery | | Interest | | Rio Tinto | | | (b) | | Tonnage | | Grade | | % | | % | | share | |
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| | | | | | | | | | | | | Recoverable | | | | | | | | | | | | | metal | | | | | millions | | grammes | | | | | | millions | | SILVER | | | of tonnes | | per tonne | | | | | | of ounces | | Reserves at operating mines | | | | | | | | | | | | | Bingham Canyon (US) | | | | | | | | | | | | | – mine | O/P | | 604 | | 2.52 | | 77 | | 100.0 | | 37.699 | | – stockpiles (i) | S/P | | 37 | | 1.69 | | 77 | | 100.0 | | 1.558 | | Grasberg (Indonesia) | O/P + U/G | | 2,813 | | 4.16 | | 64 | | (o) | | 73.722 | | Greens Creek (US) | U/G | | 7.0 | | 494.46 | | 72 | | 70.3 | | 56.206 | |
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| | Rio Tinto total | | | | | | | | | | | 169.185 | |
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| | | | | | | | | | | | | | | | | | | | | | | | Marketable | | | | | | | | | | | | | product | | | | | millions | | | | | | | | millions | | TALC (e) | | | of tonnes | | | | | | | | of tonnes | | Reserves at operating mines | | | | | | | | | | | | | Rio Tinto Minerals – talc (v) | | | | | | | | | | | | | Europe/N America/Australia) | O/P + U/G | | 28.8 | | | | | | 100.0 | | 28.8 | |
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| | | | | | | | | | | | | | | | | | | | | | | | Marketable | | | | | | | | | | | | | product | | TITANIUM DIOXIDE | | | millions | | | | | | | | millions | | FEEDSTOCK(e) | | | of tonnes | | | | | | | | of tonnes | | Reserves at operating mines | | | | | | | | | | | | | QIT (Canada) (w) | O/P | | 52.7 | | | | | | 100.0 | | 52.7 | | QMM (Madagascar) | D/O | | 12.4 | | | | | | 80.0 | | 9.9 | | RBM (South Africa) | D/O | | 24.9 | | | | | | 50.0 | | 12.5 | |
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| | Rio Tinto total | | | | | | | | | | | 75.0 | |
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| | | | | | | | | | | | | | | | | | | | | | | | Recoverable | | | | | | | | | | | | | metal | | | | | millions | | | | | | | | millions | | URANIUM | | | of tonnes | | %U308 | | | | | | of tonnes | | Reserves at operating mines | | | | | | | | | | | | | Energy Resources of Australia | | | | | | | | | | | | | (Australia) | | | | | | | | | | | | | – Ranger #3 mine | O/P | | 9.6 | | 0.241 | | 89 | | 68.4 | | 0.0141 | | – Ranger #3 stockpiles (i) (x) | S/P | | 25.9 | | 0.107 | | 86 | | 68.4 | | 0.0163 | | Rössing (Namibia) | | | | | | | | | | | | | – mine | O/P | | 17.7 | | 0.038 | | 85 | | 68.6 | | 0.0039 | | – stockpiles (i) | S/P | | 2.3 | | 0.015 | | 85 | | 68.6 | | 0.0002 | |
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| | Rio Tinto total | | | | | | | | | | | 0.0345 | |
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| | | | | | | | | | | | | | | | | | | | | | | | Recoverable | | | | | | | | | | | | | metal | | | | | millions | | | | | | | | millions | | ZINC | | | of tonnes | | %Zn | | | | | | of tonnes | | Reserves at operating mine | | | | | | | | | | | | | Greens Creek (US) | U/G | | 7.0 | | 10.39 | | 77 | | 70.3 | | 0.390 | |
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| | See notes on pages 32 to 33 | | | | | | | | | | | | |
Rio Tinto 2006Form 20-F | 27 |
Back to Contents ORE RESERVES (under Industry Guide 7) continued | | | Proven ore reserves | | Probable ore reserves | | | | | at end 2006 | | at end 2006 | | | Type of | |
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| | | mine | | | | | | Drill hole | | | | | | Drill hole | | | (b) | | Tonnage | | Grade | | spacing (c) | | Tonnage | | Grade | | spacing (c) | |
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| | | | | millions | | | | | | millions | | | | | | BAUXITE (d) | | | of tonnes | | %Al2O3 | | | | of tonnes | | %Al2O3 | | | | Reserves at operating mine | | | | | | | | | | | | | | | Weipa (Australia) | O/P | | 119 | | 53.8 | | 76m x 76m | | 1,074 | | 53.7 | | 400m x 800m | | | | | | | | | | | | | | | (or better) | |
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| | | | | | | | | | | | | | | | | | millions | | | | | | millions | | | | | | BORATES (e) | | | of tonnes | | | | | | of tonnes | | | | | | Reserves at operating mine | | | | | | | | | | | | | | | Rio Tinto Minerals - Boron (US) (j) | | | | | | | | | | | | | | | – mine | O/P | | 14.8 | | | | 61m x 61m | | 5.0 | | | | 61m x 61m | | – stockpiles (i) | S/P | | 0.1 | | | | | | 2.0 | | | | | |
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| | | | | | | | | | | | | | % Yield to | | Marketable Reserves | | | | | Recoverable | | give | |
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| | | | | reserves | | marketable | | | | Drill hole | | | | Drill hole | | | | | total | | reserves | | Proven | | spacing (c) | | Probable | | spacing (c) | |
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| | | | | millions | | | | millions | | | | millions | | | | COAL (f) | | | of tonnes | | | | of tonnes | | | | of tonnes | | | | Reserves at operating mines | | | | | | | | | | | | | | | Rio Tinto Energy America(k) | | | | | | | | | | | | | | | Antelope (US) | O/C | | 359 | | 100 | | 359 | | 350m | | | | | | Colowyo (US) (l) | O/C | | 14 | | 100 | | 14 | | 250m | | 0.1 | | 365m | | Cordero Rojo (US) | O/C | | 285 | | 100 | | 281 | | 250m | | 4.4 | | 375m | | Decker (US) | O/C | | 18 | | 100 | | 18 | | 250m | | | | | | Jacobs Ranch (US) | O/C | | 418 | | 100 | | 413 | | 300m | | 4.3 | | 300m | | Spring Creek (US) | O/C | | 199 | | 100 | | 199 | | 250m | | | | | | | | | | | | | | | | | | | | | Rio Tinto Coal Australia | | | | | | | | | | | | | | | Bengalla (Australia) | O/C | | 193 | | 77 | | 92 | | 350m | | 58 | | 500m | | Blair Athol (Australia) | O/C | | 45 | | 92 | | 42 | | 150m | | | | | | Hail Creek (Australia) | O/C | | 267 | | 67 | | 105 | | 300m | | 73 | | 400m | | Hunter Valley Operations (Australia) | O/C | | 453 | | 68 | | 245 | | 300m | | 63 | | 500m | | Kestrel (Australia) | U/G | | 140 | | 80 | | 49 | | 500m | | 63 | | 1,000m | | Mount Thorley Operations (Australia) | O/C | | 35 | | 66 | | 20 | | 125m | | 2.5 | | 500m | | Warkworth (Australia) | O/C | | 392 | | 64 | | 151 | | 450m | | 100 | | 1,000m | | | | | | | | | | | | | | | | | Undeveloped reserves(m) | | | | | | | | | | | | | | | Rio Tinto Coal Australia | | | | | | | | | | | | | | | Clermont (Australia) | O/C | | 197 | | 96 | | 185 | | 220m | | 4 | | 150m to 300m | | Mount Pleasant (Australia) | O/C | | 459 | | 76 | | | | | | 350 | | 125m to 500m | |
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| | See notes on pages 32 to 33 | | | | | | | | | | | | | | |
Rio Tinto 2006Form 20-F | 28 |
Back to Contents ORE RESERVES (under Industry Guide 7) continued | | | Proven ore reserves | | Probable ore reserves | | | Type of | | at end 2006 | | at end 2006 | | | mine | |
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| | | (b) | | Tonnage | | Grade | | Drill hole | | Tonnage | | Grade | | Drill hole | | | | | | | | | spacing (c) | | | | | | spacing (c) | |
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| | COPPER | | | millions | | | | | | millions | | | | | | | | | of tonnes | | %Cu | | | | of tonnes | | %Cu | | | | Reserves at operating mines | | | | | | | | | | | | | | | Bingham Canyon (US) | | | | | | | | | | | | | | | – mine | O/P | | 325 | | 0.59 | | 90m | | 279 | | 0.48 | | 110m | | – stockpiles (i) | S/P | | 12 | | 0.35 | | | | 25 | | 0.32 | | | | Escondida (Chile) (n) | | | | | | | | | | | | | | | – sulphide mine | O/P | | 516 | | 1.17 | | 60m x 60m | | 844 | | 1.00 | | 100m x 100m | | – sulphide leach mine | O/P | | 421 | | 0.51 | | 60m x 60m | | 992 | | 0.51 | | 105m x 105m | | – oxide mine | O/P | | 6 | | 0.74 | | 45m x 45m | | 15 | | 0.74 | | 50m x 50m | | – sulphide stockpiles (i) | S/P | | 17 | | 1.23 | | | | | | | | | | – sulphide leach stockpiles (i) | S/P | | 131 | | 0.49 | | | | | | | | | | – oxide stockpiles (i) | S/P | | 57 | | 0.67 | | | | | | | | | | Escondida Norte (Chile) (n) | | | | | | | | | | | | | | | – sulphide mine | O/P | | 138 | | 1.53 | | 60m x 60m | | 318 | | 1.34 | | 100m x 100m | | – sulphide leach mine | O/P | | 57 | | 0.53 | | 60m x 60m | | 548 | | 0.61 | | 105m x 105m | | – oxide mine | O/P | | 2.8 | | 1.97 | | 45m x 45m | | 19 | | 1.49 | | 50m x 50m | | – sulphide stockpiles (i) | S/P | | 0.1 | | 4.07 | | | | | | | | | | – sulphide leach stockpiles (i) | S/P | | 1.5 | | 0.52 | | | | | | | | | | – oxide stockpiles (i) | S/P | | 3.3 | | 0.96 | | | | | | | | | | Grasberg (Indonesia) | O/P + U/G | | 809 | | 1.08 | | 13m to 40m | | 2,004 | | 1.02 | | 42m to 100m | | Northparkes (Australia) | | | | | | | | | | | | | | | – mine | U/G | | | | | | | | 46 | | 1.06 | | 40 x 40 x 80m | | – stockpiles (i) | S/P | | 3.8 | | 0.67 | | | | | | | | | | Palabora (South Africa) (p) | | | | | | | | | | | | | | | – mine | U/G | | 118 | | 0.64 | | 76m | | | | | | | |
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| | | | | | | | | | | | | | | DIAMONDS (d) | | | millions | | carats | | | | millions | | carats | | | | | | | of tonnes | | per tonne | | | | of tonnes | | per tonne | | | | Reserves at operating mines | | | | | | | | | | | | | | | Argyle (Australia) | | | | | | | | | | | | | | | – AK1 pipe mine (q) | O/P + U/G | | 27 | | 1.4 | | 50m x 50m | | 75.0 | | 2.4 | | 50m x 50m | | – AK1 pipe stockpiles (i) | S/P | | 0.9 | | 2.8 | | | | 3.0 | | 0.8 | | | | Diavik (Canada) (r) | O/P + U/G | | 12 | | 3.4 | | 27m to 30m | | 13 | | 3.2 | | 30m to 34m | | Murowa (Zimbabwe) | O/P | | | | | | | | | | | | | | – mine | O/P | | | | | | | | 22 | | 0.7 | | 25m | | – stockpiles (i) | S/P | | | | | | | | 0.1 | | 1.2 | | | |
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| | | | | | | | | | | | | | | GOLD | | | millions | | grammes | | | | millions | | grammes | | | | | | | of tonnes | | per tonne | | | | of tonnes | | per tonne | | | | Reserves at operating mines | | | | | | | | | | | | | | | Bingham Canyon (US) | | | | | | | | | | | | | | | – mine | O/P | | 325 | | 0.34 | | 90m | | 279 | | 0.28 | | 110m | | – stockpiles (i) | S/P | | 12 | | 0.20 | | | | 25 | | 0.20 | | | | Cortez/Pipeline (US) (s) | | | | | | | | | | | | | | | – mine | O/P | | 52 | | 2.05 | | 27m to 30m | | 73 | | 1.67 | | 48m | | – stockpiles (i) | S/P | | 1.1 | | 4.30 | | | | | | | | | | Grasberg (Indonesia) | O/P + U/G | | 809 | | 1.03 | | 13m to 40m | | 2,004 | | 0.85 | | 42m to 100m | | Greens Creek (US) | U/G | | | | | | | | 7.0 | | 3.86 | | 30m | | Northparkes (Australia) | | | | | | | | | | | | | | | – mine | O/P | | | | | | | | 46 | | 0.46 | | 40 x 40 x 80m | | – stockpiles (i) | S/P | | 3.8 | | 0.58 | | | | | | | | | |
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| | See notes on pages 32 to 33 | | | | | | | | | | | | | | |
Rio Tinto 2006 Form 20-F | 29 |
Back to Contents ORE RESERVES (under Industry Guide 7) continued | | | Proven ore reserves | | Probable ore reserves | | | Type of | | at end 2006 | | at end 2006 | | | mine | |
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| | IRON ORE (d) | | | millions | | | | | | millions | | | | | | | | | of tonnes | | %Fe | | | | of tonnes | | %Fe | | | | Reserves at operating mines | | | | | | | | | | | | | | | and mines under construction | | | | | | | | | | | | | | | Channar (Australia) | | | | | | | | | | | | | | | – Brockman Ore | O/P | | 87 | | 63.5 | | 60m x 60m | | 13 | | 63.6 | | max 120m | | Corumbá (Brazil) | | | | | | | | | | | | | | | – mine | O/P | | 108 | | 67.2 | | 100m x 100m | | 106 | | 67.2 | | 200m x 400m | | – stockpiles (i) | S/P | | 1 | | 66.7 | | | | | | | | | | Eastern Range (Australia) | | | | | | | | | | | | | | | – Brockman Ore | O/P | | 66 | | 63.0 | | 60m x 60m | | 25 | | 62.8 | | max 120m | | Hope Downs (Australia) (t) | | | | | | | | | | | | | | | – Marra Mamba Ore | O/P | | 66 | | 61.3 | | 100m x 50m | | 279 | | 61.7 | | 200m x 50m | | Hamersley (Australia) | | | | | | | | | | | | | | | – Brockman 2 (Brockman Ore) | O/P | | 19 | | 62.6 | | 50m x 50m | | 11.0 | | 62.6 | | max 100m | | – Brockman 4 (Brockman Ore) | O/P | | 115 | | 62.6 | | 50m x 50m | | 334 | | 62.1 | | 200m x 100m | | – Marandoo (Marra Mamba Ore) | O/P | | 65 | | 61.7 | | 75m x 75m | | 2.0 | | 60.7 | | max 150m | | – Mt Tom Price (Brockman Ore) | | | | | | | | | | | | | | | – mine | O/P | | 72 | | 64.4 | | 30m x 30m | | 37 | | 64.9 | | 60m x 30m | | – stockpiles (i) | S/P | | | | | | | | 17 | | 64.5 | | | | – Mt Tom Price (Marra Mamba Ore)(u) | O/P | | | | | | | | 35 | | 61.2 | | 60m x 30m | | – Paraburdoo (Brockman Ore) | O/P | | 8 | | 63.6 | | 30m x 30m | | 4.1 | | 63.6 | | 60m x 30m | | – Paraburdoo (Marra Mamba Ore) | O/P | | | | | | | | 0.5 | | 63.2 | | 60m x 60m | | – Nammuldi (Marra Mamba Ore) | O/P | | 3.9 | | 62.0 | | 60m x 60m | | 27 | | 61.3 | | 120m x 120m | | – Yandicoogina (Pisolite Ore HG) | | | | | | | | | | | | | | | – mine | O/P | | 327 | | 58.7 | | 50m x 50m | | | | | | | | – stockpiles (i) | S/P | | | | | | | | 1.5 | | 58.1 | | | | – Yandicoogina (Process Product) | | | | | | | | | | | | | | | – mine | O/P | | 109 | | 58.4 | | 50m x 50m | | | | | | | | Iron Ore Company of Canada | | | | | | | | | | | | | | | (Canada) | O/P | | 345 | | 65.0 | | 122m x 61m | | 70 | | 65.0 | | 122m x 122m | | Robe River (Australia) | | | | | | | | | | | | | | | – Pannawonica (Pisolite Ore) | | | | | | | | | | | | | | | – mine | O/P | | 289 | | 57.3 | | max 70m x 70m | | 38 | | 57.0 | | max 100m x 100m | | – stockpiles (i) | S/P | | | | | | | | 17 | | 56.9 | | | | – West Angelas (Marra Mamba Ore) | | | | | | | | | | | | | | | – mine | O/P | | 178 | | 62.2 | | 25m x 25m | | 225 | | 61.6 | | max 200m x 50m | | – stockpiles (i) | S/P | | 0.7 | | 59.7 | | | | 5 | | 59.3 | | | |
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| | | | | | | | | | | | | | | LEAD | | | millions | | | | | | millions | | | | | | | | | of tonnes | | %Pb | | | | of tonnes | | %Pb | | | | Reserves at operating mine | | | | | | | | | | | | | | | Greens Creek (US) | U/G | | | | | | | | 7.0 | | 3.98 | | 30m | |
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| | | | | | | | | | | | | | | MOLYBDENUM | | | millions | | | | | | millions | | | | | | | | | of tonnes | | %Mo | | | | of tonnes | | %Mo | | | | Reserves at operating mine | | | | | | | | | | | | | | | Bingham Canyon (US) | | | | | | | | | | | | | | | – mine | O/P | | 325 | | 0.047 | | 90m | | 279 | | 0.047 | | 110m | | – stockpiles (i) | S/P | | 12.1 | | 0.028 | | | | 25 | | 0.034 | | | |
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| | See notes on pages 32 to 33 | | | | | | | | | | | | | | |
Rio Tinto 2006 Form 20-F | 30 |
Back to Contents ORE RESERVES (under Industry Guide 7) continued | | | Proven ore reserves | | Probable ore reserves | | | Type of | | at end 2006 | | at end 2006 | | | mine | |
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| | SILVER | | | millions | | grammes | | | | millions | | grammes | | | | | | | of tonnes | | per tonne | | | | of tonnes | | per tonne | | | | Reserves at operating mines | | | | | | | | | | | | | | | Bingham Canyon (US) | | | | | | | | | | | | | | | – mine | O/P | | 325 | | 2.74 | | 90m | | 279 | | 2.25 | | 110m | | – stockpiles (i) | S/P | | 12.1 | | 1.75 | | | | 25 | | 1.66 | | | | Grasberg (Indonesia) | O/P + U/G | | 809 | | 4.23 | | 13m to 40m | | 2,004 | | 4.13 | | 42m to 100m | | Greens Creek (US) | U/G | | | | | | | | 7.0 | | 494.46 | | 30m | |
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| | | | | | | | | | | | | | | TALC (e) | | | millions | | | | | | millions | | | | | | | | | of tonnes | | | | | | of tonnes | | | | | | Reserves at operating mines | | | | | | | | | | | | | | | Rio Tinto Minerals – talc (v) | | | | | | | | | | | | | | | (Europe/North America/Australia) | O/P + U/G | | 21.6 | | | | 10m to 60m | | 7.2 | | | | 15m to 100m | |
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| | | | | | | | | | | | | | | TITANIUM DIOXIDE | | | millions | | | | | | millions | | | | | | FEEDSTOCK(e) | | | of tonnes | | | | | | of tonnes | | | | | | Reserves at operating mines | | | | | | | | | | | | | | | QIT (Canada) (w) | O/P | | 29.2 | | | | <60m x 60m | | 23.5 | | | | >60m x 60m | | QMM (Madagascar) | D/O | | 12.0 | | | | 200m x 100m | | 0.4 | | | | 400m x 200m | | RBM (South Africa) | D/O | | 6.3 | | | | 50m x 50m | | 18.6 | | | | 800m x 100m | |
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| | | | | | | | | | | | | | | URANIUM | | | millions | | | | | | millions | | | | | | | | | of tonnes | | %U308 | | | | of tonnes | | %U308 | | | | Reserves at operating mines | | | | | | | | | | | | | | | Energy Resources of Australia | | | | | | | | | | | | | | | (Australia) | | | | | | | | | | | | | | | – Ranger #3 mine | O/P | | 4.9 | | 0.24 | | 25m | | 4.8 | | 0.24 | | 50m | | – Ranger #3 stockpiles (i) (x) | S/P | | 25.9 | | 0.11 | | | | | | | | | | Rössing (Namibia) | | | | | | | | | | | | | | | – mine | O/P | | 0.8 | | 0.036 | | 20m | | 16.9 | | 0.038 | | 60m | | – stockpiles (i) | S/P | | 2.3 | | 0.015 | | | | | | | | | |
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| | | | | | | | | | | | | | | ZINC | | | millions | | | | | | millions | | | | | | | | | of tonnes | | %Zn | | | | of tonnes | | %Zn | | | | Reserves at operating mine | | | | | | | | | | | | | | | Greens Creek (US) | U/G | | | | | | | | 7.0 | | 10.39 | | 30m | |
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| | See notes on pages 32 to 33 | | | | | | | | | | | | | | |
Rio Tinto 2006 Form 20-F | 31 |
Back to Contents ORE RESERVES (under Industry Guide 7) continued Notes | | (a) | Commodity prices (based on a three year average historical price to 30 June 2006) used to test whether the reported reserve estimates could be economically extracted, include the following benchmark prices: | | | |
Ore reserves | Unit | | US$90 million. | |
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| | ALUMINIUM | | | | | Weipa (Australia) | pound | | 0.85 | | | | | | | COPPER | | | | | Bingham Canyon (US) | pound | | 1.59 | | Escondida (Chile)* | pound | | 1.59 | | Escondida Norte (Chile)* | pound | | 1.59 | | Grasberg (Indonesia)* | pound | | 1.59 | | Northparkes (Australia) | pound | | 1.59 | | Palabora (South Africa) | pound | | 1.59 | | | | | | | GOLD | | | | | Bingham Canyon (US) | ounce | | 446 | | Cortez / Pipeline (US)* | ounce | | 446 | | Grasberg (Indonesia)* | ounce | | 446 | | Greens Creek (US) | ounce | | 446 | | Northparkes (Australia) | ounce | | 446 | | | | | | | IRON ORE | | | | | Australian benchmark (fines) | dmtu** | | 0.46 | | Atlantic benchmark (fines) | dmtu** | | 0.49 | | | | | | | LEAD | | | | | Greens Creek (US) | pound | | 0.41 | | | | | | | MOLYBDENUM | | | | | Bingham Canyon (US) | pound | | 20.5 | | | | | | | SILVER | | | | | Bingham Canyon (US) | ounce | | 7.34 | | Grasberg (Indonesia)* | ounce | | 7.34 | | Greens Creek (US) | ounce | | 7.34 | | | | | | | ZINC | | | | | Greens Creek (US) | pound | | 0.64 | |
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* = non managed operations | ** = dry metric tonne unit | | | | Prices for all other commodities are determined by individual contract negotiation. The reported reserves for these commodities have been tested to confirm that they could be economically extracted using a combination of existing contract prices until expiry and thereafter three year historical prices. | (b) | Type of mine: O/P = open pit, O/C = open cut, U/G = underground, D/O = dredging operation, S/P = stockpile. | (c) | Drill hole spacings are either average distances, a specified grid distance (a regular pattern of drill holes - the distance between the drill holes along the two axes of the grid will be aligned to test the size, shape and continuity of the mineral deposit; as such there may be different distances between the drill holes along the two axes of a grid) or the maximum drill hole spacing that is sufficient to determine the reserve category for a particular deposit. As the continuity of mineralisation varies from deposit to deposit, the drill hole spacing required to categorise a reserve varies between and within deposit types. | (d) | Reserves of iron ore, bauxite (as alumina) and diamonds are shown as recoverable reserves of saleable product after accounting for all mining and processing losses. Mill recoveries are therefore not shown. | (e) | Reserves of industrial minerals are expressed in terms of marketable product, i.e. after all mining and processing losses. In the case of borates, the saleable product is B2O3. | (f) | Coal reserves are shown as both recoverable and marketable. The yield factors shown reflect the impact of further processing, where necessary, to provide marketable coal. All reserves at operating mines are assigned, all undeveloped reserves are unassigned. By “assigned” and “unassigned,” we mean the following: assigned reserves means coal which has been committed by the coal company to operating mine shafts, mining equipment, and plant facilities, and all coal which has been leased by the company to others; unassigned reserves represent coal which has not been committed, and which would require new mineshafts, mining equipment, or plant facilities before operations could begin in the property. | (g) | Coal type: SC = steam/thermal coal; MC = metallurgical/coking coal. | (h) | Analyses of coal from the US were undertaken according to "American Standard Testing Methods" (ASTM) on an "As Received" moisture basis whereas the coals from Australia have been analysed on an "Air Dried" moisture basis according to Australian Standards (AS). MJ/kg = megajoules per kilogramme. 1 MJ/kg = 430.2 Btu/lb. | (i) | Stockpile components of reserves are shown for all operations. | (j) | Rio Tinto Minerals - Boron was previously known as Boron. | (k) | Rio Tinto Energy America was previously known as Kennecott Energy. | (l) | Rio Tinto Energy America has a partnership interest in the Colowyo mine, but, as it is responsible under a management agreement for the operation of the mine, all of Colowyo's reserves are included in Rio Tinto's share shown above. |
Rio Tinto 2006 Form 20-F | 32 |
Back to Contents 48ORE RESERVES (under Industry Guide 7) continued (m) | The term 'undeveloped reserves' is used here to describe material that is economically viable on the basis of technical and economic studies but for which construction and commissioning have yet to commence. | (n) | The increase in reserves at Escondida and Escondida Norte results from updated models following increased drilling and the application of new economic parameters, which transferred mineralised material to reserves. Oxide material has been transferred to sulphide leach following the start up of new processing facilities. | (o) | Under the terms of a joint venture agreement between Rio Tinto and Freeport-McMoRan Copper & Gold (FCX), Rio Tinto is entitled to a direct 40 per cent share in reserves discovered at Grasberg after 31 December 1994 and it is this entitlement that is shown. | (p) | Reserves at Palabora have decreased following detailed remodelling of both grade and block cave models, and the effect of diluting material from the open pit. The conversion of debentures into ordinary shares continued during 2006 with Rio Tinto participating, ending the year with a 57.7 per cent interest. | (q) | The successful completion of feasibility studies and change in economic parameters has increased reserves at Argyle. | (r) | Production depletion and refinement of mine design at Diavik, that reduced dilution, results in the reduced reserve. | (s) | Portions of the Pipeline and Crossroads extension reserves were reclassified as mineralised material following technical and economic review. | (t) | Following the acquisition of a 50 per cent interest in the Hope Downs iron ore project, reserves are presented here for the first time. | (u) | Mt Tom Price reserves have increased following the upgrading of mineralised material and approved mine design extensions into a new area. | (v) | Following a reassessment of economic and design criteria a proportion of reserves were reclassified as mineralised material at several of the talc operations. Rio Tinto Minerals - talc was formerly known as the Luzenac Group. | (w) | The reserve model was updated on receipt of new data, which including depletion, resulted in a reduction of reserves at QIT. | (x) | Improvements in processing and economic parameters enabled lower grade stockpile material to be added to the reserves at Ranger #3. |
Rio Tinto 2006 Form 20-F | 33 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents LOCATION OF GROUP OPERATIONS as at June 2007 (wholly owned unless stated otherwise) | | | | |
| | ALUMINIUM | | | Operating sites | 1 | | Anglesey Aluminium (51%) | 2 | | Bell Bay | 3 | | Boyne Island (59%) | 3 | | Gladstone Power Station (42%) | 3 | | Queensland Alumina (39%) | 4 | | Tiwai Point (79%) | 5 | | Weipa | 3 | | Yarwun (formerly Comalco | | | Alumina Refinery) | | | BORATES | | | Operating sites | 6 | | Boron | 7 | | Coudekerque Plant | 8 | | Tincalayu | 9 | | Wilmington Plant | | | COAL | | | Operating sites | 10 | | Antelope | 11 | | Bengalla (30%) | 12 | | Blair Athol (71%) | 13 | | Colowyo (20%) | 10 | | Cordero Rojo | 14 | | Decker (50%) | 12 | | Hail Creek (82%) | 15 | | Hunter Valley Operations (76%) | 10 | | Jacobs Ranch | 16 | | Kestrel (80%) | 15 | | Mt Thorley Operations (61%) | 14 | | Spring Creek | 17 | | Tarong | 15 | | Warkworth (42%) | | | | | | Projects | 12 | | Clermont (50%) | 11 | | Mt Pleasant (76%) |
| | COPPER AND GOLD | | | Operating sites | 18 | | Bougainville (not operating) (54%) | 19 | | Cortez/Pipeline (40%) | 20 | | Escondida (30%) | 21 | | Grasberg joint venture (40%) | 22 | | Kennecott Utah Copper | 23 | | Northparkes (80%) | 24 | | Palabora (58%) | 25 | | Rawhide (51%) | | | | | | Projects | 26 | | La Granja | 27 | | Oyu Tolgoi (10%) | 28 | | Pebble (20%) | 29 | | Resolution (55%) | | | | | | DIAMONDS | | | Operating sites | 30 | | Argyle | 31 | | Diavik (60%) | 32 | | Murowa (78%) |
| | IRON ORE | | | Operating sites | 33 | | Corumbá | 34 | | Hamersley Iron mines: | | | Brockman | | | Marandoo | | | Mt Tom Price | | | Nammuldi | | | Paraburdoo | | | Yandicoogina | | | Channar (60%) | | | Eastern Range (54%) | 35 | | HIsmelt®(60%) | 34 | | Robe River mines: (53%) | | | West Angelas | | | Pannawonica | 35 | | Iron Ore Company of | | | Canada (59%) | | | | | | Projects | 34 | | Hope Downs (50%) | 37 | | IOC Pellet Plant (59%) | 38 | | Orissa (51%) | 39 | | Simandou (95%) | | | | | | NICKEL | | | Projects | 40 | | Eagle | | | | | | POTASH | | | Projects | 41 | | Rio Colorado Potash | | | | | | SALT | | | Operating sites | 42 | | Dampier (65%) | 43 | | Lake MacLeod (65%) | 42 | | Port Hedland (65%) |
| | TALC | | | Operating sites | | | (only major sites areshown) | | | | 44 | | Ludlow | 45 | | Talc de Luzenac | 46 | | Yellowstone | 47 | | Three Springs | | | | | | TITANIUM DIOXIDE | | | FEEDSTOCK | | | Operating sites | 48 | | QIT-Fer et Titane Lac Allard | 49 | | QIT-Fer et Titane Sorel | | | Plant | 50 | | Richards Bay Minerals (50%) | | | | | | Projects | 51 | | QIT Madagascar Minerals (80%) | | | | | | URANIUM | | | Operating sites | 52 | | ERA (68%) | 53 | | Rössing (69%) | | | | | | Projects | 54 | | Kintyre | 55 | | Sweetwater | | | | | | ZINC, LEAD, SILVER | | | Operating sites | 56 | | Greens Creek (70%) |
| • | Mines and mining projects | | | | | • | Smelters, refineries and processing plants remote from mine |
Rio Tinto 2006Form 20-F | 34 |
Back to Contents Item 4A. | Unresolved Staff Comments |
As far as Rio Tinto is aware there are no unresolved written comments from the SEC staff regarding its periodic reportsunder the Exchange Act received more than 180 days before 31 December 2006. Item 5. | Operating and Financial Review and Prospects | | | This Item contains forward looking statements and attention is drawn to the Cautionary statement on page 6. This Item includes a discussion of the main factors affecting the Group’s “Profit for the year”, as measured in accordance with International Financial Reporting Standards as adopted by the European Union (‘EU IFRS’). In monitoring its financial performance, the Group also focuses on that part of the Profit for the year attributable to equity shareholders of Rio Tinto, which is referred to as “Net earnings”, and on an additional measure called “Underlying earnings”. The latter measure, which is also based on the amounts attributable to Rio Tinto shareholders, is reported to provide greater understanding of the underlying business performance of Rio Tinto operations. This measure is used by management to track the performance of the Group on a monthly basis. The earnings of the Group’s product groups as reviewed by management exclude amounts that are outside the scope of underlying earnings. Underlying earnings is defined and reconciled with Net earnings in note 2 to the 2006 financial statements. Significant movements in the items excluded from Underlying earnings are discussed on pages 40 to 41. In this report, the sales revenue of the parent companies and their subsidiaries is referred to as ‘Consolidated sales revenue’. Rio Tinto also reports a sales revenue measure that includes its share of jointly controlled entities and associates, which is referred to as ‘Gross sales revenue’. This latter measure is considered informative because a significant part of the Group's business is conducted through operations that are subject to equity accounting. |
| This Item is comprised of the following: | • | Chairman’s message providing a high level review of the Group | • | Interview with the chief executive providing a high level review of the Group’s operations | • | Group financial performance | • | Operating reviews for each of the principal product groups and global support groups | • | Financial review of the Group | As a result of adopting IAS 32, IAS 39 and IFRS 5 on 1 January 2005, the Group changed its method of accounting forfinancial instruments and non-current assets held for sale. In line with the relevant transitional provisions, the priorperiod comparatives have not been re-stated. See Note 1 to the 2006 financial statements for further discussion. |
CHAIRMAN’S MESSAGE We continued to experience strong global demand and high prices across our product groups in 2006 and are pleased to report a third successive year of record earnings. This performance reflects the underlying quality of the Rio Tintoportfolio, which has proved robust across the economic cycle. I have warned in previous messages about the risk of complacency that can flow from a period of strong markets and sustained success. We remain alert to this and recognize the long term cyclical nature of our industry. In responsewe continue to focus on rigorous investment discipline, operational excellence and pursuing all opportunities to enhancethe underlying performance of our business. Results and dividends The Group’s underlying earnings in 2006 were US$7,338 million, US$2,383 million or 48 per cent above 2005. Netearnings were US$7,438 million, compared with US$5,215 million in 2005. Cash flow from operations increased 36 percent to [US$10,923]* million. The final dividend declared for 2006 of 64 US cents per share brings the total for 2006 to 104 US cents, anincrease of 30 per cent. We have a long standing policy of progressive dividend delivery and maintaining it remains apriority. In addition, our strong operational cash flows have enabled us to return US$2.4 billion to shareholders through the buyback of shares and the payment of US$1.5 billion special dividend. We have recently announced, subject tomarket conditions, our intention to return a further US$3 billion to be completed by the end of 2007, while still retaining the financial flexibility to take up growth opportunities as they arise. Our main priority for the use of cash generated continues to be profitable investment in the growth of thebusiness with particular emphasis on our portfolio of economically robust projects. Our capital investment grew from US$2.5 billion in 2005 to US$3.9 billion in 2006. Our pipeline of project opportunities will see this grow to aroundUS$5 billion in 2007. Rio Tinto 2006Form 20-F | 35 |
Back to Contents Strategy Our strategy remains to focus on large, long life, low cost ore bodies capable of delivering superior returns across theeconomic cycle. Creating value for shareholders is our primary objective and will remain so. We are fortunate to have a geographical portfolio weighted towards large, mature and growing economies. However, we recognise that pursuit offuture value growth will see us operating in a wider range of countries than in the past. Recent projects and investmentsin Russia, Madagascar, Peru and Mongolia are evidence of this. We are also focused on driving productivity and performance improvements across all our primary businessprocesses, thereby adding to the resilience of our portfolios in more challenging markets. We made significant progresstowards that objective in 2006. Sustainable development Rio Tinto is in a long term, capital intensive business and our investments typically have life spans of 30 years or more and are often in remote locations. Without economic and social stability we cannot deliver economic returns to our host governments, local communities and our shareholders. We therefore remain committed to the principles of sustainable development, which is fully reflected in all aspects of our business. It facilitates access to new opportunities, improves business performance and inspires our own people, who fully share this commitment. As we move into new geographical areas, meeting economic, social and environmental challenges simultaneously will be an increasingly critical feature of our business. I am pleased that our way of doing business has received positive recognition and support from our various stakeholders in these environments. New chief executive We have announced that Tom Albanese will succeed Leigh Clifford as chief executive on 1 May 2007. Leigh has made an outstanding contribution to Rio Tinto for almost 37 years. His seven years as chief executive have seen significantgrowth in the profitability and value of the business and major enhancements in our operational performance. We thankhim for all he has done for Rio Tinto and wish him well for the future. Tom brings a broad based experience of the mining industry developed in a sequence of challenging roles in Rio Tinto. He has been a key player in a number of important initiatives over recent years and in shaping our strategicdirection. We have plans in place for a smooth handover from Leigh to Tom and the board is confident that, under hisleadership, Rio Tinto will continue to deliver profitable growth and increased value for shareholders. Board developments Michael Fitzpatrick joined the board in June 2006 after a successful period in investment fund management. He brings along experience of entrepreneurial activity to the board and is a valuable addition to our Australian representation. Weare fortunate to have an experienced and diverse board which provides strong support and constructive challenge to ourexecutive team. Forward outlook The global economy remains resilient in the face of a range of political and economic risks. We expect a continuation of positive economic growth in 2007 in most of the major economies. China’s strong, growing demand for metals and minerals, which has been a key driver of market strength, seems set to continue. On the supply side, a number of constraints, ranging from shortages of key consumables, like truck tyres andexplosives, to the tight supply of skilled technical managers and tradesmen, have limited the growth of new productioncapacity. Stocks of most products have remained low, resulting in tight markets. This has reinforced the strength of the current cycle and we expect prices in 2007 to continue at levels significantly above the long term trend. Our people Despite the benefit of strong markets, 2006 was very challenging in operational terms. We have faced daily pressures inmeeting the requirements of our customers and developing new projects within tight timetables and budgets. Our recordresults would not have been possible without the commitment, dedication and hard work of our global workforce. Once again, on behalf of the board and you, our shareholders, I thank them for all they have achieved in an excellent year forRio Tinto. Paul Skinner Chairman 23 February 2007 * | Adjusted following a reclassification post publication in the 2006 Annual report and financial statements. |
Rio Tinto 2006Form 20-F | 36 |
Back to Contents INTERVIEW WITH THE CHIEF EXECUTIVE How would you describe the past year? Underlying earnings in 2006 were a record US$7.3 billion. Not only were prices for metals and minerals higher, but wewere able to make the most of the situation with increased production at many of our operations – maximising deliveryinto strong markets. With our strong balance sheet we are in a position to invest heavily in growth and to return capital to shareholders. Through our business improvement programme,Improving performance together(IPT), we are seeinga significant change in the way business units cooperate and share best practice. IPT resulted in substantial additionalcash flow in 2006 and should deliver very large value enhancements in the future. Health, safety and environment indicators generally showed steady improvement, but unfortunately the year was marred by three fatalities at Rio Tintomanaged operations. Why are markets this good? Economic growth and development around the world, particularly in China and India, mean an increased need for minerals. The mining industry is struggling to keep pace with demand. There is normally a quicker supply response when demand rises. However, because of previous under investment in exploration, the next generation of large world class deposits is only now being identified and evaluated. These deposits are often in remote locations, present new technical challenges and will take some years to come into production. The delivery times for major items of equipment have also significantly increased. While we believe a new higher base level of prices has developed for most commodities, this is mirrored by higher operating and development costs. Rio Tinto’s volume growth has typically been six to seven per cent a year – where to now? We concentrate on what we do best, which is mining – the first stage of the supply chain. Rio Tinto operates or shares in some of the largest deposits in the world. That is partly why we are enjoying financial success at a time of strongprices, although all our product groups generate strong cash flow at all points of the cycle. Large long life deposits alsogive us the opportunity to increase production in line with demand, a great advantage in the current environment. Ours is a simple strategy and it works. While most of our existing assets are in OECD countries, we are responding to new opportunities in the developing world – Peru, Guinea and Indonesia to name a few – and in countries that are only now opening up to mining investment, like Madagascar, Russia and Mongolia. We are always alert to merger and acquisition opportunities, but growth is often ab out choosing between buyingand building. When you build a new project you should know what you’re getting if you execute the project well, butwhen you buy you may find not all the assets are jewels. The key is to make value creating decisions – not just increase volume. We are willing to make the big bets, as we have in iron ore and copper, but the key factor in the execution ofour strategy is discipline: discipline in analysis and discipline in execution. How are you responding to cost pressures? We work very hard to manage costs related to operational inputs, supplies, wages, energy and higher material coststhrough the excellent work of our global procurement team and our strong supplier relationships. However, the prices of many key inputs, including labour, have risen sharply in recent times. Of course our exploration and project evaluationcosts feeding our development pipeline are in the nature of investments in the future. Can you say a little more on theImproving performance togetherinitiative? We need to permanently change the way we run our individual operations, replicating best performance across everything we do –project analysis, project development, mine planning, mining, processing and marketing. We are aglobal Group and we need to work across functions and international borders to solve problems together instead ofbusinesses going it alone. By creating a standard operating model with common systems, standards and metrics we will ensure that we capture the best ways of operating and reproducing these across the Group. The substantial additionalcash flow we achieved in 2006 is the start to adding considerable value to the Group over time. You spent about US$4 billion in new capital in 2006. How are the major projects going? Overall, our new projects are coming along well. Our iron ore expansion projects in Western Australia remain ourbiggest current capital investment. The challenge of operating and expanding ten mines, three ports and more than 1,600km of rail line in the Pilbara at a time of buoyant market conditions should not be underestimated. With totalexpenditure of US$3 billion, by the end of 2007 our port and rail infrastructure will be capable of handling up to 195 million tonnes of iron ore annually. The recently announced expansion of Cape Lambert port, at a cost of US$860 million, will further expand capacity to 220 million tonnes. The Yandicoogina mine will expand to 52 million tonnes a year in the same period and the Hope Downs project will start production in 2008 with output of 22 million tonnes, rising to 30 million tonnes in stage two. From negotiation of the agreement on Hope Downs to first deliveries will be only three years. Our ilmenite project in Madagascar is on schedule, and construction of basic infrastructure by local contractors is under way. The port contract has been awarded, enabling us to finalise a definitive cost estimate of US$850 million for the total project including the building of additional processing capacity in Canada. First production is scheduled for2008, when we believe there will be growing demand for the high quality ilmenite that Madagascar will produce for 40 years. Rio Tinto 2006Form 20-F | 37 |
Back to Contents Development continues at the Argyle Diamond mine in Western Australia, Diavik in Canada and Cortez in Nevada, as does the extension of the life of the Rössing Uranium mine in Namibia. Earlier this year we announced thedevelopment of the Clermont thermal coal mine in Queensland, and we completed significant investment to expandcapacity at the Weipa bauxite mine in Queensland. What about new opportunities? We have acquired interests in three promising copper projects: La Granja in Peru, the Pebble project in Alaska and OyuTolgoi (Turquoise Hill) in Mongolia which, together with Resolution Copper in the US, give us an interest in four world class undeveloped copper mineral deposits. The investment in Mongolia represents a phased, risk managed entry into apotentially outstanding resource. La Granja has been given the go ahead for a US$95 million pre-feasibility study. We are encouraged by the exploration potential on ERA leases in Australia and the expansion possibilities at Rössing Uranium in Namibia. These, together with the potential of Kintyre in Western Australia and Sweetwater in Wyoming, US, mean we are well placed to extend uranium reserves in the near future. In addition we have an extensive global exploration programme, spending a total of US$345 million in 2006, and we continue to evaluate numerous development opportunities, often with others. Much is being made of a skills shortage. What is your view? Technical skills in mining, metallurgy and geological sciences are in short supply and there is strong competition for recent graduates, experienced engineers and artisans as well as supervisors. However, I believe we are better placedthan most. Global graduate recruitment is a high priority and we are doing well in attracting good quality people. Weare seen as an organisation that can provide exciting international experience, good training and lots of opportunity. We are also being more creative in retaining the skills and experience of staff in the later stages of their career. All that said ,I think the mining industry as a whole needs to sell itself as an attractive employer more effectively. We need toconsider changes to career structures to retain staff by offering greater flexibility and to identify “adventurous” people at the recruitment stage. Any reflections on your handover to Tom Albanese? I am fortunate to have worked for Rio Tinto for almost 37 years. It has given me a diverse and interesting career duringwhich I have met and worked with many different people who form this great team that is Rio Tinto. In Tom Albanese we have a very able, experienced and committed individual to continue Rio Tinto’s success. I would like to take this opportunity of wishing him well, and to thank all my colleagues around the world for the strong support they have given me in the many roles over my career. Leigh Clifford Chief executive 23 February 2007 Rio Tinto 2006 Form 20-F | 38 |
Back to Contents GROUP FINANCIAL PERFORMANCE Underlying earnings is the key financial performance indicator which management use internally to assess performance. It is presented here as an additional measure of earnings to provide greater understanding of the underlying businessperformance of the Group’s operations. The categories of items excluded from net earnings to arrive at underlyingearnings are explained in note 2 to the 2006 financial statementstogether with information on a minor change in the definition of underlying earnings. Both net earnings and underlying earnings deal with amounts attributable to equity shareholders of Rio Tinto.However, EU IFRS requires that the profit for the period reported in the income statement should also include earnings attributable to outside shareholders in subsidiaries. The profit for the period is reconciled to net earnings and tounderlying earnings as follows: | 2006 | | 2005 | | 2004 | | | US$m | | US$m | | US$m | |
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| | Profit for the year | 7,867 | | 5,498 | | 3,244 | | Less: attributable to outside equity shareholders | (429 | ) | (283 | ) | 53 | |
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| | Attributable to equity shareholders of Rio Tinto (net earnings) | 7,438 | | 5,215 | | 3,297 | | Less: exclusions from underlying earnings | (100 | ) | (260 | ) | (1,025 | ) |
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| | Underlying earnings attributable to shareholders of Rio Tinto | 7,338 | | 4,955 | | 2,272 | |
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Amounts attributable to outside equity shareholders increased in 2006 largely because of improved results at Palaboraand the reversal of impairment at IOC. Amounts attributable to outside equity shareholders increased in 2005 because of improved results at Robe River, IOC, Coal & Allied, Rio Tinto Iron & Titanium and Palabora. In addition, in 2004outside equity shareholders’ interests included a US$129 million charge for impairments. Earnings contributions from Group businesses and business segments are based on underlying earnings. Amounts excluded from net earnings in arriving at underlying earnings are summarised in the following table and discussed further below. | 2006 | | 2005 | | 2004 | | | US$m | | US$m | | US$m | |
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| | Profit less losses on disposal of interests in businesses | 3 | | 311 | | 1,175 | | Impairment reversals less charges | 44 | | 4 | | (321 | ) | Adjustment to environmental remediation provision | 37 | | 84 | | — | | Exchange gains/(losses) on external net debt and intragroup balances (including those relating to equity accounted units) | (14 | ) | (99 | ) | 159 | | Gains/(losses) on currency and interest rate derivatives not qualifying for hedge | | | | | | | accounting (including those relating to equity accounted units) | 30 | | (40 | ) | 12 | |
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| | Total excluded in arriving at underlying earnings | 100 | | 260 | | 1,025 | |
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Changes in underlying earnings 2004 - 2006 | US$m | |
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| | 2004 Underlying earnings | 2,272 | | Effect of changes in: | | | Prices | 2,374 | | Exchange rates | (123 | ) | General inflation | (141 | ) | Volumes | 1,140 | | Costs | (598 | ) | Tax and other | 31 | |
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| | 2005 Underlying earnings | 4,955 | | Effect of changes in: | | | Prices | 3,068 | | Exchange rates | (35 | ) | General inflation | (174 | ) | Volumes | (135 | ) | Costs | (741 | ) | Tax and other | 400 | |
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| | 2006 Underlying earnings | 7,338 | |
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2006 compared with 2005 Net earnings of US$7,438 million in 2006 were US$2,223 million above 2005, an increase of 43 per cent. Underlyingearnings of US$7,338 million were US$2,383 million above 2005, an increase of 48 per cent. Underlying earnings pershare, which increased by 52 per cent, also reflected the lower number of shares resulting from the share buyback programme. The principal factors explaining the changes in underlying earnings are shown in the table above. Rio Tinto 2006 Form 20-F | 39 |
Back to Contents Changes in underlying earnings The effect of price movements on all major commodities was to increase underlying earnings by US$3,068 million.Prices for the major products remained strong throughout the year and were considerably higher than those experiencedin 2005: average copper prices were 84 per cent higher whilst average aluminium prices were 35 per cent higher. The strength of the global iron ore market was reflected in the 19 per cent increase in the benchmark price, mainly effectivefrom 1 April 2006. The seaborne thermal coal market was also strong, although it weakened in the second half. Molybdenum prices averaged US$25/lb throughout 2006, a decline of 20 per cent compared with the prior year. The net effect of changes in average levels of exchange rates against the US dollar for those currencies influencing the Group’s costs was to reduce underlying earnings relative to 2005 by US$35 million. Lower sales volumes decreased underlying earnings by US$135 million compared with 2005. As anticipated, significantly reduced volumes from lower grades at Grasberg impacted earnings by US$355 million year on year. Thismore than offset higher volumes at other operations. The ramp up of new projects in iron ore (including the Yandicoogina and brownfields expansions), higher copper in concentrate volumes from improved grades andthroughput at Northparkes, higher ore grades and the commencement of sulphide leach production at Escondida, alongwith higher molybdenum and gold production at Kennecott Utah Copper (KUC), were the main contributors. Record volumes of thermal coal sales at Rio Tinto Energy America and alumina at Yarwun (formerly Comalco AluminaRefinery), also contributed to higher volumes. Lower sales volumes were recorded at Argyle with a build up ofdiamond inventories due to softer market conditions, at Kennecott Minerals from lower grades at Cortez, and at Hail Creek from lower coking coal volumes in response to lower customer demand. Excluding the effects of general inflation, higher costs reduced underlying earnings by US$741 million, of whichUS$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 KUC were affected by an extended, scheduled smeltermaintenance shutdown whilst Escondida experienced higher wages, following the strike in August. Significant shippingcongestion at the port of Newcastle affected coal sales in the second half of the year with a resulting impact on costs at Rio Tinto Coal Australia, through higher demurrage and a higher unit cost of sale. 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 recognition of US$335 million of US Alternative Minimum Tax (AMT) credits now expected to be utilised in future years. This reflected improved projections of long term taxable earnings from our US operations. Additionally, the high levels of profit generated by the Group’s US operations in 2006 resulted in the realisation of US$140 million of previously unrecognised deferred tax assets in the year. Deferred tax provisions decreased by US$46 million as a result of a reduction in Canadian tax rates. These favourable tax variances are includedwithin the favourable variance of US$400 million for ‘Tax and other items’. Exclusions in arriving at underlying earnings In 2006 a US$3 million gain was realised from disposals of interests in non core businesses, compared with gains from disposals of US$311 million in 2005. In 2005, the gains related mainly to the sale of Rio Tinto’s interests in the Labrador Iron Ore Royalty Income Fund and in Lihir Gold. Net earnings in 2006 included net impairment reversals totalling US$44 million. Impairments were reversed atKUC and IOC which more than offset impairment charges at Argyle and Tarong Coal. The valuation of the Argyleunderground project is being kept under review, given the continuing pressure on mine development costs resultingfrom acute shortages in the mining industry and more challenging mining conditions than expected. In addition, net earnings in 2006 include a reduction of US$37 million (2005: US$84 million) in an environmental remediationprovision at KUC, reversing an exceptional charge taken up in 2002 (which was excluded from adjusted earnings in thatyear). Exchange gains and losses on external net debt and intragroup balances that are recorded in the US dollar incomestatement, together with gains and losses on currency and interest rate derivative contracts that do not qualify as hedges under EU IFRS, are excluded from underlying earnings. In 2006, these items represented a gain of US$16 million (2005: a loss of US$139 million). The effective tax rate on net earnings, excluding equity accounted units was 26.8 per cent compared with 27.8 per cent in 2005. There were significant untaxed gains in 2005 which lowered the effective tax rate and the tax benefits referred to above reduced the tax rate for 2006. 2005 financial results compared with 2004 Net earnings of US$5,215 million in 2005 were US$1,918 million above 2004, an increase of 58 per cent. Underlyingearnings of US$4,955 million were US$2,683 million above 2004, an increase of 118 per cent. The increase of 120 per cent in underlying earnings per share also reflected the lower number of shares resulting from the share buybackprogramme. The principal factors explaining the changes in underlying earnings are shown in the table above. Changes in underlying earnings The effect of price movements on all major commodities was to increase earnings by US$2,374 million. Prices for the major products remained strong throughout the year and were appreciably higher than those experienced in 2004: average copper prices were 28 per cent higher whilst average aluminium prices were ten per cent higher. The strength of the global iron ore market was reflected in the 71.5 per cent increase in the benchmark price, mainly effective from 1 April 2005. The seaborne thermal and coking coal markets were also strong. Rio Tinto 2006 Form 20-F | 40 |
Back to Contents Molybdenum prices, which had generally been below US$5 per pound over the previous ten years, averaged over US$30 per pound during 2005, although they did soften towards the end of that year. The US dollar was generally weaker than in 2004 relative to the currencies in which the Group incurs themajority of its costs. The average levels of the Australian and Canadian dollars strengthened against the US dollar by four per cent and eight per cent, respectively. The effect of this, together with other currency movements, was to reduceunderlying earnings relative to 2004 by US$123 million. Over 40 per cent of the underlying earnings increase year on year came from higher sales volumes, resulting in a favourable variance of US$1,140 million compared with 2004. The West Angelas and Yandicoogina mine expansions(to 36 million tonnes per annum) were completed in 2005 whilst strong operational performance led to majorproduction gains at many operations including IOC and Argyle. The improvement over 2004 also reflected the following adverse influences on that earlier year: the Grasberg slippage, the ten week strike at IOC and the effects ofCyclone Monty at Hamersley Iron and Robe River. To take advantage of the strong market for molybdenum, the mine sequencing at KUC was optimised to maximise molybdenum production. This, together with modifications to themolybdenum circuit at the concentrator, boosted production volumes by 130 per cent. Excluding the effects of inflation, higher costs reduced earnings by US$598 million. Of this, US$130 million was due to higher energy costs and US$46 million was attributable to increased exploration expenditure from brownfieldexploration and further evaluation work. More generally, costs were influenced by the strong price environment beingenjoyed by the mining industry. This led to rising mining input costs caused by supply constraints for skilled labour, steel, tyres, explosives, freight and other mining related goods and services. Costs at KUC were affected by a scheduled17 day smelter maintenance shutdown in the first half of 2005 whilst continued port congestion at Dalrymple Bay,Queensland, fed through to higher demurrage charges. Higher non cash costs reflected increased depreciation at KUC following the changes in the mine plan at the endof 2004. Increases in closure cost provisions resulted in higher depreciation charges on the amounts capitalised. One-offcosts included restructuring costs of US$30 million relating to the formation of the Rio Tinto Minerals organisation. The effective tax rate on underlying earnings, excluding equity accounted units, was 29.2 per cent compared with27.1 per cent in 2004 because of higher rates on increased profits in Canada and Indonesia and higher withholdingtaxes. In total “Tax and other items” improved by US$31 million. Within that total, the net after tax interest expense ofUS$44 million was US$25 million lower than in 2004 due to lower levels of net debt. Also within “Tax and other items”, 2004 underlying earnings included contributions totalling US$88 million from the operations of businesses that were sold during that year. Earnings in 2005 benefited from an improvement in the net impact of insurance items,including lower claims on the captive insurers due to the absence of cyclone related damages experienced in 2004. Exclusions in arriving at underlying earnings In 2005 the net profit on the disposal of interests in businesses was US$311 million relating mainly to the sale of Rio Tinto’s interests in the Labrador Iron Ore Royalty Income Fund and in Lihir Gold. Disposals in 2004, principally the holding in Freeport-McMoRan Copper & Gold, resulted in gains of US$1,175 million. Net earnings in 2005 include a reduction of US$84 million in an environmental remediation provision atKennecott Utah Copper, reversing part of an exceptional charge taken up in 2002 (which was excluded from adjustedearnings in that year). Net earnings in 2004 included an impairment charge of US$160 million relating to the Colowyocoal operation and of US$161 million for the write down of Palabora’s copper assets. Exchange gains and losses on external net debt and intragroup balances that are recorded in the US dollar incomestatement, together with gains and losses on currency and interest rate derivative contracts that do not qualify as hedgesunder EU IFRS, are excluded from underlying earnings. In 2005, these items represented a loss of US$139 million (2004: a gain of US$171 million). The effective tax rate on net earnings, excluding equity accounted units was 27.8 per cent compared with 18.5per cent in 2004. There were very significant untaxed gains in 2004 which lowered the effective tax rate. There was a smaller amount of untaxed gains in 2005 which, together with the adverse 2005 tax effects referred to above, resultedin a higher effective tax rate. Rio Tinto 2006 Form 20-F | 41 |
Back to Contents Group financial results by product group The table below summarises the Group’s underlying earnings by product group for each of the three years to 2006. | 2006 | | 2005 | | 2004 | | | US$m | | US$m | | US$m | |
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| | Iron Ore | 2,279 | | 1,722 | | 565 | | Energy | 711 | | 733 | | 431 | | Industrial Minerals | 243 | | 187 | | 243 | | Aluminium | 746 | | 392 | | 331 | | Copper | 3,562 | | 2,020 | | 860 | | Diamonds | 205 | | 281 | | 188 | | Other operations | 33 | | 40 | | 25 | | Exploration and evaluation | (163 | ) | (174 | ) | (128 | ) | Other items | (261 | ) | (202 | ) | (174 | ) | Net interest | (17 | ) | (44 | ) | (69 | ) |
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| | Group underlying earnings | 7,338 | | 4,955 | | 2,272 | | Exclusions from underlying earnings | 100 | | 260 | | 1,025 | |
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| | Net earnings | 7,438 | | 5,215 | | 3,297 | |
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Trend information The demand for the Group’s products is closely aligned with changes in global GDP. Changes in the GDP of developing countries are expected to have greater impact on materials such as iron ore and coal that can be used toimprove infrastructure whereas changes in the GDP of developed countries are expected to have greater impact onindustrial minerals that have many applications in consumer products. Copper is used in a wide range of applications from infrastructure to consumer electronics and demand for it has tended to grow in line with or slightly faster than global GDP. Trends in production of the Group’s minerals and metals, gross sales revenue and underlying earnings are set out in thisOperating and financial review. Rio Tinto 2006 Form 20-F | 42 |
Back to Contents IRON ORE GROUP Production | Rio Tinto share | | | million tonnes | |
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| | 2002 | 91.0 | | 2003 | 102.6 | | 2004 | 107.8 | | 2005 | 124.5 | | 2006 | 132.8 | |
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| | 2004 | 565 | | 2005 | 1,722 | | 2006 | 2,279 | |
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| | | | | Changes in underlying earnings 2004 - 2006 | US$m | |
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| | 2004 Underlying earnings | 565 | | Effect of changes in: | | | Prices and exchange rates | 968 | | General inflation | (18 | ) | Volumes | 270 | | Costs | (51 | ) | Tax and other | (12 | ) |
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| | 2005 Underlying earnings | 1,722 | | Effect of changes in: | | | Prices and exchange rates | 616 | | General inflation | (25 | ) | Volumes | 156 | | Costs | (220 | ) | Tax and other | 30 | |
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| | 2006 Underlying earnings | 2,279 | |
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* | A reconciliation of the net earnings with underlying earnings for 2004, 2005 and 2006 as determined under EU IFRS is set out on page 39 |
Rio Tinto’s Iron Ore group (RTIO) comprises iron ore operations in Australia, Canada and Brazil and development projects in Guinea (west Africa) and India. The portfolio also includes a HIsmelt®plant in Australia, which is arevolutionary process that converts iron ore fines into high quality pig iron. At 31 December 2006, the iron ore group accounted for 32 per cent of Rio Tinto’s operating assets, and in 2006contributed 27 per cent of the Group’s gross sales revenue and 31 per cent of underlying earnings. RTIO employs 4,800 people in Western Australia and approximately 7,000 worldwide. RTIO recruited strongly during the year and in a highly contested recruitment market in Western Australia hired 1,400 new starters, in additionto making a large number of internal transfers, secondments and promotions. Work progressed on a number of safety and environmental initiatives, and particularly focused on the issues surrounding contractor management and the operation of heavy mobile equipment. Final steps were taken for the next stage of the group’s expansion, with infrastructure now in place or approved to handle up to 220 million tonnes of iron ore exports annually. The growth strategy has seen approximately US$5 billion committed to port, rail, power and mine assets since 2003, resulting in a world class, integrated iron ore networkable to capitalise on continued strong demand internationally. In April 2006, RTIO’s 50:50 joint venture with Hancock Prospecting for the development of the Hope Downs project was ratified following State Government approval. Construction of the US$980 million, 22 million tonnes perannum stage one Hope Downs mine has started, with production expected to commence in early 2008. Sam Walsh, chief executive Iron Ore, is based in Perth, Western Australia. Financial performance 2006 compared with 2005 RTIO’s contribution to 2006 underlying earnings was US$2,279 million, US$557 million higher than in 2005. Demand for iron ore remained extremely strong across the product range throughout 2006, driven by the continuing strong growth in global steel demand and production. Total Chinese iron ore imports rose from 275 million tonnes to 326 million tonnes. Hamersley Iron, Robe River, Iron Ore Company of Canada and Corumbá in Brazil all operated at record or near record levels of production in 2006. For the contract year commencing April 2006, RTIO reached agreement with customers on price increases of19 per cent for all products following on from the previous agreement of a 71.5 per cent increase. In December 2006,prices for the 2007 contract year were agreed with Baosteel of China, for a 9.5 per cent increase to the benchmark price.Similar price increase agreements were subsequently reached with other steelmakers. Rio Tinto 2006 Form 20-F | 43 |
Back to Contents 2005 compared with 2004 RTIO’s contribution to 2005 underlying earnings was US$1,722 million, US$1,157 million higher than in 2004. Demand for iron ore continued to be extremely strong across the product range throughout 2005, driven by continued strong growth in global steel production and improvements in steel demand. Chinese iron ore imports rose 30 per cent year on year, and Hamersley Iron, Robe River, IOC and Corumbá all achieved record production in 2005. Operations Hamersley Iron(Rio Tinto: 100 per cent) Hamersley Iron operates eight mines in Western Australia, including two mines in joint ventures, 630 kilometres of dedicated railway, and port and infrastructure facilities located at Dampier. These assets are run as a single operation managed and maintained by Pilbara Iron. The first phase of major expansions to the Pilbara infrastructure (including expanding Dampier port to 116 million tonnes per annum and Yandicoogina mine to 36 million tonnes per annum, and brownfields mine expansion) is now fully operational and the second phase is well under way and tracking on schedule and on budget. The Marandoo mine was expanded and the new Nammuldi mine was completed in the second quarter of the year. Hamersley Iron’s Yandicoogina mine is being expanded from 36 million tonnes per annum to 52 million tonnes and the scheduled completion has been accelerated to the end of the third quarter in 2007. Work also continued on pre-development studies for new mines. 2006 operating performance Hamersley Iron’s total production in 2006 was 97.2 million tonnes, 7.6 million tonnes more than the 89.6 million tonnes in 2005, notwithstanding the volume of expansion work under way across the business. Rio Tinto’s share of this production was 93.3 million tonnes. Flooding caused by a succession of five cyclones early in the year hindered operations significantly. Production increases through the year sought to recover from the early setbacks and meet increased capacity targets. Shipments by Hamersley Iron totalled 98.1 million tonnes, including sales through joint ventures. Hamersley Iron’s shipments to China also reached a new record level at 52.9 million tonnes, securing China’s place as the single largest destination for Hamersley’s iron ore. Production from all mines was stretched to achieve these levels, placing cost and other operating stresses on theHamersley Iron system. Ongoing labour shortages in a competitive market and materials pressures such as tyreshortages also provided significant challenges to meeting production targets. Hamersley’s total shipments of iron ore to major markets in 2006 | Million tonnes | |
|
| | China | 52.9 | | Japan | 27.4 | | Other Asia | 15.8 | | Europe | 2.0 | |
|
| | Total | 98.1 | |
|
| | | | | Note | | | This table includes 100 per cent)cent of all shipments through joint ventures. | | |
Robe River Iron Associates(Rio Tinto: 53 per cent) Robe River Iron Associates (Robe) is an unincorporated joint venture in which Mitsui (33 per cent), Nippon Steel (10.5 per cent) and Sumitomo Metal Industries (3.5 per cent) also have interests. Robe River is the world’s fourth largestseaborne trader in iron ore. Robe River operates two open pit mining operations in Western Australia. Mesa J is located in the Robe Valley,north of the town of Pannawonica. The mine produces Robe River fines and lump, which are pisolitic iron ore products.The West Angelas mine, opened in 2002, is located approximately 100 kilometres west of the town of Newman. The mine produces West Angelas fines and lump, which are Marra Mamba iron ore products. Preparations are under wayfor these products to contribute to the Pilbara Blend from the third quarter 2007, when RTIO’s product range will besimplified from nine products to five. Expansion of mine, rail and port operations has continued. As a result of the 2005 expansion of the West Angelasmine, which took production capacity to 25 million tonnes per annum, Robe River’s overall production capacityincreased to a nominal 57 million tonnes per year. The expansion of the dedicated rail system, operated by Pilbara Iron, was completed during the year, ahead ofschedule. Completion of the northern section of the Pilbara Iron main line meant that almost 100 kilometres of track and associated interconnection and infrastructure such as signalling and communications is now duplicated. This provides Rio Tinto Brasil owns the Group’s interest in Mineração Corumbaense Reunida (Corumbá). Corumbá’s2006Form 20-F | 44 |
Back to Contents significantly greater flexibility, and hence improvements to capacity, in delivering ore to Robe River’s deepwater port facilities at Cape Lambert. The expansion of the Cape Lambert port facility from 55 million tonnes to a rated capacity of 80 million tonnesper annum was recently approved. This is a significant project, comprising a number of major initiatives, including a new product reclaimer and an extended wharf. Robe River primarily exports under medium and long term supply contracts with major integrated steel millcustomers in Japan, China, Europe, South Korea and Taiwan. 2006 operating performance Cyclones slowed production early in the year at Robe River’s Pannawonica and West Angelas mines and hinderedoperations well into the second quarter. Robe River’s total production in 2006 was 52.9 million tonnes, comprising 29.3 million tonnes from Mesa J, and 23.7 million tonnes from West Angelas. Sales were 29.1 million tonnes of Mesa J and 23.3 million tonnes of West Angelas products. Sales growth, based on increased production from West Angelas, was again fuelled by the growth in the Chinese market, where Robe River achieved record total sales of 18.5 million tonnes. However, Japan remains Robe River’s largest single market, with total shipments in 2006 of 24.7 million tonnes. A new mining strategy at West Angelas has resulted in an improved product, with less grade variation. This improved performance is expected to continue through the transition to the Pilbara Blend. Robe’s total shipments of iron ore is barged along the Paraguay River to major markets in 2006 | Million tonnes | |
|
| | Japan | 24.7 | | China | 18.5 | | Europe | 6.1 | | Other Asia | 2.7 | |
|
| | Total | 52.0 | |
|
| |
Iron Ore Company of Canada(Rio Tinto: 58.7 per cent) RTIO operates Iron Ore Company of Canada (IOC) on behalf of shareholders Mitsubishi (26.2 per cent) and the Labrador Iron Ore Royalty Income Fund (15.1 per cent). IOC is Canada’s largest iron ore pellet producer. It operates anopen pit mine, concentrator and pellet plant at Labrador City, Newfoundland and Labrador, together with a 418kilometre railway to its port facilities in Sept-Îles, Quebec. IOC has large quantities of ore reserves with low levels of contaminants. Products are transported on IOC’s railway to Sept-Îles. The port is open all year, handles ore carriers of up to 255,000 tonnes and provides competitive access to all seaborne pellet markets and to the North American Great Lakesregion. IOC exports its concentrate and pellet products to major North American, European and Asian steel makers. IOC employs approximately 1,900 people and recruited 250 people during the year to offset an increase in retirements and to meet greater production needs. 2006 operating performance While concentrate prices continued to rise, showing a 17.3 per cent increase, the pellet premium retreated from the record high of the previous year, resulting in pellet prices softening by 3.5 per cent. Pellets account for 80 per cent of IOC’s production. Total saleable production was 16.1 million tonnes (compared with 15.6 million tonnes in 2005) following astrong recovery from weather related production losses in the first quarter. The total was made up of 12.7 million tonnesof pellet production (13.3 million tonnes in 2005) and 3.4 million tonnes of saleable concentrate production (2.3 million tonnes in 2005). Higher oil prices and efforts to recover first quarter production losses put pressure on unit costs. A project toincrease annual concentrate production to 17.5 million tonnes was largely completed by the year end, and plans for further expansion are currently under consideration. IOC commenced negotiation of a new collective agreement in thefourth quarter of 2006, and following a five-week labour dispute, a new five-year collective agreement was concluded in the second quarter of 2007. IOC’s total shipments of iron ore to major markets in 2006 | Million tonnes | |
|
| | Europe | 5.7 | | Asia Pacific | 5.4 | | North America | 4.8 | |
|
| | Total | 15.9 | |
|
| |
Rio Tinto 2006Form 20-F | 45 |
Back to Contents Mineração Corumbaense Reunida (Corumbá)(Rio Tinto: 100 per cent) Corumbá produced a record two million tonnes of lump iron ore in 2006 and sold 1.8 million tonnes, which was bargedalong the Paraguay River for export to South American and European customers. The feasibility of expandingproduction at the mine in stages to 15 million tonnes per annum is under study. Logistic options are being considered for expanded export sales and for supplies to a proposed steel making project at Corumbá, which is being promoted byRio Tinto. Corumbá has over 200 million tonnes of reserves and over 400 million tonnes of additional mineralisedmaterial. There are approximately 500 employees. HIsmelt®(Rio Tinto: 60 per cent) The HIsmelt®iron making project at Kwinana in Western Australia is a joint venture between Rio Tinto (60 per centinterest through its subsidiary, HIsmelt®Corporation), US steelmaker Nucor Corporation (25 per cent), Mitsubishi Corporation (10 per cent), and Chinese steelmaker Shougang Corporation (five per cent). The project has so farreceived support of A$80 million from the Australian federal government. The HIsmelt®process is a direct iron smelting technology developed largely by Rio Tinto that converts iron ore fines into high quality pig iron (96 per cent iron content) without the use of coke ovens and sinter plants. Notably, thetechnology allows efficient processing of ore fines with higher levels of impurities. In 2006 the Hlsmelt®plant moved into the first year of a three-year ramp up to its full production rate of 800,000 tonnes per annum. Since start up, the facility has produced 98,000 tonnes of pig iron and has made three shipments ofproduct. HIsmelt®has approximately 130 employees. In 2006 the HIsmelt®facility hosted visits from senior representatives of the Chinese government, as well as asignificant number of international steel companies. HIsmelt®Corporation continues to promote the technology globallyand expects interest to increase as the ramp up phase progresses. In November, Australian state and federal ministers attended a special ceremony at Kwinana to recognise the opening of the world’s first commercial HIsmelt®plant. Projects Orissa, India(Rio Tinto: 51 per cent) Orissa is one of the key iron ore regions of the world. RTIO has a joint venture interest in Rio Tinto Orissa Mining withthe state owned Orissa Mining Corporation. The joint venture holds rights to iron ore leases in Orissa, which it is seeking to develop. Rio Tinto is keen to participate in the development of the Indian iron ore sector through its jointventure. A project team has been established and is working to expedite the development of operations in India. India’s economy is expected to maintain its present growth, so providing support for an expanding domestic steel industry, and discussions have continued with major domestic steel companies. Simandou, Guinea(Rio Tinto: 95 per cent) The Simandou project in eastern Guinea, west Africa, is a Rio Tinto greenfields discovery with potentially significantquantities of high grade iron ore. Simandou moved from Rio Tinto Exploration to full project status as part of RTIO in October 2004. A prefeasibility study is assessing the mining and transport options needed to bring Simandou intoproduction as quickly as possible. The International Finance Corporation (the private sector arm of the World BankGroup) took a five per cent stake in the project in August 2006 and is working with Rio Tinto to develop the project in an environmentally and socially sustainable way. To date Rio Tinto has spent more than US$50 million on the project. Rio Tinto 2006Form 20-F | 46 |
Back to Contents ENERGY GROUP | | | Mined | Rio Tinto share | | Coal | million tonnes | |
|
| | 2002 | 149.1 | | 2003 | 148.8 | | 2004 | 157.4 | | 2005 | 153.6 | | 2006 | 162.3 | |
|
| | | | | | | |
Underlying earnings contribution* | US$m | |
|
| | 2004 | 431 | | 2005 | 733 | | 2006 | 711 | |
|
| | | | | | | |
Changes in underlying earnings 2004 - 2006 | US$m | |
|
| | 2004 Underlying earnings | 431 | | Effect of changes in: | | | Prices and European customers.2003 operating performance
Productionexchange rates
| 483 | | General inflation | (41 | ) | Volumes | 8 | | Costs | (140 | ) | Tax and other | (8 | ) |
|
| | 2005 Underlying earnings | 733 | | Effect of lump ore was 25 per cent higher than in 2002.COPPER GROUP PROJECTS
Resolutionchanges in:
| | | Prices and exchange rates | 199 | | General inflation | (Rio Tinto: 55 per cent earn-in)
The Resolution project is situated in Arizona, US, in the area50 | ) | Volumes | (13 | ) | Costs | (209 | ) | Tax and other | 51 | |
|
| | 2006 Underlying earnings | 711 | |
|
| |
* | A reconciliation of the depleted Magma copper mine. In 2001, an agreement was signednet earnings with BHP Billiton Base Metals which allows underlying earnings for 2004, 2005 and 2006 as determined under EU IFRS is set out on page 39 |
The Energy group comprises thermal coal and coking coal operations and uranium. Coal interests are located in Australia and the US. They supply internationally traded and US and Australian domestic markets. The energy portfolioalso includes Rössing Uranium in Namibia and Energy Resources of Australia which supply uranium oxide forelectricity generation globally. The group has consolidated its asset holdings, branding and product stewardship with the creation of Rio Tinto Coal Australia, Rio Tinto Energy America and Rio Tinto Uranium. An overarching group strategy was needed toharness and focus resources to deliver a world class performance in operations, sustainable development and value creation. In 2006 the Energy group undertook a review of its strategy and asset portfolio. The review highlighted theimportance of the Japanese and US markets to the business and the role of China in providing depth in demand whilst increasing the potential volatility. The strategy is focused on becoming the world’s leader in mineable energy. A key part of the strategy is to ensure that the group is a leading advocate of, and investor in, the sustainablefuture uses of coal and uranium. In 2006 the group dedicated resources and investment funds to the FutureGen project in the US, COAL21 in Australia and the International Energy Agency Clean Coal Centre. In uranium, both ERA’s Ranger mine in Australia and the Rössing Uranium mine in Namibia represent low cost brownfield expansion opportunities. Rio Tinto also holds other attractive undeveloped uranium deposits, including Kintyre in Western Australia, and we are currently assessing the viability of restarting the Sweetwater uranium mill and adjacent uranium mine in Wyoming, US. At 31 December 2006, the Energy group accounted for 13 per cent of Group operating assets and, in 2006, contributed 17 per cent of Rio Tinto’s gross sales revenue and ten per cent of underlying earnings. Preston Chiaro, chief executive Energy, is based in London. Financial performance 2006 compared with 2005 The Energy group’s 2006 contribution to underlying earnings was US$711 million, US$22 million lower than in 2005. Results benefited from a sustained increase in the price received for thermal coal during 2006. Problems in thecoal supply chain in the Hunter Valley region of New South Wales impeded production from Coal & Allied operations. Drought in parts of Queensland and New South Wales has begun to affect production levels. Operations focused on producing high margin products and optimising the coal supply chain. Increases in the cost of basic materials, fuel, Rio Tinto to earn a 55 per cent interest in the Resolution project by spending US$25 million over six years. In 2003, five deep exploration drillholes intersected significant copper mineralisation, indicating a large deposit at depth. 2006Form 20-F | 47 |
Back to Contents explosives and labour were not fully offset by production growth, resulting in a rise in the cost per unit of production across all operations. Our uranium businesses continue to provide options and opportunities in the reinvigorated international uraniummarket. The focus of the uranium operations is to seek additional production volumes and long term expansions to sell into the current favourable price environment. Spot prices for uranium oxide strengthened considerably during theperiod, increasing from US$36.38 at the beginning of the year to close at US$72 in December. Uranium oxide istypically sold on long term contracts, with pricing determined several years in advance. The significant rise in the spot price of uranium oxide during the period is therefore not fully reflected in the current earnings. The effects of the 2006pricing levels will flow through to earnings in future years. Our uranium businesses are contracted and priced to 98 percent in 2007 and 88 per cent in 2008. 2005 compared with 2004 The Energy group’s 2005 contribution to underlying earnings was US$733 million, US$302 million higher than in2004. A significant increase in the price received for both thermal and coking coal during 2005 was a key factor in this improvement. Third party infrastructure issues continued to impede production growth in all of the coal operations.Operational emphasis shifted to high margin products and to facilitating the further expansion of the Hail Creek mineinto a strong market for coking coal. The inability to reap the required economies of scale and an increase in the price of fuel and explosives resulted in a rise in the unit cost of production across the group. Spot prices for uranium oxide strengthened considerably during 2005, increasing from US$20.43 at thebeginning of the year to close at US$36.38 in December. The significant rise in the spot price of uranium oxide during the period was not fully reflected in the year’s earnings. Operations Rio Tinto Energy America(Rio Tinto: 100 per cent) Rio Tinto Energy America (RTEA, formerly known as Kennecott Energy) wholly owns and operates four open cut coalmines in the Powder River Basin of Montana and Wyoming, US, and has a 50 per cent interest in, but does not operate,the Decker mine in Montana. RTEA also manages the group’s interest in Colowyo Coal in Colorado, US. In total it employs approximately 2,300 people. One of the largest US producers, RTEA sells its ultra low sulphur coal to electricity generators predominantly in mid western and southern states. Sales are made under multiple year contracts and on a spot basis for one year or less. The domestic US market for low sulphur coal continues to grow due to its competitive cost per delivered energy unit and restrictions on sulphur emissions by utilities. The strong demand for low cost and low sulphur western coal is expected to continue and grow with the announcement of numerous new coal fired generation projects and increased utilisation of existing coal generation capacity in the US. 2006 operating performance RTEA’s attributable production of 125 million tonnes of coal was eight per cent higher than in 2005, with productionincreasing at all of the mines. Expansions at Antelope and Spring Creek increased output to record levels. The new dragline commissioned at Jacob’s Ranch during the year enabled a new production record to be set. Underlyingearnings of US$177 million were 31 per cent higher than the US$135 million recorded in 2005. This increase was attributable to overall production increases and a higher sales price realisation, somewhat offset by a higher effective tax rate and increased operational costs, particularly the cost of diesel, explosives, tyres and labour. Spot prices were volatile during the period. The spot price for 8800 BTU (0.80 sulphur) moved from US$23 a tonne in December 2005 to US$9 in December 2006 for delivery the following year. A fatality occurred at the Spring Creek mine in November 2006. Rio Tinto Coal Australia(Rio Tinto: 100 per cent) Rio Tinto Coal Australia (RTCA) manages the group’s Australian coal interests. These include, in Queensland; the Blair Athol (Rio Tinto: 71 per cent), Kestrel (Rio Tinto: 80 per cent), Tarong (Rio Tinto: 100 per cent) and Hail Creek(Rio Tinto: 82 per cent) coal mines and the Clermont deposit (Rio Tinto: 50 per cent). RTCA also provides management services to Coal & Allied Industries (Coal & Allied) for operation of its four mines located within the Hunter Valley in New South Wales. Coal & Allied (Rio Tinto: 75.7 per cent) is publicly listedon the Australian Securities Exchange and had a market capitalisation of A$6.5 billion (US$ 4.9 billion) at 31 December2006. Coal & Allied wholly owns Hunter Valley Operations, has an 80 per cent interest in Mount Thorley Operations and a 55.6 per cent interest in the contiguous Warkworth mine, and a 40 per cent interest in the Bengalla mine which abuts its wholly owned Mount Pleasant development project. Coal & Allied also has a 37 per cent interest in Port Waratah Coal Services coal loading terminal. Production from the Tarong mine is sold exclusively to Tarong Energy Corporation, an adjacent state owned power utility. A ten year contract for up to 7.5 million tonnes annually expires at the end of 2010. Kestrel and Hail Creek sell mainly metallurgical coal to customers in Japan, south east Asia, Europe and Central Rio Tinto anticipates earning its 55 per cent interest in the project in early 2004. The project is currently in the preliminary stages of a pre-feasibility study. It is anticipated that studies will take some considerable time.2006Form 20-F | 48 |
Back to Contents America, generally on annual agreements. Coal & Allied produces thermal and semi soft coal. Most of its thermal coal is sold under contracts to electricalor industrial customers in Japan, Korea and elsewhere in Asia. The balance is sold in Europe and Australia. Coal & Allied’s semi soft coal is exported to steel producing customers in Asia and Europe under a combination of long term contracts and spot business. In May 2007 Coal & Allied announced production cutbacks of approximately 20% at its Hunter Valley mines following notice of reductions in its port and rail allocations for the remainder of the year. In June 2007 Coal & Allied declared force majeure on a number of its sales contracts as a result of the severeweather conditions encountered at the Port of Newcastle and in the Hunter Valley region of New South Wales. RTCA and Coal & Allied collectively employ approximately 2,500 people. 2006 operating performance RTCA and Coal & Allied’s combined underlying earnings of US$490 million in 2006 were 14 per cent below the 2005result because of coal supply chain bottlenecks and increased operating costs. At all operations other than Tarong, sales were constrained by inability of the infrastructure to handle producer demand. Blair Athol and Hail Creek shipments were both affected by infrastructure constraints at the Dalrymple BayCoal Terminal, while Coal & Allied mines were similarly affected at Port Waratah in New castle because of constraints in the volume of material that could be railed to the port. Total production at Blair Athol decreased from 10.6 million tonnes to 10.2 million tonnes primarily as a result of limited port capacity. Kestrel’s production fell three per cent to 3.6 million tonnes in 2006; this included 2.7 million tonnes of coking coal. At Tarong, production increased by eight per cent to 7.0 million tonnes in line with demand from Tarong Energy Corporation. Hail Creek production was 4.5 million tonnes, a reduction of 23 per cent. At Hunter Valley Operations, total production decreased from 12.4 million tonnes to 12.0 million tonnes. The integrated Mount Thorley Warkworth operations increased production by ten per cent to 11.2 million tonnes. At Bengalla, production decreased seven per cent from 6.0 million tonnes to 5.5 million tonnes. Safety performance and awareness continue to be the major focus of all operations managed by RTCA. Rössing Uranium(Rio Tinto: 68.6 per cent) Rössing produces and exports uranium oxide from Namibia to European, US and Asia Pacific electricity producers. In June, Rössing celebrated its thirtieth anniversary of uranium oxide production. 2006 also marked the first year of production of the life of mine extension. Rössing employs approximately 900 people. 2006 operating performance In 2006, total production of uranium oxide decreased slightly to 3,617 tonnes. The higher market prices for uranium oxide are beginning to flow through into underlying earnings. However, the higher realised prices were partially offset by an increase in cash costs and higher taxation levels, resulting in a US$27million underlying earnings contribution in2006. Rössing continues to put a significant effort and management focus on safety. The goal is to eliminate all injuriesfrom the workplace and to have an embedded safety culture and systems that identify and rectify potential safety incidents. Energy Resources of Australia(Rio Tinto: 68.4 per cent) Energy Resources of Australia Ltd (ERA) is publicly listed and had a market capitalisation of A$4.0 billion (US$3.0 billion) at 31 December 2006. ERA employs approximately 400 people, with 13 per cent of the operational workforce being represented by Aboriginal people. ERA produces uranium oxide at the Ranger open pit mine, 260 kilometres east of Darwin in the NorthernTerritory. ERA also has title to the nearby Jabiluka mineral lease, which in 2003 was put on long term care and maintenance. Ranger has a 5,500 tonnes per year nameplate capacity and started production in 1981. ERA’s operations, including Jabiluka, are surrounded by, but remain separate from, the World Heritage listed Kakadu National Park, andespecially stringent environmental requirements and governmental oversight apply. 2006 operating performance Total uranium oxide production of 4,704 tonnes was significantly below the 5,903 tonnes produced in 2005 owing to the effects of a tropical cyclone and a failure in the acid plant. Stronger prices were partially offset by the higher cost of consumables and resulted in underlying earnings of US$17 million. During the year, ERA embarked upon an extensiveexploration and development programme to identify new reserves and increase the mine life of existing reserves.
Rio Tinto 2003 Annual report and financial statementsRio Tinto 2006 Form 20-F | 49 |
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Operational review continued
Diamonds group
Diamonds
| Diamonds | (Rio Tinto share) | (Rio Tinto share) | ’000 carats | ’000 carats | MINED | RESERVES |
Diamonds
Earnings contribution
US$m
With diamonds growing into a major product for Rio Tinto, the Diamonds group was formed in 2003 from the former Diamonds & Gold group. It comprises Rio Tinto’s diamond interests in Australia, Canada and Zimbabwe, and diamond sales offices in Belgium and India.
Rio Tinto is a leading proponent of the Kimberley Process which seeks to ensure that only legitimately mined and traded rough diamonds are introduced into the world market.
At 31 December 2003, Diamonds accounted for eight per cent of the Group’s operating assets and, in 2003, contributed five per cent of Rio Tinto’s turnover and eight per cent of adjusted earnings. Adjusted earnings are explained on page 32.
Keith Johnson, Group executive, Diamonds, is based in London.
FINANCIAL PERFORMANCE
2003 compared with 2002
Diamonds contributed US$113 million to earnings, up US$50 million from 2002, assisted by the start of production from the Diavik mine. The comparative figures are restated to reflect the reorganisation in 2003 of product group responsibilities, with gold and other metal production accounted for under the Copper, Exploration and Technology groups.
Demand for rough diamonds was strong throughout the year with the rough market outperforming the market for polished stones.
2002 compared with 2001
Diamonds in 2002 contributed US$63 million to earnings, up US$5 million from 2001.
Diavik Diamonds(Rio Tinto: 60 per cent)
Diavik Diamond Mines Inc. (DDMI) owns Rio Tinto’s interest in and manages the unincorporated Diavik Diamonds joint venture in the Northwest Territories of Canada.
The project was completed well ahead of schedule and within budget. Initial production of gem quality diamonds commenced in January 2003 with commissioning of the process plant.
DDMI’s commitment to work with aboriginal communities was formally concluded in five participation agreements, providing training, employment and business opportunities. Procurement contracts for the operating phase were negotiated with Aboriginal businesses.
An agency relationship between DDMI and Rio Tinto Diamonds for marketing DDMI’s share of diamond production was concluded in 2002.
2003 operating performance
Net earnings were US$41 million. Initial sales of diamonds attracted a high level of interest with prices being achieved at a significantly higher level than originally projected.
The mine was completed in January 2003 ahead of schedule and within budget. By year end, the process plant was operating
at design throughput of 1.5 million tonnes of ore per year, six months ahead of schedule. Grades increased as mining progressed through the transition zone where lake bed material meets the orebody proper. Results from bulk sampling of the second kimberlite in the mining sequence, the A154North, showed the quality of these diamonds to be much higher than originally assumed.
A strategic planning team separate from mine operations has been set up to look at how best to capture the upside of higher than expected grades in both the A154South and A154North kimberlites. Timing options are being studied for going underground at these pipes and for construction of the A418 dike required to mine the third kimberlite in the mine sequence. This work will be completed over the next 12 months. Diavik includes some of the most valuable kimberlites known in the western world.
Argyle Diamonds(Rio Tinto: 100 per cent)
Rio Tinto owns and operates the Argyle diamond mine in Western Australia.
Production from Argyle’s major resource, the AK1 open pit mine, is expected to continue until 2007. Approval has been given for a feasibility study into underground mining. This will lead to a decision, expected in 2005, relating to mine closure or further mine development. Development of an exploration decline commenced in 2003 to assist in confirming design criteria. The range of statutory approvals required for underground operation includes environmental and social impact assessments. Argyle employs approximately 725 people.
A decision was taken at the Merlin diamond mine in Australia to cease operations due to the depletion of economic resources. Rehabilitation work was completed at the end of 2003.
2003 operating performance
Net earnings of US$72 million were US$9 million above 2002. Argyle’s results benefited from accumulated inventory sales. Diamond production for 2003 was down eight per cent on 2002 with 30.9 million carats produced. Performance was marred by a fatality in May. Significant production in 2003 was from the lower grade Northern domain of the AK1 pit. Alluvial mining was suspended in 2002.
Rio Tinto Zimbabwe(Rio Tinto: 56 per cent)
Rio Tinto Zimbabwe is a publicly quoted company having a significant local shareholding.
Its interests include the Renco gold mine and the Empress Nickel refinery and a 50 per cent interest in the Murowa project. The Patchway gold mine was sold in July 2003. In total, Rio Tinto Zimbabwe employs approximately 1,600 people.
2003 operating performance
Gold production was down at Renco due to lower throughput and poor head grades.
50 | Rio Tinto 2003 Annual report and financial statements |
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Operating in Zimbabwe became much more of a challenge during 2003 with multiple factors affecting the operations, the most serious of which were acute food and fuel shortages, and the incidence of HIV. An uncertain fiscal exchange policy also created a very difficult operating environment.
DIAMOND PROJECT
Murowa(Rio Tinto: 78 per cent)
Rio Tinto and Rio Tinto Zimbabwe propose to approve expenditure of US$10 million on a small scale plant to start diamond production at Murowa near Zvishavane in southern Zimbabwe in 2004. An updated feasibility study confirmed the existence of three kimberlite pipes representing a mining reserve of 18.7 million tonnes of ore at a grade of 0.9 carats per tonne.
Initial operations will focus on 1.3 million tonnes of weathered material containing 140,000 tonnes of enriched ore which will be mined first. The small scale approach reduces the initial investment required and will allow confirmation of marketing and regulatory arrangements prior to expansion, which could be considered within three years. Diamonds from Murowa will be marketed through Rio Tinto Diamonds in Antwerp. Safeguards are in place regarding chain of custody of the product. Zimbabwe is a signatory of the Kimberley Process. The development affirms a long standing commitment to Zimbabwe and will make a small contribution towards the economic development of the country.
Rio Tinto 2003 Annual report and financial statements | 51 |
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Operational review continued
Rio Tinto Exploration seeks to discover or identify mineral resources that will contribute to the growth of the Rio Tinto Group. The discovery of new resources is essential to replace deposits as they are mined and to help meet the increasing global demand for minerals and metals.
The Exploration group is opportunistic in approach and its resources are deployed on projects that show the best chance of delivering a world class deposit to Rio Tinto. Mineral exploration is a high risk activity. Rio Tinto’s statistics show that an average of only one in 350 mineral prospects that are drill tested result in a mine for the Group. Rio Tinto believes in having a critical mass of projects, selected through a rigorous process of prioritisation.
The Exploration group is organised into four geographically based teams and a fifth team that looks for industrial minerals on a global basis. Additionally, a small focused project generation team covers the world for new opportunities.
At the end of 2003, Rio Tinto was exploring in 30 countries for a broad range of commodities including copper, diamonds, nickel, industrial minerals, gold, bauxite, iron ore and coal. Exploration employs 189 geologists and geophysicists around the world and has a total staff of 670 people.
David Klingner, head of Exploration, is based in London.
2003 operating performance
Exploration in 2003 focused on advancing the most promising targets across the spectrum of grassroots, generative, drill test stage, and near mine programmes. Good results were obtained from a number of locations.
In the US, a resource of greater than one billion tonnes of about 1.5 per cent copper was outlined at the Resolution project in Arizona. The project was turned over to the Copper group for further evaluation at the start of 2003.
Work continued on the delineation of the sizeable body of gold mineralisation discovered at Dashkasan, near Hamadan in Iran. Drilling continued to outline additional resource and to increase confidence in existing resources. Metallurgical test work continued and community and environmental baseline studies were initiated.
The potential of the high grade haematite resources at Simandou in Guinea were confirmed at more than one billion tonnes. A convention was signed with the Government of Guinea, which covers the conditions attached to the future possible development of the deposit. Environmental baseline studies continued in partnership with Conservation International. An order of magnitude study will be completed in 2004.
Closely spaced drilling was undertaken at the La Sampala nickel laterite resource in Indonesia to test continuity and confirm grade. Metallurgical work and environmental and community baseline studies commenced
with the intention of commencing an order of magnitude study in 2004.
Exploration for nickel in the Upper Peninsular of Michigan in the US resulted in the discovery of a small high grade nickel copper deposit at Eagle. A resource of five million tonnes grading 3.6 per cent nickel, three per cent copper with platinum group metal and gold credits is inferred. Studies are underway to assess mining and processing options, environmental impacts and community benefits.
In Mozambique, more detailed evaluation work in 2003 has led to a 30 per cent increase in the resource base to some 160 million tonnes of ilmenite. The deposits occur near to the coast, are amenable to conventional dredging methods and have a low slimes content.
Although extensions to the previously discovered gold mineralisation atÇöpler in Turkey and to the copper mineralisation at Marcona in Peru were intersected, neither resource is likely to meet Rio Tinto criteria for size and mine life. Çöpler was divested and Marcona is for sale.
Diamond exploration continued in Canada, southern Africa, Brazil and India. New diamond bearing kimberlite pipes were discovered in a number of locations and follow up test work is in progress to gauge economic potential.
Copper exploration continued in Turkey, Peru, Chile, Argentina and the southwest US. Significant copper mineralisation was encountered in drilling in projects in Turkey, Peru and Argentina, which warrant further follow up drill testing.
The Exploration group was active in the search for industrial mineral deposits in various parts of the world including North and South America, Europe and Turkey.
The Exploration group continued to support brownfield work at a number of Rio Tinto operations. Exploration in the vicinity of the Argyle diamond deposit continued. In the US and Argentina, active programmes were conducted in the orbit of the Boron and Tincalayu mines. In Indonesia, exploration in and around the Grasberg mine led to the addition of further copper reserves.
Safety performance declined in 2003, with 18 injuries compared with 15 in 2002. Lost time injuries, however, decreased from six in 2002 to five in 2003. There were no significant environmental or community incidents during 2003.
FINANCIAL PERFORMANCE
2003 compared with 2002
Cash expenditure on exploration in 2003 was US$130 million and the pre tax charge to earnings was US$127 million, similar to the corresponding figures for 2002.
2002 compared with 2001
Cash expenditure on exploration in 2002 was US$124 million and the pre tax charge to earnings was US$130 million.
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OTHER OPERATIONS
Kelian(Rio Tinto: 90 per cent)
Kelian Equatorial Mining (Kelian) operates an open pit gold mine in East Kalimantan, Indonesia. It is the largest of Rio Tinto’s primary gold mines. Kelian is required to offer for sale up to 51 per cent of its equity to Indonesian interests according to a specific schedule under the terms of its Contract of Work with the Indonesian Government. Kelian’s offer to sell 41 per cent in 2003 was again not taken up.
Mining at Kelian ceased in 2003 with production from stockpiled ore planned to be completed in early 2005. A mine closure consultative process was completed in 2003 with stakeholders agreeing on the key mine closure directions. Major decisions have been made regarding classification of the mining area as protected forest after closure, the upgrade of the Namuk Tailings dam, environmental criteria, alluvial mining to sterilise the future wetlands area and the use of site assets.
Kelian employs approximately 1,800 people including 45 expatriates and 1,300 contractors. A two year collective agreement, was renegotiated in July 2003 and will cover activities through to completion of operations.
2003 operating performance
Rio Tinto’s share of Kelian’s production was 422,000 ounces in 2003, 13 per cent below 2002 with lower grades more than offsetting the seven per cent increase in throughput.
Bougainville Copper
(Rio Tinto: 53.6 per cent)
Bougainville Copper (BCL) is a Papua New Guinea company listed on the Australian Stock Exchange with a market capitalisation of A$96 million (US$72 million) at 31 December 2003.
Operations at BCL’s Panguna mine on Bougainville Island were suspended in 1989 following periods of disruption resulting from civil unrest. At 31 December 1991, a full provision of US$195 million was made in Rio Tinto’s financial statements for its investment in BCL.
Peace has been restored on most of Bougainville Island. However, the mine site is still under the control of elements that deny access to the area. An agreement has been signed between the National Government and Bougainville leaders providing for increased autonomy for Bougainville.
Towards the end of 2000, two‘class actions’, since consolidated, were filed in the US District Court in California claiming unspecified damages against Rio Tinto arising out of the mining operation at Panguna and the civil unrest leading to and following mine closure. The Court dismissed the claims. An appeal was heard during 2003 but the decision has been postponed until another case which does not involve Rio Tinto, involving some common legal issues, is heard by the Supreme Court.
The appeal decision is not expected before mid 2004. BCL is not a party to this action. Rio Tinto believes the claims are wholly without merit and the action is being contested vigorously.
The Papua New Guinea Internal Revenue Commission has issued assessments claiming additional tax and penalties of approximately US$10 million arising from an audit of BCL’s accounts covering the years 1990 to 2001. BCL’s tax returns for those and all other years were prepared on BCL’s considered view of the appropriate tax law. BCL believes its view is correct and has lodged objections to the assessments.
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Operational review continued
The Technology group provides technical assistance to Rio Tinto’s product groups and their businesses, and advises executive management. In support of the drive towards operational excellence a key focus is to identify and implement best practices, to improve safety and environmental performance, maximise operating efficiency and add value across Rio Tinto.
Technology staff includes experienced professionals covering all the main industry related disciplines, while the Office of the Chief Technologist manages the Group’s involvement in external and collaborative research.
The total staff in the Technology group at year end was 350 compared with some 260 in 2002. The increase was mainly to provide information technology (IT) services to Western Australia business units through Rio Tinto Shared Business Services and provided the basis for reduction of business unit IT staff.
John O’Reilly, head of Technology, is based in London.
2003 operating performance
Technical Services
Technical Services increased its involvement with Rio Tinto operations and also continued to provide significant contributions at non managed operations. Activity over the year was again at record levels, with Group wide initiatives launched in 2002, particularly water management, having increasing effect. An initiative aimed at improving metallurgical performance is focussing initially on copper ore processing operations.
With a number of projects in the commissioning phase and others under study that involve large scale underground mining, resources in this area have been strengthened, as has expertise in risk management.
A number of the current development projects are linked with external research programmes in order to leverage value for Rio Tinto. Others are focussed on innovation and best practice in key areas to add value in a shorter time frame.
Office of the Chief Technologist
The Office of the Chief Technologist is responsible for the identification and the transfer of technology based opportunities for the Group.
The external research portfolio continues to support a broad range of industry related initiatives. The project on in situ“barrier” technology included some site trials during 2003 which gave encouraging results. Work is continuing in areas such as the use of microwaves in ore comminution and in bulk underground mining technologies.
The Rio Tinto Foundation for a Sustainable Minerals Industry approved 32 projects for funding.
Technical Evaluation and Project Management
Technical Evaluation continued in its principal role of providing independent review of all
major investment proposals being considered by the Group. The unit also continued with the programme of post investment reviews, and has established a database system to consolidate the findings so that lessons learned from completed projects can be shared within the Group.
The Project Management unit provides ongoing support to major project teams across Rio Tinto, both for projects in execution and those still in the feasibility stage. There was also continued involvement with some major projects at non managed operations. In addition, the scope of the unit was expanded during the year to include the secondment of resources into project teams, earlier involvement in major project studies, and support to more modest capital projects of high value. A shared role with Technical Services during the year focused on improving the performance of current and future Rio Tinto underground bulk mining projects.
Asset Utilisation
This unit is now well established and its workload continued to expand, adding value across all product groups. Current areas of focus include process control, operational readiness, warranty management, and the formulation and implementation of maintenance standards and audits.
There is an emphasis on ensuring that safety, operability and maintainability issues are fully addressed and incorporated into any new designs or retrofits.
FINANCIAL PERFORMANCE
The charge for the Technology group against net earnings was US$16 million. The comparable figure for 2002 was US$12 million. The increase was mainly due to the weaker US dollar, sponsored research, and activities of the Foundation for a Sustainable Minerals Industry.
OTHER OPERATIONS
Lihir(Rio Tinto: 14.5 per cent)
Lihir Gold is a publicly quoted company formed to finance and develop the Lihir mine in Papua New Guinea. Rio Tinto did not participate in an equity placement in November in which 140 million shares were issued to raise US$150 million, resulting in Rio Tinto’s interest being reduced to 14.5 per cent from 16.3 per cent. Lihir Gold at31 December 2003, had a market capitalisation of A$1.9 billion (US$1.4 million).
Lihir directly employs approximately 1,000 people, of whom 91 per cent are Papua New Guineans including 38 per cent Lihirians. Some 1,200 are also employed as contractors of whom a large proportion is Lihirian.
2003 operating performance
Gold production at Lihir was nine per cent lower than in 2002 due to lower head grades and below budget mine and plant performance.
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Society and
environment
Group employees
(average for year)
Principal employee
locations 2003
The way we work
Rio Tinto is in business to create shareholder value by finding and developing world class mineral deposits and operating and eventually closing the Group’s operations safely, responsibly and efficiently. To do so, the Group takes a disciplined and integrated approach to the economic, social and environmental aspects of all its activities.
The approach is through implementation of the policies described inThe way we workthe Group’s statement of business practice, at all levels of the business.
The statement, redistributed in 2003 in 18 languages, is the result of many months wide internal and external consultation and discussion and represents shared values from around the Group. The document was published initially in January 1998 and revised in light of experience in 2002, following further review and consultation, external benchmarking of policies against the best practice of other organisations and approval by the Rio Tinto board.
The way we workcommits the Group to transparency consistent with normal commercial confidentiality, corporate
accountability and the application of appropriate standards and internal controls. It sets the basis for how Group employees work and also provides guidance for joint venture partners and others. Every employee is responsible for implementing the policies in the document.
Rio Tinto has adopted the Association of British Insurers’ 2003 disclosure guidelines on social responsibility in preparing this report. Details of the Group’s overall and individual businesses’ social and environmental performance continue to be published on the Rio Tinto website: www.riotinto.com
Board responsibilities
The directors of Rio Tinto, and of Group companies, are responsible for monitoring adherence to the Group policies outlined in The way we work. Assurance for performance in these areas involves checking, reviewing and reporting each business’s implementation of the policies, their compliance with regulations and voluntary commitments, and the effectiveness of management and control systems, while also providing mechanisms for improvement.
As discussed in the section on Corporate governance on page 70, the board established a process for identifying, evaluating and managing the significant risks faced by the Group. Directors meet regularly, have regular scheduled discussions on aspects of the Group’s strategy and full and timely access to the information required to discharge their responsibilities fully and effectively.
Rio Tinto’sCompliance guidancerequires that the identification of risk be systematic and ongoing. It recommends that each Group company should undertake a structured risk profiling exercise to identify, categorise and weigh the risks it faces in the conduct of its business unless its board is confident that all relevant and material risks have already been identified in a similar exercise. Each Group company should put systems in place to ensure that risks are reviewed at an appropriate frequency and that its board and management are made aware of changes in the risk profile.
Total remuneration is related to performance through the use of annual bonuses, long term incentives and stretching targets for personal, financial and safety performance. Environmental performance parameters are also included.
The board’sCommittee on social and environmental accountabilityreviews the effectiveness of policies and procedures. The committee comprises four non executive directors and is chaired by the chairman of the main board. It meets three times annually with the chief executive and heads of Technology, Health, Safety and Environment and Communication and Sustainable Development.
Reports for the committee summarise significant matters identified through
Rio Tinto’s assurance activities. These include reviews every four years of each business to identify and manage strategic risks in relation to health, safety, the environment and community; audits against Rio Tinto standards; annual risk management audits; risk reviews for specific concerns, such as cyanide management and smelter operations; procedures and systems for reporting critical and significant issues and incidents; completion of annual internal control questionnaires by all Group business unit leaders covering financial, social, health and safety and environment matters; and findings and recommendations of the independent external assurance and data verification programme.
Policies, programmes and performance
Implementation of the policies inThe way we workis discussed in the following sections. Known risks arising from social and environmental matters and their management in Group businesses are described in the relevant Group operations section.
Safety
Safety is a core value and a major priority. Rio Tinto believes that all injuries are preventable and its goal is zero injuries. To achieve this, full and consistent implementation of and accountability for Rio Tinto’s comprehensive standards, guidelines, systems and procedures is required across the world. The Group is also building a supportive safety culture that requires visible leadership, ongoing education and training and a high level of participation by everyone in the workplace.
However, there is still some way to go in achieving the goal. In 2003, regrettably, there were six deaths at Rio Tinto operations; three were Group employees and three were contractors. There were 468 lost time injuries during the year. This equates to a rate of 0.81 lost time injuries per 200,000 hours worked (2002: 0.85). Fines for infringement of safety and occupational health regulations involved 12 operations and totalled US$162,000 (2002: 12 operations and US$80,000). This includes a fine of $A206,250 paid by Northparkes in relation to an underground collapse that resulted in four fatalities in November 1999. This event occurred under the previous owner and prior to any Rio Tinto involvement in Northparkes.
Occupational health
Rio Tinto strives to protect physical health and wellbeing in the workplace. This requires clear standards, consistent implementation, transfer of best practice and improvement through Group wide reporting and tracking of remedial actions. During 2003, business units worked to implement the occupational health standards and full implementation is targeted for the end of 2004.
Setting quantitative occupational health targets to drive performance improvement
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Operational review continued
has also been a focus during 2003. Business units are developing and implementing action plans to achieve the targets, consistent with implementation of the standards.
In 2003, there were 341 new cases of occupational disease, equating to a rate of 107 new cases per 10,000 employees (2002: 120).
Environment
Wherever possible, Rio Tinto prevents, or otherwise minimises, mitigates and remediates, harmful effects of the Group’s operations on the environment.
To do this, the Group seeks to understand the environmental aspects and impacts of what it does, build what is learned into systems to manage and minimise those impacts, and set targets for improvement.
After significant Group wide consultation, Rio Tinto’s environment standards were finalised and approved for implementation in 2003. During the year significant work was undertaken to set five year targets to improve efficiency of greenhouse gas emissions, energy use and water withdrawn from the environment.
By the end of 2003, 80 per cent of operations had implemented ISO 14001 or an equivalent environmental management system ( EMS). All Rio Tinto operations are required to have a certified EMS by the end of June 2005: by the end of 2003, 64 per cent of operations had already achieved this.
Fines for infringement of environmental regulations involved four operations and totalled US$126,000 (2002: two operations and US$2,000). No environmental incidents were classified as critical in 2003.
Land access
Rio Tinto seeks to ensure the widest possible support for its proposals throughout the life cycle of the Group’s activities by coordinating economic, technical, environmental and social factors in an integrated process.
This involves negotiation of mining access agreements with indigenous landowners; responsible land management and rehabilitation; planning for closure; developing and implementing a biodiversity strategy; and forming strategic partnerships with external organisations.
Political involvement
Rio Tinto does not directly or indirectly participate in party politics nor make payments to political parties or individual politicians.
ABusiness integrity guidanceaddressing bribery, corruption and political involvement was issued in 2003 to assist managers in implementing this policy. The guidance covers questions relating to compliance and implementation; gifts and entertainment; the use of agents and intermediaries; and“facilitation” payments.
Rio Tinto avoids making facilitation payments anywhere in the world. Bribery in any form is prohibited. Gifts and
entertainment are only offered or accepted for conventional social and business purposes and then only at a level appropriate to the circumstances.
Communities
Rio Tinto sets out to build enduring relationships with neighbours. This is characterised by mutual respect, active partnership, and long term commitment.
Every business unit is required to have rolling five year community plans which are updated annually. In 2003, the Group completed a series of pilot studies aimed at achieving a deeper level of understanding of the linkages between mining activities and the economies in which they take place.
All business units produce their own social and environment reports for local communities, and community assurance of the quality and content of these reports is increasing. This provides an opportunity for engagement with the community on their views of programmes sponsored by Group operations.
Business units managed by Rio Tinto contributed US$70 million to community programmes in 2003 (2002: US$48 million). Part of the increase from 2002 (about US$7 million) was due to exchange rate movements against the US dollar. Of the total contributions, US$21 million were direct payments made under legislation or an agreement with a local community.
Human rights
Rio Tinto supports human rights consistent with the Universal Declaration of Human Rights and Rio Tinto respects those rights in conducting the Group’s operations throughout the world.
Rio Tinto also supports the UN Secretary General’s Global Compact, the US/UK Voluntary Principles on Security and Human Rights and the Global Sullivan Principles.
The Group’sHuman rights guidanceis designed to assist managers in implementing the human rights policy in complex local situations. It was revised and republished in 2003 and a case study was provided to the Global Compact on how the guidance was developed and promoted around the Group.
Employment
Rio Tinto requires safe and effective working relationships at all levels. Whilst respecting different cultures, traditions and employment practices, common goals are shared, in particular the elimination of workplace injuries, and commitment to good corporate values and ethical behaviour.
In 2003, Group companies employed 29,000 people (2002: 29,000) and together with Rio Tinto’s proportionate share of those employed by joint ventures and associates, the total was 36,000 (2002: 37,000).
Australia and New Zealand (10,000), North America (10,000) and Africa (6,000) remained the principal locations.
Wages and salaries paid in 2003 totalled
US$1.5 billion (2002: US$1.3 billion). Retirement payments and benefits to dependants are provided in accordance with local conditions and good practice. The total pension and other benefits paid in 2003 was US$278 million (2002: US$211 million).
Sustainable development
Rio Tinto believes that its businesses, projects, operations and products should contribute constructively to the global transition to sustainable development.
All businesses are required to assess the sustainable development case for their activities. Rio Tinto has committed itself to integrating the results of the Mining, Minerals and Sustainable Development (MMSD) analysis of 2002 into the Group’s policy and objectives, and developing measures to assess their implementation. As a founding member of the International Council on Mining and Metals, Rio Tinto is participating in dialogue and programmes to advance industry wide progress on key sustainable development priorities.
Openness and accountability
Rio Tinto conducts its affairs in an accountable and transparent manner, reflecting the interests of Rio Tinto shareholders, employees, host communities and customers as well as others affected by the Group’s activities.
Policies on transparency, business integrity, corporate governance and internal controls and reporting procedures are outlined inThe way we work. In 2003, aCompliance guidancewas issued to provide a framework to enable each Group business to implement and maintain a best practice compliance programme which should identify and manage risks associated with non compliance with laws, regulations, codes, standards and Rio Tinto policies.
Assurance and verification
To be accountable and transparent, assurance is provided – to the Group and others – that Rio Tinto policies are being implemented fully and consistently across our businesses and operations.
The overall objective of external assurance and data verification is to provide assurance that the material in theSocial and environment reviewis relevant, complete and accurate and, in particular, that Rio Tinto’s policies and programmes are reflected in implementation activities at operations. In 2003, Environmental Resources Management (ERM) undertook the external assurance and data verification programme and the results are available in theSocial and environment review.
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Executive committee members
01 Tom Albanese(age 46)
Mr Albanese joined Rio Tinto in 1993 on Rio Tinto’s acquisition of Nerco. He holds a BS in mineral economics and an MS in mining engineering. He held a series of management positions before being appointed chief executive of the Industrial Minerals group in 2000.
02 Preston Chiaro(age 50)
Mr Chiaro was appointed chief executive of the Energy group inSeptember 2003. He is an environmental engineer with Bachelor of Science, Environmental Engineering and Master of Engineering degrees. He joined the Group in 1991 at Kennecott Utah Copper’s Bingham Canyon mine as vice president, technical services. In 1995 he became vice president and general manager of Boron operations in California. He was chief executive of Rio Tinto Borax from 1999 to 2003.
03 Keith Johnson(age 42)
Mr Johnson was appointed Group executive diamonds in 2003. He holds degrees in mathematics and management and is a fellow of the Royal Statistical Society. He joined Rio Tinto in 1991 and has held a series of management positions, most recently as managing director of Comalco Mining and Refining.
04 David Klingner(age 59)
Dr Klingner became head of Exploration in 1997. He joined the Group as a geologist in 1966 and has had a wide variety of roles both in exploration and elsewhere during his 38 years’ service, including managing director of Kaltim Prima Coal. Later he was a Group executive with Rio Tinto Limited, responsible for coal and gold businesses located in Australia, Indonesia and Papua New Guinea.
05 Karen McLeod(age 57)
Ms McLeod was appointed head of Human Resources for Rio Tinto in 1999. She joined the Group in 1974 at Comalco, working in Aboriginal affairs. She holds degrees in the social sciences and business management and has held senior positions in human resources, business analysis, marketing and organisation development.
06 John O’Reilly (age 58)
Mr O’Reilly joined Rio Tinto in 1987, following 20 years’ operations experience in Africa and the Middle East. A metallurgical engineer by profession, he has held a series of management positions, including director of Rio Tinto Technical Services, chief executive officer, Lihir Gold, and head of the former Gold & Other Minerals group, before being appointed head of Technology in 1999.
07 Christopher Renwick(age 61) Mr Renwick has been with Rio Tinto for 34 years and is currently chief executive of the Iron Ore group. He is a lawyer and has held several management positions within the Group, including commercial director of Hamersley Iron, managing director of Comalco Minerals and Alumina and a Group executive with Rio Tinto Limited. He was appointed to his current position in 1997.
08 Andrew Vickerman(age 49)
Mr Vickerman, previously head of External Affairs, became head of Communication and Sustainable Development in January 2003, with responsibility for both External Affairs and HSE. Prior to 1998 he was a director of Lihir Gold and was responsible for the financial and administrative aspects of the company. He has a BA, MA and PhD from Cambridge University. He joined Rio Tinto in 1991.
09 Sam Walsh(age 54)
Mr Walsh was appointed chief executive of the Aluminium group in 2001.He holds a commerce degree and joined Rio Tinto in 1991, following 20 years working in the automotive industry. He has held a number of management positions within the Group, including managing director of Comalco Foundry Products, CRA Industrial Products, Hamersley Sales and Marketing, Hamersley Operations and vice president of Rio Tinto Iron Ore.
Brian Horwoodwill retire from the position of managing director of Rio Tinto Australia in early March 2004 after 34 years with the Group. He is succeeded byCharlie Lenegan, previously president director of PT Kelian Equatorial Mining, who joined the Group in 1981.
Employees
Information on the Group’s employees including their costs, is on pages 56, 90, 117 and 133.
Rio Tinto 2003Annual report and financial statements | 57 |
Back to Contents Projects Rössing Uranium(Rio Tinto: 68.6 per cent) In December 2005, approval was granted to extend the life of the operation until at least 2016 and restore annual production capacity to 4,000 tonnes per annum at a total incremental and sustaining capital cost of US$112 million. Energy Resources of Australia(Rio Tinto: 68.4 per cent) ERA is spending A$27.6 million in 2007 to construct a plant at the Ranger mine to process lateritic ore, a material containing a high proportion of clay minerals. The laterite processing plant will contribute approximately 400 tonnes per annum of uranium oxide to ERA’s production from 2008 through to 2014. Construction of the plant will commence in April 2007, with the first lateritic ore scheduled for processing in the first quarter of 2008. Rio Tinto Coal Australia Clermont(Rio Tinto: 50.1 per cent) Rio Tinto and its joint venture partners approved investment of US$750 million for the development of the Clermont thermal coal mine in central Queensland, situated 15 kilometres south east of the Blair Athol Mine. Clermont is expected to become Australia’s largest thermal coal producer when it reaches full capacity, which is scheduled for 2013. The mine is expected to be brought into production to replace Blair Athol, due to close in 2012, and will use Blair Athol’s existing infrastructure and market position. Coal & Allied Mount Pleasant(Rio Tinto: 75.7 per cent) In 2006, Coal & Allied started a feasibility study on the Mount Pleasant coal mine project located adjacent to the Bengalla mine near Muswellbrook in the Hunter Valley, New South Wales. The study is expected to take about 12 months to complete and will include extensive community consultation. Hydrogen Energy(Rio Tinto: 50.0 per cent) In May 2007, Rio Tinto and BP announced the formation of a new jointly owned company, Hydrogen Energy, which would develop decarbonised energy projects around the world. The venture would initially focus on hydrogen fuelled power generation, using fossil fuels and carbon capture and storage technology to produce new large scale supplies of clean electricity. The first new project would be for the potential development of a US$1,500 million coal fired power generation project at Kwinana in Western Australia. This project would be subject to the successful outcome of detailed engineering and commercial studies and to government policy to make it commercially viable. Rio Tinto 2006 Form 20-F | 50 |
Back to Contents INDUSTRIAL MINERALS GROUP Production | Rio Tinto share | | Borates | ‘000 tonnes B2O3 | |
|
| | 2002 | 528 | | 2003 | 559 | | 2004 | 565 | | 2005 | 560 | | 2006 | 553 | |
|
| | | | |
Titanium dioxide | ‘000 tonnes | |
|
| | 2002 | 1,274 | | 2003 | 1,192 | | 2004 | 1,192 | | 2005 | 1,312 | | 2006 | 1,415 | |
|
| | | | |
Underlying earnings contribution* | US$m | |
|
| | 2004 | 243 | | 2005 | 187 | | 2006 | 243 | |
|
| | | | |
Changes in underlying earnings 2004 - 2006 | US$m | |
|
|
| 2004 Underlying earnings | 243 | | Effect of changes in: | | | Prices and exchange rates | 35 | | General inflation | (14 | ) | Volumes | 27 | | Costs | (92 | ) | Tax and other | (12 | ) |
|
|
| 2005 Underlying earnings | 187 | | Effect of changes in: | | | Prices and exchange rates | 34 | | General inflation | (18 | ) | Volumes | 3 | | Costs | — | | Tax and other | 37 | |
|
|
| 2006 Underlying earnings | 243 | |
|
|
| * | A reconciliation of the net earnings with underlying earnings for 2004, 2005 and 2006 as determined under EU IFRS is set out on page 39. | | |
Rio Tinto’s Industrial Minerals group comprises Rio Tinto Minerals, which produces borates, talc and salt, and Rio Tinto Iron & Titanium, a major producer of titanium dioxide feedstock. Rio Tinto is a global leader in the supply and science of these products. There are more than 200 industrial minerals and markets are often diverse, highly technical and require unique marketing and sales expertise. At 31 December 2006, Industrial Minerals accounted for 13 per cent of the Group’s operating assets and in 2006 contributed approximately ten per cent of Rio Tinto’s gross sales revenue and three per cent of underlying earnings.Approximately 7,000 people were employed in 2006. The Industrial minerals group was combined with the Diamonds group with effect from 1 June 2007, to form theDiamonds and Minerals group. Andrew Mackenzie, chief executive Diamonds and Minerals and formerly chief executive Industrial minerals, is based in London. Financial performance 2006 compared with 2005 Industrial Minerals’ contribution to 2006 underlying earnings was US$243 million, a 30 per cent improvement on 2005. Rio Tinto Minerals’ underlying earnings, at US$91 million, were 54 per cent higher than in 2005. Despiteupward cost pressure caused by cyclones and labour markets in Western Australia, the absence in 2006 of the 2005 Rio Tinto Minerals restructure provision, coupled with modest revenue increases, led to this improved result. Rio Tinto Iron & Titanium underlying earnings, at US$152 million, were 19 per cent higher than in 2005. Goodprice performance across all products, combined with favourable volume trends, strict cost control at Richards Bay Minerals and beneficial Canadian tax changes, offset increased costs in the Canadian operations and the impact of the strong Canadian dollar. Rio Tinto 2006 Form 20-F | 51 |
Back to Contents 2005 compared with 2004 Industrial Minerals’ contribution to the Group’s 2005 underlying earnings was US$187 million, 23 per cent lower thanin 2004, reflecting significant one off costs of US$42 million after tax, including provision for restructuring in relation to the formation of Rio Tinto Minerals. There were also increased energy and distribution costs at all business units. Dampier Salt and Rio Tinto Iron & Titanium incurred high initial operating costs for the commissioning of a newplant and for the upgraded titanium slag (UGS) expansion. Rio Tinto Iron & Titanium also incurred a tax expense of US$13 million resulting from a change in the tax rate for QIT-Fer et Titane in Quebec. Rio Tinto Borax’s underlying earnings, at US$48 million, were 48 per cent lower than in 2004. The boratesbusiness was affected by lower sales volumes and higher energy and distribution costs. Rio Tinto Borax also incurred a one off restructuring cost of US$12 million after tax in relation to the formation of Rio Tinto Mineral. Rio Tinto Iron & Titanium’s underlying earnings, at US$128 million, were ten per cent higher than in 2004. Strong price performance across all products, combined with increased volumes and strict cost performance at Richards Bay Minerals led to this strong result. Operations Rio Tinto Minerals During 2006, three of Rio Tinto’s Industrial Minerals businesses – Borax, Luzenac and Dampier Salt – combined theirmanagement to form a new and more efficient organisation called Rio Tinto Minerals. Rio Tinto Minerals’ global presence includes mines and refineries, shipping facilities, refining and packing facilities and sales and technical facilities throughout the Americas, Asia and Europe. The company serves 2,500 customers in approximately 100 countries. The global operational headquarters havebeen relocated to Denver, Colorado, and the global commercial headquarters are in Chiswick, London. Borates– More than one million tonnes of refined borates are produced at the principal borate mining and refining operation, Boron, in California’s Mojave Desert. Borates are essential to plants and are part of a healthy diet for people. They are also key ingredients in hundreds of modern products, chief among them: insulation fibreglass, textile fibreglass and heat resistant glass (44 per cent of world demand); ceramic and enamel frits and glazes (13 per cent); detergents, soaps and personal care products (six per cent); agricultural micronutrients (seven per cent); and other usesincluding wood preservatives and flame retardants (30 per cent). Talc– Rio Tinto Minerals operates talc mines, including the world’s largest (in south west France), and processingfacilities in Australia, Austria, Belgium, Canada, France, Italy, Japan, Mexico, Spain, the UK and the US. Talcs enhance performance in countless applications, including paper, paints, putties, roofing materials, plastics, automotive parts, ceramics, foundry, rubber goods, personal care products, agriculture, food, pharmaceuticals, soap, cosmetics, and pesticides. This multiplicity demands an in depth understanding not only of talc’s properties and functions but also of its full range of applications and user industries. Salt– Rio Tinto Minerals manages Dampier Salt’s (Rio Tinto: 64.9 per cent) three salt operations located in Western Australia. It produces industrial salt by solar evaporation at Dampier, Port Hedland and Lake MacLeod, where it alsomines gypsum. Dampier Salt’s customers are located in Asia and the Middle East . The majority are chemical companies which use salt as basic feed for the production of chlorine and caustic soda (together known as chlor-alkali production). Dampier Salt’s product is also used as food salt and for general purposes, including road de-icing. 2006 operating performance In 2006 Rio Tinto Minerals streamlined its sales and administrative function, reducing staff by 20 per cent and closing three laboratories and three offices. There are plans to close two more. In its operations, Rio Tinto Minerals divested several less profitable product lines and operational sites, built boric acid capacity, approved new salt capacity, andimproved plant efficiency, mine planning and energy use. In the marketplace, North America remains the most profitable region for Rio Tinto Minerals’ products. Developing economies such as China, eastern Europe and India hold promise because of their rising living standards and the demand for higher quality raw materials. Borates– Production volumes were down one per cent, at 553,000 tonnes, but sales volumes remained consistent with 2005’s total. Asia continued to drive growth in the borate market, though there were pockets of growth in Russia andeastern Europe. In North America, stagnation in the housing market signals a possible decline in demand from insulations and wood preservatives customers, but this is likely to be offset by retrofit and remodeling trends. Rio Tinto Minerals expanded its boric acid capacity by a further 56,000 tonnes to supply market growth. The project was completed on time and under budget and is meeting planned throughput. Talc– Talc production volumes increased two per cent, while sales volumes remained at the same level as 2005,reflecting stable markets with growth in the polymer, paint and technical ceramics sector offsetting declines in paper. Salt– Five cyclones in Western Australia during 2006 adversely affected salt operations, reducing production by almost two per cent to 8.3 million tonnes (Rio Tinto share: 5.4 million tonnes). Sales volumes decreased by five per cent.Despite this, supply reliability and excellent customer relations were maintained. Repairs are well under way. The residual impact of dilution from the record rains will be felt for the next two years. At Lake MacLeod, a 26 per cent capacity increase was approved by all shareholders. Rio Tinto 2006 Form 20-F | 52 |
Back to Contents Rio Tinto Iron & Titanium Rio Tinto Iron & Titanium (RIT) comprises the wholly owned QIT-Fer et Titane (QIT) in Quebec, Canada and the 50per cent interest in Richards Bay Minerals (RBM) in KwaZulu-Natal, South Africa. Both operations produce titanium dioxide feedstock used as pigment by manufacturers of paints and surface coatings, plastics and paper. Coproducts include high purity iron and zircon. QIT’s proprietary process technology enables it to supply both the sulphate and chloride pigment manufacturingmethods. Its upgraded slag (UGS) plant supplies the growing chloride sector and is designed for expansion, in line with demand, up to a capacity of 600,000 tonnes per year. During 2006, RIT expanded its UGS plant to 375,000 tonnes per annum, three months ahead of schedule. RBM’s ilmenite has a low alkali content, which makes its feedstock suitable for the chloride pigment process. RBM has the capacity to produce one million tonnes of feedstock annually. 2006 operating performance RIT increased production across all of its products in 2006, with a ten per cent increase in UGS as expanded capacity was brought on-line. RBM operated at full capacity and saw an eleven per cent increase in titanium dioxide (TiO2)feedstock production. Strong market performance led to strong financial performance as TiO2 pigment producers reported an increase in sales volumes of five per cent on average during 2006, after a decrease in 2005 of 0.5 per cent. Market conditions remain tight for chloride feedstock, as chloride pigment plants continue to run at high utilisation rates. Demand for high-grade TiO2 feedstock, such as QIT’s UGS, remains strong. Market conditions for iron and steel co-products also remain strong. Zircon prices continued to increase throughout 2006, as demand was effectively constrained by available supply. The offices of RIT were relocated from Montreal to the UK during 2006. Projects QIT Madagascar Minerals(Rio Tinto: 80 per cent) In 2005 Rio Tinto announced the approval of the Madagascar titanium dioxide project. RIT manages the project, in which an agency of the Government of Madagascar has a 20 per cent interest. The project comprises a mineral sands operation and port in Madagascar and an upgrade of Rio Tinto’s ilmenitefacilities in Canada. First production from the operation in the Fort-Dauphin region of Madagascar is expected in late 2008 and the initial capacity will be 750,000 tonnes of ilmenite per year. During 2006 the definitive cost estimate of the project was finalised. The cost increased by just under ten per cent to US$850 million. The cost inflation was mainly caused by higher materials costs and foreign exchange pressures but increased production capacity and logistics will ensure the project value is unchanged. The ilmenite will be smelted at Rio Tinto’s facilities at Sorel in Quebec. This will require an upgrade of storage and handling facilities as well as their associated ancillary services. With a grade of 60 per cent titanium dioxide, theMadagascar orebody is the world’s largest known undeveloped high grade ilmenite deposit. It has an expected mine life of 40 years and will supply a new, high quality chloride slag with 91 per cent titanium dioxide content to meet long term demand for titanium dioxide by the pigment industry. A deep sea multi-use public port at Ehoala, near the town of Fort-Dauphin, is an important component of theproject. The mine will be the key initial customer, providing the base load to help establish the port. Over time, it is expected the port will make an important contribution to the economic development of the region. The Government of Madagascar contributed US$35 million to the establishment of the port, as part of its GrowthPoles Project funded by the World Bank. RIT will manage the port operations. Potasio Rio Colorado S.A.(Rio Tinto: 100 per cent) The Rio Colorado potash project in Argentina lies 1,000 km south west of Buenos Aires. Evaluation of the project began in late 2003, and a large scale trial of solution mining of the potash has run successfully from late 2004. Currently a feasibility study is under way and, assuming favourable progress, will be completed in 2007. A positive development decision in 2007 could see first production from the mine in 2010 and production volumes in the range of 1.6 to 2.4 million tonnes per year. Rio Tinto 2006 Form 20-F | 53 |
Back to Contents ALUMINIUM GROUP Mined | Rio Tinto share | | Weipa bauxite | million tonnes | |
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| | 2002 | 11.2 | | 2003 | 11.9 | | 2004 | 12.6 | | 2005 | 15.5 | | 2006 | 16.1 | |
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Production | Rio Tinto share | | Alumina | ‘000 tonnes | |
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| | 2002 | 1,947 | | 2003 | 2,014 | | 2004 | 2,231 | | 2005 | 2,963 | | 2006 | 3,247 | |
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Aluminium | ‘000 tonnes | |
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| | 2002 | 794 | | 2003 | 817 | | 2004 | 837 | | 2005 | 854 | | 2006 | 845 | |
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| | | Underlying earnings contribution* | US$m | |
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| | 2004 | 331 | | 2005 | 392 | | 2006 | 746 | |
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| | | Changes in underlying earnings 2004 - 2006 | US$m | |
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| | 2004 Underlying earnings | 331 | | Effect of changes in: | | | Prices and exchange rates | 93 | | General inflation | (34 | ) | Volumes | 34 | | Costs | (47 | ) | Tax and other | 15 | |
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| | 2005 Underlying earnings | 392 | | Effect of changes in: | | | Prices and exchange rates | 454 | | General inflation | (36 | ) | Volumes | 8 | | Costs | (65 | ) | Tax and other | (7 | ) |
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| | 2006 Underlying earnings | 746 | |
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* | A reconciliation of the net earnings with underlying earnings for 2004, 2005 and 2006 as determined under EU IFRS is set out on page 39. |
Rio Tinto Aluminium is an integrated product group with operations in Australia, New Zealand and the UK. The Comalco name was replaced by Rio Tinto Aluminium in November 2006 to take advantage of the Rio Tinto global brand and reputation. The Aluminium group’s strategy is to maximise shareholder return by committing to excellence in health, safety and environmental performance; maximising value generated from existing assets; and optimising and opportunisticallygrowing the bauxite, alumina and aluminium portfolio. Rio Tinto Aluminium uses its dedicated business improvement programme, called Lean Six Sigma, to solve operational problems, improve process stability and eliminate waste. The Aluminium group has two operating business units – Mining and Refining, and Smelting. At 31 December2006, the group accounted for 17 per cent of Rio Tinto’s operating assets and in 2006 contributed 14 per cent of the Group’s gross sales revenue and ten per cent of its underlying earnings. Rio Tinto Aluminium employs about 4,300 people. Oscar Groeneveld, chief executive Aluminium, is based inBrisbane, Australia. Rio Tinto 2006 Form 20-F | 54 |
Back to Contents Financial performance 2006 compared with 2005 In 2006, Rio Tinto Aluminium’s contribution to the Group’s underlying earnings was US$746 million, an increase of 90per cent. Higher aluminium prices resulted in earnings increasing by US$451 million, with the average aluminium price in 2006 at 116 US cents per pound compared with 86 US cents in 2005. 2005 compared with 2004 Rio Tinto Aluminium’s contribution to underlying earnings in 2005 was US$392 million, an increase of 18 per cent. The average aluminium price in 2005 was 86 US cents per pound compared with 78 US cents in 2004 and this led to an increase in earnings of US$106 million. However, the effect of the weakening US currency reduced Aluminium’s earnings by US$34 million. Operations Mining and refining Rio Tinto Aluminium has a large, wholly owned bauxite mine at Weipa on Cape York Peninsula, Queensland. AUS$150 million expansion in 2004 increased capacity to 16.5 million tonnes per year. This expansion, when combined with recent infrastructure investment, provides the foundation for Weipa to increase annual production to 25 million tonnes. As at 31 December 2006, mineable reserves of bauxite at Weipa were 1,193 million tonnes. Approximately 90 per cent of the bauxite from Weipa was shipped to alumina refineries at Gladstone, Queensland, and Sardinia, Italy in2006. In 2006, Weipa’s safety performance was recognised when it received the Minerals Council of Australia’s National Minerals Industry Safety and Health Excellence Award (the MINEX Award). Rio Tinto Aluminium owns the Yarwun alumina refinery (formerly Comalco Alumina Refinery) and 38.6 percent of Queensland Alumina in Gladstone. Rio Tinto Aluminium sold its 56.2 per cent interest in the Eurallumina refinery in Sardinia, Italy. The sale was effective in October and was in line with Rio Tinto’s strategy of selling non core assets. The Yarwun alumina refinery reached and exceeded nameplate capacity of 1.4 million tonnes per annum in the fourth quarter of 2006, in line with the original development schedule. A two million tonne per annum expansion is under study. There is potential for total capacity to be expanded to over four million tonnes. Most of the refinery’scurrent output goes into Rio Tinto Aluminium smelters; the balance is placed in the traded alumina market. The refinery adds value to the Weipa bauxite deposit and strengthens both Rio Tinto Aluminium’s and Australia’s positions in the world alumina market. Rio Tinto Aluminium is continuing to pursue new market opportunities for bauxite and alumina, including participation in China’s growing alumina market. 2006 operating performance Bauxite production at Weipa reached record levels in 2006, at 16.1 million tonnes, four per cent higher than in 2005. This increase was a result of the ongoing ramp up of project NeWeipa, which led to increased production from both theEast Weipa and Andoom mines. Weipa bauxite shipments rose by six per cent, to 15.9 million tonnes. Rio Tinto Aluminium advised its calcined bauxite customers in December 2006 that it would withdraw from the production of calcined bauxite by 2008 after 40 years of providing this product to the abrasives and oil and gas exploration industries. Calcined bauxite represents about one per cent of Weipa’s total bauxite production. Rio Tinto’s share of alumina production for 2006 was ten per cent higher than in 2005. This increase was theresult of the ramp up at the Yarwun alumina refinery, which produced 1.2 million tonnes, about 400,000 tonnes more than in 2005. Production at Queensland Alumina Limited and Eurallumina (until its sale effective in October) was similar to 2005 levels. Smelting Rio Tinto Aluminium’s primary aluminium is produced by smelters at Boyne Island (59.4 per cent) near Gladstone, Bell Bay (100 per cent) in Tasmania, Tiwai Point (79.4 per cent) in New Zealand and Anglesey Aluminium (51 per cent) in Wales, UK. Rio Tinto Aluminium also maintains a 42.1 per cent interest in the Gladstone Power Station. During the year, Rio Tinto Aluminium participated in the Minding the Carbon Store project and, through it, will generate carbon credits for up to one million tonnes of greenhouse gas emissions. This represents about ten per cent ofRio Tinto Aluminium’s total emissions, including the emissions from purchased electricity and forms part of Rio Tinto Aluminium’s climate change strategy. Rio Tinto Aluminium continued to invest in the development of drained cathode cell technology in 2006. Thisnew smelter technology has the potential to save ten to 15 per cent of the electricity currently used at Rio Tinto Aluminium smelters. Rio Tinto Aluminium Technology is currently undertaking a demonstration project of the new technology at Bell Bay. Rio Tinto 2006 Form 20-F | 55 |
Back to Contents Rio Tinto Aluminium is exploring opportunities for developing its smelting business. In addition to work being undertaken in the Middle East, it has expressed a strong interest to the Sarawak state and federal governments inMalaysia to build an aluminium smelter based on hydro electricity. 2006 operating performance Rio Tinto Aluminium’s share of aluminium production from its four smelters, at 845,000 tonnes, was slightly below2005 production levels because of reduced hydro-electricity generation in New Zealand after low inflows. Attributable metal shipments for 2006 were 850,000 tonnes, a decrease of 9,000 tonnes. They went primarily to Japan, Korea, Australia, South East Asia and Europe. Rio Tinto Aluminium smelters continued to produce at or close to capacity in 2006. Production at Bell Bay,Anglesey Aluminium and Boyne Smelters was consistent with 2005 levels. Projects Weipa(Rio Tinto: 100 per cent) In 2006, Rio Tinto Aluminium commissioned a new US$40 million 26 megawatt power station. The new power station services the mining operation and surrounding communities. A US$60 million second shiploader was commissioned in the fourth quarter to ensure reliability of bauxite supply to customers. To meet the needs of increased trade of bauxite and alumina, Rio Tinto Marine committed US$120 million to the purchase of three new post Panamax bulk ore carriers to be used primarily on the Weipa to Gladstone run. The first ship will be delivered in the third quarter of 2007. Yarwun(Rio Tinto: 100 per cent) Rio Tinto Aluminium continues to study the expansion of the Yarwun alumina refinery, formerly Comalco AluminaRefinery, in Gladstone to meet the growing needs of its own smelters and to supply growing demand, particularly from China and the Middle East. Abu Dhabi aluminium smelter(Rio Tinto: 50 per cent) In 2006, Rio Tinto Aluminium signed a preliminary agreement with General Holding Corporation of Abu Dhabi to undertake a feasibility study into construction of an aluminium smelter in the United Arab Emirates. Development could result in a smelter with a first stage production capacity of 550,000 tonnes of metal per year.A company, Abu Dhabi Aluminium Company (Adalco) has been formed to manage the joint venture. With its abundant gas resources, the Middle East is fast becoming a key region in the global aluminium industry. Rio Tinto 2006 Form 20-F | 56 |
Back to Contents COPPER GROUP Mined | Rio Tinto share | | Copper | ‘000 tonnes | |
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| | 2002 | 887 | | 2003 | 867 | | 2004 | 753 | | 2005 | 784 | | 2006 | 803 | |
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Gold | ‘000 ounces | |
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| | 2002 | 3,135 | | 2003 | 2,731 | | 2004 | 1,552 | | 2005 | 1,726 | | 2006 | 1,003 | |
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Refined | Rio Tinto share | | Copper | ‘000 tonnes | |
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| | 2002 | 417 | | 2003 | 349 | | 2004 | 333 | | 2005 | 314 | | 2006 | 299 | |
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Underlying earnings contribution* | US$m | |
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| | 2004 | 860 | | 2005 | 2,020 | | 2006 | 3,562 | |
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Changes in underlying earnings 2004 - 2006 | US$m | |
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| | 2004 Underlying earnings | 860 | | Effect of changes in: | | | Prices and exchange rates | 629 | | General inflation | (26 | ) | Volumes | 696 | | Costs | (130 | ) | Tax and other | (9 | ) |
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| | 2005 Underlying earnings | 2,020 | | Effect of changes in: | | | Prices and exchange rates | 1,707 | | General inflation | (28 | ) | Volumes | (179 | ) | Costs | (205 | ) | Tax and other | 247 | |
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| | 2006 Underlying earnings | 3,562 | |
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* | A reconciliation of the net earnings with underlying earnings for 2004, 2005 and 2006 as determined under EU IFRS is set out on page 39. |
Rio Tinto’s Copper group comprises Kennecott Utah Copper in the US and interests in the copper mines of Escondida in Chile, Grasberg in Indonesia, Northparkes in Australia, Palabora in South Africa, and the Resolution Copper project in the US. The group also has management responsibility for Kennecott Minerals Company in the US. Since the beginning of 2006, the group acquired the La Granja project in Peru and took an ownership stake in Ivanhoe Mines and Northern Dynasty Minerals which have the Oyu Tolgoi and Pebble deposits in Mongolia and the US respectively. Historically, the Copper group built the majority of its portfolio through acquisitions (Kennecott) or jointventures (Escondida, Grasberg) followed by expansions. The current pipeline of projects (Oyu Tolgoi, Resolution, La Granja and Pebble) represents a transition with a greater proportion of opportunities created through exploration and acquisitions at an early stage of development. In addition to the Copper group’s interests in these four world class deposits, the group is developing the E48 underground deposit at Northparkes and undertaking a prefeasibility study at Kennecott Utah Copper to extend the mine’s life, either through a further pushback of the open pit or a transition to underground mining. The Copper group’s long term development plans are not just confined to its principal product. Rio Tinto has a number of nickel development opportunities which are currently being evaluated. At the small, high grade Eagle nickeldeposit (Rio Tinto: 100 per cent) in Michigan in the US, feasibility studies have been undertaken and a decision on developing the deposit is expected in 2007. At 31 December 2006, the Copper group, which also produces gold and molybdenum as significant coproducts, Rio Tinto 2006 Form 20-F | 57 |
Back to Contents accounted for 16 per cent of the Group’s operating assets and in 2006 contributed approximately 28 per cent of Rio Tinto’s gross sales revenue, of which 74 per cent was from copper, 13 per cent from molybdenum and the remainder mostly from gold. It accounted for 49 per cent of underlying earnings in 2006. Bret Clayton succeeded Tom Albanese as chief executive Copper, and is based in London. Financial performance 2006 compared with 2005 The Copper group’s contribution to underlying earnings was US$3,562 million, US$1,542 million higher than in 2005.The average price of copper was 306 US cents per pound during 2006, 84 per cent higher than in 2005. The average gold price of US$602 per ounce increased by 36 per cent. The average price of molybdenum was US$24.60 per pound compared with US$30.70 per pound in 2005. Kennecott Utah Copper’s contribution to underlying earnings of US$1,804 million was US$767 million higher than in 2005, with the operation benefiting from higher prices and volumes and a tax credit of US$289 million following recognition of deferred tax assets. Record molybdenum production was achieved during the year, offsetting the impact of lower refined copper production due to a scheduled smelter shutdown in the second half of 2006. An increase in the group’s long term copper price assumption triggered an assessment of the amount of recoverable copper at Kennecott Utah Copper. As a result, the impairment made in 2001 and 2002 was reversed in 2006. Rio Tinto’s share of underlying earnings from Escondida increased by US$648 million to US$1,250 million. Higher prices and the commencement of sulphide leaching counterbalanced higher mining costs and input prices. The Grasberg joint venture contributed US$122 million to underlying earnings, US$110 million below 2005. Lower grades of copper, gold and silver, the result of mine sequencing, led to significantly lower production of all three metals. Palabora’s 2006 earnings of US$52 million were US$33 million above the prior year, benefiting from higher copper prices and sales volumes and the sale of some smelter stocks. Northparkes’ contribution to underlying earnings of US$229 million represents a US$172 million increase from 2005. In addition to higher prices, better grades, increased throughput and improved recoveries all contributed to a 54per cent increase in production of copper contained in concentrates. Kennecott Minerals’ 2006 earnings of US$105 million were US$32 million above 2005. The effect of higher gold and zinc prices and the recognition of a US$14 million deferred tax asset were offs et by higher costs and lowersales volumes from Cortez, due to lower grades. 2005 compared with 2004 The Copper group’s contribution to underlying earnings was US$2,020 million, US$1,160 million higher than in 2004. The average price of copper was 166 US cents per pound compared with 130 US cents in 2004. The average price ofmolybdenum was US$30.70 per pound compared with US$14.60 in 2004. The average gold price of US$444 per ounce increased by nine per cent. Kennecott Utah Copper’s contribution to underlying earnings was US$1,037 million, compared with US$311million in 2004. Molybdenum production increased significantly as a result of the refocusing of the mine plan in response to significantly higher molybdenum prices. Rio Tinto’s share of underlying earnings from Escondida increased by US$196 million to US$602 million.Mined production of copper was up five per cent. The underlying earnings contribution from the Grasberg joint venture increased by US$200 million to US$232 million chiefly as a result of the continuation of full production after the material slippage in October 2003. Palabora recorded a profit of US$19 million in 2005, helped by improved performance of undergroundproduction. Northparkes’ copper production was 80 per cent above the previous year due to the successful ramp up of Lift 2. Kennecott Minerals lower sales volumes were due to lower grades at Cortez. Operations Kennecott Utah Copper(Rio Tinto: 100 per cent) Kennecott Utah Copper (KUC) operates the Bingham Canyon mine, Copperton concentrator and Garfield smelter andrefinery complex, near Salt Lake City, US. KUC is a polymetallic mine, producing copper, gold, molybdenum and silver. As the second largest copper producer in the US, KUC supplies more than 17 per cent of the nation’s annual refined copper requirements and it employs approximately 1,700 people. 2006 operating performance KUC continued to demonstrate operating flexibility by delivering record molybdenum production during a period ofexceptionally high prices. Employing Rio Tinto’sImproving performance together(IPT) methodology, KUC substantially improved its knowledge of molybdenum mineralisation in the orebody to optimise molybdenumproduction, which was eight per cent higher than 2005. In July, a pebble crushing facility was commissioned at the concentrator. Final modifications to this circuit will Rio Tinto 2006 Form 20-F | 58 |
Back to Contents be completed in 2007, leading to a projected increase in plant throughput of approximately 18 per cent. A capital investment of US$82 million was approved in October, to expand and modernise the bulk flotation circuit at theconcentrator. This project is expected to increase recoveries of copper, molybdenum and gold and improve concentrategrade, thereby benefiting smelter throughput rates. The scheduled completion of this pr oject is mid 2008 with full production benefits realised by 2009. The Garfield smelter was shut down in September for planned maintenance work and was re-commissioned inearly November. The interruption reduced refined copper production by six per cent, compared with 2005. Smelter throughput rates following the shutdown are exceeding initial expectations. Current ore reserves will support open pit operations until 2019. Prefeasibility studies continued during the yearto evaluate alternatives for extending the mine’s life beyond 2019. The alternatives include additional open pit pushbacks and/or underground mining options. KUC intends to dewater and rehabilitate an existing mine shaft in 2007to provide access for an underground drilling programme to augment these studies. Principal operating statistics at KUC 2004-2006 | 2004 | | 2005 | | 2006 | |
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| | Rock mined (’000 tonnes) | 129,196 | | 140,906 | | 145,343 | | Ore milled (’000 tonnes) | 45,712 | | 46,664 | | 47,857 | | Head grades: | | | | | | | Copper (%) | 0.63 | | 0.53 | | 0.63 | | Gold (g/t) | 0.29 | | 0.37 | | 0.49 | | Silver (g/t) | 3.04 | | 3.23 | | 3.50 | | Molybdenum (%) | 0.033 | | 0.058 | | 0.057 | | Copper concentrates produced (’000 tonnes) | 1,106 | | 881 | | 1,019 | | Production of metals in copper concentrates | | | | | | | Copper (’000 tonnes) | 263.7 | | 220.6 | | 265.6 | | Gold (’000 ounces) | 308 | | 401 | | 523 | | Silver (’000 ounces) | 3,584 | | 3,958 | | 4,214 | | Molybdenum concentrates produced (’000 tonnes) | 12.9 | | 29.5 | | 30.2 | | Contained molybdenum (’000 tonnes) | 6.8 | | 15.6 | | 16.8 | | Concentrate smelted on site (’000 tonnes) | 1,098 | | 1,042 | | 918 | | Production of refined metals | | | | | | | Copper (’000 tonnes) | 246.7 | | 232.0 | | 217.9 | | Gold (’000 ounces) | 300 | | 369 | | 462 | | Silver (’000 ounces) | 3,344 | | 3,538 | | 4,152 | |
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Grasberg joint venture(Rio Tinto: 40 per cent) Grasberg, in Papua, Indonesia, is one of the world’s largest copper and gold mines in terms of reserves and production.It is owned and operated by Freeport Indonesia (PTFI), the principal and 91 per cent owned subsidiary of the US based Freeport-McMoRan Copper & Gold Inc. (FCX). In meeting the mine’s social obligations to local communities, at least one per cent of Grasberg’s net salesrevenues are committed to support village based programmes. In addition, two trust funds were established in 2001 in recognition of the traditional land rights of the local Amungme and Komoro tribes. In 2006, PTFI contributed US$43.9million (net of Rio Tinto portion) and Rio Tinto US$3.6 million in total to the funds. As a result of training and educational programmes, Papuans represented more than a quarter of PTFI’s approximately 9,000 strong workforce by the end of 2006. 2006 operating performance Rio Tinto’s share of metal production is dependent on the metal strip, which determines the allocation of volumesbetween the joint venture partners. Owing to lower grades, Rio Tinto’s share of production from the Grasberg mine wasconstrained in 2006 and owing to adjustments to the mine schedule, will continue to show significant variation year to year. After 2021, Rio Tinto shares 40 per cent of total production as the metal strip ceases. PTFI, as manager, recently completed an analysis of its longer range mine plans to assess the optimal design of the Grasberg open pit and the timing of development of the Grasberg underground block cave ore body. The revisedlong range plan includes changes to the expected final Grasberg open pit design which will result in a section of highgrade ore previously expected to be mined in the open pit to be mined in the Grasberg underground block cave mine. The revised mine plan reflects a transition from the Grasberg open pit to the Grasberg underground block cave ore bodyin mid 2015. The mine plan revisions alter the timing of metal production in the period of 2015 and beyond but do nothave a significant effect on ultimate recoverable reserves. Rio Tinto 2006 Form 20-F | 59 |
Back to Contents Principal operating statistics for PTFI 2004-2006 | 2004 | | 2005 | | 2006 | |
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| | Ore milled (’000 tonnes) | 67,750 | | 78,907 | | 83,716 | | Head grades: | | | | | | | Copper (%) | 0.87 | | 1.13 | | 0.85 | | Gold (g/t) | 0.88 | | 1.65 | | 0.85 | | Silver (g/t) | 3.85 | | 4.88 | | 3.84 | | Production of metals in concentrates | | | | | | | Copper (’000 tonnes) | 516.4 | | 793.9 | | 610.8 | | Gold (’000 ounces) | 1,584 | | 3,546 | | 1,880 | | Silver (’000 ounces) | 5,037 | | 7,531 | | 5,609 | |
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Escondida(Rio Tinto: 30 per cent) The low cost Escondida copper mine in Chile is one of the largest copper mines in the world in terms of annualproduction, and has a mine life expected to exceed 30 years. It accounts for approximately eight per cent of worldprimary copper production. BHP Billiton owns 57.5 per cent of Escondida and is the operator and product sales agent. The Escondida district hosts two of the largest porphyry copper deposit systems in the world – Escondida andEscondida Norte, located five kilometres from Escondida. A sulphide leach project was complete d during the year withthe first cathode being produced in June. During August, operations were affected by strike action over wage negotiations. Operations resumed in September after a new three year contract was settled. Escondida employs approximately 2,900 people. 2006 operating performance Escondida’s mined copper production was three per cent higher than in 2005, with higher grades and the commencement of sulphide leaching more than offsetting the effects of the strike action. Cathode production was seven per cent lower than in 2005 due to lower grade oxide ore. Principal operating statistics at Escondida 2004-2006 | 2004 | | 2005 | | 2006 | |
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| | Rock mined (’000 tonnes) | 377,356 | | 359,569 | | 338,583 | | Ore milled (’000 tonnes) | 82,378 | | 86,054 | | 84,158 | | Head grade: | | | | | | | Copper (%) | 1.51 | | 1.53 | | 1.59 | | Production of metals in concentrates | | | | | | | Copper (’000 tonnes) | 1,046 | | 1,127 | | 1,122 | | Gold (’000 ounces) | 217 | | 183 | | 170 | | Silver (’000 ounces) | 5,747 | | 6,565 | | 6,646 | | Copper cathode (’000 tonnes) | 152.1 | | 143.9 | | 134.4 | |
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Palabora(Rio Tinto: 57.7 per cent) Palabora Mining Company (Palabora) is a publicly listed company on the Johannesburg Stock Exchange and operates a mine and smelter complex in South Africa. Palabora developed a US$465 million underground mine with a current planned production rate of at least32,000 tonnes of ore per day. Approximately 663,500 tonnes of copper are expected to be produced over the remaining life of the mine. Palabora supplies most of South Africa’s copper needs and exports the balance. It employs approximately 2,000people and labour agreements are negotiated annually. 2006 operating performance Palabora recorded a net profit of US$52 million in 2006, US$33 million higher than 2005. Underground production for the year averaged 30,200 tonnes per day, which is ten per cent higher than 2005. Production rates peaked in the last week of December at 36,562 tonnes per day. The average annual production fell short of the planned target of 32,000 tonnes per day as a result of breakdown and maintenance problems. Theaverage ore grade was 0.71 per cent compared with 0.72 per cent in 2005. During the first quarter of 2006, Palabora’s reverberatory furnace, which has been in operation for over 40 years, was subjected to its eighth rebuild, the last having occurred in 2000. A ten per cent increase in capacity is expected from the rebuild, taking the overall operational capacity to 110,000 tonnes per annum. As part of the decision to build the magnetite business using current production, Palabora entered into a supply contract with Minmetals for the supply of two million tonnes of magnetite concentrate per annum starting in October2006. As a result of mine production shortfalls and lower grades, concentrate production was supplemented by purchases of concentrate material to optimise smelter throughput. Palabora will continue to purchase concentrates to Rio Tinto 2006 Form 20-F | 60 |
Back to Contents supplement the smelter as capacity exceeds the mine output. Vermiculite revenue of US$40 million increased by five per cent on 2005. Production in 2006 was down by sixper cent compared with 2005, and the strong market demand for the coarser grades continuesto exceed production in all market segments. Palabora’s lending facilities and hedge contracts, which were finalised in September 2005 as part of a refinancingproject, were closely monitored during 2006. Forward pricing contracts, representing 62.5 per cent of the budgetedunderground production up to 2008, and 30 per cent up to 2013, are in place. Principal operating statistics at Palabora 2004-2006 | 2004 | | 2005 | | 2006 | |
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| | Ore milled (’000 tonnes) | 8,657 | | 9,536 | | 10,730 | | Head grade: | | | | | | | Copper (%) | 0.74 | | 0.72 | | 0.71 | | Copper concentrates produced (’000 tonnes) | 187.7 | | 197.1 | | 208.9 | | Contained copper (’000 tonnes) | 54.4 | | 61.2 | | 61.5 | | New concentrates smelted on site (’000 tonnes) | 253.4 | | 304.4 | | 288.5 | | Refined copper produced (’000 tonnes) | 67.5 | | 80.3 | | 81.2 | |
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Northparkes(Rio Tinto: 80 per cent) Rio Tinto’s interest in the Northparkes copper-gold mine in central New South Wales, Australia, resulted from the acquisition of North Ltd. Northparkes is a joint venture with the Sumitomo Group (20 per cent). Following an initial open pit operation at Northparkes, underground block cave mining has been undertaken since 1997. In November 2006, the joint venture partners approved the development of the E48 block cave project, which is expected to cost US$160 million (Rio Tinto share: US$127 million) and extend the mine’s life until 2016. The project is a state of the art development incorporating experience and know how from the previous two block cave projects. The E48 block cave will progressively replace the current block cave from 2009, and output from E48 will beprocessed in the existing concentrator and transported by rail to Port Kembla for export. The copper concentrate produced is shipped under long term contracts that provide for periodic negotiation ofcertain charges, as well as spot sales, to smelters in Japan (74 per cent), China (13 per cent), and India (13 per cent).Northparkes employs approximately 220 people. 2006 operating performance Northparkes achieved a solid performance during 2006, with production of concentrate up 40 per cent from 2005 due to increased grades, milling rates and recoveries. Principal operating statistics at Northparkes 2004-2006 | 2004 | | 2005 | | 2006 | |
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| | Ore milled (’000 tonnes) | 5,008 | | 5,453 | | 5,789 | | Head grade: | | | | | | | Copper (%) | 0.79 | | 1.12 | | 1.53 | | Gold (g/t) | 0.66 | | 0.46 | | 0.64 | | Production of contained metals | | | | | | | Copper (’000 tonnes) | 30.0 | | 54.0 | | 83.3 | | Gold (’000 ounces) | 79.4 | | 57.0 | | 94.7 | |
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Kennecott Minerals(Rio Tinto: 100 per cent) Kennecott Minerals in the US manages the Greens Creek mine (Rio Tinto: 70 per cent) on Admiralty Island in Alaska which produces silver, zinc, lead and gold. The Rawhide mine (Rio Tinto: 51 per cent) in Nevada produces gold andsilver by leaching since mining operations ceased in 2002. Reclamation work is well advanced. Kennecott Minerals alsoowns the group’s interest in the Cortez joint venture (Rio Tinto: 40 per cent), also in Nevada. Kennecott Minerals employs approximately 322 people, excluding employees of non managed operations. 2006 operating performance Underlying earnings of US$105 million were US$32 million higher than 2005 underlying earnings, reflecting the strongprice environment for gold, silver, zinc and lead. At Greens Creek, production was affected by a major rehabilitation programme at the mine. Mill throughput isexpected to increase in 2007 following the substantial completion of the project in 2006. In 2006 there was a dramatic but expected decline in Cortez production due to the move into the final lower grade stages of the Pipeline orebody. While production is expected to increase in 2007, it will remain below the levelsexperienced when mining the best Pipeline ore zones. Production is expected to increase in 2009 when production fromCortez Hills is planned to commence. Rio Tinto 2006 Form 20-F | 61 |
Back to Contents Projects Resolution(Rio Tinto: 55 per cent) The Resolution project is situated in Arizona, US, in the area of the depleted Magma (Superior) copper mine. The project team is currently working through a prefeasibility study, including a proposed land exchange, an environmental impact study, further deposit definition drilling and the sinking of two shafts to gain access to the mineralisation. Expenditure to the end of feasibility in 2011, if approved, is expected to be approximately US$700 million, with total capital to initiate production forecast to be about US$2.5 billion. While there are technical challenges with regard to depth and rock temperature, we believe that Resolution could become a leading global copper producer over several decades. The Act supporting a land exchange programme was introduced in the Senate and House of Representatives during 2006, but the timing did not allow the Act to progress to point of Presidential signature. It will be re-introduced in both Houses in early 2007. Oyu Tolgoi(Rio Tinto: 9.9 per cent stake in Ivanhoe Mines) Rio Tinto acquired a 9.9 per cent holding of Ivanhoe Mines in order to jointly develop and operate Ivanhoe’s Oyu Tolgoi copper-gold complex in Mongolia’s South Gobi region. A joint Ivanhoe-Rio Tinto technical committee will engineer, construct and operate the project. Subject to reaching a satisfactory long term investment agreement with the Mongolian government, an open pit mine is expected to be in operation by the end of the decade followed by an underground mine several years later. Rio Tinto’s holding in Ivanhoe Mines is expected to rise to 19.9 per cent upon completion of the long term investment agreement. The Group has an option to increase its stake in due course to 33.35 per cent, and potentially take it up to 40 per cent via open market transactions. As part of the investment arrangements, Ivanhoe Mines has agreed with Rio Tinto to divest its joint venture interest in the Myanmar Copper Project located in the Union of Myanmar, together with any other rights, interests orinvestments relating to the country. Pending their sale, the Myanmar based assets have, in accordance with the terms of the agreement between Rio Tinto and Ivanhoe Mines, been transferred to an independent third party trust, the solepurpose of which is to sell the assets. Ivanhoe Mines has no interest in the trust, other than as an unsecured creditorunder a promissory note issued by trust on the transfer of the Myanmar based assets (which is to be repaid once the assets are sold). La Granja(Rio Tinto: 100 per cent) Rio Tinto won the state privatisation tender for the La Granja copper project, located in the Cajamarca region of northern Peru. The bid comprised staged payments to the Peruvian government of US$22 million and US$60 million ininvestment in exploration and feasibility work. In late 2006, Rio Tinto approved expenditure up to US$95 million, mostof which is expected to be spent over 2007–2009. The La Granja project is technically challenging and has modest copper grades. However, the deposit contains significant mineralisation of more than two billion tonnes. Instead of looking at La Granja as a conventional milling operation producing concentrates for export, theprefeasibility study is aimed at demonstrating the possibility of recovering copper metal using bioleaching and electrowinning. Pebble(Rio Tinto: 19.8 per cent stake in Northern Dynasty Minerals) Rio Tinto acquired a 9.9 per cent interest in Northern Dynasty Minerals during the year and increased its interest to 19.8per cent during February 2007. Northern Dynasty Minerals is advancing the Pebble copper-gold-molybdenum deposit in southwestern Alaska, which is another world class ore body that is amenable to block caving. Cortez Hills(Rio Tinto: 40 per cent) Rio Tinto holds a 40 per cent interest in the Cortez joint venture, with Barrick Gold managing the joint venture and holding the remaining 60 per cent interest. The operation is located in north-eastern Nevada, US, and contains total proven and probable reserves of 7.5 million ounces; this includes the Cortez Hills deposit discovered in 2003. Eagle(Rio Tinto: 100 per cent) The Eagle project is a high grade nickel deposit located in Michigan, US. Kennecott Minerals has carried out a project feasibility study. Permitting approvals are under way while exploration continues in the area around Eagle and thewider district. A decision on developing the deposit is expected in 2007. Rio Tinto 2006 Form 20-F | 62 |
Back to Contents DIAMONDS GROUP Mined | Rio Tinto share | | Diamonds | ‘000 carats | |
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| | 2002 | 33,620 | | 2003 | 33,272 | | 2004 | 25,502 | | 2005 | 35,635 | | 2006 | 35,162 | |
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Underlying earnings contribution* | US$m | |
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| | 2004 | 188 | | 2005 | 281 | | 2006 | 205 | |
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Changes in underlying earnings 2004 - 2006 | US$m | |
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| | 2004 Underlying earnings | 188 | | Effect of changes in: | | | Prices and exchange rates | 46 | | General inflation | (5 | ) | Volumes | 89 | | Costs | (18 | ) | Tax and other | (19 | ) |
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| | 2005 Underlying earnings | 281 | | Effect of changes in: | | | Prices and exchange rates | 12 | | General inflation | (8 | ) | Volumes | (100 | ) | Costs | (10 | ) | Tax and other | 30 | |
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* | A reconciliation of the net earnings with underlying earnings for 2004, 2005 and 2006 as determined under EU IFRS is set out on page 39 |
The Diamonds group comprises Rio Tinto’s 60 per cent interest in the Diavik Diamonds mine located in the Northwest Territories of Canada, the wholly owned Argyle mine in Western Australia, Rio Tinto’s 78 per cent interest in theMurowa mine in Zimbabwe and diamond sales and representative offices in Antwerp, Belgium, and Mumbai, India. It also includes new teams established in 2006 with responsibility for business development, product security and thedevelopment and transfer of best practice across the group. The group has enjoyed strong growth over the past five years as Diavik has been brought to full production and Murowa has been added to the portfolio and as the Argyle product has benefited from improved pricing. Over the pastfive years, sales revenues and underlying earnings have tripled. This has positioned Diamonds as a strong contributor toRio Tinto overall. Within the industry, the Diamond group is well positioned as a leading supplier to the market, with a clear focuson the upstream portion of the value chain. Rio Tinto’s exploration programme has been successful in discovering new assets for Diamonds to develop, and a differentiated approach to marketing has enabled the capture of higher prices. The group’s strategy is to compete in the diamond business and strive to build further value. The focus is on the mining,recovery and sale of rough diamonds. In keeping with Rio Tinto’s values, the Diamonds group is a leading proponent ofa number of programmes and partnerships that help improve social and environmental standards of partners, suppliers and customers. Rio Tinto sells diamonds from all three operations through its marketing arm, Rio Tinto Diamonds, according toa strict chain of custody process, ensuring all products are segregated according to mine source. At the end of 2006 Diamonds employed 1,500 people and had 930 contractors. The Diamonds group was combined with the Industrial minerals group with effect from 1 June 2007, to form theDiamonds and Minerals group. Keith Johnson, based in London, who had been chief executive Diamonds, became Group executive Business Resources; and, Andrew Mackenzie, based in London, became chief executive Diamondsand Minerals. Financial performance 2006 compared with 2005 Diamonds contributed US$205 million to Rio Tinto’s underlying earnings in 2006, a decrease of US$76 million from 2005. Sales revenue for 2006 was US$838 million, US$238 million lower than in 2005. The lower earnings and sales revenue arose mainly from a downturn in the rough diamond market in the second half of 2006. This resulted in lower Rio Tinto 2006 Form 20-F | 63 |
Back to Contents prices for most product types, with Rio Tinto Diamonds stocking some lower priced product, which will be sold in future periods. Diamond production remained at similar levels to 2005 across all operations. Argyle produced 29.1 millioncarats in 2006, approximately 1.4 million carats less than in 2005. This was in line with expectations of a decreasing diamond production profile as the open pit winds down and underground production ramps up over the next five years. Diavik produced 5.9 million carats in 2006, 0.9 million carats more than in 2005. Murowa produced 0.2 million carats in 2006, slightly less than in 2005. The rough diamond market started strong in the first half of 2006 but deteriorated into the second half. Year endprices closed at similar levels to the start of 2006. A number of factors influenced this mid year correction including a congested processing pipeline, tight liquidity in the manufacturing sector and extensive flooding in India’s major cutting centre, Surat, which forced the shutdown of many cutting and manufacturing centres for several weeks. Polished diamond prices remained constant through 2006 with reasonable demand experienced for most products, particularly for larger better quality white diamonds. 2005 compared with 2004 Diamonds contributed US$281million to underlying earnings, an increase of US$93 million from 2004, assisted by astrong diamond market and the solid performance by Argyle, Diavik and Murowa. The rough diamond market remained strong for most of 2005 with the Rio Tinto product offering in great demand. Seasonal softening toward the end of the year was mainly due to holidays and festivals in the key customermarkets. Prices for polished diamonds increased in 2005, with the majority of gains made in the first half of the year. Strongest demand was seen in the product types in shortest supply. This included large diamonds greater than two caratsin size with better colour and quality, and the smaller diamond segments. Operations Argyle Diamonds(Rio Tinto: 100 per cent) Rio Tinto owns and operates the Argyle diamond mine in Western Australia. Production from Argyle’s AK1 open pit mine is expected to continue until 2012. From 2009 the mine is expected to gradually transition to underground operations which would extend the life of the mine to about 2018. 2006 operating performance Despite tight mining conditions in the deepening and geotechnically challenging open pit, the operation maintainedproduction and plant throughput in 2006, producing 29.1 million carats in 2006 compared with 30.5 million carats in 2005. Commencing in 2006, underground safety performance was separated from that of the open pit section. Althoughthe aggregate 2006 safety performance was only slightly better than in 2005, the open pit operation achieved exceptional performance with lost time injury frequency rate down by over 300 per cent. Argyle celebrated the signing of a Participation Agreement with neighbouring communities in June 2005 and hasspent the last 18 months implementing the terms of the agreement. Diavik Diamonds(Rio Tinto: 60 per cent) Construction of Diavik was completed in 2003 with production first commencing in January 2003. Since then the project has exceeded expectations and is now focused on further improving value recovery and business excellence, and planning for the integration of the A418 open pit. Safety performance in 2006 was considerably better than 2005, with the lost time injury frequency rate down byalmost half and the all injury rate down by a third. In 2006 total cumulative spending since 2000 on local purchasing with northern Aboriginal businesses surpassed the C$1 billion mark. 2006 operating performance Diavik produced more carats in 2006 than in any other previous year, thanks to higher ore grade, excellent operationalperformance throughout the year and ore blending strategies employed to maximise process plant throughput. This was achieved during a massive winter road recovery operation. Freight and construction materials scheduledfor trucking to the mine up the 2006 winter road could not be transported on surface due to a shorter season of cold winter conditions necessary for maintenance of the ice road. The recovery operation included the air lifting of fuel, bentonite, explosives and consumables to site. Open pit mining is expected to be predominantly from A154 in 2007 with some A418 open pit ore commencing in 2008. Rio Tinto 2006Form 20-F | 64 |
Back to Contents Murowa(Rio Tinto: 77.8 per cent) Production at Murowa commenced in late 2004 after US$11 million was spent on constructing a 200,000 tonnes per year plant and supporting infrastructure. Chain of custody safeguards put in place at the commencement of production have performed without incident. Murowa’s 2006 safety performance was exceptional with no lost time injuries reported in 2006 and the all injuryfrequency rate down by more than 80 per cent. 2006 operating performance A start was made on upgrading the 200,000 tonnes per year processing plant to increase throughput, improve recoveriesand protect against power outages. The modification was completed during April 2007 and is expected to give Murowa several more years of operation. Worsening power outages are impacting production and this situation is not expected to improve until August 2007 when a new generator is expected to be operational. Projects Argyle(Rio Tinto: 100 per cent) Rio Tinto approved the development of an underground block cave mine under the AK1 open pit in late 2005. It also approved an open pit cutback on the Northern Bowl to facilitate the transition from open pit to underground mining. The capital cost of the underground mine is expected to be US$760 million, and the cutback US$150 million. Construction started in February 2006. By the end of 2006, 10,600 metres of underground development in four main access declines had been completed. In late 2006 the first of the underground declines reached the required depthfor ore extraction. The underground block cave undercut is expected to be initiated on schedule in 2008. Diavik(Rio Tinto: 60 per cent) In late 2004 the joint venture approved a study of the feasibility of underground mining of the A154N, A154S and A418 kimberlites. This study includes the development of a 3.3 kilometre exploratory decline, at an estimated cost of US$75 million. In 2006 a three phase underground development funding model, totalling some US$265 million, was approved. If underground mining is given the go ahead, the first ore is planned to be extracted in 2008. Meanwhile, a US$190 million project, involving the construction of a dyke round the A418 kimberlite to allow open pit mining beneath the lake bed, is well advanced. The construction and dewatering of the dyke was completed in2006 and pre-stripping began in December. The A418 ore is softer than that of the A154 pipes and will allow ore blending strategies to maintain the high process plant throughput achieved in 2006. The first ore from the A418 open pit is scheduled to be mined in late 2007 and will continue through to 2012. About two kilometres south of the A154 pipes, under the waters of Lac de Gras, is the A21 kimberlite pipe. It does not currently form part of the Diavik ore reserve or mine plan as little is known about the value of the diamonds it holds. A feasibility study into open pit mining, which includes the development of an exploratory decline, is now in hand. At the end of 2006, the decline had reached the kimberlite, and bulksampling results are expected in the first quarter of 2007. The study is scheduled for completion in 2007, at which time it will be decided whether the A21 kimberlite should be included in reserves, but ore extraction would not start until 2012. Murowa(Rio Tinto: 77.8 per cent) Murowa commenced studies in mid 2006 to determine whether to expand the mine. Rio Tinto 2006Form 20-F | 65 |
Back to Contents OTHER OPERATIONS Kennecott Land(Rio Tinto: 100 per cent) Kennecott Land was established in 2001 to capture value from the non mining land and water rights assets of Kennecott Utah Copper. Kennecott Land’s holdings are around 53 per cent of the remaining undeveloped land in Utah’s Salt Lake Valley. Approximately 16,000 hectares of the 37,200 hectares owned is developable land and is all within 20 miles (32km) of downtown Salt Lake City. The initial Daybreak community encompasses 1,800 hectares and is entitled to develop nearly 14,000 residential units and nine million square feet of commercial space. Kennecott Land develops the required infrastructure and prepares the land for sale to home builders. The project is well advanced, with over 1,200 home sales completed since opening in June 2004. At full build out, the community will house 30,000 to 40,000 residents. Revenues in 2006 were US$60 million. Kennecott Land is in the process of securing development rights from Salt Lake County for the remaining landholdings. Current development potential for this land is in excess of 150,000 residential units and 50 million square feet of commercial space. Securing entitlement is a long term public process that will culminate in a plan being submitted for approval by the Salt Lake County Council in the next one to two years. Sari Gunay(Rio Tinto: 70 per cent) Rio Tinto has carried out exploration and project evaluation in Iran since 2000. Preliminary results from the Sari Gunay gold project in Western Iran have indicated the potential for a medium sized low grade oxide resource. Following successful geostatistical and infill drilling programme in 2004, a feasibility study, including further evaluation drilling and metallurgical testwork, has been completed. Rio Tinto is currently evaluating its options for Sari Gunay. MARKETING Marketing and sales of the Group’s various metal and mineral products are handled either by the specific business concerned, or in some cases are undertaken at a product group level. In 2006, Rio Tinto established a small central marketing team based in London to develop and share leading marketing practices across the Group. The team supports the Group’s businesses by helping to identify new ways of adding value in meeting customers’ needs. Rio Tinto has numerous marketing channels, which include electronic market places, with differingcharacteristics and pricing mechanisms depending on the nature of the commodity and markets being served. Rio Tinto’s businesses contract their metal and mineral production direct with end users under both short andlong term supply contracts. Long term contracts typically specify annual volume commitments and an agreed mechanism for determining prices at prevailing market prices. For example, businesses producing non ferrous metals and minerals reference their sales prices to the London Metal Exchange (LME) or other metal exchanges such as the Commodity Exchange Inc (Comex) in New York. Ocean freight Ocean freight has become an important part of Rio Tinto’s marketing. It is managed by Rio Tinto Marine, which isbased in Melbourne. In 2006, Rio Tinto Marine handled 70 million tonnes of dry bulk cargo, a significant increase on the 51 million tonnes transported in 2005. Rio Tinto Marine leverages the Group’s substantial cargo base to obtain a low cost mix of short, medium andlong term freight cover. It seeks to create enterprise value from its freight by creating competitive advantage for the Group’s products rather than by trading freight. Rio Tinto Marine sets and maintains the Group’s HSE and vessel assurance standards for freight and is one ofthree equal shareholders in Rightship, a ship vetting specialist, promoting safety and efficiency in the global maritime industry. Rio Tinto 2006Form 20-F | 66 |
Back to Contents EXPLORATION GROUP Rio Tinto Exploration seeks to discover or identify mineral deposits that will contribute to the growth of the Rio Tinto Group. The discovery of new deposits is essential to replace reserves as they are mined, to provide new opportunities for growth, and to help meet the increasing global demand for minerals and metals. The Exploration group is opportunistic in approach and its resources are deployed on projects that show the best chance of delivering a world class deposit to Rio Tinto. Exploration maintains close dialogue with product groups toensure that strategies and project portfolios are closely aligned. Mineral exploration is a high risk activity. Rio Tinto’s statistics show that an average of only one in 350 mineral prospects that are drill tested result in a mine for the Group. Rio Tinto believes in having a critical mass of projects,selected through a rigorous process of prioritisation. The Exploration group is organised into five geographically-based teams in North America, South America, Australasia, Asia and Africa/Europe and a sixth project generation team that searches the world for new opportunitiesand provides specialised geological, geophysical and commercial expertise to the regional teams. The Asia team was formed in 2006, reflecting a significant expansion in exploration effort in Russia, Mongolia and the FSU. Industrial minerals exploration, previously a separate team, has been integrated into the regional teams and project generation. At the end of 2006, Rio Tinto was exploring in over 35 countries for a broad range of commodities includingcopper, diamonds, nickel, industrial minerals, bauxite, uranium, iron ore and coal. Exploration employs about 180 geoscientists around the world and has a total complement of approximately 900 people. Eric Finlayson was appointed head of Exploration, based in London, from January 2007, succeeding TomAlbanese, director, Group Resources, who became chief executive of Rio Tinto from May 2007. Financial performance 2006 compared with 2005 Cash expenditure on exploration in 2006 was US$345 million, an increase of US$81 million over 2005, reflecting anincrease in contractor costs, the high quality of projects in the Exploration pipeline and acceleration of evaluation on significant projects. The pre-tax charge to underlying earnings was US$237 million, due to the sale of Ashton Mining of Canada shares and various other interests during 2006. 2005 compared with 2004 Cash expenditure on exploration in 2005 was US$264 million and the pre-tax charge to underlying earnings was US$250 million, a US$60 million increase over 2004, reflecting a further increase in iron ore exploration in Western Australia, the growth of high quality projects in the Exploration pipeline and acceleration of evaluation on significant projects by product groups during the year. Operations 2006 operating performance Since 2001 six projects have moved from Exploration to the next stage of project evaluation including Resolution (copper, US), Potasio Rio Colorado (potash, Argentina) and Simandou (iron ore, Guinea). Last year, five iron ore deposits in the Pilbara were transferred to the product group evaluation team. Rio Tinto also conducts near mine exploration around a number of operations. Where additional mineralisationhas supplemented reserves or new mineralisation has been discovered this has been reported by the relevant product group. Exploration in 2006 focused on advancing the most promising targets across the spectrum of grassroots and nearmine programmes. Encouraging results were obtained from a number of locations. Order of magnitude studies are in progress at the Chapudi project (coal, South Africa) and the Bunder project(diamonds, India). Negotiations continue on a Contract of Work for the La Sampala project (nickel, Indonesia) with the Government of Indonesia. During 2007 projects in Mozambique and Serbia (industrial minerals), Brazil (bauxite), Colombia (coal), and theUS (coal and nickel) are expected to commence order of magnitude studies to assess their economic potential for advancement to pre-feasibility study. Diamond exploration continues, focused in Canada, southern Africa, Mauritania, Brazil and India. Workcommenced in Mali. A number of kimberlite pipes were discovered and follow up test work is in progress to assess economic potential. Copper exploration continued in Turkey, Kazakhstan, Peru, Chile, Argentina, Mexico and the US and in Russia under the RioNor joint venture with Norilsk Nickel. Drilling encountered significant copper mineralisation in Chile, Kazahkstan and the US, warranting further follow up drill testing. Exploration focus on the bulk commodities, iron ore, coal and bauxite continued in 2006. Drilling progressed on bauxite projects in Brazil. Thermal and coking coal projects were drill tested in the US, Canada, southern Africa, Rio Tinto 2006Form 20-F | 67 |
Back to Contents Colombia and Mongolia. Results in all countries are encouraging and work is continuing in 2007. Iron ore exploration continued in west Africa and further iron ore deposits in the Pilbara in Australia have been handed over to the iron ore product group in 2007. Industrial minerals exploration was active in many parts of the world including southern Africa, Europe and South America. Following the successful tender for the Jarandol concession (borates, Serbia), drilling has commenced. Brownfields exploration support continued at several Rio Tinto operations and product group projects, including Diavik, Argyle, Kennecott Utah Copper, Eagle, Energy Resources of Australia, La Granja, Pilbara Iron, Greens Creek and Rössing. Exploration also provided expertise to the brownfields programmes at the Grasberg and Cortez joint ventures. In December the Exploration group’s ISO14001 environmental management system certification was extended to cover the new Asia region and the project generation team. Rio Tinto 2006Form 20-F | 68 |
Back to Contents TECHNOLOGY AND INNOVATION The Technology and Innovation group, formerly Operational and Technical Excellence, was formed during 2006 by bringing together the Technology group and the Group’sImproving performance togetherbusiness improvement workin the areas of mining, processing and asset management. Technology and Innovation provides a central body of expertise for supporting the business units to embed operational best practice and is the vehicle through which technology innovations are driven and technical talent isdeveloped. The group comprises a number of Centres of Excellence which drive sustainable performance in the areas of health, safety and environment, mining, processing, assets integrity, project development and evaluation, and strategicplanning. Key elements are standardisation of core processes to make them leading practice, the improvement ofanalytical tools, the introduction of common, transparent metrics and data to measure performance, and enhanced functional training and capability development of staff. A further Centre of Excellence focuses on major innovation likely to be required to develop the orebodies of thefuture. The total staff in Technology and Innovation at year end was 368, compared with 343 in 2005. The increase wasdue to the higher level of activity resulting from the current climate of growth in the industry. In July 2006, Grant Thorne succeeded Ian Smith as global head of Technology and Innovation. Operations Health, Safety and Environment The HSE Centre of Excellence ensures that strategies and standards are in place to minimise HSE risk and driveperformance. Activities support their implementation in the businesses and report results and performance trends to the board. Specific activities during 2006 included the embedding of key environmental standards and metrics withinbusiness units, complementing the health and safety standards which place Rio Tinto as an industry leader in terms ofperformance in these areas, and completing development of the product stewardship strategy, which integrates product stewardship into business systems, securing both market access and competitive advantage. Innovation The Innovation Centre of Excellence is designed to drive step change innovation for Rio Tinto, focused on a five to tenyear timeframe. The main focus is on technologies applicable across the Group, particularly in mining, processing and energy. Key innovation programmes were undertaken in underground and surface mining as well as processing. Specificactivities during 2006 focused on the block cave mining method, tunnel development and remote monitoring in underground mining, in pit material sizing and conveying, data fusion in surface mining, and process advances in oresorting and comminution. Shared Expertise Shared Expertise, a core group of technical professionals located across five global offices, provides a breadth ofexperience and a multi disciplinary approach in delivering projects to the business units across the Group. This team works in partnership with the operating sites to implement leading practice. It also provides technical support on an ongoing basis as required. Mining and Processing The Mining and Processing Centres of Excellence address the core mine production processes. Specific activities inthese areas during 2006 focused on continuing to establish and disseminate leading practice in orebody knowledge and value driven production planning across the operations. Assets Integrity The Assets Integrity Centre of Excellence develops world class asset management capabilities to create significant value for Rio Tinto. Activities for 2006 focused on the reliability and performance of physical assets across the Group, including the implementation of standards and internal league tables for maintenance of heavy mobile equipment such as trucks and shovels. This led to significant improvement in areas such as tyre life, truck utilisation and prolonging engine and component life. Project Development and Evaluation On 1 March 2007 the Projects Centre of Excellence and the Evaluation team were combined to form a new Centre for Excellence for Project Development and Evaluation (PDE). The principal accountabilities of PDE are to provideindependent advice to the capital appraisal and approval process, and on the adequacy of project submissions, fromprefeasibility studies through to execution and commissioning. It also conducts post investment reviews; and ensures that the substantial experience of the Group in project definition and delivery is reflected in future projects. Rio Tinto 2006 Form 20-F | 69 |
Back to Contents Strategic Planning The Strategic Planning Centre of Excellence focuses on three separate but related areas. These are value optimisation inthe strategic planning horizon, risk assessment and management, and business improvement, providing a centre forcoordinating leading practice for improvement methodologies across Rio Tinto. Financial performance 2006 compared with 2005 The charge against net earnings for the group was US$50 million, compared with US$41 million in 2005. The increase was due to the greater level of activity, reflected also in the addition of staff. 2005 compared with 2004 The charge for the Technology group (including Health, Safety and Environment) against net earnings was US$41million, compared with US$35 million in 2004. The increase was due to the great er level of activity in all Technology group units. Rio Tinto 2006 Form 20-F | 70 |
Back to Contents SOCIETY AND ENVIRONMENT Group employees | | | | | | | | | | | | | | Approximate average for the year | Subsidiaries and jointly | | Equity | | Total | | | controlled assets | | accounted units | | | |
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| | 2002 | 29,000 | | 8,000 | | 37,000 | | 2003 | 29,000 | | 7,000 | | 36,000 | | 2004 | 28,000 | | 4,000 | | 32,000 | | 2005 | 28,000 | | 4,000 | | 32,000 | | 2006 | 31,000 | | 4,000 | | 35,000 | |
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| | Australia / New Zealand | | | | | 14,000 | | North America | | | | | 10,000 | | Africa | | | | | 5,000 | | Other | | | | | 6,000 | |
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Rio Tinto is in business to create value by finding and developing world class mineral deposits and operating and eventually closing operations safely, responsibly and efficiently. To do so, the Group takes a disciplined and integrated approach to the economic, social and environmental aspects of all its activities. The approach to achieving this is through implementation of the policies described inThe way we work, Rio Tinto’s statement of business practice, at all levels of the business. The statement was published initially in January 1998 and revised in 2002 and 2003. It is now available in more than 20 languages. It is the result of wide internal consultation and discussion and represents shared values from around the Group. The way we workcommits the Group to transparency consistent with normal commercial confidentiality,corporate accountability and the application of appropriate standards and internal controls. It sets the basis for how Group companies’ employees work and also provides guidance for joint venture partners and others. Every employee isresponsible for implementing the policies in the document. Rio Tinto has adopted the Association of British Insurers’ 2003 disclosure guidelines on social responsibility in preparing this report. Details of the Group’s overall and individual businesses’ social and environmental performance continue to be published on the Rio Tinto website: www.riotinto.com and in theSustainable development review. Board responsibilities The directors of Rio Tinto, and of Group companies, are responsible for monitoring adherence to the Group policies outlined inThe way we work. Assurance for performance in these areas involves checking, reviewing and reportingeach business’s implementation of the policies, their compliance with regulations and voluntary commitments, and theeffectiveness of management and control systems, while also providing mechanisms for improvement. As discussed in the section onCorporate governanceon page 122, the boards established a process foridentifying, evaluating and managing the significant risks faced by the Group. Directors meet regularly, have regular scheduled discussions on aspects of the Group’s strategy and full and timely access to the information required to discharge their responsibilities fully and effectively. Rio Tinto’sCompliance guidancerequires that the identification of risk be systematic and ongoing. Itrecommends that each Group company undertakes a structured risk profiling exercise to identify, categorise and weigh the risks it faces in the conduct of its business. Each Group company puts systems in place to ensure that risks arereviewed at an appropriate frequency. Total remuneration is related to performance through the use of annual bonuses, long term incentives and stretching targets for personal, financial and safety performance. The board’sCommittee on social and environmental accountabilityreviews the effectiveness of policies andprocedures. The committee comprises four non executive directors. It meets four times annually with the chief executive and heads of Technology, Health, Safety and Environment (HSE), and Communications and ExternalRelations. Reports for the committee summarise significant matters identified through Rio Tinto’s assurance activities.These include reviews every four years of each business to identify and manage strategic risks in relation to health,safety, and the environment; audits against Rio Tinto standards; risk reviews for specific concerns; procedures and systems for reporting critical and significant issues and incidents; completion of annual internal control questionnairesby all Group business leaders covering the full spectrum of business and operational risk; and findings andrecommendations of the independent external assurance and data verification programme. In 2006 a new Corporate Assurance function was established to integrate all assurance activities, including the assurance activities of InternalAudit, HSE, and Communities, into a single assurance process. Policies, programmes and results Implementation of the policies inThe way we workis discussed in the following sections according to each policy area.Known risks arising from social and environmental matters and their management in Group businesses is described in Rio Tinto 2006 Form 20-F | 71 |
Back to Contents the relevant Group operations section. In 2006 HSE developed an integrated HSE and Quality Management System. Implementation will commence in2007 and is mandatory for all managed businesses. Safety Rio Tinto believes that all injuries are preventable and its goal is zero injuries. Wherever we operate, we hold the healthand safety of our employees to be core values. This requires visible leadership and a culture of supportive workplacebehaviour, as well as clear standards, consistent implementation, and the transfer of best practice and improvement throughout the Group. While in 2006 the safety record improved for the seventh consecutive year, there is still some way to go inachieving the goal of zero injuries. In 2006, very regrettably, three employees lost their lives at managed operations. The incidents have been investigated and actions taken to prevent recurrance. The Group has again demonstrated strong improvements in the year end lost time injury frequency rate (LTIFR) at 0.50 (2005: 0.56) and all injury frequency rate (AIFR) at 1.10 (2005: 1.35), reductions of 11 per cent and 18 per cent respectively. Rio Tinto set targets in 2003 for a 50 per cent reduction in LTIFR and AIFR by 2008 – in 2006 we were on trajectory to meet those targets. Fines for infringement of safety regulations involved nine operations, totalling US$34,794 (2005: US$87,600). Occupational health Occupational health is a major priority. Rio Tinto is committed to ensuring the good health of its employees and contractors. Our occupational health standards have now been implemented in 96 per cent of our businesses. In 2006 there were 32 new cases of occupational illness per 10,000 employees, a 40 per cent improvement compared with 54 in 2005. The Group has achieved a 69 per cent reduction in the rate of new cases of occupational illness since 2003. The nature of occupational illnesses is changing and we have active programmes in place to manage the emerging issues of stress, fatigue, and age related illnesses such as heart disease and reduced physical capacity. In 2006 we also revised our HIV/AIDS strategy and, whereas in the past our efforts had been concentrated on southern Africa, today our approach is global. In 2004, in order to focus attention on reducing noise induced hearing (NIHL) loss across the Group, a target wasset of a 20 per cent reduction in the rate of exposure (per 10,000 employees) to a noise environment of more than 85decibels (dB) between 2004 and 2008. Implementation of the hearing conservation standard has increased the awareness of NIHL, resulting in anincreased baseline after 2004. The reported rate of exposure to more than 85 dB in 2006 was reduced by 1.0 per cent from 2004. Fines for infringement of occupational health regulations in 2006 involved two operations, totalling US$3,000 (2005: US$58,100). Environment Respect for the environment is at the heart of Rio Tinto’s approach to sustainable development. Wherever possible Rio Tinto prevents, or otherwise minimises, mitigates and remediates, harmful effects of the Group’s operations on theenvironment. The strategic framework used to improve environmental performance provides a coherent way of assessing and addressing risks to the business. We have devised and implemented a number of practical, core programmes covering the management of water, mineral and non mineral waste, air quality, product stewardship, land stewardship and biodiversity. These programmes involve input from our partners and local communities as well as from experts in these fields. Rio Tinto believes that emissions of greenhouse gases (GHGs) from human activities are contributing to climatechange. Controlling GHG emissions is one of our biggest challenges, and the Group is working to reduce emissionsfrom its processes and in the use of its products. We have five year targets to reduce our GHG emissions by four per cent per tonne of product and improve our energy efficiency by five per cent per tonne of product by 2008, comparedwith a 2003 baseline. In 2006, energy efficiency improved by 2.6 per cent compared with 2003, while GHG efficiency improved by 0.3 per cent. Both areas slipped from 2005 and remain below the trajectory needed to achieve the 2008 targets. Ouremissions efficiency result is affected by both production interruptions and changes in the emissions intensity of purchased electricity. The scheduled maintenance shutdown of the Kennecott Utah copper smelter significantlyimpacted our performance per unit. Without the smelter shutdown our performance would have been one per centbetter. We continued to engage with governments and stakeholders who are also trying to find solutions to climatechange. In order to ensure that Group actions remain effective and that Rio Tinto maintains a leading position in thisarea, in 2006 Rio Tinto embarked on a new three year climate change plan. Changes in emission factors affected performance by a further 0.6 per cent. The improvement in freshwater withdrawal efficiency, at 11.5 per cent compared with 2003, remained on track to achieve the 2008 target of ten per cent. By the end of 2006, 96 per cent of operations had certified ISO 14001 or an equivalent environmental management system (EMS). There were eight significant environmental incidents in 2006, of which three were spills, compared with eight in 2005, of which two were spills. Fines for infringements of environmental regulations involved Rio Tinto 2006 Form 20-F | 72 |
Back to Contents four operations and totalled US$56,799 (2005: US$67,900). Land access Rio Tinto manages 35,000 square kilometres of land, five per cent of which is disturbed for mining purposes. Rio Tintoseeks to ensure the widest possible support for its proposals throughout the life cycle of the Group’s activities by coordinating economic, technical, environmental and social factors in an integrated process. This involves negotiation of mining access agreements with indigenous landowners; responsible landmanagement and rehabilitation; planning for closure; developing and implementing a biodiversity strategy; and forming strategic partnerships with external organisations. Political involvement Rio Tinto does not directly or indirectly participate in party politics nor make payments to political parties or individual politicians. ABusiness integrity guidance, addressing bribery, corruption and political involvement, was issued in 2003 toassist managers in implementing this policy. The guidance covers questions relating to compliance and implementation; gifts and entertainment; the use of agents and intermediaries; and “facilitation” payments. Rio Tinto avoids making facilitation payments anywhere in the world. Bribery in any form is prohibited. Giftsand entertainment are only offered or accepted for conventional social and business purposes and then only at a level appropriate to the circumstances. Communities Rio Tinto sets out to build enduring relationships with its neighbours that are characterised by mutual respect, activepartnership, and long term commitment. Every business unit is required to have rolling five year community plans which are updated annually. In 2004, a series of pilot studies were completed aimed at achieving a deeper level of understanding of the linkages betweenmining activities and the economies in which they take place. All Group businesses produce their own reports for their local communities and other audiences. Community assurance of the quality and content of these reports is increasing. This provides an opportunity for engagement with thecommunity on their views of programmes sponsored by the operations. Businesses managed by Rio Tinto contributed US$96.4 million to community programmes in 2006 (2005: US$93.4 million) calculated on the basis of the London Benchmarking Group model. Of the total contributions, US$29.6 million was community investment and US$32.6 million in direct payments made under legislation or anagreement with a local community. Human rights Rio Tinto supports human rights consistent with the Universal Declaration of Human Rights and also respects thoserights in conducting the Group’s operations throughout the world. Rio Tinto also supports the UN Secretary General’s Global Compact, the US/UK Voluntary Principles on Security and Human Rights and the Global Sullivan Principles. Rio Tinto’sHuman rights guidanceis designed to assist managers in implementing the Group’s human rights policy in complex local situations. It was revised and republished in 2003. In 2004, a web based training module wasdeveloped to instruct managers on what the policy means in practice and how to respond to difficult situations. Employment Rio Tinto recognises that business performance is closely linked to effective people development. It has a long termplan to strengthen approaches to the training and development of leaders in the Group. New talent is essential to our business and Rio Tinto provides attractive career opportunities for outstanding graduates across many disciplines. However, the recent rapid growth in demand for skilled recruits, coupled with areduced flow of qualified candidates from traditional schools, is making competition for human resources very intensewithin the mining industry. Making mining more attractive as a career is therefore crucial for our ability to access new people. We are committed to the training and development of our existing employees. People development in Rio Tinto is focused on ensuring leadership and competence across the Group. In addition to a comprehensive and customised series of leadership development programmes from supervisor through to managing director, Rio Tinto is developing a series of functional development programmes for professionals and practitioners across the Group, such as mining, processing or marketing. Beyond formal programmes we are also developing our own approach to coaching which will further strengthen our people development activities. This plus an increased focus on training and e-learning will be key to Rio Tinto’s people development strategy moving forward. Rio Tinto values diversity because we believe it confers a real business benefit. An international group like ours needs to be able to draw on the broad range of management experience andinsight that can only come from a team of men and women with a diversity of racial and cultural backgrounds. In 2004, we focused on achieving specific diversity related targets important to the future of our organisation. While we continue to work towards these targets, these were reviewed and refined in 2006 to ensure their continuingalignment with our business objectives and needs. Diversity will continue to be an important people developmentagenda for the Group. Rio Tinto 2006 Form 20-F | 73 |
Back to Contents Rio Tinto requires safe and effective working relationships in all its operations. Whilst respecting different cultures, traditions and employment practices, common goals are shared, in particular the elimination of workplaceinjuries, and commitment to good corporate values and ethical behaviour. In 2005 and 2006, Group companies, mainly concentrated in Australia and North America, employed approximately 31,000 people and, together with Rio Tinto’s proportionate share of consolidated companies and equityaccounted units, the total was approximately 35,000 (2005: 32,000). Wages and salaries paid in 2006 excluding Rio Tinto’s proportionate share of consolidated companies and equity accounted units, totalled US$2.5 billion (2005: US$2.1 billion). Retirement payments and benefits to dependants are provided in accordance with local conditions and good practice. Rio Tinto encourages the involvement of its employees in the Group’s performance through their participation inan employee share scheme. As stated inThe way we work, the Group recognises the right of employees to choose whether or not they wish to be represented collectively. Sustainable development Rio Tinto has made a strategic commitment to sustainable development, in the belief that acting responsibly will resultin long term business benefits such as lowering risks, reducing costs, creating options, and leveraging reputation. It is corporate policy that Group businesses, projects, operations and products should contribute constructively to the global transition to sustainable development. Details of our policy, programmes and results are provided in ourSustainable development review, available on the website. During the course of 2006, our Sustainable Development Leadership Panel (SDLP), composed of senior executives from all six product groups and corporate functions, focused on Rio Tinto’s sustainable development strategy. Input was sought from a wide range of sources, both within Rio Tinto and outside. The panel assessed the current status of sustainable development practice in the Group, decided that Rio Tinto should strive to be the sector leader in its contribution to sustainable development, and defined the areas we need to focus on in order to accomplish that goal. The focus areas include developing a sustainable development culture, similar to that already in place on safety, key performance indicators, effective communication, supply chain management, and taking account of sustainable development in risk management, long term, planning and mines of the future. To help explain the concepts of sustainable development, both to existing employees and newcomers, we introduced training and awareness raising tools throughout the Group. In addition, we are using another, more detailedprogramme for managers, based on the e-learning tool, Chronos, developed by the World Business Council for Sustainable Development and Cambridge University in the UK. By the end of 2006 more than 700 managers had participated in the programme. As a founding member of the International Council on Mining and Metals, Rio Tinto is committed to superior business practices in sustainable development. We have committed to implement the ICMM Sustainable DevelopmentFramework and comply with policy statements of the ICMM Council. Openness and accountability Rio Tinto conducts the Group’s affairs in an accountable and transparent manner, reflecting the interests of Rio Tintoshareholders, employees, host communities and customers as well as others affected by the Group’s activities. Policies on transparency, business integrity, corporate governance and internal controls and reporting proceduresare outlined inThe way we work. In 2003, aCompliance guidancewas issued to provide a framework to enable eachGroup business to implement and maintain a best practice compliance programme which should identify and manage risks associated with non compliance with laws, regulations, codes, standards and Rio Tinto policies. Assurance and verification To be accountable and transparent, assurance is provided to the Group and others that Rio Tinto policies are beingimplemented fully and consistently across the Group’s businesses and operations. The overall objective of the external assurance and data verification programme is to provide assurance that the material in theSustainable development reviewis relevant, complete, accurate and responsive, and, in particular, thatRio Tinto’s policies and programmes are reflected in implementation activities at operations. In 2006, Environmental Resources Management (ERM) undertook the external assurance and data verification programme and the results are available in Rio Tinto’sSustainable development review. Competition Rio Tinto has adopted a specific antitrust policy requiring all employees to compete fairly and to comply with relevantlaws and regulations. Under the policy, guidance is provided on contacts with competitors and benchmarking as well as implementation of the policy in individual businesses. As integral parts of the policy, all relevant employees receive regular training and are required to certify annually that they are not aware of any antitrust violations. No violations were reported in 2006. Rio Tinto 2006Form 20-F | 74 |
Back to Contents FINANCIAL REVIEW Cash flow
2006 compared with 2005 Cash flow from operations, including dividends from equity accounted units, was a record US$10,923 million, 36 percent higher than in 2005. The increase was mainly due to increased profits. There was a cash outflow on working capital in both years reflecting higher receivables across all product groups due to higher metal prices and sales volumes. The cash outflow on inventory was US$454 million in 2006 compared to US$249 million in 2005, partly due to increased operating activity and production costs. The Group invested at record levels, in particular in expansion projects. Expenditure on property, plant and equipment, exploration and other intangible assets was US$3,992 million in 2006, an increase of US$1,402 million over2005. This included the second phase of the Dampier port and Yandicoogina iron ore mine expansions, as well as construction of the Hope Downs iron ore mine in Western Australia, the A418 dyke construction at the Diavik diamond mine, the Madagascar ilmenite mine and the capacity increases at Rio Tinto Energy America. Capital expenditure is expected to continue at a high level in 2007. Tax paid in 2006 increased to US$2,799 million, US$1,782 million higher than in 2005. The increase reflects higher profits including the lag effect of tax payments on higher profits from 2005. Acquisitions less disposals were US$279 million in 2006 mainly relating to the acquisition of an initial stake inIvanhoe Mines. In 2005, there were net proceeds of disposal of US$321 million arising mainly from the sale of the Group’s interest in Lihir. Dividends paid in 2006 of US$2,573 million were US$1,432 million higher than dividends paid in 2005. Theseincluded the special dividend totalling US$1.5 billion which was paid to shareholders in April 2006. Capital management activity also included the on market buyback of Rio Tinto plc shares in 2006, comprising US$2,299 million from the 2006/07 programme and US$95 million in January from the 2005/06 programme (before deducting US$24 million proceeds from the exercise of options). In 2005 an off market buyback of Rio Tinto Limited shares returned US$774 million to shareholders and an on market buyback of Rio Tinto plc shares returned US$103 million. 2005 compared with 2004 Cash flow from operations, including dividends from equity accounted units at US$8,031 million, was 88 per centhigher than in 2004. The increase was mainly due to increased profits. This was partly offset by an increased cash outflow on workingcapital in 2005 mainly reflecting higher receivables across all product groups due to higher metal prices and sales volumes. Cash flow of US$323 million from disposals of interests in businesses in 2005 primarily related to the sale of Lihir. In 2004, disposals generated proceeds of over US$1.5 billion. The largest components of this were the sale of shares in FCX and the sale of Rio Tinto’s interest in the Morro do Ouro gold mine in Brazil. Purchase of property, plant and equipment and intangible assets of US$2,590 million included the major port andrail infrastructure expansion in Western Australia, payments for coal reserves purchased by Rio Tinto Energy America, the expansion of Hail Creek coking coal and initial expenditure on the construction of a new dyke at Diavik. During the year the Group repaid US$893 million of its gross outstanding debt and cash balances increased byapproximately US$2.0 billion. Dividends paid in 2005 of US$1,141 million were US$235 million higher than dividends paid in 2004 following the 20 per cent increase in the dividend declared in respect of the previous year. A capital return programme was commenced under which an off market buy back of Rio Tinto Limited shares was carried out, and subsequently an on market buy back of Rio Tinto plc shares. Almost two thirds of the US$1.5 billion capital management programme announced on 3 February 2005 had been completed by the end of January 2006. Balance sheet The balance sheet remained strong during the period, although record capital expenditure and the increased capitalmanagement activity resulted in an increase in net debt of US$1,124 million to US$2,437 million at 31 December 2006. Debt to total capital rose to 11 per cent but interest cover strengthened to 89 times. In 2006, net assets increased by US$3,646 million. Outside interests increased by US$362 million mainly due toretained profits at Robe River and IOC. Equity attributable to Rio Tinto shareholders increased by US$3,284 million: as net earnings attributable to Rio Tinto shareholders of US$7,438 million exceeded the combined amounts of share buybacks and dividends paid by US$2,207 million; and there was a positive currency translation effect of US$820 million mainly reflecting the eight per cent strengthening of the Australian dollar. The Group’s borrowings, net of related currency and interest rate swaps, totalled US$3.2 billion at 31 December 2006, of which US$1,143 million will mature in 2007. The majority of the Group’s borrowings relate to amounts issuedunder the Group’s corporate bond and medium term notes programmes totalling approximately US$2.0 billion, of which US$847 million will mature in 2007. In addition to the above, the Group’s share of the third party net debt of equity accounted units totalled US$459 million at 31 December 2006. This debt, which is set out in note 15 to the 2006 financial statements, is without recourse to the Rio Tinto Group. Rio Tinto 2006Form 20-F | 75 |
Back to Contents Financial risk management The Group’s policies with regard to risk management are clearly defined and consistently applied. They are afundamental principle of the Group’s long term strategy. The Group’s business is mining and not trading. The Group only sells commodities it has produced. In the long term, natural hedges operate in a number of ways to help protect and stabilise earnings and cash flow. The Group has adiverse portfolio of commodities and markets, which have varying responses to the economic cycle. The relationship between commodity prices and the currencies of most of the countries in which the Group operates provides further natural protection in the long term. These natural hedges reduce the relevance of derivatives or other forms of synthetic hedging. Such hedging is therefore undertaken to a strictly limited degree, as described in the sections on currency, interest rate, commodity price exposure and treasury management below. The Group’s 2006 financial statementsand disclosures show the full extent of its financial commitmentsincluding debt. The risk factors to which the Group is subject that are thought to be of particular importance are summarised onpages 5 to 6. The effectiveness of internal control procedures continues to be a high priority in the Rio Tinto Group. The boards’ statement on internal control is included underCorporate governanceon page 126. Liquidity and capital resources The unified credit status of the Group is maintained through cross guarantees whereby contractual obligations of RioTinto plc and Rio Tinto Limited are automatically guaranteed by the other. Rio Tinto plc and Rio Tinto Limited enjoy strong long and short term credit ratings from Moody’s and Standard and Poor’s. These ratings continue to provide financial flexibility and consistent access to debt via money or capital markets and enable very competitive terms to be obtained. The ratings outlook from both agencies is presently reported as ‘stable’. Credit ratings are not a recommendation to purchase, hold or sell securities, and are subject to revision or withdrawal at any time by the ratings organisation. Rio Tinto does not have a target debt/equity ratio, but has a policy of maintaining a flexible financing structure so as to be able to take advantage of new investment opportunities that may arise. This policy is balanced against the desire to ensure efficiency in the debt/equity structure of the Rio Tinto balance sheet in the longer term through pro-active capital management programmes. The Group maintains backup liquidity for debt maturing within 12 months and its commercial paper programmes by way of bank standby credit facilities, which totalled US$2.3 billion at 31 December 2006. These facilities, whichwere unused at the year end, can be drawn upon at any time on terms extending out to five years. As at 31 December 2006, the Group had contractual cash obligations arising in the ordinary course of business asfollows: Contractual cash obligations | Total | | Less than 1 | | Between 1 | | Between 3 | | After 5 | | | year | | and 3 years | | and 5 years | | years | | US$m | | US$m | | US$m | | US$m | | US$m | |
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| | Debt (a) | 3,179 | | 1,157 | | 847 | | 544 | | 631 | | Operating leases | 427 | | 62 | | 72 | | 51 | | 242 | | Unconditional purchase obligations (b) | 3,600 | | 903 | | 1,211 | | 660 | | 826 | | Deferred consideration | 179 | | 37 | | 78 | | 29 | | 35 | | Other (c) | 2,413 | | 1,675 | | 572 | | 129 | | 37 | |
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| | Total | 9,798 | | 3,834 | | 2,780 | | 1,413 | | 1,771 | |
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Notes | (a) | Debt obligations include bank borrowings repayable on demand and reflect the impact of related currency and interest rates waps | (b) | Unconditional purchase obligations relate to commitments to make payments in the future for fixed or minimum quantities of goods or services at fixed or minimum prices. The future payment commitments have not been discounted and mainly relate to commitments under ‘take or pay’ power and freight contracts. They exclude unconditional purchase obligations of jointly controlled entities apart from those relating to the Group ’s tolling arrangements. | (c) | Other relates primarily to capital commitments. | (d) | In addition, the Group had liabilities for trade and other payables, other financial liabilities, tax and provisions. |
Information regarding the Group’s pension commitments and funding arrangements is provided in thePost retirement benefitssection of thisFinancial reviewand in note 46 to the 2006 financial statements. On the basis of the levels of obligations described above, the unused capacity under the Group’s commercial paper and European Medium Term Notes programmes, the Group’s anticipated ability to access debt and equity capital markets in the future and the level of anticipated free cash flow, there are reason able grounds to believe that the Group has sufficient short and long term sources of funding available to meet its liquidity requirements. The Group’s committed bank standby facilities contain no financial undertakings relating to interest cover. TheGroup has no financial agreements that would be affected to any material extent by a reduction in the Group’s credit rating. There are no covenants relating to corporate debt which are under negotiation at present. The Group’s policy is to centralise debt and surplus cash balances whenever possible. Rio Tinto 2006Form 20-F | 76 |
Back to Contents Dividends Dividends paid on Rio Tinto plc and Rio Tinto Limited shares are equalised on a net cash basis; that is without takinginto account any associated tax credits. Dividends are determined in US dollars. Rio Tinto’s progressive dividend policy aims to increase the US dollar value of dividends over time, without cutting them in economic downturns. Rio Tinto plc shareholders receive dividends in pounds sterling and Rio TintoLimited shareholders receive dividends in Australian dollars, which are determined by reference to the exchange rates applicable to the US dollar two days prior to the announcement of dividends. Changes in exchange rates could result in a reduced sterling or Australian dollar dividend in a year in which the US dollar value is maintained or increased. The interim dividend for each year in US dollar terms will be equivalent to 50 per cent of the total US dollar dividends declared in respect of the previous year. In April 2006 the Group paid a US$1.5 billion special dividend (US$1.10 per share) announced as part of the2006 capital management programme (see below). The special dividend was paid concurrently with the 2005 final ordinary dividend, but did not form part of the Group’s progressive ordinary dividend policy. The Group announced a re-basing of its ordinary dividend in February 2007, increasing the full year ordinarydividend in respect of 2006 by 30 per cent to 104 US cents. An interim dividend of 40 US cents was paid in October 2006 and a final dividend for the year of 64 US cents was paid in April 2007. Capital management programme On 2 February 2006 the Group announced a US$4 billion capital management programme, comprising the US$1.5billion special dividend (US$1.10 per share paid in April 2006) referred to above and a US$2.5 billion share buyback programme over two years to the end of 2007. The US$4 billion programme was completed almost a year ahead of schedule in January 2007. On 27 October 2006, the Group announced an increase in the programme by US$3 billion to US$7 billion, to becompleted over the remaining period to the end of 2007. The additional cash return is planned through the buyback of shares, subject to market conditions. As at 31 December 2006, the cumulative cash returns to shareholders under the 2005/06 and 2006/07 capital management programmes amounted to US$4.8 billion. Treasury management and financial instruments Treasury activities operate as a service to the business of the Rio Tinto Group and not as a profit centre. Strict limits on the size and type of transaction permitted are laid down by the Rio Tinto board and are subject to rigorous internalcontrols. Corporate funding and overall strategic management of Rio Tinto’s balance sheet is handled by the London based Group Treasury. Rio Tinto does not acquire or issue derivative financial instruments for trading or speculative purposes; nor does it believe that it has exposure to such trading or speculative holdings through its investments in joint ventures and associates. Derivatives are used to separate funding and cash management decisions from currency exposure and interest rate management. The Group uses interest rate swaps in conjunction with longer term funds raised in the capital markets to achieve a floating rate obligation which is consistent with the Group’s interest rate policy as described in the section on ‘Interest rates’ below. Currency swaps are used to convert debt or investments into currencies, primarily theUS dollar, which are consistent with the Group’s policy on currency exposure management as described inExchange rates, reporting currencies and currency exposurebelow. No material exposure is considered to exist by virtue of the possible non performance of the counterparties to financial instruments held by the Group. The derivative contracts in which the Group is involved are valued by reference to quoted market prices,quotations from independent financial institutions or by discounting expected cash flows. Off balance sheet arrangements In the ordinary course of business, to manage the Group’s operations and financing, Rio Tinto enters into certain performance guarantees and commitments for capital and other expenditure. The aggregate amount of indemnities and other performance guarantees, on which no material loss is expected,including those related to joint ventures and associates, was US$501 million at 31 December 2006. Other commitments include contracted capital expenditure, operating leases and unconditional purchaseobligations as set out in the table of contractual cash obligations, included in theLiquidity and capital resourcessection above. Exchange rates, reporting currencies and currency exposure Rio Tinto’s shareholder’s equity, earnings and cash flows are influenced by a wide variety of currencies due to thegeographic diversity of the Group’s sales and the countries in which it operates. The US dollar, however, is the currency in which the great majority of the Group’s sales are denominated. Operating costs are influenced by the currencies of those countries where the Group’s mines and processing plants are located and also by those currencies in which the costs of imported equipment and services are determined. The Australian and Canadian dollars are the most important currencies influencing costs, apart from the US dollar. In any particular year, currency fluctuations may have a significant impact on Rio Tinto’s financial results. A weakening of the US dollar against the currencies in which the Group’s costs are determined has an adverse effect onRio Tinto’s underlying earnings. Rio Tinto 2006Form 20-F | 77 |
Back to Contents However, this would also result in exchange gains on net debt denominated in US dollars held in non US functional currency operations, which has a positive effect on Rio Tinto’s EU IFRS profit and net earnings. It wouldalso result in exchange gains and losses on intragroup balances denominated in US dollars held by non US functional currency operations. Such gains and losses on US dollar net debt and intragroup balances are excluded from underlying earnings. The following sensitivities give the estimated effect on underlying earnings of a ten per cent change in the fullyear average exchange rate, assuming that each exchange rate moved in isolation. Movements in exchange rates can cause movements in commodity prices and vice versa. However, the relationship between currencies and commodity prices is a complex one, with varying degrees of correlation depending on the currency in question. Where the functional currency of an operation is that of a country for which production of commodities is an important feature of the economy, such as the Australian dollar, there is a certain degree of natural protection against cyclical fluctuations in the long term, in that the currency tends to be weak, reducing costs in US dollar terms, when commodity prices are low, and vice versa. The exchange rate sensitivities quoted below include the effect on operating costs of movements in exchangerates but exclude the effect of the revaluation of foreign currency working capital, US dollar net debt and intragroup balances. They should therefore be used with care. Exchange rate sensitivities | | | 2006 | | | | Effect on underlying | | Average | | earnings of 10% | | Exchange | | change in full | | rate for | | year average | | 2006 | | +/- US$m | |
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| | Australian dollar | 75 US cents | | 280 | | Canadian dollar | 88 US cents | | 80 | | Chilean peso | US$1 = 530 pesos | | 10 | | New Zealand dollar | 65 US cents | | 6 | | South African rand | 15 US cents | | 22 | | UK Sterling | 184 US cents | | 15 | | Other | n/a | | 6 | |
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The sensitivities in the 2006 column are based on 2006 prices, costs and volumes and assume that all other variables remain constant. Gains and losses on exchange arising from net monetary assets/(liabilities), other than US dollar net debt and intragroup balances, that are not denominated in the functional currency of the relevant business unit are recorded in theincome statement and are included in underlying earnings. The table below reflects the amounts of assets less liabilities, net of tax and outside interests as at the end of 2006, which expose the Group to such exchange gains and losses. These balances will not remain constant throughout 2007, however, and therefore these numbers should be used with care. | Currency of exposure | | 2006 | | | US dollar | | Other | | Total | | | US$m | | US$m | | US$m | |
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| | Functional currency of business unit: | | | | | | | Australian dollar | 487 | | 1 | | 488 | | Canadian dollar | 86 | | 8 | | 94 | | South African rand | 26 | | 5 | | 31 | | Other currencies | 95 | | 19 | | 114 | |
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| | Total | 694 | | 33 | | 727 | |
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Given the dominant role of the US currency in the Group’s affairs, the US dollar is the currency in which financial results are presented both internally and externally. It is also the most appropriate currency for borrowing and holding surplus cash, although a portion of surplus cash may also be held in other currencies, most notably Australian dollars, in order to meet short term operational and capital commitments and dividend payments. The Group finances its operations primarily in US dollars, either directly or using currency swaps, and asubstantial part of the Group’s US dollar debt is located in subsidiaries having functional currencies other than the US dollar. Exchange differences on net debt that hedges the net assets of entities with functional currencies other than the US dollar are dealt with through equity. All other exchange differences on net debt are dealt with in the income statement, but those related to US dollar net debt are excluded in arriving at underlying earnings. Exchange gains and losses which arise on balances between Group entities are taken to equity where that balance is, in substance, part of the Group’s net investment in a subsidiary or equity accounted unit. All other exchange differences on intragroup balances are dealt with in the income statement but are excluded from underlying earnings. The table below reflects the amounts of net debt and intragroup balances at the end of 2006, net of tax andoutside interests, that expose the Group to exchange gains and losses that would be recorded in the income statement. These balances will not remain constant during 2007, however, and these numbers should therefore be used with care. Rio Tinto 2006Form 20-F | 78 |
Back to Contents | | | Net debt1 | | 2006 | | Intragroup balances | | 2006 | | | Currency of exposure | | | | Currency of exposure | | | | |
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| | | | | US$ | | Other | | Total | | US$ | | Other | | Total | | Functional currency of business unit: | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | |
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| | United States dollar | — | | (5 | ) | (5 | ) | — | | 2,747 | 2 | 2,747 | | Australian dollar | (516 | ) | 6 | | (510 | ) | (1,522 | ) | 31 | | (1,491 | ) | Canadian dollar | (106 | ) | 1 | | (105 | ) | (245 | ) | — | | (245 | ) | South African rand | (19 | ) | — | | (19 | ) | (38 | ) | (4 | ) | (42 | ) | Other currencies | 17 | | 4 | | 21 | | (38 | ) | 20 | | (18 | ) |
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| | Total | (624 | ) | 6 | | (618 | ) | (1,843 | ) | 2,794 | | 951 | |
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Notes | 1 | The table shows exposures after taking account of the impact of currency swaps. Further details of currency swaps are included in note 32 to the 2006 financial statements. | 2 | These amounts relate to intragroup liabilities denominated in Australian dollars reported by subsidiaries with a US dollar functional currency. They are shown as positive balances because they have the effect of offsetting the exposures resulting from external and intragroup US dollar liabilities in Australian functional currency subsidiaries. |
The Group does not generally believe that active currency hedging would provide long term benefits to shareholders. Currency protection measures may be deemed appropriate in specific commercial circumstances and are subject to strict limits laid down by the Rio Tinto board. As set out in note 32 to the 2006 financial statements, as at 31 December 2006 there were derivative contracts to sell US$581 million and buy A$550 million and NZ$520 million in respect of future trading transactions. A significant part of the above hedge book was acquired with North Limited. North held a substantial hedge book on acquisition which has been retained but is not being renewed as maturities occur. The functional currency of most operations within the Rio Tinto Group is the local currency in the country of operation. Foreign currency gains or losses arising on translation of the net assets of these operations are taken to equityand, with effect from 1 January 2004, recorded in a currency translation reserve. The approximate translation effects on the Group’s net assets of ten per cent movements from the year end exchange rates are as follows: | | | 2006 | | | | | Effect on net | | | Closing | | assets of | | | exchange | | 10% change in | | | rate | | closing rate | | | US cents | | +/- US$m | |
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| | Australian dollar | 79 | | 1,161 | | Canadian dollar | 86 | | 152 | | South African rand | 14 | | (4 | ) | UK Sterling | 196 | | 32 | | Other | — | | (1 | ) |
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Interest rates Rio Tinto’s interest rate management policy is generally to borrow and invest cash at floating rates. Short term US dollar rates are normally lower than long term rates, resulting in lower interest costs to the Group. Furthermore, cyclicalmovements of interest rates tend to compensate in the long term, to an extent, for those of commodity prices. In some circumstances, an element of fixed rate funding may be considered appropriate. At the end of 2006, US$1.2 billion of the Group’s debt was at fixed rates after taking into account interest rate swaps. Based on the Group’s net debt at 31 December 2006, and with other variables unchanged, the approximate effect on the Group’s net earnings of a one percentage point increase in US dollar LIBOR interest rates would be a reduction of US$6 million. Commodity prices The Group’s normal policy is to sell its products at prevailing market prices. Exceptions to this rule are subject to strict limits laid down by the Rio Tinto board and to rigid internal controls. Rio Tinto’s exposure to commodity prices isdiversified by virtue of its broad commodity spread and the Group does not generally believe commodity price hedging would provide long term benefit to shareholders. The forward contracts to sell 420 million pounds of copper at a fixed rand price per pound were entered into as a condition of the refinancing of Palabora in 2005. Metals such as copper and aluminium are generally sold under contract, often long term, at prices determined by reference to prevailing market prices on terminal markets, such as the London Metal Exchange and COMEX in NewYork, usually at the time of delivery. Prices fluctuate widely in response to changing levels of supply and demand but, in the long run, prices are related to the marginal cost of supply. Gold is also pr iced in an active market in which prices respond to daily changes in quantities offered and sought. Newly mined gold is only one source of supply; investment and disinvestment can be important elements of supply and demand. Contract prices for many other natural resource products are generally agreed annually or for longer periods with customers, although volume commitments vary by product. Rio Tinto 2006 Form 20-F | 79 |
Back to Contents Approximately 53 per cent of Rio Tinto’s 2006 net earnings from operating businesses came from products whose prices were terminal market related and the remainder came from products priced by direct negotiation. Commodity prices increased rapidly in 2005 and 2006. Looking to 2007, there are a number of uncertainties inthe global economy, not least the direction of inflation and interest rates in major economies. The Group expects some moderation of global economic growth, although confidence in Japan and Europe is increasing. Growth in China, which is critical to the demand outlook for many of the Group’s products, is expected to remain strong and well balanced. The Group continues to view the overall outlook for commodities as positive, with prices expected to remain well above their long run averages in 2007. Ore reserves (under Industry Guide 7) presented on pages 23 to 33 do not exceed the quantities that it isestimated could be extracted economically if future prices were to be in line with the average of historical prices for the three years to 30 June 2006, or contracted prices where applicable. For this purpose, contract ed prices are applied only to future sales volumes for which the price is predetermined by an existing contract; and the average of historical prices is applied to expected sales volumes in excess of such amounts. Moreover, reported ore reserve estimates have not been increased above the levels expected to be economic based on Rio Tinto's own long term price assumptions. Therefore, a reduction in commodity prices from the three year average historical price levels would not necessarily give rise to a reduction in reported ore reserves. The table below shows published ‘benchmark’ prices for Rio Tinto’s commodities for the last three years wherethese are publicly available, and where there is a reasonable degree of correlation between the benchmark and Rio Tinto’s realised prices. The prices set out in the table are the averages for each of the calendar years, 2004, 2005 and 2006. The Group’s revenue will not necessarily move in line with these benchmarks for a number of reasons which are discussed below. | | | | 2004 | | 2005 | | 2006 | | Commodity | Source | Unit | | US$ | | US$ | | US$ | |
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| | Aluminium | LME | pound | | 0.78 | | 0.86 | | 1.16 | | Copper | LME | pound | | 1.30 | | 1.66 | | 3.06 | | Gold | LBMA | ounce | | 409 | . | 444 | . | 602 | . | Iron ore | Australian benchmark (fines)(a) | dmtu (b) | | 0.35 | | 0.55 | | 0.71 | | Lead | LME | pound | | 0.40 | | 0.44 | | 0.59 | | Molybdenum | Metals Week: quote for dealer oxide price | pound | | 16 | . | 31 | . | 25 | . | Silver | LBMA | ounce | | 6.6 | | 7.3 | | 11.6 | | Zinc | LME | pound | | 0.48 | | 0.63 | | 1.49 | |
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Notes | (a) | average for the calendar year | (b) | dry metric tonne unit |
The discussion of revenues below relates to the Group’s gross revenue from sales of commodities, including its share of the revenue of equity accounted units, as included in note 47 to the 2006 financial statements. The Australian iron ore fines benchmark increased by 19 per cent in April 2006. The higher prices, combined with higher volumes at Hamersley, contributed to an increase in the Group’s iron ore revenue of 26 per cent. Thebenchmark price increased by 71.5 per cent in April 2005 compared with 2004. This contributed to an increase in the Group’s iron ore revenue of 83 per cent, with the additional benefits of volume increases from the West Angelas and Yandicoogina expansions and the recovery of output at IOC, after a ten week strike in 2004. A significant proportion of Rio Tinto’s coal production is sold under long term contracts. In Australia, the prices applying to sales under the long term contracts are generally renegotiated annually; but prices are fixed at different times of the year and on a variety of bases. For these reasons, average realised prices will not necessarily reflect themovements in any of the publicly quoted benchmarks. Moreover, there are significant product specification differences between mines. Sales volumes will vary during the year and the timing of shipments will also result in differences between average realised prices and benchmark prices. Revenues of the Group’s Australian coal operations increased by two per cent in 2006. There was a sustained increase in the received price for thermal coal. This benefit was largely offset by lower coking coal sales because ofmarket weakness and the delay in thermal coal shipments arising from congestion at Newcastle. Published market indications for Australian thermal coal show a slight increase in thermal coal prices in 2006 on a calendar year basis and a seven per cent increase in the coking coal benchmark price. Revenues from these operations increased by 45 per cent in 2005, benefiting from a significant increase in pricesrealised on sales both of thermal and coking coal yet published market indications for Australian thermal coal showed a reduction of ten per cent in 2005 compared with 2004. The coking coal benchmark price increased by 99 per cent in 2005. In the US, Rio Tinto Energy America’s revenues increased by 19 per cent in 2006, with higher realised prices for Powder River Basin coal and increased volumes. Published market indications of spot prices for Wyoming thermal coalshow an increase of 24 per cent for the average spot price in 2006 compared with 2005. However, spot prices were volatile during the period. Revenues increased by six per cent in 2005, with benefits from higher prices limited by the influence of long term contracts. Published market indications of spot prices for Wyoming thermal coal showed an Rio Tinto 2006 Form 20-F | 80 |
Back to Contents increase of 61 per cent in 2005 over 2004. Information included in the RWE NUKEM Inc. Price Bulletin indicated price increases of 71 per cent in 2006and 54 per cent in 2005 for uranium oxide. The Group’s uranium revenue increased by 27 per cent in 2006 and by 23 per cent in 2005 as a result of higher prices. The large increases reported in the Price Bulletin are not fully reflected in the revenues for the period because uranium oxide is typically sold on long term contracts with pricing determined for several years beyond the commencement of the contracts. However, a significant portion of output from Rössing is not under long term contracts and there is therefore more exposure to the spot market from Rössing’s output than from ERA’s. Industrial Minerals sales are made under contract at negotiated prices. Revenue from industrial mineralsincreased by five per cent in 2006 against 2005. This was mainly attributable to improved prices and to stronger demand for titanium dioxide chloride feedstock. Revenue in 2005 was 17 per cent higher than in 2004. This was mainly attributable to strong price performance across all products at Rio Tinto Iron and Titanium and increased volumes, particularly at Richards Bay Minerals. The Aluminium group’s sales revenues are from aluminium, alumina and bauxite. Revenue increased by 27 percent in 2006. Average aluminium prices quoted on the LME increased by 35 per cent in 2006 but achieved spot alumina prices were lower than in 2005. In 2005, revenue increased by 16 per cent while average prices quoted on the LME increased by ten per cent. In addition to these price increases, revenues reflected increased sales volumes, including the ramp up of output from Yarwun, which commenced shipments in November 2004. The Copper group also produces gold and molybdenum as significant by products. Total Copper group salesrevenues in 2006 increased by 46 per cent over 2005. Copper revenues increased by 77 per cent, broadly in line with the 84 per cent increase in the LME price. Lower grades and therefore volumes at Grasberg more than offset the higher volumes at the other copper operations. A 22 per cent decrease in gold revenue was also attributable to lower grades at Grasberg which outweighed the effect of the 36 per cent increase in the gold price. Molybdenum revenue was only six per cent down on 2005 with record production at KUC offsetting much of the effect of the 20 per cent fall in price. In 2005, the Copper group’s revenues were 60 per cent higher than in 2004. Copper revenues increased by 33 per cent while the average LBMA copper price increased by 28 per cent. Revenues benefited both from the increase in prices and from increased volumes, including the effect of a return to full operations at Grasberg after a pit wall slippage in 2003. Gold revenues in 2005 were 69 per cent higher than in 2004 while the average LBMA gold price increased by nine per cent year on year. Revenues benefited from the price increase and also from the very substantial recovery in sales volumes at Grasberg. Average molybdenum prices quoted in Metals Week in 2005 almost doubled from the 2004 level. Sales revenue was over five times higher. In addition to the higher prices, this reflected a major step up in volumes achieved through changes in the mine plan at KUC to maximise molybdenum production in response to the strong market. Whilst the Diamond Trading Company (DTC) reported a two per cent increase in diamond prices in February,market reports indicated that prices were re-adjusted downwards in the second half of the year. While movements in the DTC price are a general indicator of the overall rough diamond market, they do not necessarily correlate closely with prices actually realised by Rio Tinto, which reflect the particular type of diamonds in its diverse product mix. The 22 per cent decrease in Diamond group revenue in 2006 against 2005 was almost wholly attributable to the softer markets experienced by Argyle which resulted in excess of US$100 million of surplus rough diamonds being held in inventory at the end of the year. Diamond revenue increased 45 per cent in 2005 against 2004. There was a six per cent increase in the DTC indicated price for rough diamonds in the year. The majority of the increase in Rio Tinto diamond revenues was attributable to higher volumes and higher prices at Argyle and the commencement of the Murowa operation. Lead, zinc and silver accounted for less than one per cent of revenue in each of the two years to 2006. The approximate effect on the Group’s underlying earnings of a ten per cent change from the full year averagemarket price in 2006 for the following products would be: | | | Average | | Effect on underlying | | | | | market price | | earnings of 10% change in | | | | | for 2006 | | full year average | | | Unit | | US$ | | +/- US$m | |
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| | Copper | Pound | | 3.06 | | 422 | | Aluminium | Pound | | 1.16 | | 167 | | Gold | Ounce | | 602 | . | 46 | | Molybdenum | Pound | | 25 | . | 56 | | Iron ore | dmtu | | n/a | | 367 | |
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The above sensitivities are based on 2006 volumes and give the estimated impact on underlying earnings of changes in prices assuming that all other variables remain constant. These should be used with care. As noted previously, the relationship between currencies and commodity prices is a complex one and changes in exchange rates can influence commodity prices and vice versa. Rio Tinto 2006 Form 20-F | 81 |
Back to Contents Critical accounting policies and estimates Dual listed company reporting In previous years, the Form 20-F filed with the United States Securities and Exchange Commission (SEC), contained separate consolidated financial statements for the Rio Tinto plc and Rio Tinto Limited parts of the Group. These were presented on the basis of the legal ownership of the various operations within each part of the Group. The separate financial statements for Rio Tinto Limited included, on a consolidated basis, the Group undertakings under its legal ownership, and those for Rio Tinto plc included, on a consolidated basis, the Group undertakings under its legal ownership. This presentation of financial information filed with the SEC was on the assumption that the formation of the Group through the dual listed companies (DLC) arrangements was not a business combination. The financial statements filed with the SEC also included supplemental financial information that combined the consolidated financial statements of the Rio Tinto plc and Rio Tinto Limited parts of the Group to present the Rio Tinto Group, with no adjustment for fair values. This combined financial information for the Rio Tinto Group was consistent with the financial statements that were used for the purposes of satisfying the Group's reporting obligations in the United Kingdom and Australia. The combined financial statements for the Rio Tinto Group viewed the formation of the DLC as a business combination and accounted for the transaction as a merger in accordance with UK Financial Reporting Standard No. 6 Acquisitions and Mergers (‘FRS 6’). Applying FRS 6, Rio Tinto plc and Rio Tinto Limited were combined and presented as one economic entity with no adjustment for fair values. As permitted under the transitional arrangements set out in IFRS 1 ‘First time adoption of International Financial Reporting Standards’, which sets out the rules for first time adoption of IFRS, the Group did not apply the concepts of IFRS 3 ‘Business Combinations’ for business combinations prior to the first time application( of EU IFRS. Accordingly, the Group is following the same method of accounting for the DLC in its financial statements under EU IFRS as was historically followed under UK GAAP: the Group is presented as one economic entity at historical cost. Subsequent to the formation of the Group, the accounting model used in filings with the SEC for the presentation of financial statements of companies that form DLCs has changed. The formation of a new DLC is now viewed as a business combination. The Group now believes that it is preferable to treat the formation of the DLC as a business combination, and as a result, that the accounting and reporting of financial statements prepared in accordance with IFRSto the SEC will be consistent with the accounting and reporting in the United Kingdom and Australia. Accordingly, the Group has revised the presentation of its financial statements included in Form 20-F to account for the formation of the DLC as a business combination. As a consequence, separate financial statements for Rio Tintoplc and Rio Tinto Limited will no longer be presented. Instead, the financial statements will deal with the Rio Tinto Group as one combined economic entity. This new presentation is applied retrospectively for all periods presented. The EU IFRS information presented on this new basis in the 20-F is the same as the combined supplemental information for the Rio Tinto Group that was previously disclosed. Under US GAAP, the Group now accounts for the formation of the DLC using the purchase method. As aconsequence of this treatment, Rio Tinto shareholders' funds under US GAAP at 31 December 2006 are US$1,519 million above those under IFRS; and US GAAP net earnings for 2006 are US$62 million below those under EU IFRS. Further information on the impact of purchase accounting under US GAAP is shown in note 48 to the 2006 financial statements. The 2006Annual report and financial statementssatisfy the obligations of Rio Tinto Limited to prepare consolidated accounts under Australian company law, as amended by an order issued by the Australian Securities andInvestments Commission on 27 January 2006 (as amended on 22 December 2006). The 2006 financial statementsdisclose the effect of the adjustments to consolidated EU IFRS profit, consolidated total recognised income and consolidated shareholders’ funds for the Group that would be required under the version of IFRS that is applicable in Australia (‘Australian IFRS’). The US dollar is the presentation currency used in these financial statements, as it most reliably reflects the Group’s global business performance.
Ore reserve estimates Rio Tinto estimates its ore reserves and mineral resources based on information compiled by Competent Persons asdefined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December 2004 (‘the JORC code’). The amounts presented under EU and Australian IFRS are based on the reserves, and in some cases mineral resources, determined under the JORC code. For the purposes of the Group’s financial information under US GAAP, ore reserves are computed in accordance with the SEC’s Industry Guide 7 and are shown on pages 23 to 33. Estimates of ore reserves and mineral resources inaccordance with JORC are not shown in this combined annual report on Form 20-F. Ore reserves presented in accordance with SEC Industry Guide 7 do not exceed the quantities that, it is estimated, could be extracted economically if future prices were to be in line with the average of historical prices for the threeyears to 30 June 2006, or contracted prices where applicable. For this purpose, contracted prices are applied only to future sales volumes for which the price is predetermined by an existing contract; an d the average of historical prices is applied to expected sales volumes in excess of such amounts. Moreover, reported ore reserve estimates have not been increased above the levels expected to be economic based on Rio Tinto's own long term price assumptions. Therefore, a Rio Tinto 2006 Form 20-F | 82 |
Back to Contents reduction in commodity prices from the three year average historical price levels would not necessarily give rise to a reduction in reported ore reserves. There are numerous uncertainties inherent in estimating ore reserves and assumptions that are valid at the time ofestimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production cost s or recovery rates may change theeconomic status of reserves and may, ultimately, result in the reserves being restated. Such changes in reserves could impact on depreciation and amortisation rates, asset carrying values, deferred stripping calculations and provisions for close down, restoration and environmental clean up costs. Asset carrying values Events or changes in circumstances can give rise to significant impairment charges or reversals of impairmentprovisions in a particular year. In 2006, the Group’s results included net impairment reversals of US$396 million (US$44 million after tax and outside shareholders interests). Impairments were reversed at KUC and IOC which more than offset impairment charges at Argyle and Tarong Coal. In 2005, there were no significant impairment charges or reversals. However in 2004, the Group incurred a US$558 million impairment charge, (US$321 million net of tax and outside shareholders’ interests). When such events or changes in circumstances impact on a particular asset or cash generating unit, its carryingvalue is assessed by reference to its recoverable amount being the higher of fair value less costs to sell and value in use (being the net present value of expected future cash flows of the relevant cash generating unit). The best evidence of an asset’s fair value is its value obtained from an active market or binding sale agreement. Where neither exists, fair value less costs to sell is based on the best information available to reflect the amount the Group could receive for the cash generating unit in an arm’s length transaction. In most cases this is estimated using a discounted cash flow analysis. The cash flows used in these analyses are particularly sensitive to changes in two parameters: exchange rates and commodity selling prices. The great majority of the Group’s sales are based on prices denominated in US dollars. To the extent that the currencies of countries in which the Group produces commodities strengthen against the US dollar without commodity price offset, cash flows and, therefore, net present values are reduced. Management considers that over the long term, there is a tendency for movements in commodity prices to compensate to some extent for movements in the value of the US dollar (and vice versa). But such compensating changes are not synchronised and do not fully offset each other. Recent favourable changes in commodity prices have exceeded adverse shifts in exchange rates. Comparing average exchange rates in 2006 against those in 2003, the Australian dollar strengthened by 16 per cent against the USdollar, the Canadian dollar strengthened by 24 per cent and the South African rand by ten per cent. Over the same period, commodity prices rose substantially: for example, copper prices increased by 281 per cent, aluminium by 79 per cent and gold by 66 per cent. Reviews of carrying values relate to cash generating units which, in accordance with IAS 36 ‘Impairment of Assets’, are identified by dividing an entity into as many largely independent cash generating streams as is reasonablypracticable. In some cases the business units within the product groups consist of several operations with independent cash generating streams, which therefore constitute separate cash generating units. The cash flow forecasts are based on best estimates of expected future revenues and costs. These may include net cash flows expected to be realised from extraction, processing and sale of other mineralisation that does not currentlyqualify for inclusion in proven or probable ore reserves. Such non reserve material is included where there is a high degree of confidence in its economic extraction. This expectation is usually based on preliminary drilling and sampling of areas of mineralisation that are contiguous with existing reserves. Typically, the additional evaluation to achieve reserve status for such material has not yet been done because this would involve incurring costs earlier than is required for the efficient planning and operation of the mine. The expected future cash flows of cash generating units reflect long term mine plans which are based on detailed research, analysis and iterative modelling to optimise the level of return from investment, output and sequence of extraction. The plan takes account of all relevant characteristics of the orebody, including waste to ore ratios, ore grades, haul distances, chemical and metallurgical properties of the ore impacting on process recoveries and capacities of processing equipment that can be used. The mine plan is therefore the basis for forecasting production output in each future year and production costs. Rio Tinto’s cash flow forecasts are based on assessments of expected long term commodity prices, which for most commodities are derived from an analysis of the marginal costs of the producers of these commodities. These assessments often differ from current price levels and are updated periodically. In some cases, prices applying to some part of the future sales volumes of a cash generating unit are predetermined by existing sales contracts. The effects of such contracts are taken into account in forecasting future cash flows. Cost levels incorporated in the cash flow forecasts are based on the current long term mine plan for the cashgenerating unit. For impairment reviews, recent cost levels are considered, together with expected changes in costs that are compatible with the current condition of the business and which meet the requirements of IAS 36. IAS 36 includes a number of restrictions on the future cash flows that can be recognised in respect of future restructurings and improvement related capital expenditure. The useful lives of the major assets of a cash generating unit are usually dependent on the life of the orebody to which they relate. Thus the lives of mining properties, smelters, concentrators and other long lived processing Rio Tinto 2006 Form 20-F | 83 |
Back to Contents equipment generally relate to the expected life of the ore body. The life of the ore body, in turn, is estimated on the basis of the long term mine plan. Forecast cash flows are discounted to present values using Rio Tinto’s weighted aver age cost of capital with appropriate adjustment for the risks associated with the relevant cash flows, to the extent that such risks are not reflected in the forecast cash flows. For final feasibility studies and ore reserve estimation, internal hurdle rates are used which are generally higher than the weighted average cost of capital. Final feasibility studies, ore reserve estimates and value in use estimates are based on the exchange rates current at the time of the evaluation. In estimates of fair value, a forecast of the long term exchange rate is made having regard to spot exchange rates, historical data and external forecasts. Forecast cash flows for ore reserve estimation for JORC purposes and for impairment testing are based on Rio Tinto’s long term price forecasts. For final feasibility studies these prices and projected costs, are assumed to decline systematically in real terms. For the majority of Rio Tinto’s businesses, both by number and by value, the recoverable amounts are substantially in excess of the carrying value in the balance sheet. For a minority of the businesses the carrying value is close to their recoverable amount, and these are reviewed for impairment where required. The effects of exchange rate and commodity price changes on the values of these units relative to their book values are monitored closely. All goodwill and intangible assets that are not yet ready for use or have an indefinite life are tested annually for impairment regardless of whether there has been any change in events or circumstances. Under US GAAP, assumptions used in cash flow forecasts are principally the same as those used under EU IFRS, except that the estimated cash flows related to the liability for asset retirement obligations are excluded under US GAAP (and the related liabilities are excluded from the determination of the carrying value of the asset group). Goodwill is tested annually for impairment. Impairment of other intangible assets and of property, plant and equipment is only recognised when the anticipated undiscounted cash flows are insufficient to recover the carrying value of the asset group. Once impairment is determined, an asset is written down to its fair value, which is normally calculated using discounted cash flows, similar to those under EU IFRS and the result is generally similar to that under EU IFRS. It is not possible to reverse impairment charges under US GAAP. Close down, restoration and clean up obligations Provision is made for environmental remediation costs when the related environmental disturbance occurs, based on thenet present value of estimated future costs. Close down and restoration costs are a normal consequence of mining, and the majority of close down and restoration expenditure is incurred at the end of the life of the mine. The costs are estimated on the basis of a closure plan. The cost estimates are calculated annually during the life of the operation to reflect known developments, eg updated cost estimates and revisions to the estimated lives of operations, and are subject to formal review at regular intervals. Although the ultimate cost to be incurred is uncertain, the Group’s businesses estimate their respective costs based on feasibility and engineering studies using current restoration standards and techniques. The initial closure provision together with changes, other than those arising from the unwind of the discount applied in establishing the net present value of the provision, are capitalised within property, plant and equipment and depreciated over the lives of the assets to which they relate. Clean up costs result from environmental damage that was not a necessary consequence of mining, including remediation, compensation and penalties. These costs are charged to the income statement. Provisions are recognised at the time the damage, remediation process and estimated remediation costs become known. Remediation procedures may commence soon after this point in time but can continue for many years depending on the nature of the disturbance and the remediation techniques. As noted above, the ultimate cost of environmental disturbance is uncertain and cost estimates can vary in response to many factors including changes to the relevant legal requirements, the emergence of new restoration techniques or experience at other mine sites. The expected timing of expenditure can also change, for example in response to changes in ore reserves or production rates. As a result there could be significant adjustments to the provision for close down and restoration and environmental clean up, which would affect future financial results. Overburden removal costs In open pit mining operations, it is necessary to remove overburden and other barren waste materials to access ore from which minerals can economically be extracted. The process of mining overburden and waste materials is referred to asstripping. During the development of a mine, before production commences, it is generally accepted that stripping costs are capitalised as part of the investment in construction of the mine. Where a mine operates several open pits that are regarded as separate operations for the purpose of mine planning, stripping costs are accounted for separately by reference to the ore from each separate pit. If, however, the pits are highly integrated for the purpose of mine planning, the second and subsequent pits are regarded as extensions of the first pit in accounting for stripping costs. In such cases, the initial stripping of the second and subsequent pits is considered to be production phase stripping relating to the combined operation. Stripping of waste materials continues during the production stage of the mine or pit. Some mining companies expense these production stage stripping costs as incurred, while others defer such stripping costs. In operations that experience material fluctuations in the ratio of waste materials to ore or contained minerals on a year to year basis over the life of the mine or pit, deferral of stripping costs reduces the volatility of the cost of stripping expensed in individual Rio Tinto 2006 Form 20-F | 84 |
Back to Contents reporting periods. Those mining companies that expense stripping costs as incurred will therefore report greater volatility in the results of their operations from period to period. Rio Tinto defers production stage stripping costs for those operations where this is the most appropriate basis for matching costs with the related economic benefits and the effect is material. Stripping costs incurred in the period are deferred to the extent that the current period ratio exceeds the life of mine or pit ratio. Such deferred costs are then charged against reported profits to the extent that, in subsequent periods, the ratio falls short of the life of mine or pit ratio. The life of mine or pit ratio is based on the proven and probable reserves of the mine or pit and is obtained by dividing the tonnage of waste mined either by the quantity of ore mined or by the quantity of minerals contained in the ore. In some operations, the quantity of ore is a more practical basis for matching costs with the related economic benefits where there are important by products or where the grade of the ore is relatively stable from year to year. The life of mine or pit waste-to-ore ratio is a function of the pit design and therefore changes to that design will generally result in changes to the ratio. Changes in other technical or economic parameters that impact on reserves will also have an impact on the life of mine or pit ratio even if they do not affect the pit design. Changes to the life of mine or pit ratio are accounted for prospectively. In the production stage of some operations, further development of the mine or pit requires a phase of unusually high overburden removal activity that is similar in nature to preproduction mine development. The costs of such unusually high overburden removal activity are deferred and charged against reported profits in subsequent periods on a units of production basis. This accounting treatment is consistent with that for stripping costs incurred during the development phase of a mine or pit, before production commences. Deferred stripping costs are included in property, plant and equipment or in investment in equity accounted units, as appropriate. These form part of the total investment in the relevant cash generating unit, which is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. Amortisation of deferred stripping costs is included in operating costs or in the Group’s share of the results of its jointly controlled entities and associates as appropriate. During 2006, production stage stripping costs incurred by subsidiaries and equity accounted operations exceeded the amounts charged against pre tax profit, which included net impairment reversals of US$36 million, by US$56 million (2005: US$93 million). The net book value carried forward in property, plant and equipment and in investments in equity accounted units at 31 December 2006 was US$929 million (2005: US$ 845 million). Information about the stripping ratios of the business units, including equity accounted units, that account for the majority of the deferred stripping balance at 31 December 2006, along with the year in which deferred stripping is expected to be fully amortised, is set out in the following table: | | Actual stripping ratio for the year | | Life of mine stripping ratio | | | |
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| | Kennecott Utah Copper (2019) (a) (b) | | 1.83 | | 2.02 | | 2.04 | | 1.24 | | 1.51 | | 1.36 | | Argyle Diamonds (2009) (a) | | 6.70 | | 6.60 | | 4.00 | | 4.91 | | 4.40 | | 4.40 | | Grasberg Joint Venture (2015) (a) | | 3.39 | | 3.12 | | 3.01 | | 2.43 | | 2.43 | | 2.63 | | Diavik (2008) (c) | | 1.47 | | 1.21 | | 0.89 | | 0.94 | | 0.91 | | 0.96 | | Escondida (2042) (d) | | 0.11 | | 0.09 | | 0.08 | | 0.11 | | 0.12 | | 0.12 | |
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Notes | (a) | Strip ratios shown are waste to ore. | (b) | Kennecott’s life of mine strip ratio decreased as the latest mine plan provides for the pit walls to be made steeper in an area within the mine which resulted in adding ore without adding waste. | (c) | Diavik’s strip ratio is disclosed as bank cubic metre per carat. | (d) | Escondida’s strip ratio is based on waste tonnes to pounds of copper mined. |
Borax capitalised stripping costs as part of a distinct period of new development during the production stage of the mine. Capitalisation stopped in 2004. The capitalised costs will be fully amortised in 2034. In 2006, the Group adopted EITF Issue No. 04-06 'Accounting for Stripping Costs Incurred during Production in the Mining Industry' ('EITF 04-06') for US GAAP. Under EITF 04-06, stripping costs incurred during the production phase of a surface mine are considered variable production costs that should be recorded directly as a component of production cost, except to the extent they can be attributed to inventory in accordance with normal inventory valuation principles. As a consequence, on 1 January 2006 a cumulative adjustment of US$651 million (US$415 million net of taxation) attributable to subsidiaries was recognised directly in US GAAP equity. A further US$94 million net of taxation related to equity accounted units was recognised directly in US GAAP equity. Deferred tax on mining rights On transition to EU IFRS with effect from 1 January 2004, deferred tax was provided in respect of fair valueadjustments on acquisitions in previous years. No other adjustments were made to the assets and liabilities recognised in such prior year acquisitions and, accordingly, shareholders’ funds were reduced by US$720 million on transition to EU IFRS primarily as a result of deferred tax on fair value adjustments to mining rights. In general, these mining rights are not eligible for income tax allowances. In such cases, the provision for deferred tax was based on the difference between their carrying value and their nil income tax base. The existence of a tax base for capital gains tax purposes Rio Tinto 2006 Form 20-F | 85 |
Back to Contents was not taken into account in determining the deferred tax provision relating to such mineral rights because it is expected that the carrying amount will be recovered primarily through use and not from the disposal of the mineral rights. Also, the Group is only entitled to a deduction for capital gains tax purposes if the mineral rights are sold or formally relinquished. For acquisitions after 1 January 2004 provision for deferred tax on acquisition results in a corresponding increase in the amounts attributed to acquired assets and/or goodwill under EU IFRS. Under US GAAP, such provisions for deferred tax result in corresponding increases in the amounts attributed to acquired assets and/or goodwill irrespective of the date of acquisition. The different treatment of acquisitions prior to 1 January 2004, results in higher shareholders’ funds under US GAAP. Post retirement benefits For defined benefit post employment plans, the Group has adopted the option under IAS 19 to recognise the difference between the fair value of the plan assets (if any) and the present value of the plan liabilities as an asset or liability on the balance sheet and to record actuarial gains and losses directly in the Statement of Recognised Income and Expense. The most significant assumptions used in accounting for post retirement plans are the long term rate of return on plan assets, the discount rate and the mortality assumptions. The long term rate of return on plan assets is used to calculate interest income on pension assets, which is credited to the Group’s income statement. The discount rate is used to determine the net present value of future liabilities and each year the unwinding of the discount on those liabilities is charged to the Group’s income statement. The mortality assumption is used to project the future stream of benefit payments, which is then discounted to arrive at the net present value of liabilities. Valuations are carried out using the projected unit method. The expected rate of return on pension plan assets is determined as management’s best estimate of the long term return on the major asset classes, ie equity, debt, real estate and other, weighted by the actual allocation of assets among the categories at the measurement date. The expected rate of return is calculated using geometric averaging. The sources used to determine management’s best estimate of long term returns are numerous and include country specific bond yields, which may be derived from the market using local bond indices or by analysis of the local bond market, and country specific inflation and investment market expectations derived from market data and analysts’ or governments’ expectations as applicable. In particular, the Group estimates long term expected real returns on equity, ie returns in excess of inflation, based on the economic outlook, analysts’ views and those of other market commentators. This is the most subjective of the assumptions used and it is reviewed regularly to ensure that it remains consistent with best practice. The discount rate used in determining the service cost and interest cost charged to income is the market yield at the start of the year on high quality corporate bonds. For countries where there is no deep market in such bonds the yield on Government bonds is used. For determining the present value of obligations shown on the balance sheet, market yields at the balance sheet date are used. Details of the key assumptions are set out in note 46 to the 2006 financial statements. For 2006 the charge against income for post retirement benefits net of tax and minorities was US$158 million under EU IFRS. Under US GAAP the net cost was US$200 million. These charges include both pension and post retirement healthcare benefits. The charges are net of the expected return on assets which (net of tax and minorities) was US$228 million under EU IFRS and US$209 million under US GAAP. In calculating the 2006 EU IFRS expense the average future increase in compensation levels was assumed to be 4.7 per cent and the same rate will be used for 2007. For US GAAP, the 2006 average future increase in compensation levels was assumed to be 4.6 per cent and this will remain at 4.6 per cent for 2007. For EU IFRS, the average discount rate used for the Group’s plans in 2006 was 5.0 per cent and the average discount rate used in 2007 will be 5.4 per cent. This increase is attributable to higher bond yields across all regions. For US GAAP, the average discount rate used for the Group’s plans in 2006 was 5.2 per cent and the average discount rate to be used in 2007 will be 5.4 per cent. This is also due to higher bond yields. For both EU IFRS and US GAAP, the average expected long term rate of return on assets used to determine 2006 pension cost was 6.3 per cent. This will increase to 6.9 per cent for 2007. This is due to an increase in bond yields and a change in the methodology for setting the expected return on equity. Previously, the expected return on equities was set by reference to a fixed margin above inflation. This will be amended for 2007 so that the expected return on equities will be set by adding a risk premium to the yield on government bonds. This methodology is more consistent with that used by other major organisations and is considered to be more theoretically robust. Based on the known changes in assumptions noted above and other expected circumstances, the impact of post retirement costs on the Group’s EU IFRS net earnings in 2007 would be expected to decrease by some US$26 million to US$132 million. The impact of post-retirement benefits on the Group’s US GAAP net earnings in 2006 would be expected to decrease by some US$28 million to US$172 million. The actual charge may be impacted by other factors that cannot be predicted, such as the effect of changes in benefits and exchange rates. The table below sets out the potential change in the Group’s 2006 net earnings (after tax and outside interests) that would result from hypothetical changes to post retirement assumptions and estimates. The sensitivities are viewed for each assumption in isolation. Rio Tinto 2006 Form 20-F | 86 |
Back to Contents | EU IFRS | | US GAAP | | Sensitivity of Group’s 2006 net earnings to changes in: | US$m | | US$m | |
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| | Expected return on assets | | | | | – increase of 1 percentage point | 26 | | 24 | | – decrease of 1 percentage point | (26 | ) | (24 | ) | Discount rate | | | | | – increase of 0.5 percentage points | 1 | | 8 | | – decrease of 0.5 percentage points | (1 | ) | (8 | ) | Salary increases | | | | | – increase of 0.5 percentage points | (4 | ) | (6 | ) | – decrease of 0.5 percentage points | 4 | | 6 | | Demographic – allowance for additional future mortality improvements | | | | | – overall increase of 5% in benefit obligation | (11 | ) | (18 | ) | – overall decrease of 5% in benefit obligation | 11 | | 18 | |
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The figures in the above table only show the impact on net earnings. Changing the assumptions would also have an impact on the balance sheet. The impact on cash flow in 2006 of the Group’s pension plans, being the employer contributions to defined benefit and defined contribution pension plans, was US$172 million. In addition there were contributions of US$19 million in respect of unfunded healthcare schemes. Contributions to pension plans for 2007 are estimated to be around US$8m higher than for 2006. Healthcare plans are unfunded and contributions for future years will be equal to benefit payments and therefore cannot be predetermined. Further information on pensions and other post retirement benefits is given in note 46 to the 2006 financial statements. US deferred tax potentially recoverable Rio Tinto’s US tax group have Alternative Minimum Tax (AMT) credits and temporary differences, which have thepotential to reduce tax charges in future years. These potential reductions in future tax charges (‘possible tax assets’) totalled US$577 million at 31 December 2005. An asset of US$10 million was recognised in the balance sheet at 31 December 2005 based on utilisation of AMT credits projected for 2006. Principally as a result of current high commodity prices, US$140 million of these possible tax assets were realised in 2006. Updated projections of future taxable profits for the operations that form part of Rio Tinto’s US tax group resulted in the recognition of a further deferred tax asset of US$335 million during 2006. Having taken account of other adjustments this leaves possible tax assets of US$65 million. Recoveries are dependent on future commodity prices, costs, financing arrangements and business developments in future years. Exploration During the year the Group changed its policy on accounting for exploration and evaluation expenditure. Previously, theGroup capitalised exploration and evaluation expenditure from acquisition of a beneficial interest or option in mineral rights. Full provision was made for impairment unless there was a high degree of confidence in the project’s viability and hence it was considered probable that future economic benefits would flow to the Group. If, as a result of developments in subsequent periods, the expenditure was considered to be recoverable, such provisions were reversed. Under the Group’s revised policy, exploration and evaluation expenditure is not capitalised until the point is reached at which there is a high degree of confidence in the project’s viability and it is considered probable that future economic benefits will flow to the Group. This change was made to improve the alignment of Rio Tinto’s accounting with the way that EU IFRS is being applied generally. Under US GAAP, exploration and evaluation expenditure is expensed as incurred. The carrying values of exploration assets are reviewed twice per annum by management and the results of these reviews are reported to theAudit committee. There may only be mineralised material to form a basis for the impairment review. The review is based on a status report regarding the Group’s intentions for development of the undevelopedproperty. In some cases, the undeveloped properties are regarded as successors to orebodies currently in production and will therefore benefit from existing infrastructure and equipment. Temporary differences related to closure costs and finance leases Under the ‘initial recognition’ rules in paragraphs 15 and 24 of IAS 12 ‘Income Taxes’, deferred tax is not provided onthe initial recognition of an asset or liability in a transaction that does not affect accounting profit or taxable profit and is not a business combination. The Group’s interpretation of these initial recognition rules has the result that no deferred tax asset is provided on the recognition of a provision for close down and restoration costs and the related asset or on recognition of assets held under finance leases and the associated lease liability, except where these are recognised as a consequence of business combinations. Rio Tinto 2006 Form 20-F | 87 |
Back to Contents On creation of the closure provision, for instance, there is no effect on accounting or taxable profit because the cost is capitalised. As a result, the initial recognition rules would appear to prevent the recognition of a deferred taxasset in respect of the provision and of a deferred tax liability in respect of the related capitalised amount. The temporary differences will reverse in future periods as the closure asset is depreciated and when tax deductible payments are made that are charged against the provision. Paragraph 22 of IAS 12 extends the initial recognition rules to the reversal of temporary differences on assets and liabilities to which the initial recognition rules apply. Therefore, deferred tax is not recognised on the changes in the carrying amount of the asset which result from depreciation or from the changes in the provision resulting from expenditure. When tax relief on expenditure is received this will be credited to the income statement as part of the current tax charge. The unwind of the discount applied in establishing the present value of the closure costs does affect accounting profit. Therefore, this unwinding of discount results in the recognition of deferred tax assets. The application of this initial recognition exemption has given rise to diversity in practice: some companies do provide for deferred tax on closure cost provisions and the related capitalised amounts. Deferred tax accounting on initial recognition is currently the subject of an IASB/FASB convergence project which may at some future time require the Group to change this aspect of its deferred tax accounting policy. If the Group were to provide for deferred tax on closure costs and finance leases under EU IFRS (as is already the case for US GAAP), the impact on net earnings and shareholders’ equity would be as follows: | | | | | Impact on closing | | | Impact on net earnings | | shareholders’ equity | | |
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| | 2006 | 9 | | .001 | % | 127 | | .007 | % | 2005 | 15 | | .003 | % | 120 | | .008 | % | 2004 | 20 | | .006 | % | 105 | | .008 | % |
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Contingencies Disclosure is made of material contingent liabilities unless the possibility of any loss arising is considered remote. Contingencies are disclosed in note 33 to the 2006 financial statements. These include tax assessments in Australia ofapproximately A$515 million which, based on Counsels’ opinion, the Group expects to be successful in challenging. Underlying earnings The Group presents ‘Underlying earnings’ as an additional measure to provide greater understanding of the underlyingbusiness performance of its operations. The adjustments made to net earnings to arrive at underlying earnings are explained above in the section on underlying earnings. Rio Tinto 2006 Form 20-F | 88 |
Back to Contents Item 6. | Directors, Senior Management and Employees | | |
| | | | | | | Committee on social | | | Audit | | Nominations | | Remuneration | | and environmental | | | committee | | committee | | committee | | accountability | |
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| | Chairman | | | | | | | | | Paul Skinner | | | • | | | | | | | | | | | | | | | Chief executive | | | | | | | | | Tom Albanese | | | | | | | | | | | | | | | | | | Finance director | | | | | | | | | Guy Elliott | | | | | | | | | | | | | | | | | | Non executive directors | | | | | | | | | Ashton Calvert AC * | | | • | | | | • | | Sir David Clementi * | • | | | | • | | | | Vivienne Cox * | • | | | | | | | | Sir Rod Eddington * | | | • | | | | • | | Michael Fitzpatrick * | • | | | | • | | | | Richard Goodmanson * | | | | | • | | • | | Andrew Gould * | • | | | | • | | | | Lord Kerr of Kinlochard * | • | | | | | | • | | David Mayhew | | | • | | | | | | Sir Richard Sykes * | | | • | | • | | | |
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| | * Independent | | | | | Non executive directors |
01Paul Skinner(age 59)
Mr Skinner was appointed chairman in November 2003. A director of Rio Tinto since 2001, he is chairman of theNominations committeeand theCommittee on social and environmental accountability. He was previously a Managing Director of The“Shell” Transport and Trading Company plc and Group Managing Director of The Royal Dutch/Shell Group of Companies, for whom he had worked since 1966. He is a director of Standard Chartered PLC and a member of the board of INSEAD business school. (notes b and d)
06 Sir Richard Giordano(age 69)
Sir Richard is the senior non executive director and a deputy chairman. He is also chairman of theAudit committee. He has been a director of Rio Tinto plc since 1992 and of Rio Tinto Limited since 1995. A lawyer by training, he spent 12 years at BOC Group, first as chief executive, then chairman. In 1993, Sir Richard became a director of British Gas, assuming the role of chairman in 1994. A former chairman of BG Group plc, he is a director of Georgia Pacific Corporation in the US and a trustee of Carnegie Endowment for International Peace. (notes a, b, and d)
08 Sir David Clementi(age 55)
Sir David was appointed a director of Rio Tinto in January 2003. He is chairman of Prudential plc, and prior to that appointment was deputy governor of the Bank of England. Sir David’s earlier career was with Kleinwort Benson where he spent 22 years, holding various positions including chief executive and vice chairman. A graduate of Oxford University and a qualified chartered accountant, Sir David also holds an MBA from Harvard Business School. (notes a and c)
Executive directors | | | | | also executive committee members | | |
02Leigh Clifford(age 56)
Mr Clifford became chief executive in 2000, having been
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CHAIRMAN Paul SkinnerBA (Hons) (Law), DpBA (Business Administration) age 62. Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2001, he was appointed chairman of the Group in November 2003. Paul was last re-elected by shareholders in 2005 and is chairman of the Nominations committee (note b). Skills and experience:Paul graduated in law from Cambridge University and in business administration from Manchester Business School. He was previously a managing director of The “Shell” Transport and Trading Company plc and group managing director of The Royal Dutch/Shell Group of Companies, for whom he had worked since 1966. During his career he worked in all Shell’s main businesses, including senior appointments in the UK, Greece, Nigeria, New Zealand and Norway. He was CEO of its global Oil Products business from 1999 to 2003. External appointments (current and recent): Director of The ‘Shell’ Transport and Trading Company plc from 2000 to 2003. Director of Standard Chartered plc since 2003. Director of the Tetra Laval Group since 2005. Director of L’Air Liquide SA since 2006. Chairman of the International Chamber of Commerce (UK) since 2005. Non executive member of the Defence Management Board of the UK Ministry of Defence since June 2006. Member of the board of INSEAD business school since 1999. CHIEF EXECUTIVE Tom AlbaneseBS (Mineral Economics) MS (Mining Engineering) age 49. Appointment and election: Director of Rio Tinto plc and Rio Tinto Limited since March 2006. Tom was elected byshareholders in 2006. Skills and experience:Tom joined Rio Tinto in 1993 on Rio Tinto’s acquisition of Nerco and held a series ofmanagement positions before being appointed chief executive of the Industrial Minerals group in 2000, after which he became chief executive of the Copper group and head of Exploration in 2004. He took over as chief executive from Leigh Clifford with effect from 1 May 2007. External appointments (current and recent): Director of Ivanhoe Mines Limited since November 2006. Director of Palabora Mining Company from 2004 to 2006. Member of the Executive Committee of the International Copper Association from 2004 to 2006. Rio Tinto plc since 1994 and Rio Tinto Limited since 1995. A mining engineer, he has held various roles in the Group’s coal and metalliferous operations since joining in 1970, including managing director of Rio Tinto Limited and chief executive of the Energy group. Mr Clifford is also a director of Freeport-McMoRan Copper & Gold Inc.2006 Form 20-F | 89 |
Back to Contents FINANCE DIRECTOR 03Robert Adams(age 58)
Mr Adams was appointed a director of Rio Tinto plc in 1991 with responsibility for planning and development, and a director of Rio Tinto Limited in 1995. He joined the Group in 1970 after reading natural sciences and economics and subsequently gaining an MSc from the London Business School. Mr Adams is a non executive director of Foreign & Colonial Investment Trust plc.
04Guy Elliott(MA (Oxon) MBA (INSEAD) age 48)51. Appointment and election:Mr Elliott became financeFinance director of Rio Tinto plc and Rio Tinto Limited since 2002. Guy was last re-elected by shareholders in 2002. He2007. Skills and experience:Guy joined the Group in 1980 after gaining an MBA from INSEAD business school.MBA. He has subsequently held a variety of marketing, planningcommercial and developmentmanagement positions, most recently asincluding head of Business Evaluation. From 1996 to 1999 he wasEvaluation and president of Rio Tinto Brasil. External appointments (current and recent): None.
NON EXECUTIVE DIRECTORS 05 Oscar GroeneveldAshton Calvert(AC, BSc (Hons) (Tas), DPhil (Oxon), Hon DSc (Tas) age 50)61.
Mr Groeneveld became a director of Rio Tinto in 1998. A mining engineer with qualifications in engineering, scienceAppointment and management, he joined the Group in 1975 and has since held a series of management positions, including head of Technology, before being appointed chief executive of the Copper group in 1999. Mr Groeneveld is also a director of Freeport-McMoRan Copper & Gold Inc.election:
07Leon Davis(age 64)
Mr Davis is the Group’s Australia based non executive deputy chairman. He became a director of Rio Tinto Limited in 1994 andDirector of Rio Tinto plc and Rio Tinto Limited since 2005. Ashton was re-elected by shareholders in 1995.2007 (notes b, d and e). Skills and experience:Ashton retired as secretary of the Department of Foreign Affairs and Trade of the Governmentof Australia in January 2005 after six and a half years in that position. He was educated at the University of Tasmania and, as a Rhodes scholar, also gained a doctorate in mathematics from Oxford University. During his career in the Australian foreign service he held appointments in Washington and, on four occasions, in Tokyo, where he was ambassador prior to his appointment as secretary. In these and other roles he developed extensive experience of the Asian countries which represent key markets for Rio Tinto. External appointments (current and recent): Director of Woodside Petroleum Limited since 2005. Director of The Australian Trade Commission between 1998 and 2005. Director of The Export Finance and Insurance Corporation between 1998 and 2005. Director of The Australian Strategic Policy Institute between 2001 and 2005.
Sir David ClementiMA, MBA, FCA age 57. Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2003. Sir David was last re-elected by shareholders in 2006 (notes a, c and e). Skills and experience: Sir David is chairman of Prudential plc, prior to which he was Deputy Governor of the Bank ofEngland. His earlier career was with Kleinwort Benson where he spent 22 years, holding various positions including chief executive and vice chairman. A graduate of Oxford University and a qualified chartered accountant, Sir David also holds an MBA from Harvard Business School. External appointments (current and recent): Chairman of Prudential plc since 2002. Member of the Financial Reporting Council since 2003. Vivienne CoxMA (Oxon), MBA (INSEAD) age 47. Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2005. Vivienne was elected by shareholders in 2005 (notes a and e). Skills and experience: Vivienne is currently executive vice president of BP p.l.c. for Gas Power & Renewables. She isa member of the BP group chief executive’s committee. She holds degrees in chemistry from Oxford University and in business administration from INSEAD. During her career in BP she has worked in chemicals, exploration, finance, and refining and marketing. External appointments (current and recent): Non executive Director of Eurotunnel plc between 2002 and 2004. Sir Rod EddingtonB.Eng M.Eng (University of Western Australia), D.Phil (Oxon) age 57. Appointment and election: Director of Rio Tinto plc and Rio Tinto Limited since 2005. Sir Rod was elected byshareholders in 2006 (notes b, d and e). Skills and experience:Sir Rod was chief executive of British Airways Plc until the end of September 2005. Prior to hisrole with British Airways, Sir Rod was Managing Director of Cathay Pacific Airways from 1992 until 1996 and Executive Chairman of Ansett Airlines from 1997 until 2000. External appointments (current and recent): Director of News Corporation plc since 1999. Director of John Swire & Son Pty Limited since 1997. Non executive chairman of JPMorgan Australia and New Zealand since January 2006. Director of CLP Holdings since January 2006. Director of Allco Finance Group Limited since July 2006. Chief executive British Airways Plc from 2000 until 2005. Chairman of the EU/Hong Kong Business Co-operation Committee of the Hong Kong Trade Development Council from 2002 until March 2006. Rio Tinto 2006 Form 20-F | 90 |
Back to Contents Michael FitzpatrickB. Eng (University of Western Australia), BA (Oxon) age 54. Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since June 2006. Michael was elected byshareholders in 2007 (notes a, c and e). Skills and experience:Michael recently sold his interest in, and ceased to be a director of, Hastings Funds ManagementLtd., the pioneering infrastructure asset management company which he founded in 1994. He is Chairman of the Victorian Funds Management Corporation, which manages funds on behalf of the State of Victoria, and of Treasury Group Limited, an incubator of fund management companies. He is a metallurgistcommissioner of the Australian Football League, having previously played the game professionally, and during more than 40 years with the Group has heldis a number of managerial posts around the world, ultimately as chief executive from 1997 to 2000. He isformer chairman of Westpac Banking Corporationthe Australian Sports Commission. External appointments (current and a directorrecent): Managing Director of Codan Limited, Huysmans Pty Limited and Trouin Pty Limited, and is also presidentHastings Funds Management Ltd from 1994 to 2006. Chairman of the boardVictorian Funds Management Corporation since 2006. Chairman of TheTreasury Group Limited since 2005. Director of Pacific Hydro Limited from 1996 to 2004. Director of Australian Infrastructure Fund Limited from 1994 to 2005. Director of the Walter and& Eliza Hall Institute of Medical Research. (note d)Research since 2001. 09 Andrew GouldRichard Goodmanson(MBA (Columbia University), BEc and BCom (University of Queensland), B. Eng. – Civil (Royal Military College, Duntroon) age 57)59.
Mr Gould was appointed a directorAppointment and election: Director of Rio Tinto plc and Rio Tinto Limited since 2004. He was elected by shareholders in December2005 and is chairman of the Committee on social and environmental accountability (notes c, d and e). Skills and experience: Richard is executive vice president and chief operating officer of DuPont. During his career he has worked at senior levels for McKinsey & Co, PepsiCo and American West Airlines, where he was president and CEO. He joined DuPont in early 1999 and in his current position has responsibility for a number of the global functions, and for the non US operations of DuPont, with particular focus on growth in emerging markets. External appointments (current and recent): Executive vice president and chief operating officer of DuPont since 1999. Chairman of the United Way of Delaware since January 2006 (director since 2002). Director of the Boise Cascade Corporation between 2000 and 2004.
Andrew GouldBA FCA age 60. Appointment and election: Director of Rio Tinto plc and Rio Tinto Limited since 2002. Andrew was last re-elected by shareholders in 2006. He is also chairman of the Audit committee (notes a, c and e). Skills and experience: Andrew is chairman and chief executive officer of Schlumberger Limited. Prior to this appointment, Mr Gould, who joined Schlumberger in 1975 from Ernst & Young,Limited, where he has held asuccession of financial and operational management positions, within the Schlumberger group, including that of executive vice president of Schlumberger Oilfield Services and president and chief operating officer of Schlumberger Limited. He has worked in Asia, Europe and the US. He joined Schlumberger in 1975. He holds a degree in economic history from Cardiff University and qualified as a chartered accountant with Ernst & Young. External appointments (current and recent): Chairman and Chief Executive Officer of Schlumberger Limited since 2003. Member of the Advisory Board of the King Fahd University of Petroleum and Minerals in Dhahran, Saudi Arabia since January 2007. Member of the commercialization advisory board of Imperial College of Science Technology and Medicine, London since 2002. Member of the UK Prime Minister’s Council of Science and Technology from 2004 to February 2007. Lord Kerr of KinlochardGCMG MA age 65. Appointment and election: Director of Rio Tinto plc and Rio Tinto Limited since 2003. He was re-elected byshareholders in 2007 (notes a, d and c)e). Skills and experience:An Oxford graduate, he was in the UK Diplomatic Service for 36 years an d headed it from 1997 to 2002 as Permanent Under Secretary at the Foreign Office. His foreign service included periods in the Soviet Union and Pakistan, and as Ambassador to the European Union (1990 to 1995), and the US (1995 to 1997). He has been a member of the House of Lords since 2004. External appointments (current and recent): Deputy Chairman of Royal Dutch Shell plc since 2005.
Director of The “Shell” Transport and Trading Company plc from 2002 to 2005.
Director of The Scottish American Investment Trust plc since 2002. Chairman of the Court and Council of Imperial College, London since 2005. Trustee of the Rhodes Trust since 1997, The National Gallery since 2002, and the Carnegie Trust for the Universities of Scotland since 2005.
58Rio Tinto 2006 Form 20-F | Rio Tinto 2003Annual report and financial statements91 |
Back to Contents 10David Mayhewage 66. Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2000. He was last re-elected byshareholders in 2006 (note b). Skills and experience:David joined Cazenove in 1969 from Panmure Gordon. In 1972 he became the firm’s dealing partner and was subsequently responsible for the Institutional Broking Department. From 1986 until 2001 he was thepartner in charge of the firm’s Capital Markets Department. He became Chairman of Cazenove on incorporation in 2001 and Chairman of JPMorgan Cazenove in 2005. External appointments (current and recent): Chairman of Cazenove Group Limited (formerly Cazenove Group plc) since 2001. Chairman of Cazenove Capital Holdings Limited since 2005.
Sir John KerrRichard SykesBSc (Microbiology) PhD (Microbial Biochemistry), DSc, Kt, FRS, FMedSci age 64. Appointment and election:(age 62) Director of Rio Tinto plc and Rio Tinto Limited since 1997. Sir JohnRichard was appointed the senior non executive director in 2005 and is chairman of the Remuneration committee. Sir Richard was re-elected for a further term of office in 2007 but his intention is to retire after the annual general meetings in 2008 (notes b, c and e). Skills and experience: After reading microbiology at the University of London, Sir Richard obtained doctorates in microbial chemistry and in science from the University of Bristol and the University of London respectively. A former chairman of GlaxoSmithKline plc Sir Richard is a Fellow of the Royal Society. He is currently Rector of Imperial College London. External appointments (current and recent): Director of Lonza Group Limited since 2003, Deputy Chairman since 2005. Chairman of the Healthcare Advisory Group (Apax Partners Limited) since 2002. Chairman of Metabometrix Ltd since 2004. Chairman of Merlion Pharmaceuticals Pte Limited since 2005. Chairman of OmniCyte Ltd since 2006 Chairman of Circassia Ltd since 2007 Director of Abraxis BioScience Inc since 2006. Director of Bio*One Capital Pte Ltd since 2003 Chairman of GlaxoSmithKline plc between 2000 and 2002. Rector of Imperial College London since 2001. Trustee of the Natural History Museum, London between 1996 and 2005 and of the Royal Botanic Gardens, Kew between 2003 and 2005.
DIRECTOR RETIRING AT CONCLUSION OF THE 2007 ANNUAL GENERAL MEETINGS Leigh CliffordB Eng (Mining), M Eng Sci age 59. Appointment and election:Director of Rio Tinto plc since 1994 and Rio Tinto Limited since 1995, he was appointed chief executive in 2000. Skills and experience: Leigh graduated from the University of Melbourne as a mining engineer and gained a Master of Engineering Science degree from the same University. He has held various roles in the Group’s coal and metalliferous operations since joining in 1970, including managing director of Rio Tinto in October 2003.Limited and chief executive of the Energygroup. He was a member of the UK Diplomatic ServiceCoal Industry Advisory Board of the International Energy Agency for 36a number of years and its headchairman from 19971998 to 2002. During his career he was seconded to the UK Treasury where he was principal private secretary to two Chancellors2000. External appointments (current and recent): Director Barclays Bank plc since 2004. Chairman of the Exchequer. His service abroad included spellsInternational Council on Mining & Metals since October 2006. Director of Freeport-McMoRan Copper & Gold Inc between 2000 and 2004. Appointed to Bechtel Board of Counsellors in May 2007. Notes | (a) | Audit committee | | (Sir David Clementi, Vivienne Cox, Michael Fitzpatrick, Andrew Gould and Lord Kerr of Kinlochard) | (b) | Nominations committee | | (Paul Skinner, Ashton Calvert, Sir Rod Eddington, David Mayhew and Sir Richard Sykes) | (c) | Remuneration committee | | (Sir David Clementi, Michael Fitzpatrick, Richard Goodmanson, Andrew Gould and Sir Richard Sykes) | (d) | Committee on social and environmental accountability | | (Ashton Calvert, Sir Rod Eddington, Richard Goodmanson and Lord Kerr of Kinlochard) | (e) | Independent | | (Ashton Calvert, Sir David Clementi, Vivienne Cox, Sir Rod Eddington, Michael Fitzpatrick, Richard Goodmanson, Andrew Gould, Lord Kerr ofKinlochard, Sir Richard Sykes) |
Rio Tinto 2006 Form 20-F | 92 |
Back to Contents GROUP EXECUTIVES For accounting standards purposes (IAS 24 and AASB 124) the Group’s key management personnel as ambassador todefined, comprises the European Union from 1990 to 1995,directors and to the US from 1995 to 1997. He is also a director of The “Shell” Transportproduct group chief executives. From 1 June 2007 they include the Group executive Technology and Trading Company plcInnovation, and Scottish American Investment Trust plc.the Group executive Business Resources. 12 John MorschelPreston Chiaro(BSc (Hons) Environmental Engineering, MEng Environmental Engineering), age 60)53.
Mr MorschelSkills and experience:Preston was appointed tochief executive of the boardsEnergy group in September 2003. He heads theGroup’s climate change and sustainable development leadership panels. He joined the Group in 1991 at Kennecott Utah Copper’s Bingham Canyon mine as vice president, technical services. In 1995 he became vice president and general manager of the Boron operations in California. He was chief executive of Rio Tinto Borax from 1999 to 2003. External appointments (current and recent): Director of the World Coal Institute since 2003 (chairman since November 2006). Member of the Executive board of the Coal Industry Advisory Board to the International Energy Agency since 2004. Director of Energy Resources of Australia Limited Director of Coal & Allied Industries Limited between 2003 and September 2006. Director of Rössing Uranium Limited since 2004.
Bret ClaytonBA (Accounting), age 44. Skills and experience: Bret was appointed chief executive of the Copper group in 1998. EducatedJuly 2006. He joined the Group in Australia1995 and has held a series of management positions, including chief financial officer of Rio Tinto Iron Ore and president and chief executive officer of Rio Tinto Energy America. Prior to joining the US, he spent mostGroup, Bret worked for PricewaterhouseCoopers for nine years, auditing and consulting to the mining industry. External appointments (current and recent): Member of his careerthe Executive Committee of the International Copper Association since July 2006. Oscar GroeneveldBE (Mining), MSc, DIC age 53. Skills and experience:Oscar has been with Lend Lease Corporation Limitedthe Group for over 30 years and was appointed chief executive of theAluminium group in Australia, culminating as managing director, followed by two years asOctober 2004. Oscar has qualifications in engineering, science and management and is also responsible for Rio Tinto Japan, Kennecott Land and heads the Group’s safety leadership panel. He has occupied senior roles in coal, aluminium and technology and was the Copper group chief executive from 1999 to 2004. He was an executive director of the Westpac Banking Corporation.Group from 1998 to 2004. External appointments (current and recent): Director of Australian Aluminium Council since 2004. Chairman of International Aluminium Institute since 2006. Director of Rio Tinto plc and Rio Tinto Limited between 1998 and 2004. Director of Freeport-McMoRan Copper & Gold Inc between 1999 and 2004. Director of Palabora Mining Company Limited between 1999 and 2004. Keith JohnsonBSc (Mathematics), MBA age 45. Skills and experience:Keith was appointed Group executive Business Resources on 1 June 2007 having been chief executive, Diamonds since 2003. He is chairman of Leighton Holdings Limited,holds degrees in mathematics and of Rinker Group Limitedmanagement and is a Fellow of the RoyalStatistical Society. Prior to joining Rio Tinto he worked in analytical roles in the UK Treasury, private consulting and the oil industry. He joined Rio Tinto in 1991 and has held a series of management positions including head of Business Evaluation and managing director of Tenix Pty Limited, Gifford Communications Pty LimitedComalco Mining and Singapore Telecommunications Limited.Refining. External appointments (current and recent): None. Andrew MackenzieBSc (Geology), PhD (Chemistry) age 50. Skills and experience: Andrew was appointed chief executive Diamonds and Minerals on 1 June 2007. He joined RioTinto in 2004 as chief executive Industrial Minerals from BP Petrochemicals where he was group vice president. He spent 22 years with BP primarily in the UK and North America in senior positions including head of Capital Markets in BP Finance, chief reservoir engineer with oversight of oil and gas reserves and production, head of Government and Public Affairs worldwide and group vice president Technology which included responsibility for research and development and engineering. External appointments (current and recent): Director of Centrica plc since 2005. Trustee of Demos since 1998. Rio Tinto 2006 Form 20-F | 93 |
Back to Contents Grant ThorneBSc (Hons) Metallurgy, PhD (Mineral Processing) age 57. Skills and experience: Grant was appointed Group executive Technology and Innovation on 1 June 2007. After tertiarystudy at the University of Queensland, he joined the Group in 1975 and has held senior operational roles in base metals, aluminium and coal. He was Vice-president of Research and Technology for Comalco from 1994 to 1995. His service has included appointments in Australia, Indonesia, Papua New Guinea and UK. Prior to his current appointment, he was Managing Director of Rio Tinto’s coal business in Australia. Grant is a Fellow and Chartered Professional (Management) of the Australasian Institute of Mining and Metallurgy. External appointments (current and recent): Member of the Coal Industry Advisory Board to the International Energy Agency from 2002 to 2006 Director of The Wesley Research Institute from 2002 to 2003 President of the Queensland Resources Council from 2002 to 2004 Managing Director of Coal and Allied Industries from 2004 to 2006 Sam WalshB Com (Melbourne) age 57. Skills and experience: Sam was appointed chief executive of the Iron Ore group in 2004. He joined Rio Tinto in 1991, following 20 years in the automotive industry at General Motors and Nissan Australia. He has held a number ofmanagement positions within the Group, including managing director of Comalco Foundry Products, CRA Industrial Products, Hamersley Iron Sales and Marketing, Hamersley Iron Operations, vice president of Rio Tinto Iron Ore (with responsibility for Hamersley Iron and Robe River) and from 2001 to 2004 chief executive of the Aluminium group. Sam is also a patronFellow of the Property Industry Foundation. (notes b, cAustralian Institute of Management, the Australian Institute of Company Directors and d)the Australasian Institute of Mining and Metallurgy.
14External appointments (current and recent):
Lord Tugendhat(age 67)
Lord Tugendhat, who became a director of Rio Tinto in 1997 will retire from the boards at the conclusionDirector of the 2004 annual general meetings. A former vice presidentAustralian Mines and Metals Association, between 2001 and 2005. Director of the CommissionAustralian Chamber of Commerce and Industry, between 2003 and 2005. Director of the European Communities, and chairman of the Civil Aviation Authority, he was chairman of Abbey National plc from 1991 to 2002 when he was appointed chairman of Lehman Brothers Europe Limited. (notes a and d)Committee for Perth Ltd since 2006.
COMPANY SECRETARIES 15Anette Lawless(MA, FCIS age 47)50. Skills and experience:
Mrs LawlessAnette joined Rio Tinto in 1998 and became company secretary of Rio Tinto plc in 2000. ABeforejoining Rio Tinto, she spent 11 years with Pearson plc, five of which as company secretary. She qualified as a chartered secretary in 1989 and became a fellow of the ICSA shein 1992. She also holds an MA from the Copenhagen Business School. External appointments (current and recent):
11David Mayhew(age 63)
Mr Mayhew was appointed a director of Rio Tinto in 2000. He is chairman of Cazenove Group plc, which he joined in 1969. Cazenove is a stockbroker to Rio Tinto plc. (notes a and b)
13 Sir Richard Sykes(age 61)
Sir Richard was appointed to the boards of Rio Tinto in 1997. He is chairmanMember of theRemuneration committee. After reading microbiology, he obtained doctorates in microbial chemistry and in science. A former chairman of GlaxoSmithKline plc, Sir Richard is a director of Lonza Group Limited and is rector Regulatory Decisions Committee of the Imperial College of Science, Technology and Medicine. He is a fellow of the Royal Society and a trustee of the Natural History Museum in London and of the Royal Botanical Gardens, Kew. (note c)
Sir Robert Wilsonserved as chairman until his retirement on 31 October 2003.UK Financial Services Authority from 2001 to 2006.
Jonathan Leslieand
The Hon. Raymond Seitzserved as directors until 31 March 2003 and 1 May 2003 respectively.
Notes | a) | Audit committee | b) | Nominations committee | c) | Remuneration committee | d) | Committee on social and environmental accountability |
16Stephen Consedine(B Bus CPA age 42)45.
Mr ConsedineSkills and experience: Stephen joined Rio Tinto in 1983 and becamehas held various positions in Accounting, Treasury, andEmployee Services before becoming company secretary of Rio Tinto Limited in 2002. He holds a Bachelorbachelor of Businessbusiness degree and is a Certified Practising Accountant.certified practising accountant. External appointments (current and recent): None.
EMPLOYEES Information on the Group’s employees including their costs, is on pages 71 to 74, and in notes 4 and 34 to the 2006 financial statements.
REMUNERATION The Remuneration report to shareholders dated 24 February 2006 has been reproduced below, except that the page numbers have been revised to reflect those in this combined annual report on Form 20-F, Tables 3, 4 and 5 have been augmented to show share interests as at the latest practicable date. Rio Tinto 20032006Annual report and financial statementsForm 20-F | 59 |
Back to Contents
Directors’ report for the year ended 31 December 2003
Dual listed companies
Rio Tinto plc and Rio Tinto Limited were unified under a dual listed companies structure in 1995, and the Directors’ report has been prepared as a joint report of both Companies and their respective subsidiaries. For a full description of the structure, please see page 77 to 79.
Activities and review of operations
A detailed review of the Group’s operations, results from those operations and principal activities during 2003, details of any significant changes in the Group’s state of affairs during the year, post balance sheet events and likely future developments are given in the Chairman’s letter on page 2 and the Chief executive’s report on pages 3 to 5 and the Operational review on pages 37 to 56.
No matter or circumstance has arisen since the end of the 2003 financial year that has significantly affected or may significantly affect the operations, the results of the operations or state of affairs of the Group in future financial years.
In accordance with section 299(3) of the Australian Corporations Act, further information regarding likely future developments in, and the expected results of, the operations of the Group have not been included.
Corporate governance
A report on corporate governance and compliance with the Combined Code appended to The Listing Rules of the UK Financial Services Authority, as well as the best practice guidelines of the Australian Stock Exchange, is set out on pages 70 to 72.
Directors
Details of each person who was a director at any time during or since the end of the year and their qualifications, experience and responsibilities are set out on pages 58 and 59.
Sir Robert Wilson retired on 31 October 2003 with Paul Skinner succeeding him as chairman on 1 November 2003.
Jonathan Leslie resigned with effect from 31 March 2003 and The Hon. Raymond Seitz retired with effect from the conclusion of the Rio Tinto Limited annual general meeting held on 1 May 2003.
Sir John Kerr was appointed a non executive director on 14 October 2003. Sir John, who does not have a service contract, will retire and offers himself for election at the 2004 annual general meetings.
Under the articles of association of Rio Tinto plc and the Rio Tinto Limited constitution, directors are required to retire from the board and offer themselves for re-election at least every three years.
The following directors retire by rotation and being eligible, offer themselves for re-election: Leigh Clifford and Guy Elliott, who each have a service contract with Rio Tinto Limited and a subsidiary of Rio Tinto plc respectively which are terminable on one year’s notice by either party, and Sir Richard
Sykes, who does not have a service contract. Lord Tugendhat also retires by rotation, but does not offer himself for re-election. In addition, Sir Richard Giordano will have attained the age of 70 before the annual general meetings and in accordance with the Companies Act 1985, retires and offers himself for re-election at the annual general meetings. Special notice has been received by the Group of the intention to propose his re-election at the Rio Tinto plc annual general meeting.
The beneficial interests of the directors and their families in shares and other securities of Group companies are shown on pages 66 and 67.
The table on page 61 shows the number of meetings of the board and its committees held during the 2003 financial year, as well as each director’s attendance at those meetings.
A statement on the directors’ independence is set out on page 70.
Dividends
Details of dividends are set out on page 74.
Share capital
There were no changes to the authorised share capital of Rio Tinto plc during the year. Details of the changes to the issued share capital of both Companies, the number of shares reserved for issue and the number of options outstanding at the year end, are given in note 24 to the Financial statements.
Since the year end, 689,976 Rio Tinto plc shares and 1,736 Rio Tinto Limited shares have been issued as a result of the exercise of employee options. As at 6 February 2004, there were 9,110,266 options outstanding over Rio Tinto plc ordinary shares and 5,976,777 options outstanding over Rio Tinto Limited shares in connection with employee share plans.
At the annual general meeting of Rio Tinto plc held in April 2003, the authorities for Rio Tinto plc to buy its own shares and for Rio Tinto Limited to buy shares in Rio Tinto plc were renewed and extended until October 2004. These authorities enable Rio Tinto plc to buy back up to ten per cent of its publicly held shares in any 12 month period. Under the Australian Corporations Act 2001, Rio Tinto Limited is currently permitted to buy back up to ten per cent of its shares on market in any 12 month period without seeking shareholder approval. However, at its annual general meeting held in May 2003 Rio Tinto Limited renewed shareholder approvals to buy back up to all the Rio Tinto Limited shares held by Tinto Holdings Australia Pty Limited (a wholly owned subsidiary of Rio Tinto plc) plus up to ten per cent of the publicly held share capital in any 12 month period on market. During 2003, neither Company purchased shares under the relevant authorities given to them.
Remuneration of directors and executives
A discussion of the Group’s policy for determining the nature and amount of remuneration of directors and senior
executives, and of the relationship between that policy and the Group’s performance appears in the Remuneration report on pages 62 to 69.
The Remuneration report includes details of the nature and amount of each element of the remuneration of each director and of the five executives of the Group receiving the highest remuneration.
Environmental regulation
Details of the Group’s environmental performance are set out on pages 55 and 56.
Indemnities and insurance
Under the Rio Tinto plc articles of association and the Rio Tinto Limited constitution, each Company is required to indemnify each officer of the respective Company and each officer of each wholly-owned subsidiary, to the extent permitted by law, against liability incurred in, or arising out of the conduct of the business of the company or the discharge of the duties of the officer.
During 2003, the Group paid premiums for directors’ and officers’ insurance. The policy indemnifies all directors and some Group employees against certain liabilities they may incur in carrying out their duties for the Group.
The directors have not included details of the nature and of the liabilities covered or the amount of the premium paid in respect of directors’ and officers’ insurance as, in accordance with commercial practice, such disclosure is prohibited under the policy.
Employment policies
Group companies, together with the Group’s share of joint ventures and associates, employed approximately 36,000 (2002: 37,000) people worldwide, with around 10,000 in Australia and New Zealand and 1,000 in the United Kingdom. Rio Tinto’s employment policy is set out in the statement of business practice,The way we work. Rio Tinto is committed to equality of opportunity and encourages each operating company to develop its own policies and practices to suit individual circumstances. Management development and succession planning are regularly reviewed.
Group companies employ disabled people and accept the need to maintain and develop careers for them. If an employee becomes disabled whilst in employment and, as a result, is unable to perform his or her duties, every effort is made to offer suitable alternative employment and to assist with retraining.
Rio Tinto respects the right of employees worldwide to choose for themselves whether or not they wish to be represented collectively.
Group companies recognise their obligations to comply with health and safety legislation and, through training and communication, encourage employee awareness of the need to create and secure a safe and healthy working environment. For further information about Group staff and health and safety initiatives, please see pages 55 and 56.
60 | Rio Tinto 2003 Annual report and financial statements94 |
Back to Contents Retirement payments and benefits to dependants are provided by Rio Tinto and its major subsidiaries in accordance with local conditions and practice in the countries concerned.
Policy regarding payment of trade creditors
It is the policy of both Companies to abide by terms of payment agreed with suppliers. In many cases, the terms of payment are as stated in the suppliers’ own literature. In other cases, the terms of payment are determined by specific written or oral agreement. Neither Company follows any published code or standard on payment practice.
At 31 December 2003, there were 20 days’ purchases outstanding in respect of Rio Tinto Limited costs and 15 days’ purchases outstanding in respect of Rio Tinto plc costs, based on the total invoiced by suppliers during the year.
Donations
Worldwide expenditure on community programmes by Rio Tinto managed businesses amounted to US$70 million (2002: US$48 million).
Donations in the UK during 2003 amounted to £3.6 million of which £0.4 million was for charitable purposes as defined by the Companies Act 1985 and £3.2 million for other community purposes. As in previous years, no donations were made in the EU or elsewhere during 2003 for political purposes as defined by the UK Companies Act 1985 as amended by the Political Parties, Elections and Referendums Act 2000.
Total community spending in Australia amounted to A$56.5 million. Again, no donations were made for political purposes.
Value of land
Group companies’ interests in land consist mainly of leases and other rights which permit the working of such land and the erection of buildings and equipment thereon for the purpose of extracting and treating minerals. Such land is mainly carried in the financial statements at cost. It is not practicable to estimate the market value since this depends on product prices over the next 20 years or longer, which will vary with market conditions.
Exploration, research and development
Companies within the Group carry out exploration, research and development necessary to support their activities. Grants are also made to universities and other institutions which undertake research on subjects relevant to the activities of Group companies. A description of some aspects of the work currently being undertaken and expenditure involved is provided in the Operational review. Cash expenditure during the year was US$130 million for exploration and evaluation and US$23 million for research and development.
Auditors
Following the conversion of the UK firm of PricewaterhouseCoopers to a Limited Liability Partnership (LLP) from 1 January 2003, PricewaterhouseCoopers resigned as auditor of Rio Tinto plc on 27 January 2003 and the directors appointed its successor, PricewaterhouseCoopers LLP, as auditor. A resolution to re-appoint PricewaterhouseCoopers LLP as auditor of Rio Tinto plc was passed at the 2003 annual general meetings of Rio Tinto plc and Rio Tinto Limited. The Australian arm of PricewaterhouseCoopers continued in office as auditor of Rio Tinto Limited.
PricewaterhouseCoopers LLP have indicated their willingness to continue in office as auditor of Rio Tinto plc. A resolution to re-appoint PricewaterhouseCoopers LLP as auditor of Rio Tinto plc will be proposed at the 2004 annual general meetings. PricewaterhouseCoopers will continue in office as auditor of Rio Tinto Limited.
Annual general meetings
The notices of the 2004 annual general meetings are set out in separate letters to shareholders of each Company. At the Rio Tinto plc annual general meeting these include a resolution for the renewal of the authority for Rio Tinto plc and Rio Tinto Limited to purchase Rio Tinto plc shares and for the approval of the Mining Companies Comparative Plan and the Share Option Plan. At the Rio Tinto Limited annual general meeting resolutions include the renewal of the authorities for Rio Tinto Limited to buy back its shares, the approval of the Mining Companies Comparative Plan and the Share Option Plan, and the approval of share awards and share option grants to certain executive directors.
Income and Corporation Taxes Act 1988
The close company provisions of the UK Income and Corporation Taxes Act 1988 do not apply to Rio Tinto plc.
The Directors’Remuneration report is made in accordance with a resolution of the board.
Introduction This report forms part of theDirectors’ reportand covers the following information: | Paul Skinner• | Leigh Clifforda description of theRemuneration committeeand its duties; | Chairman
20 February 2004• | Chief executive
20 February 2004a description of the policy on directors’, product group chief executives’ and company secretaries’ remuneration; | • | a summary of the terms of executive directors’ and product group chief executives’ contracts and non executivedirectors’ letters of appointment; | • | details of each director’s and product group chief executive’s remuneration and awards under long term incentiveplans and the link to corporate performance; | • | details of directors’ and product group chief executives’ interests in Rio Tinto shares; and | • | graphs illustrating Group performance, including relative to the HSBC Global Mining Companies’ Index. |
| Guy ElliottRemuneration committee
| The following independent, non executive directors were members of theRemuneration committeeduring 2006: | Finance director
20 February 2004• | |
Directors’ attendance at board and committee meetings during 2003
| Board | | Audit committee | | Remuneration committee | | Committee on social | | Nominations committee | | | | | | | | | and environmental | | | | | | | | | | | accountability | | | | | A | | B | | A | | B | | A | | B | | A | | B | | A | | B | |
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| | Robert Adams | 8 | | 8 | | | | | | | | | | | | | | | | | | Sir David Clementi1 | 7 | | 4 | | 6 | | 5 | | 4 | | 3 | | | | | | | | | | Leigh Clifford | 8 | | 8 | | | | | | | | | | | | | | | | | | Leon Davis | 8 | | 8 | | | | | | | | | | 3 | | 3 | | | | | | Guy Elliott | 8 | | 8 | | | | | | | | | | | | | | | | | | Sir Richard Giordano | 8 | | 7 | | 8 | | 8 | | | | | | 3 | | 3 | | 2 | | 2 | | Andrew Gould | 8 | | 7 | | 8 | | 6 | | 5 | | 5 | | | | | | | | | | Oscar Groeneveld | 8 | | 8 | | | | | | | | | | | | | | | | | | Sir John Kerr2 | 1 | | – | | | | | | | | | | | | | | | | | | Jonathan Leslie3 | 2 | | 2 | | | | | | | | | | | | | | | | | | David Mayhew | 8 | | 8 | | 8 | | 8 | | | | | | | | | | 2 | | 2 | | John Morschel | 8 | | 6 | | | | | | 5 | | 5 | | 3 | | 3 | | 2 | | 2 | | The Hon. Raymond Seitz4 | 4 | | 3 | | | | | | | | | | 1 | | – | | | | | | Paul Skinner | 8 | | 8 | | 7 | | 7 | | | | | | 3 | | 3 | | 2 | | 2 | | Sir Richard Sykes | 8 | | 7 | | | | | | 5 | | 5 | | | | | | | | | | Lord Tugendhat | 8 | | 8 | | 8 | | 8 | | | | | | 3 | | 3 | | | | | | Sir Robert Wilson5 | 7 | | 7 | | | | | | | | | | | | | | 1 | | 1 | |
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A = | Maximum number of meetings the director could have attendedSir Richard Sykes (chairman) | B = | Number of meetings attended | 1• | Sir David Clementi was appointed on 28 January 2003 | 2• | Sir John Kerr was appointed on 14 October 2003Michael Fitzpatrick | 3• | Jonathan Leslie resigned on 31 March 2003Richard Goodmanson | 4• | The Hon. Raymond Seitz retired on 1 May 2003Andrew Gould |
| 5 | Sir Robert Wilson retired on 31 October 2003 |
Rio Tinto 2003 Annual report and financial statements | 61 |
Back to Contents
Remuneration report
Remuneration committee
The Remuneration committeeis appointed by the board and all its members are independent. They are Sir Richard Sykes (chairman), Sir David Clementi, Andrew Gould and John Morschel. The committee met fivefour times during 2003. Members’2006 and members’ attendance is set out on page 61.123. The committee’s responsibilities are set out in its Terms of Reference, which can be viewed on Rio Tinto’s website. They include: | • | recommending remuneration policy relating to executive directors and product group chiefthe executives to the board; | • | reviewing and determining the remuneration of executive directors,the product group chief executives and the company secretary of RioofRio Tinto plc; and | • | reviewing and agreeing management’s strategy for remuneration and conditions of employment for senior managers.managersother than the executives; | • | monitoring the effectiveness and appropriateness of general executive remuneration policy and practice; and | • | reviewing the chairman’s fees. |
The committee may invite non committee members to attendJeffery Kortum, global practice leader, Remuneration, attends the committee’s meetings in an advisory capacity as appropriate. Executives are not present at meetings when their own remuneration is discussed.
During 2003,capacity. The chairman, Paul Skinner, the present chairman, attended three meetings of the committee as an observer and adviser. The then chairman of the Group, Sir Robert Wilson, the chief executive, Leigh Clifford and Tom Albanese, the Group adviser,chief executive designate, also participated in meetings at the invitation of the committee, but were not present when issues relating to their own remuneration Jeffery Kortum also attended meetings in an advisory capacity.were discussed. Anette Lawless, the company secretary of Rio Tinto plc, acts as secretary to the committee.committee, but was not present when issues relating to her remuneration were discussed.
TheIn 2004, the committee obtained advice fromappointed Kepler Associates, an independent remuneration consultancy, withto provide advice on executive remuneration matters. Apart from providing specialist remuneration advice, Kepler Associates has no other links to the Group.
TheTo carry out its duties in accordance with its Terms of Reference, the committee monitors global remunerationtrends and developments in order to fulfil the functions set out in its terms of reference and draws on a range of external sources of data, in addition to that supplied by Kepler Associates, including publications by remuneration consultants Towers Perrin, Hewitt Associates, Hay Group, Mercer and Watson Wyatt and Monks Partnership.
The Group’s Remuneration report for 2002 was approved by shareholders at the 2003 annual general meetings.
Towards the end of 2002, the committee decided that it would undertake a detailed review of the design of the Group’s executive remuneration programme during 2003 to ensure it complies with contemporary best practice. Consequently, shareholders will be asked to consider and approve new share based incentive plans at the 2004 annual general meetings.Wyatt.
Corporate governance
At its meeting in December 2003, theThe committee reviewed its termsTerms of referenceReference in the light of the publication in the UK of the new Combined Code (the new Code)2006 and the ASX Best Practice Corporate Governance Guidelines. Although the new Code was not in force during 2003, the committee nevertheless concluded that, in the course of its business, it had coveredthe main duties as set out in the Higgs guidance,Combined Code on Corporate Governance, published by the UK Financial Reporting Council (the Code), and Principle 9 of the Australian Securities Exchange (ASX) Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations (the ASX Principles), and was constituted in accordance with the requirements of the new Code. Both Companies comply withCode and the remuneration guidelines in Principle 9ASX Principles. The board considered the performance of the ASX Best Practice Corporate Governance Guidelines.committee and confirmed that the committee had satisfactorilyperformed the duties set out in its Terms of Reference. The 2006Remuneration reportwas approved by shareholders at the 2007 annual general meetings.
Executive remuneration Rio Tinto is subject to a number of different reporting requirements for the contents of theRemuneration report. TheAustralian Corporations Act requires certain disclosures in respect of the five highest paid executives below board level, and Australian and International accounting standards (AASB 124 and IAS 24 respectively) both require additionaldisclosures for “key management personnel”. The board has considered the definition of “key management personnel” and has decided that, in addition to the executive and non executive directors, they comprise the six product group chief executives. In 2006, the five highest paid executives below board level in respect of whom disclosures are required are all product group chief executives. Throughout this report, the executive directors and the product group chief executives will collectively be referred to as the executives. Rio Tinto 2006Form 20-F | 95 |
Back to Contents Board policy Rio Tinto operates in global, as well as local markets, where it competes for a limited resource of talented executives. Itrecognises that to achieve its business objectives, the Group needs high quality, committed people. Rio Tinto has therefore designed an executive remuneration policy to support its business goals by enabling it to attract, retain and appropriately reward executives of the calibre necessary to pro duce very high levels of performance. This policy is regularly reviewed to take account of changing market, industry and economic circumstances, as well as developing Group requirements. Remuneration policy
Achieving | The main principles of the Group’s business objectives is to a large extent dependent on the quality, application and commitment of its people.
Rio Tinto competes for a limited resource of talented, internationally mobile managers. The Group’s executive remuneration policy is therefore designed to support its business goals by enabling it to attract, retain and appropriately reward executives of the calibre necessary to consistently achieve very high levels of performance.
Specifically, Rio Tinto’s executive remuneration policy is based upon the following principles:are: | • | to provide total remuneration which is competitive in structure and quantum with comparator company practicecompanies’practices in the regions and markets within which the Group operates; | • | to achieve clear alignment between total remuneration and delivered business and personal and business performance, includingwithparticular emphasis on shareholder value creation;creation and performance in the health, safety and environmental areas; | • | to tielink variable elements of remuneration to the achievement of challenging performance criteria that are consistentareconsistent with the best interests of the Group and shareholders over the short, medium and long term; | • | to provide an appropriate balance of fixed and variable remuneration; and | • | to provide appropriate relativities between executives globally andwithin Rio Tinto, in order to support executive placements toplacementsto meet the needs of the Group.
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| TheRemuneration committeemonitors the effectiveness and appropriateness of executive remuneration policy and practice.
During the past year, the committee, assisted by Kepler Associates, reviewed the executive incentive plans to ensure that they: | • | reflect best practice while meeting Rio Tinto’s business needs; | • | further strengthen the alignment between executive remuneration and delivery of value to shareholders; and | • | continue to enable the Group to attract, motivate and retain key talent. |
Following this review it is proposed that new plans be introduced in 2004. They are outlined on pages 63 and 64 of this report as well as in the notices of the 2004 annual general meetings.
The new plans will maintain the expected value of the total remuneration for executive directors and product group chief executives at approximately their current levels.
Executive directors’ remuneration
Total remuneration for Rio Tinto executive directors and product group chief executives comprises: | • | base salary | • | short term incentive plan (STIP) | • | long term incentives | | – | share option plan (SOP) | | – | performance shares (MCCP) | | – | other share plans | • | Pension/superannuation | • | Other benefits. |
The short term and long term incentive plans are variable componentscomposition of total remuneration packages for management, including the remuneration of the total remuneration package as they are tied to achievement of specific measures of personal and/or business performance and are therefore at risk. The other components of the package are referred to as “fixed” as they are not at risk, although some, eg base salary, are also related to performance.
The composition of the total remuneration packagecompany secretaries, is designed to provide an appropriate balance between the fixed and variable components,components. This is in line with Rio Tinto’s policystated objective of aligning total remuneration with delivered personal and business performance.
Excluding allowances and pension or superannuation arrangements, Details of the proportion of total directexecutives’ remuneration provided by way of variablecomposition are set out in Table 1 on pages 107 to 108. The Group’s return to shareholders over the last five years is set out in the table on page 101. Remuneration components (annual short term incentive, SOP and MCCP), assuming target levels of performance, is currently approximately 68 per cent for the chief executive and 62 per cent for the other executive directors. Base salary
Base salarysalaries for executive directors and product group chief executives is set at a level consistent with market practice for companies with a similar geographical spread and complexity of businesses. Base salaries are reviewed annually by theRemuneration committee,and adjusted as necessary, taking in to account of the nature of the individual executive’s role, external market trends and business and personal performance. TheRemuneration committeeuses a range of international companies of a similar size, global reach and complexity to make this comparison. Executive remuneration is explicitly related to business performance.performance through the following long and short termarrangements: Short term incentive plan (STIP)
| STIP providesis a cash bonus opportunity for participants and isplan, designed to support overall remuneration policy by: | • | focusing participants on achieving calendar year performance goals which contribute to sustainable shareholder value,shareholdervalue; and | • | providing significant bonus differential based on delivered performance against challenging personal, business, and other targets,othertargets, including safety. |
PerformanceTheRemuneration committeereviews and approves performance targets and objectives for executive directorsex ecutives annually. Executive directors’ STIP payments are linked to three performance criteria: Group financial performance, Group safety performance and personal performance. Product group chief executives’ STIP payments are linked to Group and product group financial performance, product group safety performance and personal performance. Group and product group chief executives are approved by thefinancial performance is partly measured on an actual underlying earnings basis and partly on a basis normalised for fluctuations of market prices and exchange rates.
Remuneration committee. The target level of bonus for these participantsexecutives for 20042007 is 60 per cent of salary, (thethe same as 2003), with bonus potential capped at2006. Executives may receive up to twice their target (ie up to 120 per cent of salary.salary) for exceptional performance against all criteria. Details relating to STIP awards for 2006 are on page 104.
Long term incentives Shareholders approved two long term incentives for senior employees including executives at the annual generalmeetings in 2004, the Share Option Plan and the Mining Companies Comparative Plan. These are intended to provide theRemuneration committeewith a means of linking management’s rewards toGroup performance. Total shareholder return (TSR) was, at the time of the introduction of these plans, considered the most appropriate measure of a company’s performance for the purpose of share based long term incentives and a TSR performance measure was therefore applied to both plans. The formatcommittee intends to review the incentive structure and performance criteria over the next 12 months to ensure continued relevance and effectiveness.
62Rio Tinto 2006Form 20-F | Rio Tinto 2003Annual report and financial statements96 |
Back to Contents Share Option Plan (SOP) Each year, theRemuneration committeeconsiders whether a grant of options should be made under the SOP, and if so,at what level. In arriving at a decision, the committee takes into consideration the personal performance of each executive as well as local remuneration practice. The maximum grant under the SOP is three times salary, based on the average share price over the previous financial year. Under the SOP, options are granted to purchase shares at a weighted average market price using the closing share price for the STIP award calculation for 2004five days preceeding the grant. No options are granted at a discount and future yearsno amount is paid or payable by the recipient upon grant of the options. Grants made to executives are set out in Table 5 on pages 116 to 121. No options will become exercisable unless the Group has been varied from that applying previously to provide greatermet stretching performance related variation aboveconditions. In addition,before approving any vesting and below target. The award cap was previously 100 per centregardless of salary. Awards above this level are expected to be rare and will only be achieved with outstanding performance against all personal and businessthe respective performance criteria.
Awards in respect of 2003, payable in 2004, are included as annual bonus in Tables 1 and 6 on page 65 and 69. Long term incentives
As indicated elsewhere in this report,conditions, theRemuneration committeereviewedretains discretion to satisfy itself that the Rio Tinto long term incentive plans during 2003 andTSR performance is a genuine reflection ofunderlying financial performance. Under the plans outlined below are proposed for introduction in 2004.
The proposed plans aim to enhance the alignment of the interests of the executive directors and other senior executives with those of the shareholders, by linking rewards to Group performance. The proposed plans will maintain the expected value of total remuneration for executive directors and product group chief executives at approximately their current levels.
A key feature of the proposals for Rio Tinto’s long term incentive plan, arrangements for 2004 and beyond involves a change in the relative proportions in which share options and performance shares are provided. Performance shares will become the primary long term incentive vehicle whereas previously, the executive remuneration package has been heavily biased towards share options.
Share Option Plan (SOP)
An annual grant of options to purchase shares in the future at current market pricesvesting is made to executive directors and eligible senior executives. The committee decides the level of grants each year, taking into consideration local market practice and personal performance.
The exercise of options is conditional on the Group meeting stretching performance conditions set by the committee. For grants made prior to 2004: | • | Two thirds of options vest when the Group’s adjusted earnings per share (EPS) growth for a three year performance period is at least nine percentage points higher than US inflation over the same period, as measured by the US Consumer Price Index. | • | The balance of the grant vests when growth of at least 12 percentage points above US inflation has been achieved. | • | Rio Tinto performance is tested against the performance condition after three years. | • | There is an annual retest on a three year rolling basis until options fully vest or lapse at the end of the option period. |
The choice of the US Consumer Price Index as a measure of performance was consistent with the presentation of financial data in US dollars and reflected the importance of the US economy to the Group.
Subject to shareholder approval at the 2004 annual general meetings, vesting of options granted under the new SOP in 2004 and in subsequent years will be subject to Rio Tinto’s three year Total Shareholder Return (“TSR”)TSR equalling or outperforming the HSBC Global Mining Index. IfIndexover a three-year performance period. The HSBC Global Mining Index covers the mining industry in 26 countries. Rio Tinto’s three yearTSR is calculated as a weighted average of the TSR of Rio Tinto plc and Rio Tinto Limited. If TSR performance equals the index, then the higher of one third of the original grant or 20,000 options will vest (subject to the actual grant level not being exceeded). The full grant vests if Rio Tinto’s three yearthe TSR performance is equal to or greater than the HSBC Global Mining Index plus five per cent per annum. Vesting is basedHistorically, TSR performance at this level has been equivalent to the upper quartile of companies in the index. Between these points, options vest on a sliding scale, between these points and there is zero vestingwith no options becoming exercisable for a three year TSR performance less thanbelow the index.
The committee proposes changing from the EPS performance measure that applied previously, to the new relative TSR condition as it considers that relative TSR provides better alignment with shareholder interests and reflects Rio Tinto’s performance relative to comparator companies across the resources sector.
The committee also proposes to reduce the number of retests availableOptions granted under the SOP from seven rolling retests2004 plan before 31 December 2006 will be subject to a single fixed base retestre-test five years after grant. Althoughgrant if they have not vested after the committee understands the preference of investors to eliminate retesting altogether, the committee feels it is important to maintain a single retest at this time. Due to the cyclical nature of our industry and our focus on long term decision making, the committee believes a fiveinitial three year retest will help extend participants’ time horizons and strengthen retention. Additionally, we operate in a sector where the reliance of certain competitors on a single commodity means that price swings can have effects on relative TSR unrelated to management performance. However, the committee acknowledges the changing practice regarding retesting and has determined thatperformance period, with options granted after31 December 2006 will not be subject to retest andany re-test. These latter options will, therefore, lapse if they do not vest at the conclusion of the three year performance period.
Prior to any options being released to participants for exercise, the Group’s performance against the criteriarelevant to the SOP is examined and verified by the external auditors. If Rio Tinto were subject to a change of control or a company restructuring, options would become exercisable subject to the satisfaction of the performance condition measured at the time of the takeover or restructure.
Where an option holder dies in service, qualifying options vest immediately, regardless of whether the performance conditions have been satisfied. The estate will have 12 months in which to exercise the options. All SOP grants made prior to 2004 under the rules approved by shareholders in 1998 have now vested in full.The SOP grant made in 2004 was due for testing against the performance condition in 2007. The performance condition was not achieved and these options have therefore not vested. SOP options may, upon exercise, be satisfied by treasury shares, the issue of new shares or the purchase of shareson market.
Remuneration committeeMining Companies Comparative Plan (MCCP)
retains discretion in satisfying itself thatRio Tinto’s performance share plan, the TSR performance isMCCP, provides participants with a genuine reflection of underlying financial performance. conditional right to receive shares. The maximum grant sizeconditional award under the SOP will be reduced from fivecurrent MCCP is two times salary, to three times salary for 2004 and future years, calculated asusing the average share price overthe previous financial year.
Share options granted Awards made to executive directors and product group chief executives are includedset out in Table 54 on page 68.
Mining Companies Comparative Plan (MCCP)pages 112 to 115.
Under this plan, a The conditional right to receive shares is granted annually to participants. These conditional awards will only vest if performance conditions approved by the committee are satisfied. AwardsAgain, were there to be a change of control or a company restructuring, the awards would only vest subject to the satisfaction of the performance condition measured at the time of the takeover or restructuring. Additionally, if a performance period is deemed to end during the first 12 months after the conditional award is made, that award will be reduced pro-rata. These conditional awards are not pensionable. The performance condition compares Rio Tinto’s Total Shareholder Return (“TSR”)TSR with the TSR of a comparator group of 15 other international mining companies over the same four year period. Rio Tinto’s TSR is calculated as a weighted average of the TSR of Rio Tinto plc and Rio Tinto Limited (previously of Rio Tinto plc alone). The composition of this comparator group is reviewed regularly by the committee to provide continued relevance in a consolidating industry. The current members of this group relevant to the 2006 conditional award are listed at the bottom of the ranking table below. The committee continues to regard TSR as the most appropriate measure of a company’s performancecomparator group for the purpose of share based long term incentive plans.
The maximum2007 conditional award size under the MCCP will be increased from 70 per cent of salarydetermined by theRemuneration committeeprior to two times salary for 2004 and future years calculated onapproving the average Share price over the previous financial year. This increase is balanced by the reduction in SOP maximum grant size referred to above.award.
The following table shows the percentage of each conditional award which will be received by directors and product group chief executives based on Rio TintoTinto’s four year TSR performance relative to the comparator group (for grantsfor conditional awards made after 1 January 2004).2004:
Ranking in comparator group |
| | | | | | | | | | | | | | | | 1st-2nd | | 3rd | | 4th | | 5th | | 6th | | 7th | | 8th | | 9th-16th |
| % | 150 | | 125 | | 100 | | 83.75 | | 67.5 | | 51.25 | | 35 | | 0 |
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Rio Tinto 2006Form 20-F | 97 |
Back to Contents Ranking in comparator group | | | | | | | | | | | | | | | | | Percentage vesting: | | | | | | | | | | | | | | | | | | 1st-2nd | | 3rd | | 4th | | 5th | | 6th | | 7th | | 8th | | 9th-16th | |
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| | % | 150 | | 125 | | 100 | | 83.75 | | 67.5 | | 51.25 | | 35 | | — | |
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The historical ranking of Rio Tinto in relation to the comparator group is shown in the following table: Ranking of Rio Tinto versus
comparator companies
Ranking of Rio Tinto versus comparator companies | | | Period | Ranking out of 16 | |
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| 1992-96 | 8th | 1993-971993 - 97 | 4th4 | | 1994-981994 - 98 | 4th4 | | 1995-991995 - 99 | 2nd2 | | 1996-001996 - 00 | 2nd2 | | 1997-011997 - 01 | 2nd2 | | 1998-021998 - 02 | 3rd3 | | 1999-031999 - 03 | 7th7 | | 2000 - 04 | 11 | | 2001 - 05 | 10 | | 2002 - 06 | 10 | |
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Note | Current comparator companies: Comparator companies for the 2006 Conditional Award were: | Alcan, Alcoa, Anglo American, Barrick Gold, BHP Billiton, Freeport,Cameco Corporation, Cia Vale do Rio Doce, Freeport-McMoRan Copper & G old, Grupo Mexico, INCO, MIM, Newmont, Noranda,Peabody, Phelps Dodge, Placer Dome, Teck Cominco and Xstrata | |
Rio Tinto 2003Annual report and financial statements | 63 |
Back to Contents
Remuneration report continued
Going forward, following the acquisition of MIM Holdings Limited by Xstrata Limited, MIM Holdings Limited will be replaced by WMC Resources Limited.
Prior toBefore awards beingare released to participants, the external auditors and Kepler Associates independently review the Group’s TSR performance relativecompared to that of the comparator companies is reviewed by the external auditors. Thecompanies.
Remuneration committeeretains discretion to satisfy itself that the TSR performance is a genuine reflection of underlying financial performance. Awards will beare released to participants in the form ofas either Rio Tinto plc or Rio Tinto Limited shares or as an equivalentamount in cash, as appropriate.cash. In addition, for MCCP Conditional Awards made after 1 January 2004, a cash payment will be made to participants equivalent to the dividends that would have accrued on thatthe vested number of shares over the four year period. Such sharesperiod will be made to executives. Shares to satisfy the vesting may be acquired by purchasetreasury shares, shares purchased in the market, by subscription, or, in thecase of Rio Tinto Limited, transfers of existing shares.
New restricted share plan TheRemuneration committeehas approved a restricted share plan for senior employees below director and product group chief executive level. The new plan is designed to support the Group’s ability to attract and retain key staff in anincreasingly tight and competitive labour market. Under the new plan, eligible employees may receive a conditional award of shares which will vest, wholly or partly, when performance conditions laid down by procuring that Tinto Holdings Australia Pty Limited transfers existing sharestheRemuneration committeeat the time of the award have been satisfied. Shares to participants. Other share plans
UK executive directors may participate in: | • | the Rio Tinto plc Share Savings Plan, an Inland Revenue approved savings related plan which is open to all employees and under which employees may buy shares on potentially favourable terms; and | • | the Rio Tinto Share Ownership Plan, an Inland Revenue approved share incentive plan which was approved by shareholders at the 2001 annual general meeting and introduced in 2002. Under this plan, eligible employees may save up to £125 per month which the plan administrator invests in Rio Tinto plc shares. Rio Tinto matches these purchases on a one for one basis. In addition, eligible employees may receive an annual award of Rio Tinto plc shares up to a maximum of five per cent of salary, subject to a cap of £3,000. |
Australian executive directors may participatesatisfy these awards will be purchased in the Rio Tinto Limited Share Savings Plan introduced in 2001, which is similarmarket. No directors are eligible to the Rio Tinto plc Share Savings Plan.participate and no new shares will be issued to satisfy awards under this plan.
PensionPost employment benefits Under current pension arrangements, executives in the UK can take their pension benefits unreduced for early payment from the age of 60. Executives with Australian employment contracts would normally be expected to retire at age 62. In2004, Leigh Clifford’s contractual retirement age was reduced from 62 to 60, with a corresponding change to his retirement arrangements.
United Kingdom Guy Elliott and superannuation arrangements
UK executive directors are, like all UK staff, eligible toTom Albanese participate in the non contributory Rio Tinto Pension Fund, a funded Inlandoccupationalpension scheme approved by HM Revenue approved, final salary occupational pension scheme. and Customs. The Fund provides a pension from normal retirement age at 60both defined benefit and defined contribution benefits. In April 2005, the defined benefit section of two thirds final pensionable salary, subjectthe Fund was closed to completionnew participants. Members of 20 years’ service. Spouse and dependants’ pensions are also provided.
Proportionally lower benefits are payable for shorter service. Members retiringthe defined benefit section of the Fund who retire early may draw a pension reduced by approximately four per cent a year for each year of early paymentpayment. Spouse and dependants’ pensions are also provided.Pensions paid from age 50 onwards.
Under the rules of the Rio Tinto Pension Fund, all pensionsthis section are guaranteed to increase annually in line with increases in the UK Retail Price Index subject to a maximum of ten per cent per annum. Increases above this level are discretionary.
When During 2006, there was no requirement for Company cash contributions to be paid into the Rio Tinto PensionFund. Rio Tinto reviewed its pension policy in the light of the legislation changes introduced from April 2006. The Rio Tinto Pension Fund was amended to incorporate a fund specific limit equivalent to the earnings cap for all memberspreviously affected; unfunded benefits continue to be provided, where already promised, on pensionable salary above the fund specific limit. Guy Elliott is limitedaccruing a pension of 2.3 per cent of basic salary for each year of service with the Company to age60. Proportionally lower benefits are payable on leaving service or retirement prior to the age of 60. The unfunded arrangements described above will be utilised to deliver this promise to the extent not provided by the UK Inland Revenue earnings ‘cap’, benefits are provided from unfunded supplementary arrangements.Fund.
Cash contributions were not paid in 2003 as Rio Tinto plc exercised discretion to allow Tom Albanese to join the Rio Tinto Pension Fund remained fully funded.as a member of the
In June 2003, the Government announced that the implementation Rio Tinto 2006Form 20-F | 98 |
Back to Contents defined benefit section on 1 July 2006 in recognition of his participation in one of the proposals in the Green Paper “Simplicity, Security and Choice: working and saving for retirement” was delayed until April 2005. The review ofUS defined benefit pension arrangements offered by Rio Tinto plc’s UKprior to that date. He is accruing a pension arrangements envisaged in last year’s report has therefore been correspondingly delayedof two thirds of basic salary payable at the normal retirement age of 60, subject to 2004completion of 20 years’ service with the Group, inclusive of benefits accrued under the US pension arrangements. Proportionally lower benefits are payable for shorter serv ice or, if having attained 20 years’ service, retirement is taken prior to take accountthe age of changes in60. His benefits under the Government’s proposals and timetable.
Australian executive directorsRio Tinto Pension Fund are eligible for membershiprestricted to the fund specific limit, with the balance provided through unfunded arrangements. Australia Leigh Clifford is a member of the Rio Tinto Staff Superannuation Fund, a funded superannuation fund regulated byAustralian legislation, thatlegislation. The fund provides both defined benefit and defined contribution benefits. In 2003, cash contributions were paid into the Rio Tinto Staff Superannuation Fund to fund members’Leigh Clifford is a defined benefit and defined contribution benefits. The Australian executive directors are not required to pay contributions. They are defined benefit members,member, accruing lump sums payable on retirement after age 57 of 20 per cent of final basic salary for each year of service. retirement. Retirement benefits are limited to a lump sum multiple of up to seven times final basic salary at age 62.62, although, as stated above, Leigh Clifford will retire at age 60. For retirement after 62, the benefit increases to up to 7.6 times average salary at age 65. In January 2004, Leigh Clifford’s contractual retirement age was reduced from 62 to 60. A corresponding change has been made to his retirement arrangements. Death in service and disablement benefits are provided as lump sums and are equal to the prospective age 65 retirement benefit. Proportionate benefits are also payable on termination of employment for ill health or resignation. Executives are not required to pay contributions. During 2006, Company cash contributions were paid into the Rio Tinto Staff Superannuation Fund to fund members’ defined benefit and defined contribution benefits. Other pensionable benefits The percentage of total remuneration which is dependent on performance is substantial. For Australian participants
Annualannual STIP awards under the STIP are pensionable up to a maximum value of 20 per cent of basic salary. The percentageThis results in a defined contribution payment equivalent to 20 per cent of total remuneration whichthe pensionable component of STIP and does not impact the defined benefit component. For the UK executive directors basic pay only is dependent on performance is substantial and has risen over recent years. In view of this, the committee considers it appropriate that a proportion of such pay should be pensionable.
Details of directors’ pension and superannuation entitlements are set out in Table 2 on page 66.110. Performance and non performance related remuneration Total remuneration is a combination of fixed and performance related elements, each of which is described in this report. In addition, some executives have specific arrangements for remuneration outside these core elements. Theyinclude expatriate/secondment packages, which may include items such as housing benefit, assistance with incremental school fees and tax equalisation. Other benefitscompensation includes medical insurance, the provision of a company car and fuel, or an allowance in lieu, 401k contributions in the USA, annual leave accruals and professional advice. The total remuneration for executives shown in Table 1 includes these non performance related items, which are specific to the circumstances of each executive.
Other remuneration items include health benefits The performance related, or variable, elements are the short and a car allowance. Housinglong term incentive plans, which are linked toachievement of business and children’s education assistancepersonal performance goals and are, therefore, “at risk”. The rest of the elements of the package are “fixed”, as they are not at risk, although some, such as base salary, are also related to performance. Excluding post employment costs and expatriate secondment costs, employment costs and other benefits, the proportion of total direct remuneration provided by way of variable components, assuming target levels of performance, is approximately 68 per cent for the chief executive, 62 per cent for the finance director and between 62 per cent and 68 per cent for the product group chief executives. Variable components comprise the Short Term Incentive Plan, the Share Option Plan and the Mining Companies Comparative Plan (STIP, SOP and MCCP). The actual proportion of total direct remuneration provided by way of variable components is set out in Table 1 on pages 107 to 109 and may differ fromthese target percentages depending on Company and personal performance. Share based remuneration not dependent on performance Executives may participate in share and share option plans that apply to all employees at particular locations and for which neither grant nor vesting is subject to the satisfaction of a performance condition. These plans are consistent with standard remuneration practice whereby employees are offered share and option plan participation as part of their employment entitlements in order to encourage alignment with the long term performance of the Company. Executives employed in the Rio Tinto plc part of the Group may participate in the Rio Tinto plc Share Savings Plan, a savings-related plan which is open to employees in the UK and elsewhere. Under the plan, participants can save up to £250 per month, or equivalent in local currency, for a maximum of five years. At the end of the savings period participants may exercise an option over shares granted at a discount of up to 20 per cent to the market value at the time of the grant. The number of options to which participants are entitled is determined by the option price, the savings amount and the length of the savings contract. No consideration is paid or payable by the participant on receipt of the options. The UK section of this plan is Inland Revenue approved. Eligible UK employees, including some of the executives, may also participate in the Rio Tinto Share Ownership Plan, an Inland Revenue approved share incentive plan which was approved by shareholders at the 2001 annual general meeting and introduced in 2002. Under this plan, participating employees can save up to £125 per month, which the plan administrator invests in Rio Tinto plc shares. Rio Tinto matches these purchases on a one-for-one basis. In addition, eligible employees may receive an annual award of Rio Tinto shares up to a maximum of five per cent of salary, subject to a cap of £3,000. Executives employed in the Rio Tinto Limited part of the Group may elect to participate in the Rio Tinto LimitedShare Savings Plan, also introduced in 2001, which is similar to the Rio Tinto plc Share Savings Plan. Rio Tinto 2006 Form 20-F | 99 |
Back to Contents Service contracts Each of the executives has a service contract with a Group company. It is the Group’s policy that executives’ service contracts have no fixed term but are capable of terminationgiving no less than 12 months’ notice. Notice periods for executives are as follows: Notice periods | | | | | | | | | | | | Remaining | | | | | | | service period | | | Date of | | Notice | | if less than | | Name | Agreement | | period | | 12 months | |
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| | Executive directors | | | | | | | Leigh Clifford | 30 Mar 2005 | | 12 months | | 7 months | | Guy Elliott | 19 Jun 2002 | | 12 months | | N/A | | Tom Albanese | 10 Apr 2006 | | 12 months | | N/A | | Product group chief executives | | | | | | | Preston Chiaro | 30 Sep 2003 | | 12 months | | N/A | | Oscar Groeneveld | 1 Oct 2004 | | 12 months | | N/A | | Bret Clayton | 1 Jun 2006 | | 12 months | | N/A | | Keith Johnson | 12 Mar 2004 | | 12 months | | N/A | | Andrew Mackenzie | 4 May 2004 | | 12 months | | N/A | | Sam Walsh | 3 Aug 2004 | | 12 months | | N/A | |
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Termination payments Rio Tinto has retained the right to pay executives in lieu of notice. Given the wide variety of possible circumstancesleading to early termination, the executives’ service contracts do not provide explicitly for compensation, but in the event of early termination, it is the Group’s policy to act fairly in all circumstances and the duty to mitigate would be taken into account. Compensation would not provide unmerited reward for poor performance. There were no termination payments made in 2006. Shareholding policy In 2002, the committee decided that it would be appropriate to encourage executives to build up a substantialshareholding, aiming to reach a holding equal in value to two times base salary over five years. Details of executives’ share interests in the Group are set out in Table 3 on page 111. In 2006, the board recommended that non executive directors be encouraged to build up a shareholding equal invalue to one year’s base fees. To help facilitate this, the Companies have put in place share purchase plans under which non executive directors can elect to invest a proportion of their fees net of tax on a regular basis. Remuneration paid in 2006 Performance of Rio Tinto, product groups and individual executives 2006 was another year of strong operational performance and was the third successive year of record results for the Group. To illustrate the performance of the Companies relative to their markets, graphs showing the performance of Rio Tinto plc in terms of TSR over the last five years, compared to the FTSE 100 Index and Rio Tinto Limited compared to the ASX All Ordinaries Index are reproduced below. A graph showing Rio Tinto’s performance relative to the HSBCGlobal Mining Index is also included to illustrate the performance of Rio Tinto relative to other mining companies. TSR (£) – Rio Tinto plc v FTSE 100 Total return basis Index 2001 = 100 Rio Tinto 2006 Form 20-F | 100 |
Back to Contents TSR (A$) – Rio Tinto Limited v ASX All Share Total return basis Index 2001 = 100 TSR (US$) – Rio Tinto Group v HSBC Global Mining Index Total return basis Index 2001 = 100 The effect of this performance on shareholder wealth, as measured by TSR, is detailed in the table below and the relationship between TSR and executive remuneration is discussed in the Executive remuneration and Remuneration components sections above. Rio Tinto shareholder return 2002-2006 | | | | | | | | | | | | | | | | | Dividends per share | | Share price – | | Share price – | | Total shareholder return | | Year | paid during the year | | Rio Tinto plc | | Rio Tinto Limited | | (TSR) | |
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| | | | | 1 Jan | | 31 Dec | | 1 Jan | | 31 Dec | | plc | | Limited | | Combined | | | US cents | | pence | | pence | | A$ | | A$ | | % | | % | | % | |
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| | 2006 | 191.5 | | 2,655 | | 2,718 | | 69.00 | | 74.30 | | 6.3 | | 12.2 | | 7.6 | | 2005 | 83.5 | | 1,533 | | 2,655 | | 39.12 | | 69.00 | | 77.5 | | 81.3 | | 78.4 | | 2004 | 66.0 | | 1,543 | | 1,533 | | 37.54 | | 39.12 | | 1.7 | | 7.4 | | 3.0 | | 2003 | 60.5 | | 1,240 | | 1,543 | | 33.95 | | 37.54 | | 27.9 | | 14.7 | | 24.8 | | 2002 | 68.5 | | 1,316 | | 1,240 | | 37.21 | | 33.95 | | (2.3 | ) | (5.4 | ) | (3.0 | ) |
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Rio Tinto Group and product group chief executives living outside their home country.performance during 2006, and over relevant performance periods ending at 31 December 2006, impacted executives’ remuneration as follows: Share based awards: | • | MCCP – Rio Tinto ranked tenth in the sixteen company comparator group at the completion of the four-yearperformance period ending 31 December 2006, resulting in zero vesting of the conditional award made toexecutives who were directors at the date of the conditional award. This group included Leigh Clifford, GuyElliott and Oscar Groeneveld. The vesting shown in Table 4 on pages 112 to 115, for other product group chiefexecutives, where relevant, is in accordance with the performance condition applicable to the 2003 award andrepresents 25 per cent of the original awards. | • | SOP – Rio Tinto TSR growth over the three years ending 31 December 2006 did not achieve the level required by the applicable performance condition. This grant will therefore not vest in 2007, but will be subject to one retest after a further two years. |
Rio Tinto 2006 Form 20-F | 101 |
Back to Contents Full detailsAnnual cash bonus Cash bonuses (STIP) in respect of the directors’ annual remuneration before tax and excluding pension contributions2006 performance period, to be paid in March 2007, are set out in Table 1 on page 65. Details of long term incentive plans108 and option plansthe percentages awarded to each executive (or forfeited) are set out in the table on page 67.103. These bonuses were approved by the committee on the basis of delivered performance against financial, safety and personal targets and objectives for each executive. Financial performance was assessed against underlying earnings targets for the Group and product groups asrelevant and established by the committee at the commencement of the performance period. The potential impact of fluctuations in exchange rates and some prices are outside the control of the Group. The committee therefore compares, on an equal weighting basis, both actual results and underlying performance. This approach is designed to ensure that the annual bonus reflects financial results and addresses underlying performance excluding the impact of prices and exchange rates. The committee retains discretion to consider underlying business performance in deciding STIP awards. The safety measures included Group or relevant product group lost time injury frequency rates (LTIFR) and overall assessment of progress against improvement targets in other safety measures, including all injury frequencyrates (AIFR). These measures are chosen as they reflect the priority of safety at all Rio Tinto operations. Personal performance targets and objectives were established for each executive at the start of the performance period. These comprise a balanced set of measures for each individual that reflect current operational performance, aswell as progress on initiatives and projects designed to grow the value of each business unit and the Rio Tinto portfolio. The targets and objectives chosen enable personal performance and the benefit accruing to shareholders in the long term to be mirrored in each of the executives’ “at risk” remuneration. To achieve linkage between business/financial and personal/non-financial performance and remuneration, eachexecutive director’s STIP payment is calculated as a percentage of salary in accordance with the formula set out below:
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| | Business / financial | | Personal / non financial | | | | (score = 0% to 133%) | | (score = 0% to 133%) | | Target | |
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For each product group chief executive, STIP payments are calculated as a percentage of salary in accordance with the formula set out below:
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| | Business / financial | | Personal / non financial | | | | (score = 0% to 133%) | | (score = 0% to 133%) | | Target | |
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| | STIP | x | 40% weight | | 60% weight | x | 25% weight | | 75% weight | | (60%) | | Group | | Product group | | Product group | | Personal targets | | | | financial results | | financial results | | safety | | and objectives | |
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Strong Group financial performance for 2006 resulted in a STIP score at 117.2 per cent for this component. Financial performance for each product group varied and theRemuneration committeeapproved STIP scores ranging from 81 percent of target to 120 per cent of target (maximum is 133 per cent) for this component. Group safety performance resulted in theRemuneration committeeapproving a score of 120 per cent of target (maximum is 133 per cent) for this component. Product group safety performance varied and STIP scores ranged from 90 per cent of target to 150 per cent of target (where 150 per cent is the maximum achievable) for this component. Consequently, total STIP awards forexecutives ranged from 68.7 per cent to 92 per cent of salary (57 per cent to 77 per cent of maximum). Each of the results set out below therefore reflect the above, including a second successive year of record results, strong operational performance and portfolio initiatives to secure future value for the business across the Group, as wellas individual considerations as outlined: Leigh Clifford | • | The committee assessed personal performance as above target and the overall STIP award was 153.3 per cent oftarget (76.6 per cent of maximum). |
| Guy Elliott | • | The committee assessed personal performance as above target and the overall STIP award was 153.3 per cent oftarget (76.6 per cent of maximum). |
The committee assessed product group financial and safety performance as well as personal performance asabove target. The overall STIP award was 147.6 per cent of target (73.8 per cent of maximum). Rio Tinto 2006 Form 20-F | 102 |
Back to Contents Preston Chiaro | • | The committee assessed product group financial performance as below target and safety and personalperformance as above target. The overall STIP award was 114.5 per cent of target (57.3 per cent of maximum). | | Bret Clayton (from 1 June 2006) | • | The committee assessed product group financial and safety performance as well as personal performance asabove target. The overall STIP award was 133.3 per cent of target (66.6 per cent of maximum). |
| Oscar Groeneveld | • | The committee assessed product group financial performance and personal performance as above target andsafety performance as below target. The overall STIP award was 136.2 per cent of target (68.1 per cent ofmaximum). |
| Keith Johnson | • | The committee assessed product group financial and safety performance as well aspersonal performance asabove target. The overall STIP award was 149.7 per cent of target (74.8 per cent of maximum). | | Andrew Mackenzie | • | The committee assessed product group financial and safety performance as well aspersonal performance asabove target. The overall STIP award was 151.5 per cent of target (75.8 per cent of maximum). |
| Sam Walsh | • | The committee assessed product group financial performance as below target, safety performance at target andpersonal performance as above target. The overall STIP award was 116.7 per cent of target (58.3 per cent ofmaximum). |
Chairman’s letterShare based payment – long term incentives granted in 2006 Options over either Rio Tinto plc or Rio Tinto Limited shares as appropriate were granted to each executive under the Share Option Plan on 7 March 2006. TheRemuneration committeereviewed the performance condition applicable to this grant and confirmed that vesting will be dependent on Rio Tinto’s TSR relative to the HSBC Global Mining Index over a three year performance period. Share options granted are included in Table 5 on pages 116 to 121. A conditional award of appointmentperformance shares in either Rio Tinto plc or Rio Tinto Limited shares was made to each executive under the MCCP on 7 March 2006. TheRemuneration committeereviewed the performance conditionapplicable to the conditional award and confirmed that vesting will be dependent on Rio Tinto’s TSR relative to 15 other mining companies. The percentages of maximum bonuses made to executives in respect of 2006 and grants vested in respect ofperformance periods ending 31 December 2006, as well as the percentages forfeited because the relevant Company or individual did not meet the performance criteria required for full vesting, are as follows:
Bonuses and grants made during or in respect of 2006 | | | | | | | | | | | | | | STIP Cash1 | | SOP Options2 | | MCCP Shares3 | |
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| | | % of | | % of | | % | | % | | % | | % | | | maximum | | maximum | | vested | | forfeited | | vested | | forfeited | | | vested | | forfeited | | | | | | | | | |
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| | Leigh Clifford | 76.6 | | 23.4 | | — | | — | | — | | 100 | | Guy Elliott | 76.6 | | 23.4 | | — | | — | | — | | 100 | | Tom Albanese | 73.8 | | 26.2 | | — | | — | | 25 | | 75 | | Preston Chiaro | 57.3 | | 42.7 | | — | | — | | 25 | | 75 | | Bret Clayton | 66.6 | | 33.4 | | — | | — | | 25 | | 75 | | Oscar Groeneveld | 68.1 | | 31.9 | | — | | — | | — | | 100 | | Keith Johnson | 74.8 | | 25.2 | | — | | — | | 25 | | 75 | | Andrew Mackenzie4 | 75.8 | | 24.2 | | — | | — | | — | | — | | Sam Walsh | 58.3 | | 41.7 | | — | | — | | 25 | | 75 | |
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Notes | 1. | Paid in March 2007 in respect of 2006. | 2. | There was no vesting of the 2004 SOP options in March 2007. | 3. | Vesting of 2003 Conditional Award in February 2007. | 4. | Andrew Mackenzie joined in 2004 after the 2003 MCCP award had been made. |
Rio Tinto 2006 Form 20-F | 103 |
Back to Contents Minimum and maximum total bonuses and grants 2007 The estimated maximum and minimum total value of bonuses and share and option-based compensation for the 2007financial year are set out below. | | | | | | | | | | | | STIP Cash 1 | | | | | | | Potential range of | | | | | | | bonus payments in | | SOP Options | | MCCP Shares | | | March 2008 in | | (% of March | | (% of March | | | respect of 2007 | | 2007 salary) 2,3 | | 2007 salary) 2,4 | |
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| | | Min | | Max | | Min | | Max | | Min | | Max | | | US$ | | US$ | | | | | | | | | |
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| | Leigh Clifford5 | — | | 2,231,890 | | — | | 300 | | — | | 200 | | Guy Elliott | — | | 1,449,432 | | — | | 200 | | — | | 140 | | Tom Albanese | — | | 1,451,788 | | — | | 300 | | — | | 200 | | Preston Chiaro | — | | 792,000 | | — | | 300 | | — | | 200 | | Bret Clayton | — | | 696,000 | | — | | 300 | | — | | 200 | | Oscar Groeneveld | — | | 1,355,640 | | — | | 200 | | — | | 140 | | Keith Johnson | — | | 930,936 | | — | | 200 | | — | | 140 | | Andrew Mackenzie | — | | 1,025,208 | | — | | 200 | | — | | 140 | | Sam Walsh | — | | 1,279,800 | | — | | 200 | | — | | 140 | |
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Notes | 1. | Based on eligibility at 1 March 2007 at exchange rates of £1 = US$1.964 and A$1 = US$0.790. | 2. | Grant/Conditional Award based on the average share price during 2006. | 3. | SOP Options to be granted in 2007 may, subject to achievement of the performance condition, vest in 2010. The maximum value of these options at the date of vesting would be calculated by multiplying the number of vested options by the intrinsic value at that time (ie the difference between the option exercise price and the current market price). | 4. | MCCP performance shares to be awarded conditionally in 2007 may, subject to achievement of the performance condition, vest in 2011. The maximum value of these shares at the date of vesting would be calculated by multiplying the number of vested shares by the intrinsic value at that time (ie the current market price plus, the value of dividends “earned” on the vested shares during the performance period). | 5. | Leigh Clifford’s STIP, SOP option grant and MCCP conditional award will be reduced proportionally to reflect the actual pro portion of 2007 he was an employee of the Group. |
OTHER DISCLOSURES Executives’ external and other appointments Executives are likely to be invited to become non executive directors of other companies. Rio Tinto believes that such appointments can broaden their experience and knowledge, to the benefit of the Group. It is Group policy to limit executives’ external directorships to one FTSE 100 company or equivalent and they are not allowed to take on the chairmanship of another FTSE 100 company.
Paul Skinner’sConsequently, where there is no likelihood that such directorships will give rise to conflicts of interests, theboard will normally give consent to the appointment, with the executive permitted to retain the fees earned. Details of fees earned are set out in the notes to Table 1 on pages 107 to 109. Executives have agreed to waive any fees receivable from subsidiary and associated companies. One executive director waived US$1,390 during the period (2005: Nil). Company secretary remuneration The broad policy described above applies to the company secretary of each of Rio Tinto plc and Rio Tinto Limited. Thesecretaries participate in the same performance based remuneration arrangements as the executives. The individual performance measures for the secretaries’ annual cash bonus comprise Group and personal measures. Their personalmeasures reflect the key responsibilities of the company secretarial role and included ensuring compliance withregulatory requirements, oversight of good corporate governance practice and the provision of corporate secretarial services. Chairman and non executive director remuneration Remuneration policy Reflecting the board’s focus on long term strategic direction and corporate performance rather than short term results, remuneration for the chairman and non executive directors is structured with a fixed fee component only, details of which are set out below and in Table 1 on pages 107 to 109. The board as a whole determines non executive directors’ fees, although non executive directors donot vote on any changes to their own fees. Fees are set to reflect the responsibilities and time spent by the directors on the affairs of Rio Tinto. To reflect the commitment expected from directors, as well as market practice for similar companies, fees for committee chairmen and members were reviewed in December 2006. The new fees are set out in the table below. It is Rio Tinto’s policy that the chairman should be remunerated on a competitive basis and at a level which reflects his contribution to the Group, as assessed by the board. The chairman is not present at any discussion regarding Rio Tinto 2006 Form 20-F | 104 |
Back to Contents his own remuneration and he does not participate in the Group’s incentive plans or pension arrangements. Letters of appointment Non executive directors have formal letters of appointment setting out their duties and responsibilities. These letters areavailable for inspection at Rio Tinto plc’s registered office prior to the annual general meeting and at the meeting itself. Each non executive director is appointed subject to periodic re-election by shareholders as detailed on page 124. Thereare no provisions for compensation payable on termination of any non executive director’s appointment. The chairman’s letter of appointment summarises his duties as chairman of the Group and was agreed by theRemuneration committee. It stipulates that he is expected to dedicate at least three days per week on average to carry out theseoutthese duties. The letter envisages that MrPaul Skinner will continue in the role of chairman until he reaches the age of 65 in 2009,in2009, subject to re-election as a director by shareholders. shareholders, although the appointment may be terminated by either Rio Tinto or Paul Skinner giving six months’ notice. Other than in this case, there is no provision for compensation payable on termination of his chairmanship or directorship. Remuneration components The following table sets out the annual fees payable to the chairman and the non executive directors in £/A$, as appropriate. | As at 31 Dec 2006 | | As at 1 Jan 2006 | |
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| | Base fees: | | | | | Chairman | £630,000 | | £600,000 | | Other directors | £60,000 / A$150,000 | | £60,000 / A$150,000 | | Additional fees: | | | | | Senior independent director | £35,000 | | £35,000 | | Audit committee chairman | £30,000 | | £20,000 | | Audit committee member | £15,000 / A$37,500 | | £10,000 | | Remuneration committee chairman | £20,000 | | £15,000 | | Remuneration committee member | £10,000 / A$25,000 | | £5,000 | | Committee on social and environmental accountability chairman | £20,000 | | £10,000 | | Committee on social and environmental accountability member | £7,500 / A$18,750 | | £3,000 / A$7,500 | | Overseas meeting allowances: | | | | | Long distance (flights over 10 hours per journey) | £4,000 / A$10,000 | | £4,000 / A$10,000 | | Medium distance (flights of 5-10 hours per journey) | £2,000 / A$5,000 | | £2,000 / A$5,000 | |
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No additional fee is payable to the chairman or members of theNominations committeealthough this arrangement remains subject to review and will depend on the volume of committee business in future. Rio Tinto does not pay retirement benefits or allowances tonon executive directors, nor do any of themparticipate in any of the Group’s incentive plans. Where the payment of statutory minimum superannuation contributions for Australian non executive directors is required by the Australian superannuation guarantee legislation, these contributions are deducted from the directors’ overall fee entitlements. Remuneration paid during 2006 Details of Mr Skinner’s fees can be foundthe nature and amount of each element of remuneration paid to the chairman and non executive directorsduring 2006 are set out in Table 1 on page 65.pages 107 to 109. No post employment, long term or termination payments were paid and no share based payments made. Service contractsAuditable information Under Part 3 of Schedule 7A to the United Kingdom Companies Act 1985, the information included in respect of the directors in the table immediately below, the information about the directors’ short term employee benefits (excluding employment costs), defined contribution pension costs and compensation paymentstermination benefits in Table 1, 4 and 5 are auditable.
All executive directors have service contractsThe Australian Securities Investments Commission issued an order dated 27 January 2006 (and amended on 22 December 2006) under which the information included in the Remuneration report to comply with a one year notice period. Under current pension arrangements, directors are normally expectedparagraph 25 of Australian Accounting Standard AASB 124 “Related Party Disclosures” (relating to retire at the age of 60, except Oscar Groeneveld, whose agreed retirement age“key management personnel” compensation) is 62. In the event of early termination, the Group’s policy is to act fairly in all circumstancesalso auditable. This information comprises Tables 1, 3, 4 and 5 and the duty to mitigate would be taken into account. Compensation would not reward poor performance.
Of the directors proposed for election or re-election at the forthcoming annual general meetings, Leigh Clifford and Guy Elliott have service contracts which are terminable by one year’s notice. Sir Richard Giordano, Sir John Kerr and Sir Richard Sykes do not have service contracts. Sir Richard Giordano will be aged 70 at the time of the 2004 annual general meetings. Special notice for his re-election has been received by Rio Tinto plc.
Non executive directors’ fees and letters of appointment
The boards as a whole determine non executive directors’ fees. They are set to reflect the responsibilities and time spent by the directors on the affairs of Rio Tinto. Non executive directors are not eligible to vote on any increases of their fees. The boards reviewed these fees in October 2003 and, in the light of the increased volume of committee work following regulatory developments in the UK, US and Australia, it was decided to introduce additional fees for membership of theAudit committee, increase theAudit committeechairman’s fees and introduce a fee for chairing thedisclosures provided under theheadings Executive remuneration, Remuneration committee. In recognition of exchange rate movements, Australian directors’ basic fees were increased to bring them into line with the directors who arecomponents, Remuneration paid in pounds sterling. Non executive directors do not participate in the Group’s incentive plans, pension or superannuation arrangements or any other elements of remuneration provided to executive directors.2006 and chairman and nonexecutive director remuneration.
64 | Rio Tinto 20032006 Annual report and financial statementsForm 20-F | 105 |
Back to Contents Non executive directors do not have service contracts, but have a formal letter of appointment setting out their duties and responsibilities.
Directors’ share interests
The beneficial interests of directors in the share capital of Rio Tinto plc and Rio Tinto Limited are set out in Table 3 on page 66.
In 2002, the committee informed executive directors and product group chief executives that they would be expected to build up a shareholding equal in value to two times salary over five years. New appointees to executive director or product group chief executive roles have five years from the date of appointment to achieve the required shareholding.
External appointments
Rio Tinto recognises that executive directors are likely to be invited to become non executive directors of other companies and that such appointments can broaden their experience and knowledge, to the benefit of the Group. It is, however, Group policy to limit such directorships to one FTSE 100 company or equivalent. No executive director is allowed to take on the chairmanship of another FTSE 100 company. Where such directorships are unlikely to give rise to conflicts of interests, the boards will normally give consent to the appointment, with the director permitted to retain the fees earned. Details of fees earned are set out in the notes to Table 1 below.
Directors’ total remuneration as defined under Schedule 7A of the Companies Act 1985 | | | | | | 2006 | | 2005 | | | US$’000 | | US$’000 | |
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| | Chairman | | | | | Paul Skinner | 1,147 | | 1,049 | | Non executive directors | | | | | Ashton Calvert | 179 | | 132 | | Vivienne Cox | 136 | | 107 | | Sir David Clementi | 153 | | 138 | | Leon Davis | — | | 95 | | Sir Rod Eddington | 130 | | 43 | | Michael Fitzpatrick | 109 | | — | | Sir Richard Giordano | — | | 80 | | Richard Goodmanson | 156 | | 127 | | Andrew Gould | 171 | | 142 | | Lord Kerr | 142 | | 130 | | David Mayhew | 148 | | 122 | | John Morschel | — | | 43 | | Sir Richard Sykes | 217 | | 188 | | Executive directors | | | | | Robert Adams | — | | 220 | | Tom Albanese | 1,295 | | — | | Leigh Clifford | 3,576 | | 3,093 | | Guy Elliott | 2,070 | | 1,872 | |
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Performance of Rio TintoAnnual general meetings
To illustrate the performance of the companies relative to their markets, graphs showing the performance of Rio Tinto plc compared to the FTSE 100 Index and Rio Tinto Limited compared to the ASX All Ordinaries Index are reproduced in this report. A comparative graph showing Rio Tinto performance relative to the HSBC Global Mining Index is also included to illustrate the performance of the companies relative to other mining companies. Shareholders will be asked to vote on this Remuneration report at the Companies’ forthcoming annual general meetings.meetings1.
By order of the board Anette Lawless Secretary Remuneration committee 20Committee 23 February 20042007
TSR – Rio Tinto plc vs FTSE 100
Total return basis Index 1998 = 100
TSR – Rio Tinto Limited vs ASX All Share
Total return basis Index 1998 = 100
TSR – Rio Tinto plc vs HSBC Global Mining Index
Total return basis Index 1998 = 100
Table 1 – Directors’ remuneration – Remuneration of the directors of the parent Companies before tax and excluding pension contributions for the year ended 31 December
| | 2003 | | 2003 | | 2003 | | 2003 | | 2002 | | £’000 except where stated in A$’0001 | | Salary/fees | | Annual bonus2 | | Other emoluments3 | | Total | | Total | |
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| Chairman | | | | | | | | | | | | Paul Skinner4 | | 169 | | – | | 4 | | 173 | | 53 | | | | | | | | | | | | | | Non executive directors | | | | | | | | | | | | Sir David Clementi8 | | 49 | | – | | – | | 49 | | – | | Leon Davis | | 150 | | – | | – | | 150 | | 150 | | Sir Richard Giordano | | 96 | | – | | – | | 96 | | 93 | | Andrew Gould | | 56 | | – | | – | | 56 | | 4 | | Sir John Kerr8 | | 11 | | – | | – | | 11 | | – | | David Mayhew4 | | 56 | | – | | – | | 56 | | 53 | | John Morschel | | A$191 | | – | | – | | A$191 | | A$123 | | The Hon. Raymond Seitz7 | | 21 | | – | | – | | 21 | | 56 | | Sir Richard Sykes | | 57 | | – | | – | | 57 | | 56 | | Lord Tugendhat | | 56 | | – | | – | | 56 | | 53 | | | | | | | | | | | | | | Executive directors | | | | | | | | | | | | Robert Adams9 | | 474 | | 287 | | 30 | | 791 | | 763 | | Leigh Clifford – chief executive | | 665 | | 395 | | 217 | | 1,277 | | 1,264 | | Guy Elliott – finance director | | 402 | | 255 | | 21 | | 678 | | 619 | | Oscar Groeneveld | | 380 | | 265 | | 80 | | 725 | | 733 | | Jonathan Leslie7 | | 90 | | 51 | | 53 | | 194 | | 597 | | Sir Robert Wilson – retiring chairman6 | | 745 | | 443 | | 20 | | 1,208 | | 1,441 | |
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| Notes | | | | | | | | | | | |
1 | Sterling amounts for salary and other emoluments may be converted to Australian dollars by using an exchange rate of £1=A$2.5204, being the average exchange rate during 2003.Note | 21. | The annual bonus is payable undershareholders approved the Short Term Incentive Plan and this may be converted to Australian dollars2006 Remuneration report at the year end rate of £1=A$2.3785. | 3 | Other emoluments include benefits in kind including accommodation to Australian directors and share awards to UK executive directors under the Rio Tinto All Employee Share Ownership Plan at a value of up to a maximum of £3,000. | 4 | Mr Mayhew’s fees are paid to Cazenove Group PLC. Mr Skinner’s fees were paid to Shell International Limited until 30th September 2003, one month before his appointment as chairman, and thereafter directly to him. £125,000 of the fees and other emoluments relate to Mr Skinner’s services as chairman. | 5 | Emoluments of £60,546 from subsidiary and associated companies were waived by two executive directors (2002: two directors waived £53,388). Executive directors have agreed to waive any further fees receivable from subsidiary and associated companies. | 6 | Sir Robert Wilson retired as a director from the boards of Rio Tinto plc and Rio Tinto Limited on 31 October 2003 and received gifts to the value of £24,424. | 7 | Mr Leslie resigned as a director on 31 March 2003 and received gifts to the value of £10,995. The Hon. Raymond Seitz retired on 1 May 2003. | 8 | Sir David Clementi was appointed a director on 28 January 2003 and Sir John Kerr appointed a director on 14 October 2003. | 9 | In the course of the year, Sir Robert Wilson received £135,000 and Mr Adams received £22,500 in respect of non Rio Tinto related directorships. | 10 | Awards made under the long term incentive schemes are set out in Tables 4 and 5.2007 Annual general meetings. |
Rio Tinto 20032006 Annual report and financial statementsForm 20-F | 65 |
Back to Contents
Remuneration report continued106
Table 2– Directors’ pension entitlements(as at 31 December 2003)
| | | | | Accrued benefits | | Transfer values3 | | | | |
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| Age | Years of | At | | At | | Increase in | | Increase In | At | | At | | Change, net | Transfer value | | service | 31 December | 31 December | accrued benefits | accrued benefit | 31 December | 31 December | of personal | of increase | | completed | 2002 | 2003 | during the year | net of inflation | 2002 | 2003 | contributions | in accrued | | | | | ended 31 | | | | | benefit net | | | December 2003 | | | | | of inflation | | £’000 pa | £’000 pa | | £’000 pa | £’000 pa | £’000 | £’000 | £’000 | £’000 | UK directors | | pension | pension | | pension | pension | | | | |
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| Robert Adams | 58 | | 33 | | 325 | | 360 | | 35 | | 26 | | 6,767 | | 6,159 | 4 | (608 | ) | 451 | Guy Elliott | 48 | | 23 | | 173 | | 212 | | 39 | | 34 | | 2,630 | | 2,066 | 4 | (564 | ) | 337 | Jonathan Leslie5 | 52 | | 25 | | 211 | | 216 | 6 | 5 | | 3 | | 3,745 | | 2,780 | | (965 | ) | 44 | Sir Robert Wilson6 | 60 | | 33 | | 656 | | 710 | 5 | 54 | | 40 | | 14,620 | | 10,261 | | (4,359 | ) | 760 |
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| | | | | | A$’000 | | A$’000 | | A$’000 | | A$’000 | | A$’000 | | A$’000 | | A$’000 | | A$’000 | Australian directors | | | | | Lump sum | | Lump sum | | Lump sum | | Lump sum | | | | | | | | |
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| Leigh Clifford2 | 56 | | 33 | | 9,700 | | 12,099 | | 2,399 | | 2,132 | | 9,700 | | 12,099 | | 2,399 | | 2,132 | Oscar Groeneveld2 | 50 | | 28 | | 4,165 | | 4,661 | | 496 | | 287 | | 4,165 | | 4,661 | | 496 | | 287 |
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| Notes | | | | | | | | | | | | | | | | | | | |
1 | A$68,309 and A$40,314 were credited to the respective accounts belonging to Mr Clifford and Mr Groeneveld in the Rio Tinto Staff Superannuation Fund in relation to the superannuable element of their 2003 performance bonus. | 2 | The increases in accrued lump sums for Australian directors are before contributions tax and exclude interest. | 3 | Transfer values are calculated in a manner consistent with “Retirement Benefit Schemes – Transfer Values (GN 11)” published by the Institute of Actuaries and the Faculty of Actuaries and dated 4 August 2003. | 4 | During 2003, the basis of calculation of transfer values was reviewed by the UK Fund Trustee as part of a periodic review of all calculation bases following the triennial valuation. The figures shown at 31 December 2003 are calculated using the new basis. | 5 | Mr Leslie left service on 2 April 2003. The accrued entitlement shown above represent the value at the date of leaving. | 6 | Sir Robert Wilson retired at his normal retirement age on 31 October 2003. On retirement he exchanged part of his pension for a cash lump sum, as permitted under the rules of the Fund. The accrued benefit figure as at 31 December 2003 shows the pension accrued at retirement prior to the exchange of pension for cash. The transfer value as at 31 December 2003 reflects the value on the new basis of the residual pension following this exchange. |
Table 3 – Directors’ beneficial interests in shares
| 1 Jan | | 31 Dec | | 6 Feb | | | 20032 | | 20038 | | 2004 | |
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| | Robert Adams3 | 56,599 | | 71,764 | | 71,782 | | Sir David Clementi4 | – | | – | | – | | Leigh Clifford | 2,100 | | 2,100 | | 2,100 | | | 56,300 | | 76,428 | | 76,428 | | Leon Davis | 6,100 | | 6,100 | | 6,100 | | | 133,838 | | 187,293 | | 187,293 | | Guy Elliott3 | 28,897 | | 40,847 | | 40,863 | | Sir Richard Giordano | 1,065 | | 1,065 | | 1,065 | | Andrew Gould | – | | – | | – | | Oscar Groeneveld | 19,010 | | 19,010 | | 19,010 | | | 6,909 | | 23,515 | | 23,515 | | Sir John Kerr4 | – | | – | | – | | Jonathan Leslie5 | 44,886 | | 55,396 | | n/a | | David Mayhew | 2,500 | | 2,500 | | 2,500 | | John Morschel | – | | – | | – | | The Hon. Raymond Seitz5 | 500 | | 500 | | n/a | | Paul Skinner | 1,000 | | 5,140 | | 5,140 | | Sir Richard Sykes | 2,294 | | 2,359 | | 2,359 | | Lord Tugendhat | 1,135 | | 1,135 | | 1,135 | | Sir Robert Wilson5 | 114,124 | | 138,609 | | n/a | |
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| | Notes | | | | | | |
1 | Rio Tinto plc – ordinary shares of 10p each;Rio Tinto Limited – shares – stated in italics. | 2 | Or date of appointment if later. | 3 | These directors, together with other Rio Tinto plc Group employees, also have an interest in a trust fund containing 21,849 Rio Tinto plc shares at 31 December 2003 (1 January 2003: 102,136 Rio Tinto plc shares) as potential beneficiaries, of The Rio Tinto Share Ownership Trust. At 6 February 2004 this trust fund contained 22,442 Rio Tinto plc shares. | 4 | Sir David Clementi and Sir John Kerr were appointed directors on 28 January 2003 and 14 October 2003 respectively. | 5 | Mr Leslie, The Hon. Raymond Seitz and Sir Robert Wilson retired or resigned as directors on 31 March 2003, 1 May 2003 and 31 October 2003 respectively. | 6 | The above includes the beneficial interests obtained through the Rio Tinto Share Ownership Plan, details of which are set out on page 64 under the heading “Other share plans”. | 7 | The total beneficial interest of the directors in the Group amounts to less than one per cent. | 8 | Or date of retirement or resignation if earlier. |
66 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents Table 41 – Directors’ and senior management’s total remuneration– Awards to directors under long term incentive plans | | | | | | | | | | | | Plan terms and conditions | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | Monetary | | | | | | | | | | | | | | Conditional | | Performance | | | Market | | Date | | | Market | | value of | | | | | | | | | | | | | | award | | period | | | price at | | award | | | price at | 3 | vested | | | Plan | 1 Jan | | Awarded | | Lapsed | | Vested1 | | 31 Dec | | granted | | concludes | | | award | | vests | | | vesting | award | | | 2003 | | | | | | | | 20032 | | | | | | | | | | | | | | £’000 | |
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| Robert Adams | MCCP 2000 | 27,830 | | – | | 10,437 | | 17,393 | | – | | 7/03/2000 | | 31/12/2003 | | | 953 | p | 27/02/2004 | | | 1,386 | p | 241 | | | MCCP 2001 | 27,330 | | – | | – | | – | | 27,330 | | 6/03/2001 | | 31/12/2004 | | | 1,310 | p | – | | | – | | – | | | MCCP 2002 | 25,064 | | – | | – | | – | | 25,064 | | 13/03/2002 | | 31/12/2005 | | | 1,424 | p | – | | | – | | – | | | MCCP 2003 | – | | 26,837 | | – | | – | | 26,837 | | 7/03/2003 | | 31/12/2006 | | | 1,198 | p | – | | | – | | – | | | |
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| | | | 80,224 | | 26,837 | | 10,437 | | 17,393 | | 79,231 | | | | | | | | | | | | | | 241 | | | |
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| | Leigh Clifford5 | MCCP 2000 | 37,609 | | – | | 14,104 | | 23,505 | | – | | 7/03/2000 | | 31/12/2003 | | | A$24.156 | | 27/02/2004 | | | A$35.24 | | 348 | 3 | | MCCP 2001 | 37,474 | | – | | – | | – | | 37,474 | | 6/03/2001 | | 31/12/2004 | | | A$34.406 | | – | | | – | | – | | | MCCP 2002 | 34,435 | | – | | – | | – | | 34,435 | | 13/03/2002 | | 31/12/2005 | | | A$39.600 | | – | | | – | | – | | | MCCP 2003 | – | | 36,341 | | – | | – | | 36,341 | | 7/03/2003 | | 31/12/2006 | | | A$30.690 | | – | | | – | | – | | | |
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| | | | 109,518 | | 36,341 | | 14,104 | | 23,505 | | 108,250 | | | | | | | | | | | | | | 348 | | | |
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| | Guy Elliott | MCCP 2000 | 4,307 | | – | | 1,616 | | 2,691 | | – | | 7/03/2000 | | 31/12/2003 | | | 953 | p | 27/02/2004 | | | 1,386 | p | 37 | | | MCCP 2001 | 7,845 | | – | | – | | – | | 7,845 | | 6/03/2001 | | 31/12/2004 | | | 1,310 | p | – | | | – | | – | | | MCCP 2002 | 16,935 | | – | | – | | – | | 16,935 | | 13/03/2002 | | 31/12/2005 | | | 1,424 | p | – | | | – | | – | | | MCCP 2003 | – | | 22,923 | | – | | – | | 22,923 | | 7/03/2003 | | 31/12/2006 | | | 1,198 | p | – | | | – | | – | | | |
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| | | | 29,087 | | 22,923 | | 1,616 | | 2,691 | | 47,703 | | | | | | | | | | | | | | 37 | | | |
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| | Oscar Groeneveld5 | MCCP 2000 | 21,266 | | – | | 7,975 | | 13,291 | | – | | 7/03/2000 | | 31/12/2003 | | | A$24.156 | | 27/02/2004 | | | A$35.24 | | 197 | 3 | | MCCP 2001 | 20,934 | | – | | – | | – | | 20,934 | | 6/03/2001 | | 31/12/2004 | | | A$34.406 | | – | | | – | | – | | | MCCP 2002 | 20,322 | | – | | – | | – | | 20,322 | | 13/03/2002 | | 31/12/2005 | | | A$39.600 | | – | | | – | | – | | | MCCP 2003 | – | | 21,469 | | – | | – | | 21,469 | | 7/03/2003 | | 31/12/2006 | | | A$30.690 | | – | | | – | | – | | | |
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| | | | 62,522 | | 21,469 | | 7,975 | | 13,291 | | 62,725 | | | | | | | | | | | | | | 197 | | | |
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| | Jonathan Leslie6 | MCCP 2000 | 21,574 | | – | | 8,091 | | 13,483 | | – | | 7/03/2000 | | 31/12/2003 | | | 953 | p | 27/02/2004 | | | 1,386 | p | 187 | | | MCCP 2001 | 21,192 | | – | | – | | – | | 21,192 | | 6/03/2001 | | 31/12/2004 | | | 1,310 | p | – | | | – | | – | | | MCCP 2002 | 19,758 | | – | | 19,758 | | – | | – | | 13/03/2002 | | 31/12/2005 | | | 1,424 | p | – | | | – | | – | | | |
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| | | | 62,524 | | – | | 27,849 | | 13,483 | | 21,192 | | | | | | | | | | | | | | 187 | | | |
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| | Sir Robert Wilson | MCCP 2000 | 50,191 | | – | | 18,822 | | 31,369 | | – | | 7/03/2000 | | 31/12/2003 | | | 953 | p | 27/02/2004 | | | 1,386 | p | 435 | | | MCCP 2001 | 49,796 | | – | | – | | – | | 49,796 | | 6/03/2001 | | 31/12/2004 | | | 1,310 | p | – | | | – | | – | | | MCCP 2002 | 47,983 | | – | | – | | – | | 47,983 | | 13/03/2002 | | 31/12/2005 | | | 1,424 | p | – | | | – | | – | | | MCCP 2003 | – | | 50,599 | | 8,456 | | – | | 42,143 | | 7/03/2003 | | 31/12/2006 | | | 1,198 | p | – | | | – | | – | | | |
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| | | | 147,970 | | 50,599 | | 27,278 | | 31,369 | | 139,922 | | | | | | | | | | | | | | 435 | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | Notes | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | The Rio Tinto Group’s 7th place ranking against the comparator group for the MCCP 2000 award will generate a 62.5 per cent vesting based on the scales applied to conditional awards made prior to 2004. | 2 | Rio Tinto plc – ordinary shares of 10p each;Rio Tinto Limited – shares – stated in italics. | 3 | The shares awarded under the MCCP 2000 vest on 27 February 2004 but, as the performance cycle ended on 31 December 2003, they have been dealt with in this table as if they had vested on that date. The values of these awards have been based on share prices of 1,386p and A$35.24, being the closing share prices on 6 February 2004, the latest practicable date prior to the publication of this annual report. Amounts in Australian dollars have been translated into sterling at the year end exchange rate of £1=A$2.3785. | 4 | The shares awarded under the FTSE 1997 and MCCP 1999 last year vested on 28 February 2003 but, as the performance cycles ended on 31 December 2002, they were dealt with in the 2002Annual report and financial statementsas if they had vested on that date. The values of the awards in the 2002Annual report and financial statementswere based on share prices of 1,169p and A$32.52, being the closing share prices on 14 February 2003, the latest practicable date prior to the publication of the 2002Annual report and financial statements. Amounts in Australian dollars were translated into sterling at the year end exchange rate of £1=A$2.829.The actual share prices on 28 February 2003, when the awards vested, were 1,268.5p and A$33.3518, with the result that the values of the awards had been understated in respect of Sir Robert Wilson by £105,773, Mr Adams by £61,321, Mr Leslie by £36,304, Mr Davis by £183,279, Mr Clifford by £12,143 and Mr Groeneveld by £36,319 and overstated in respect of Mr Elliott by £4,308. | 5 | Mr Clifford was given a conditional award over 36,341 Rio Tinto Limited shares and Mr Groeneveld was given a conditional award over 21,469 Rio Tinto Limited shares during the year. These awards were approved by the shareholders under ASX Listing Rule 10.14 at the 2002 annual general meeting. | 6 | Following Mr Leslie’s resignation from the boards of Rio Tinto plc and Rio Tinto Limited on 31 March 2003, theRemuneration committeeagreed that his MCCP awards in 2000 and 2001 should continue to the end of their respective performance periods. The 2002 MCCP award was forfeited. | 7 | A full explanation of the MCCP together with the proposed changes under the plan can be found on pages 63 and 64. | 8 | Or as at date of resignation or retirement if earlier. |
| | | | | Short term employee benefits and costs | | Other | | Value of share based awards5 | | | | | | | | | | | | | | | long term | | | | | | | | | | | | | | | | | | | | | benefits | | | | | | | | | | | | | Other | | | | | | | | | | | | | | | | | | | | | cash | | Non- | | Second- | | Employ- | | | | | | | | | | | Base | | Cash | | based | | monetary | | ment | | ment | | Long | | | | | | SSP/ | | Stated in US$’0001 | salary | | bonus | | benefits2 | | benefits2 | | costs3 | | costs4 | | Service 13 | | MCCP6 | | SOP7 | | Others9 | |
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| | Chairman | | | | | | | | | | | | | | | | | | | | | Paul Skinner | 1,114 | | — | | 31 | | 2 | | — | | 145 | | — | | — | | — | | — | | Non executive directors | | | | | | | | | | | | | | | | | | | | | Ashton Calvert | 119 | | — | | 53 | | 7 | | — | | 9 | | — | | — | | — | | — | | Vivienne Cox | 129 | | — | | 7 | | — | | — | | 16 | | — | | — | | — | | — | | Sir David Clementi | 138 | | — | | 15 | | — | | — | | 18 | | — | | — | | — | | — | | Leon Davis16 | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | Sir Rod Eddington | 109 | | — | | 21 | | — | | — | | 7 | | — | | — | | — | | — | | Michael Fitzpatrick11 | 74 | | — | | 35 | | — | | — | | 6 | | — | | — | | — | | — | | Sir Richard Giordano16 | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | Richard Goodmanson | 138 | | — | | 18 | | — | | — | | — | | — | | — | | — | | — | | Andrew Gould | 156 | | — | | 15 | | — | | — | | — | | — | | — | | — | | — | | Lord Kerr | 135 | | — | | 7 | | — | | — | | 17 | | — | | — | | — | | — | | David Mayhew12 | 133 | | — | | 15 | | — | | — | | — | | — | | — | | — | | — | | John Morschel16 | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | Sir Richard Sykes16 | 202 | | — | | 15 | | — | | — | | — | | — | | — | | — | | — | | Executive directors | | | | | | | | | | | | | | | | | | | | | Robert Adams16 | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | Tom Albanese11,13,14 | 899 | | 842 | | — | | 38 | | (85 | ) | 114 | | 378 | | (115 | ) | 599 | | 13 | | Leigh Clifford15 | 1,611 | | 1,598 | | 148 | | 3 | | 156 | | 408 | | — | | (1,162 | ) | 1,090 | | 3 | | Guy Elliott | 1,016 | | 1,011 | | 28 | | 6 | | — | | 258 | | — | | (614 | ) | 512 | | 11 | | Product group chief executives | | | | | | | | | | | | | | | | | | | | Preston Chiaro14 | 591 | | 412 | | 21 | | 9 | | 205 | | 26 | | — | | (119 | ) | 444 | | 7 | | Bret Clayton | 429 | | 349 | | 50 | | 3 | | 427 | | 36 | | — | | 64 | | 102 | | 12 | | Oscar Groeneveld13 | 962 | | 839 | | — | | 37 | | 51 | | 95 | | 359 | | (606 | ) | 418 | | 2 | | Keith Johnson | 663 | | 644 | | — | | 35 | | — | | 167 | | — | | (54 | ) | 325 | | 9 | | Andrew MacKenzie | 737 | | 723 | | — | | 32 | | — | | 162 | | — | | 57 | | 267 | | 11 | | Chris Renwick16 | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | Sam Walsh | 887 | | 664 | | — | | 6 | | 51 | | 110 | | — | | (28 | ) | 381 | | 2 | | |
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| | 2006 Remuneration | 10,242 | | 7,082 | | 479 | | 178 | | 805 | | 1,594 | | 737 | | (2,577 | ) | 4,138 | | 70 | | |
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| | 2005 Remuneration | 9,223 | | 5,981 | | 422 | | 314 | | 1,568 | | 1,696 | | 737 | | 7,484 | | 4,600 | | 70 | | |
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Rio Tinto 20032006 Annual report and financial statementsForm 20-F | 67107 |
Back to Contents Remuneration report continuedTable 1 – Directors’ and senior management’s total remuneration
Table 5 – Directors’ options to acquire Rio Tinto plc and Rio Tinto Limited shares | | | | | | | | | | | | | | | Options exercised/cancelled during the year | | | | | | | | | | | | | | | | | |
| | | | | | Holding | | Granted5 | | Exercised/ | | Holding | | Weighted | | | | | | | | | | Holding | | | | at | | | | cancelled | | at | | average | | Number | | Option | | Market | | Gain on | | at | | | | 1 Jan | | | | | | 31 Dec | | option | | | | price | | price | | exercise | | 6 Feb | | | | 2003 | | | | | | 20037 | | price | | | | | | | | £’000 | | 2004 | |
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| | | | | | | | | | | | | | | | | | | | | | | | Robert Adams | A | 398,615 | | 114,014 | | – | | 512,629 | | 1,136p | | | | | | | | | | 512,629 | | Leigh Clifford | A | 384,050 | | 254,132 | | – | | 638,182 | | A$31.10 | | | | | | | | | | 638,182 | | | B | 208,882 | | | | | | 208,882 | | A$39.87 | | | | | | | | | | 208,882 | | Leon Davis | A | 93,978 | | – | | – | | 93,978 | | A$23.44 | | | | | | | | | | 93,978 | | Guy Elliott | A | 106,183 | | 98,818 | | 27,241 | | 177,760 | | 1,323p | | 8,292 | | 820.0p | | 1,273p | | 38 | | 177,760 | | | | | | | | | | | | | | 8,645 | | 808.8p | | 1,273p | | 40 | | | | | | | | | | | | | | | | 7,613 | | 965.4p | | 1,273p | | 23 | | | | | | | | | | | | | | | | 2,691 | | 641.0p | | 1,299p | | 18 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | 27,241 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Oscar Groeneveld | A | 175,084 | | 91,511 | | – | | 266,595 | | A$29.83 | | | | | | | | | | 266,595 | | | B | 73,965 | | | | | | 73,965 | | A$39.87 | | | | | | | | | | 73,965 | | Jonathan Leslie6 | A | 309,775 | | – | | 277,095 | | 32,680 | | 965p | | 55,730 | | 808.8p | | 1,270p | | 257 | | n/a | | | | | | | | | | | | | | 53,414 | | 820.0p | | 1,270p | | 240 | | | | | | | | | | | | | | | | 16,341 | | 965.4p | | – | | – | | | | | | | | | | | | | | | | 77,749 | | 1,265.6p | | – | | – | | | | | | | | | | | | | | | | 71,986 | | 1,458.6p | | – | | – | | | | | | | | | | | | | | | | 1,875 | | 876.0p | | – | | – | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | 277,095 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Sir Robert Wilson6 | A | 841,076 | | 358,273 | | 253,954 | | 945,395 | | 1,288p | | 129,636 | | 808.8p | | 1,292p | | 626 | | n/a | | | | | | | | | | | | | | 124,318 | | 1,263.0p | | – | | – | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | 253,954 | | | | | | | | | | | | | | | | | | | | | |
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| Post employment costs9 | | Termination | | Remuneration | | | | Total | | | | | | | | | | | | | benefits | | | | mix10 | | remuneration | | | | |
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| | | | | | | | | Pension – Defined | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed | | At-risk | | | | | | | | | | | | | | | | | Post | | | | as % | | as % | | Options | | | | | | Currency | | | | | Contrib- | | Medical | | service | | | | 2006 | | 2006 | | as % | | | | | | of actual | | Stated in US$’000 | Benefits | | utions | | costs | | payments | | Gifts | | total | | total | | total | | 2006 | | 200513,14 | | payment | |
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| | Chairman | | | | | | | | | | | | | | | | | | | | | | | Paul Skinner | — | | — | | — | | — | | — | | 100.0 | | — | | — | | 1,292 | | 1,182 | | £ | | Non executive directors | | | | | | | | | | | | | | | | | | | | | | | Ashton Calvert | — | | — | | — | | — | | — | | 100.0 | | — | | — | | 188 | | 139 | | A$ | | Vivienne Cox | — | | — | | — | | — | | — | | 100.0 | | — | | — | | 152 | | 120 | | £ | | Sir David Clementi | — | | — | | — | | — | | — | | 100.0 | | — | | — | | 171 | | 154 | | £ | | Leon Davis16 | — | | — | | — | | — | | — | | — | | — | | — | | — | | 100 | | £ | | Sir Rod Eddington | — | | — | | — | | — | | — | | 100.0 | | — | | — | | 137 | | 48 | | £ | | Michael Fitzpatrick11 | — | | — | | — | | — | | — | | 100.0 | | — | | — | | 115 | | — | | £ | | Sir Richard Giordano16 | — | | — | | — | | — | | — | | — | | — | | — | | — | | 88 | | £ | | Richard Goodmanson | — | | — | | — | | — | | — | | 100.0 | | — | | — | | 156 | | 127 | | £ | | Andrew Gould | — | | — | | — | | — | | — | | 100.0 | | — | | — | | 171 | | 142 | | £ | | Lord Kerr | — | | — | | — | | — | | — | | 100.0 | | — | | — | | 159 | | 145 | | £ | | David Mayhew12 | — | | — | | — | | — | | — | | 100.0 | | — | | — | | 148 | | 123 | | £ | | John Morschel16 | — | | — | | — | | — | | — | | — | | — | | — | | — | | 46 | | A$ | | Sir Richard Sykes12 | — | | — | | — | | — | | — | | 100.0 | | — | | — | | 217 | | 189 | | £ | | Executive directors | | | | | | | | | | | | | | | | | | | | | | | Robert Adams16 | — | | — | | — | | — | | — | | — | | — | | — | | — | | 2,114 | | £ | | Tom Albanese11,13,14 | 707 | | — | | — | | — | | — | | 60.5 | | 39.5 | | 17.7 | | 3,390 | | 3,962 | | £ | | Leigh Clifford15 | 346 | | 60 | | — | | — | | — | | 64.1 | | 35.9 | | 25.6 | | 4,261 | | 6,704 | | £ | | Guy Elliott | 707 | | — | | — | | — | | — | | 68.6 | | 31.4 | | 17.5 | | 2,935 | | 3,897 | | £ | | Product group chief executives | | | | | | | | | | | | | | | | | | | | | | Preston Chiaro14 | 168 | | 12 | | 5 | | — | | — | | 58.2 | | 41.8 | | 25.0 | | 1,781 | | 2,983 | | US$ | | Bret Clayton | 57 | | 13 | | 3 | | — | | — | | 65.9 | | 34.1 | | 6.6 | | 1,545 | | 900 | | US$ | | Oscar Groeneveld13 | 204 | | 50 | | — | | — | | — | | 72.9 | | 27.1 | | 17.5 | | 2,411 | | 3,509 | | A$ | | Keith Johnson | 385 | | — | | — | | — | | — | | 57.5 | | 42.5 | | 15.0 | | 2,174 | | 2,284 | | £ | | Andrew MacKenzie | 475 | | — | | — | | — | | — | | 57.1 | | 42.9 | | 10.9 | | 2,464 | | 2,217 | | £ | | Chris Renwick16 | — | | — | | — | | — | | — | | — | | — | | — | | — | | 1,225 | | A$ | | Sam Walsh | 220 | | 32 | | — | | — | | — | | 56.2 | | 43.8 | | 16.5 | | 2,325 | | 3,151 | | A$ | | |
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| | | | 2006 Remuneration | 3,269 | | 167 | | 8 | | — | | — | | | | | | | | 26,192 | | | | | | |
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| | | | | | 2005 Remuneration | 2,199 | | 114 | | 12 | | 1,115 | | 14 | | | | | | | | | | 35,549 | | | | |
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| | | | Short term employee benefits and costs | | | | | | | | | | | | | | | | | 20,380 | | 19,204 | | | | Other long term benefits | | | | | | | | | | | | | | | | | 737 | | 737 | | | | Value of share based awards5 | | | | | | | | | | | | | | | | | 1,631 | | 12,154 | | | | Post employment costs9 | | | | | | | | | | | | | | | | | 3,444 | | 2,325 | | | | Termination benefits | | | | | | | | | | | | | | | | | — | | 1,129 | | | | | | | | | | | | | | | | | | | | |
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A | is where the options are in respect of shares whose market price at the end of the financial year is equal to, or exceeds, the option price. | B | is where the options are in respect of shares whose market price at the end of the financial year is below the option exercise price. | | | Notes to Table 1 | 1 | Rio Tinto plc ordinary shares of 10p each;Rio Tinto Limited – shares – stated in italics. | 2 | Options have been granted under the Share Option Plan, the Rio Tinto plc Share Savings Plan and the Rio Tinto Limited Share Savings Plan. | 3 | The options granted to each director have been aggregated, except that any ‘out of the money options’ as at 31 December 2003 have been separately aggregated and disclosed. The closing price of Rio Tinto plc ordinary shares at 31 December 2003 was 1,543p (2002: 1,240p) and the closing price of Rio Tinto Limited shares at
31 December 2003 was A$37.54 (2002:A$33.95). | 4 | Two directors were granted share options under the Rio Tinto Share Savings Plan that are exercisable between 1 January 2009 and 30 June 2009. One was granted options over 1,431 Rio Tinto plc ordinary shares at 1,107p per share and the other was granted options over 1,431 Rio Tinto Limited shares at A$27.48 per share. | 5 | All other share options were granted under the Share Option Plan and, subject to the performance criteria explained on page 63, are exercisable between 7 March 2006 and
7 March 2013. Options were granted over 569,674 Rio Tinto plc ordinary shares at 1,263p per share and over 344,212 Rio Tinto Limited shares at A$33.336 per share. | 6 | No directors’ options lapsed during the year. Following Mr Leslie’s resignation 167,951 of his options were cancelled with immediate effect. Following Sir Robert Wilson’s retirement 124,318 of his options were also cancelled. | 7 | Or at date of retirement or resignation if earlier. |
Rio Tinto’s register of directors’ interests, which is open to inspection, contains full details of directors’ shareholdings and options to subscribe for Rio Tinto shares.
68 | Rio Tinto 2003 Annual report and financial statements | |
Back to Contents
Table 6 – Total remuneration as required under the Australian Corporations Act 2001 | | Base | | Annual | | Other | | Subtotal | | Pension | | Value of | | Adjusted for | | 2003 | | | salary/ | | cash bonus | | benefits | 2 | | | contributions3 | | long term | | the term of the | | Total | 1 | | fees | | | | | | | | | | incentive | | Performance | | | | Stated in US$’000 | | | | | | | | | | | shares | 4 | Period | 5 | US$ | |
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| | | | | | | | | | | | | | | | | | | Chairman | | | | | | | | | | | | | | | | | Paul Skinner | 275 | | – | | 7 | | 282 | | – | | – | | – | | 282 | | | | | | | | | | | | | | | | | | | Non executive directors | | | | | | | | | | | | | | | | | Sir David Clementi | 80 | | – | | – | | 80 | | – | | – | | – | | 80 | | Leon Davis | 245 | | – | | – | | 245 | | – | | – | | – | | 245 | | Sir Richard Giordano | 156 | | – | | – | | 156 | | – | | – | | – | | 156 | | Andrew Gould | 91 | | – | | – | | 91 | | – | | – | | – | | 91 | | Sir John Kerr | 18 | | – | | – | | 18 | | – | | – | | – | | 18 | | David Mayhew | 91 | | – | | – | | 91 | | – | | – | | – | | 91 | | John Morschel | 123 | | – | | – | | 123 | | – | | – | | – | | 123 | | The Hon. Raymond Seitz | 34 | | – | | – | | 34 | | – | | – | | – | | 34 | | Sir Richard Sykes | 92 | | – | | – | | 92 | | – | | – | | – | | 92 | | Lord Tugendhat | 91 | | – | | – | | 91 | | – | | – | | – | | 91 | | | | | | | | | | | | | | | | | | | Executive directors | | | | | | | | | | | | | | | | | Robert Adams | 774 | | 511 | | 49 | | 1,334 | | – | | 2,834 | | (1,964 | ) | 2,204 | | Leigh Clifford | 1,086 | | 703 | | 354 | | 2,143 | | 268 | | 5,630 | | (3,859 | ) | 4,182 | | Guy Elliott | 656 | | 455 | | 35 | | 1,146 | | – | | 1,456 | | (1,011 | ) | 1,591 | | Oscar Groeneveld | 621 | | 471 | | 131 | | 1,223 | | 156 | | 2,284 | | (1,586 | ) | 2,077 | | Jonathan Leslie | 147 | | 92 | | 104 | | 343 | | – | | 331 | | (248 | ) | 426 | | Sir Robert Wilson | 1,217 | | 790 | | 72 | | 2,079 | | – | | 6,961 | | (4,775 | ) | 4,265 | | | | | | | | | | | | | | | | | | | Five highest paid executives in the Group (other than directors)6 | | Tom Albanese | 549 | | 313 | | 649 | | 1,511 | | – | | 2,726 | | (1,858 | ) | 2,379 | | Preston Chiaro | 419 | | 217 | | 234 | | 870 | | – | | 987 | | (679 | ) | 1,178 | | David Klingner | 434 | | 210 | | 250 | | 894 | | 109 | | 754 | | (533 | ) | 1,224 | | Christopher Renwick | 681 | | 606 | | 98 | | 1,385 | | 156 | | 2,106 | | (1,461 | ) | 2,186 | | Sam Walsh | 542 | | 443 | | 123 | | 1,108 | | 124 | | 1,590 | | (1,100 | ) | 1,722 | |
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Notes | 11. | The total remuneration is reported in US dollars. The amounts, with the exception of the annual cash bonus, can be converted into sterling at the rate of £1=US$1.6331 = £0.5432 or alternatively into Australian dollars at the rate of US$1=1 = A$1.5434,1.329, each being the average exchange rate for the year.2006. The annual cash bonus canis payable under the STIP and this may be converted at the 2006 year end exchange ratesrate of £1=US$1.781 = £0.5092 to ascertaina scertain the sterling equivalent or alternatively, US$1=1 = A$1.33551.2653 to findcalculate the Australian dollar value. Director’s remuneration included | 2. | Other cash and non cash based benefits are described in the first three columns areRemuneration report on page 95 to 121. Cash based benefits include car, fuel, overseas meeting allowances and cash in lieu of holiday. The amounts shown as reported in Table 1, converted into US dollars. | 2 | Includes provision of medical cover, car, fuel,paid to non executive directors relate entirely to overseas meeting allowances. Non monetary benefits include heathcare, 401K contributions in the US, educational assistance, leaving gifts, company paid tax,the provision of a car, annual leave accruals and professional advice, accomodation and costs associated with secondment.advice. | 33. | Includes actual contributions payableSecondment costs comprise housing, education, tax equalisation and relocation payments made to both defined contribution and defined benefit arrangements that are requiredon behalf of executive directors and product group chief executives living outside their home country. The figure in respect of Tom Albanese reflects a tax refund to secure the pension benefits earned inCompany during the course of the year. | 44. | Employment costs comprise social security contributions and accident insurance premiums in the UK and US and payroll taxes in Australia paid by the employer as a direct additional cost of hire. | 5. | The amountvalue of long term share based compensation representsawards has been determined in accordance with the estimatedrecognition and measurement requirements of IFRS2 “Share-based Payment”. The fair value of awards granted under the Rio Tinto Share Option Plan (the SOP), and the Rio Tinto Share Savings Plan (the SSP) and the Mining Companies Comparative Plan (the MCCP). The estimated value hashave been calculated at their dates of grant using an independent binomiallattice based option valuation model provided by external consultants, Lane Clark and Peacock LLP. The fair value of long term share based compensation has been valued in accordance with the guidelines as detailed in the Australian Securities & Investments Commission media release dated 30 June 2003. | 5 | Under Australian GAAP the value of unvested share grants should be spread equally over the term of each scheme's performance period. This adjustment averages the value of the long term incentive shares over a three year period in respect of the SOP, a four year period in respect of the MCCP and the length of the relevant contract period under the SSP. | 6 | The number of share optionsawards granted under the Share Option Plan to the five highest paid senior executives in the twelve month period up to 31 December 2003 are as follows: Mr Albanese 139,165 and Mr Chiaro 37,160 over Rio Tinto plc ordinary shares, Mr Renwick 95,392, Mr Walsh 75,863 and Mr Klingner 20,956 over Rio Tinto Limited ordinary shares. The options are subject to the performance criteria explained on page 63 and are exercisable between 7 March 2006 and 6 March 2013. Options were granted at 1,263p per ordinary Rio Tinto plc share and at A$33.336 per ordinary Rio Tinto Limited share.
The number of conditional shares awarded under the Mining Companies Comparative Plan in respect(the MCCP) has been based on the |
Rio Tinto 2006 Form 20-F | 108 |
Back to Contents | market price of shares at the measurement date adjusted to reflect the number of awards expected to vest based on the current and anticipated relative TSR performance and, where relevant, for non receipt of dividends between measurement date and date of vest. The failure of the same five senior executives2003 conditional award to vest for directors reduced the projected value of future awards, as calculated in accordance with the relevant accounting standards. This in turn led to a negative MCCP value arising for certain individuals to offset earlier valuations which are now, under these accounting standards, considered over-valued. Further details of the valuation methods and the same twelve month period to 31 December 2003assumptions used for these awards ar e as follows: Mr Albanese 19,274 and Mr Chiaro 7,352 over Rio Tinto plc ordinary shares and Mr Renwick 21,230, Mr Walsh 16,884 and Mr Klingner 10,961 over Rio Tinto Limited ordinary shares. The market prices ofincluded in the Rio Tinto plc and Rio Tinto Limited ordinary shares were 1,198p and A$30.69 respectively.
Mr Albanese was granted 530 share options over Rio Tinto ordinary shares under the Rio Tinto Share Savings Plan at an option price of £11.50. These may be exercised between 1 January 2006 and 7 January 2006.
The number of share options and conditional shares awarded to the executive directors are shown in Tables 4 and 5 of this report.note 45 (Share based payments). The non executive directors do not participate in the long term incentive share schemes. The fair value of other share based awards is measured at the purchase cost of the shares from the market. | 6. | The number of conditional shares awarded to executive directors and senior executives under the MCCP for the twelve month period ending 31 December 2006 are shown in Table 4 of this report. The MCCP is stated under primary emoluments to reflect the treatment of the plan as a cash settled share based payment. | 7. | The award of options to executive directors under the SOP and SSP during the twelve month period up to 31 December 2006 are shown in Table 5 of this report. | 8. | Details of other share based awards refer to the Rio Tinto Share Ownership Plan and the SSP, details of which are set out in the Remuneration report on page 95 to 121. Under the Share Ownership Plan UK executives are beneficiaries of free shares up to a maximum value of £3,000 (US$ 5,523) and may also contribute to purchase additional shares where the Company will match their personal contributions up to a maximum of £1,500 (US$ 2,762) per annum. Under these plans Guy Elliott, Keith Johnson and Andrew Mackenzie each received a total of £4,500 (US$8,285). American group product chief executives enjoy a Company matching of personal contribution for shares under the 401k arrangements up to a maximum of US$13,213. The Company matched personal contributions to the following values: Tom Albanese US$ 13,213, Preston Chiaro US$5,410 and Bret Clayton US$11,534. | 9. | The costs shown for defined benefit pension plans and post retirement medical benefits are the service costs attributable to the individual, calculated in accordance with IAS19. The cost for defined contribution plans is the amount contributed in the year by the company | 10. | Remuneration mix shows the proportions of total remuneration comprising fixed and variable pay components and the percentage of total remuneration comprising share options only. Fixed pay is represented by base salary, non monetary and other cash benefits, secondment and employment costs, post employment costs, long service payments, termination benefits and voluntary share based awards as detailed in Note 8. Variable pay is made up of the cash bonus and the values of the share based awards related to company performance. | 11. | Tom Albanese was appointed an executive director with effect from 7 March 2006, having previously been chief executive Copper and Exploration. The aggregate figure of US$3,390,000 reported above represents his remuneration for the full year. The part year since his appointment as executive director amounted to US$2,413,000 and is made up of short term benefits and costs of US$1,388,000, share based awards of US$360,000 and post employment costs of US$665,000. Michael Fitzpatrick was appointed a non executive director with effect from 6 June 2006. Bret Clayton became chief executive, Copper on 1 July 2006. | 12. | David Mayhew’s fees were paid to JP Morgan Cazenove and Sir Richard Sykes’s fees were paid to Imperial College. The fees disclosed above include £10,000 (US$ 18,410) paid to JP Morgan Cazenove for David Mayhew’s attendance atAudit committeemeetings in his capacity as advisor. | 13. | Prior to Tom Albanese’s appointment as an executive director and Oscar Groeneveld’s transfer to product group chief executive, Aluminium and with a view to retaining their services, both were awarded a one-off three year retention bonus in April 2004 of 100 per cent of salary as at 1 March 2007 which may vest in October 2007, if they remain employed by Rio Tinto at that time. The maximum values for Tom Albanese and Oscar Groeneveld are US$1,134,000 and US$1,076,000 respectively. These amounts have been spread equally over the three year period on an accrual basis and are reported here as long service payments of US$378,000 for Tom Albanese and US$359,000 for Oscar Groeneveld .. The comparative figures for 2005 have similarly been adjusted and restated. | 14. | In 2005, the tax equalisation figures for Tom Albanese and Preston Chiaro, which were included under secondment costs, were overstated by US$524,894 and US$262,517 respectively. The 2005 total remuneration comparative figure shown above has been restated to reflect the adjustment. | 15. | In the course of the year, Leigh Clifford received US$139,533 in respect of his non Rio Tinto related directorship. | 16. | Leon Davis, Sir Richard Giordano and John Morschel retired on 29 April 2005. Robert Adams died on 27 January 2005 and Chris Renwick received a post retirement payment in 2005. |
Auditable part
Tables 1, 2, 4 and 5 comprise the ‘auditable part’ of the Remuneration report, being the information required by Part 3 of schedule 7a to the Companies Act 1985.
Rio Tinto 2006Form 20-F | 109 |
Back to Contents Table 2 – Executive directors’ pension entitlements (as at 31 December 2006) | | | | | | Accrued benefits | | Transfer values | | | | | | |
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| | | Age | | Years of | | At 31 | | At 31 | | Change in | | Change in | | At 31 | | At 31 | | Change, | | Transfer | | | | | service | | December | | December | | accrued | | accrued | | December | | December | | net of | | value of | | | | | completed | | 2005 | | 2006 | | benefits | | benefit | | 2005 | | 2006 | | personal | | change in | | | | | | | | | | | during the | | net of | | | | | | contribs. | | accrued | | | | | | | | | | | year ended | | inflation1 | | | | | | | | benefit | | | | | | | | | | | 31 | | | | | | | | | | net of | | | | | | | | | | | December | | | | | | | | | | inflation1 | | | | | | | | | | | 2006 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | UK | | | | | £’000 pa | | £’000 pa | | £’000 pa | | £’000 pa | | £’000 | | £’000 | | £’000 | | £’000 | | directors | | | | | pension | | pension | | pension | | pension | | | | | | | | | |
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| | Tom Albanes2,3 | 49 | | 25 | | 115 | | 126 | | 11 | | 7 | | 729 | | 882 | | 153 | | 137 | | Guy Elliott2 | 51 | | 26 | | 291 | | 335 | | 44 | | 31 | | 3,781 | | 4,484 | | 703 | | 415 | |
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| | Australian | | | | | A$’000 | | A$’000 | | A$’000 | | A$’000 | | A$’000 | | A$’000 | | A$’000 | | A$’000 | | director | | | | | Lump sum | | Lump sum | | Lump sum | | Lump sum | | | | | | | | | |
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| | Leigh Clifford4,5 | 59 | | 36 | | 13,877 | | 15,341 | | 1,464 | | 1,006 | | 13,877 | | 15,341 | | 1,464 | | 1,006 | |
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Notes to Table 2 | 1 | Price inflation is calculated as the increase in the relevant retail or consumer price index over the year to 31 December 2006. | 2 | Transfer values are calculated in a manner consistent with “Retirement Benefit Schemes – Transfer Values (GN11)” published by the Institute of Actuaries and the Faculty of Actuaries. | 3 | Tom Albanese became a director of Rio Tinto plc and Rio Tinto Limited with effect from 7 March 2006; the figures shown cover the whole of 2006. He accrued pension benefits in the US plans for service up to 30 June 2006 and in the UK fund for subsequent service. The transfer value of his benefits in the US plans is represented by the Accumulated Benefit Obligation calculated on the accounting assumptions used for the Group’s post retirement benefits disclosures. In addition, the employer paid $13,200 in respect of Tom Albanese into a 401k plan in the US for the period. | 4 | In addition, A$79,730 was credited to the account belonging to Leigh Clifford in the Rio Tinto Staff Superannuation Fund in relation to the pensionable element of his 2006 performance bonus. | 5 | The figures shown for Leigh Clifford include allowance for an enhancement to benefits granted in 2004, whereby his contractual retirement age was reduced from 62 to 60 and the pension multiple at age 60 was increased from 6.65 to 7.0. The figures as at 31 December 2005 shown in the 2005 Financial statements did not include this enhancement. As a result the accrued lump sum shown at the start of the year, of A$13,877,000, is higher than the figure disclosed in the 2005 Financialstatements, of A$13,147,000. |
Rio Tinto 20032006Form 20-F | 110 |
Back to Contents Table 3 – Directors’ and senior management’s beneficial interests in Rio Tinto shares | | | | |
| | | | | | | Rio Tinto plc | | Rio Tinto Limited | | Movement | | |
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| | | 1 Jan | | 31 Dec | | 31 May | | 1 Jan | | 31 Dec | | 31 May | | Exercise | | Compen- | | Other6 | | | 20061 | | 20062 | | 2007 | | 200611 | | 20062 | | 2007 | | of | | sation5 | | | | | | | | | | | | | | | | | options4 | | | | | |
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| | Directors | | | | | | | | | | | | | | | | | | | Tom Albanese3,7,9 | 23,261 | | 41,814 | | 44,839 | | — | | — | | — | | 35,350 | | 3,025 | | (19,640 | ) | Ashton Calvert | — | | — | | — | | — | | — | | 735 | | — | | — | | 735 | | Sir David Clementi | — | | 147 | | 308 | | — | | — | | — | | — | | — | | 308 | | Leigh Clifford | 2,100 | | 2,100 | | 2,100 | | 91,255 | | 91,255 | | 91,255 | | — | | — | | — | | Vivienne Cox | 381 | | 528 | | 692 | | — | | — | | — | | — | | — | | 311 | | Sir Rod Eddington | — | | — | | — | | — | | — | | — | | — | | — | | — | | Guy Elliott7 | 47,827 | | 48,033 | | 48,644 | | — | | — | | — | | — | | 357 | | 470 | | Michael Fitzpatrick3 | — | | — | | — | | 2,100 | | 2,100 | | 2,100 | | — | | — | | — | | Richard Goodmanson | — | | 677 | | 1,628 | | — | | — | | — | | — | | — | | 1,628 | | Andrew Gould | 1,000 | | 1,000 | | 1,000 | | — | | — | | — | | — | | — | | — | | Lord Kerr | 2,300 | | 3,000 | | 3,000 | | — | | — | | — | | — | | — | | 700 | | David Mayhew | 2,500 | | 2,500 | | 2,500 | | — | | — | | — | | — | | — | | — | | Paul Skinner | 5,409 | | 5,598 | | 5,657 | | — | | — | | — | | — | | — | | 248 | | Sir Richard Sykes | 2,482 | | 2,569 | | 2,596 | | — | | — | | — | | — | | — | | 114 | | | | | | | | | | | | | | | | | | | | | Product group chief executives | | | | | | | | | | | | | | | | | | | Preston Chiaro7,9 | 60,762 | | 60,927 | | 62,585 | | — | | — | | — | | 490 | | — | | 1,823 | | Bret Clayton3,7,9 | 6,640 | | 6,867 | | 7,376 | | — | | — | | — | | — | | — | | 736 | | Oscar Groeneveld | 3,000 | | 3,000 | | 3,000 | | 79,502 | | 66,790 | | 66,790 | | 171,000 | | — | | (183,712 | ) | Keith Johnson7 | 2,236 | | 17,536 | | 18,882 | | — | | — | | — | | 43,426 | | 2,446 | | (29,216 | ) | Andrew Mackenzie10 | 39,197 | | 40,456 | | 40,597 | | — | | — | | — | | — | | 357 | | 1,053 | | Sam Walsh | — | | — | | — | | 6,570 | | 42,322 | | 42,723 | | 187,118 | | 4,156 | | (155,121 | ) |
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Notes to Table 3 | 1 | Or date of appointment if later. | 2 | Or date of retirement or resignation if earlier. | 3 | Tom Albanese was appointed executive director on 7 March 2006 and took over as chief executive from Leigh Clifford with effect 1 May 2007. Bret Clayton was appointed chief executive Copper on 1 July 2006. Michael Fitzpatrick was appointed non executive director on 6 June 2006. | 4 | Shares obtained through the exercise of options under the Rio Tinto Share Savings Plan or the Rio Tinto Share Option Plan. The number of shares retained may differ from the number of options exercised. | 5 | Shares obtained through the Rio Tinto Share Ownership Plan and/or vesting of awards under the Mining Companies Comparative Plan. | 6 | Share movements due to sale or purchase of shares, shares received under the Dividend Reinvestment Plan, shares purchased/sold through the Rio Tinto America Savings Plan or non executive directors share purchase plan. | 7 | These executives also have an interest in a trust fund containing 864 Rio Tinto plc shares at 31 December 2006 (1 January 2006: 835 Rio Tinto plc shares) as potential beneficiaries of the Rio Tinto Share Ownership Trust. At 8 June 2007 this trust fund contained 873 Rio Tinto plc shares. | 8 | Shares in Rio Tinto plc are ordinary shares of ten pence each. Shares in Rio Tinto Limited are ordinary shares. | 9 | The shareholdings of Tom Albanese, Preston Chiaro and Bret Clayton include Rio Tinto plc ADRs held through the Rio Tinto America Savings Plan. | 10 | Andrew Mackenzie’s 31 December 2005 balance was understated in the 2005 Remuneration report by ten Rio Tinto plc shares. |
Rio Tinto 2006Form 20-F | 111 |
Back to Contents Table 4 – Directors’ and senior management’s awards under long term incentive plans Mining Companies Comparative Plan | | Plan terms and conditions | | |
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| | | Conditional | | Market | | 1Jan | | Awarded3 | | Lapsed3 | | Vested3 | | 31Dec | | Perfor- | | Date | | Market | | Monetary | | | award | | price at | | 20063 | | | | | | | | 200610 | | mance | | award | | price at | | 5value of | | | granted | | award | | | | | | | | | | | | period | | vests | | vesting | | vested | | | | | | | | | | | | | | | | | concludes | | | | | | award | | | | | | | | | | | | | | | | | | | | | | | US$’000 | | |
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| | Executive directors | | | | | | | | | | | | | | | | | | | | | | Tom | 7 Mar | | | | | | | | | | | | | | 31 Dec | | 16 Feb | | | | | | Albanese | 2003 | | 1198 | p | 19,274 | | — | | 14,456 | | 4,818 | | — | | 2006 | | 2007 | | 2697 | p | 255 | | | 22 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2004 | | 1276 | p | 56,015 | | — | | — | | — | | 56,015 | | 2007 | | | | | | | | | 9 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | 1839 | p | 55,951 | | — | | — | | — | | 55,951 | | 2008 | | | | | | | | | 7 Mar | �� | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | 2630 | p | — | | 45,007 | | — | | — | | 45,007 | | 2009 | | | | | | | | | | | | |
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| | | | | | | 131,240 | | 45,007 | | 14,456 | | 4,818 | | 156,973 | | | | | | | | 255 | | | | | | |
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| | Leigh | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | Clifford | 2003 | | A$30.69 | | 36,341 | | — | | 36,341 | | — | | — | | 2006 | | | | | | | | | 22 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2004 | | A$33.17 | | 119,581 | | — | | — | | — | | 119,581 | | 2007 | | | | | | | | | 9 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | A$47.39 | | 113,324 | | — | | — | | — | | 113,324 | | 2008 | | | | | | | | | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | A$69.60 | | — | | 84,661 | | — | | — | | 84,661 | | 2009 | | | | | | | | | | | | |
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| | | | | | | 269,246 | | 84,661 | | 36,341 | | — | | 317,566 | | | | | | | | — | | | | | | |
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| | Guy | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | Elliott | 2003 | | 1198 | p | 22,923 | | — | | 22,923 | | — | | — | | 2006 | | | | | | | | | 22 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2004 | | 1276 | p | 51,550 | | — | | — | | — | | 51,550 | | 2007 | | | | | | | | | 9 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | 1839 | p | 51,081 | | — | | — | | — | | 51,081 | | 2008 | | | | | | | | | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | 2630 | p | — | | 40,670 | | — | | — | | 40,670 | | 2009 | | | | | | | | | | | | |
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| | | | | | | 125,554 | | 40,670 | | 22,923 | | — | | 143,301 | | | | | | | | — | | | | | | |
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| | Product group chief executives | | | | | | | | | | | | | | | | | | | | Preston | 7 Mar | | | | | | | | | | | | | | 31 Dec | | 16 Feb | | | | | | Chiaro | 2003 | | 1198 | p | 7,352 | | — | | 5,514 | | 1,838 | | — | | 2006 | | 2007 | | 2697 | p | 97 | | | 22 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2004 | | 1276 | p | 46,995 | | — | | — | | — | | 46,995 | | 2007 | | | | | | | | | 9 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | 1839 | p | 42,351 | | — | | — | | — | | 42,351 | | 2008 | | | | | | | | | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | 2630 | p | — | | 34,182 | | — | | — | | 34,182 | | 2009 | | | | | | | | | | | | |
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| | | | | | | 96,698 | | 34,182 | | 5,514 | | 1,838 | | 123,528 | | | | | | | | 97 | | | | | | |
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| | Bret | 7 Mar | | | | | | | | | | | | | | 31 Dec | | 16 Feb | | | | | | Clayton | 2003 | | 1198 | p | 4,862 | | — | | 3,647 | | 1,215 | | — | | 2006 | | 2007 | | 2697 | p | 64 | | | 22 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2004 | | 1276 | p | 13,315 | | — | | — | | — | | 13,315 | | 2007 | | | | | | | | | 9 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | 1839 | p | 11,539 | | — | | — | | — | | 11,539 | | 2008 | | | | | | | | | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | 2630 | p | — | | 10,767 | | — | | — | | 10,767 | | 2009 | | | | | | | | | | | | |
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| | | | | | | 29,716 | | 10,767 | | 3,647 | | 1,215 | | 35,621 | | | | | | | | 64 | | | | | | |
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Rio Tinto 2006Form 20-F | 112 |
Back to Contents Table 4 – Awards to executive directors and product group chief executives under long term incentive plans Mining Companies Comparative Plan | | Plan terms and conditions | | |
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| | | Conditional | | Market | | 1 Jan | | Awarded3 | | Lapsed3 | | Vested3 | | 31 Dec | | Perfor- | | Date | | Market | | Monetary | | | award | | price at | | 20063 | | | | | | | | 200610 | | mance | | award | | price at | | 5value of | | | granted | | award | | | | | | | | | | | | period | | vests | | vesting | | vested | | | | | | | | | | | | | | | | | concludes | | | | | | award | | | | | | | | | | | | | | | | | | | | | | | US$’000 | | |
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| | Oscar | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | Groeneveld | 2003 | | A$30.69 | | 21,469 | | — | | 21,469 | | — | | — | | 2006 | | — | | — | | — | | | 22 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2004 | | A$33.17 | | 43,785 | | — | | — | | — | | 43,785 | | 2007 | | — | | — | | — | | | 9 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | A$47.39 | | 45,024 | | — | | — | | — | | 45,024 | | 2008 | | — | | — | | — | | | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | A$69.60 | | — | | 36,460 | | — | | — | | 36,460 | | 2009 | | — | | — | | — | | | | | | |
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| | | | | | | 110,278 | | 36,460 | | 21,469 | | — | | 125,269 | | | | | | | | — | | | | | | |
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| | Keith | 7 Mar | | | | | | | | | | | | | | 31 Dec | | 16 Feb | | | | | | Johnson | 2003 | | 1198 | p | 8,186 | | — | | 6,140 | | 2,046 | | — | | 2006 | | 2007 | | 2697 | p | 108 | | | 22 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2004 | | 1276 | p | 30,387 | | — | | — | | — | | 30,387 | | 2007 | | — | | — | | — | | | 9 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | 1839 | p | 33,556 | | — | | — | | — | | 33,556 | | 2008 | | — | | — | | — | | | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | 2630 | p | — | | 26,508 | | — | | — | | 26,508 | | 2009 | | — | | — | | — | | | | | | |
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| | | | | | | 72,129 | | 26,508 | | 6,140 | | 2,046 | | 90,451 | | | | | | | | 108 | | | | | | |
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| | Andrew | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | Mackenzie | 2003 | | 1198 | p | — | | — | | — | | — | | — | | 2006 | | — | | — | | — | | | 22 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2004 | | 1276 | p | 16,270 | | — | | — | | — | | 16,270 | | 2007 | | — | | — | | — | | | 9 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | 1839 | p | 37,638 | | — | | — | | — | | 37,638 | | 2008 | | — | | — | | — | | | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | 2630 | p | — | | 29,413 | | — | | — | | 29,413 | | 2009 | | — | | — | | — | | | | | | |
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| | | | | | | 53,908 | | 29,413 | | — | | — | | 83,321 | | | | | | | | — | | | | | | |
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| | Sam Walsh | 7 Mar | | | | | | | | | | | | | | 31 Dec | | 16 Feb | | | | | | | 2003 | | A$30.69 | | 16,884 | | — | | 12,663 | | 4,221 | | — | | 2006 | | 2007 | | A$75.60 | | 252 | | | 22 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2004 | | A$33.17 | | 38,023 | | — | | — | | — | | 38,023 | | 2007 | | — | | — | | — | | | 9 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | A$47.39 | | 41,176 | | — | | — | | — | | 41,176 | | 2008 | | — | | — | | — | | | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | A$69.60 | | — | | 33,655 | | — | | — | | 33,655 | | 2009 | | — | | — | | — | | | | | | |
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| | | | | | | 96,083 | | 33,655 | | 12,663 | | 4,221 | | 112,854 | | | | | | | | 252 | | | | | | |
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Rio Tinto 2006Form 20-F | 113 |
Back to Contents Table 4 – Awards to executive directors and product group chief executives under long term incentive plans | Mining Companies Comparative Plan | | Plan terms and conditions | | |
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| | | Conditional | | Market | | 1 Jan | | Awarded3 | | Lapsed3 | | Vested3 | | 31 May | | Perfor- | | Date | | Market | | Monetary | | | award | | price at | | 20073 | | | | | | | | 200710 | | mance | | award | | price at | | 5value of | | | granted | | award | | | | | | | | | | | | period | | vests | | vesting | | vested | | | | | | | | | | | | | | | | | concludes | | | | | | award | | | | | | | | | | | | | | | | | | | | | | | US$’000 | | |
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| | Executive directors | | | | | | | | | | | | | | | | | | | | | | | Tom | 22Apr | | | | | | | | | | | | | | 31Dec | | | | | | | | Albanese | 2004 | | 1276 | p | 56,015 | | — | | — | | — | | 56,015 | | 2007 | | — | | — | | — | | | 9Mar | | | | | | | | | | | | | | 31Dec | | | | | | | | | 2005 | | 1839 | p | 55,951 | | — | | — | | — | | 55,951 | | 2008 | | — | | — | | — | | | 7Mar | | | | | | | | | | | | | | 31Dec | | | | | | | | | 2006 | | 2630 | p | 45,007 | | — | | — | | — | | 45,007 | | 2009 | | — | | — | | — | | | 13Mar | | | | | | | | | | | | | | 31Dec | | | | | | | | | 2007 | | 2681 | p | — | | 44,124 | | — | | — | | 44,124 | | 2010 | | — | | — | | — | | | | | | |
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| | | | | | | 156,973 | | 44,124 | | — | | — | | 201,097 | | | | | | | | — | | | | | | |
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| | Leigh | 22Apr | | A$ | | | | | | | | | | | | 31Dec | | | | | | | | Clifford | 2004 | | 33.17 | | 119,581 | | — | | — | | — | | 119,581 | | 2007 | | — | | — | | — | | | 9Mar | | A$ | | | | | | | | | | | | 31Dec | | | | | | | | | 2005 | | 47.39 | | 113,324 | | — | | — | | — | | 113,324 | | 2008 | | — | | — | | — | | | 7Mar | | A$ | | | | | | | | | | | | 31Dec | | | | | | | | | 2006 | | 69.60 | | 84,661 | | — | | — | | — | | 84,661 | | 2009 | | — | | — | | — | | | 13Apr | | A$ | | | | | | | | | | | | 31Dec | | | | | | | | | 2007 | | 74.50 | | — | | 61,550 | | — | | — | | 61,550 | | 2010 | | — | | — | | — | | | | | | |
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| | | | | | | 317,566 | | 61,550 | | — | | — | | 379,116 | | | | | | | | — | | | | | | |
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| | Guy | 22Apr | | | | | | | | | | | | | | 31Dec | | | | | | | | Elliott | 2004 | | 1276 | p | 51,550 | | — | | — | | — | | 51,550 | | 2007 | | — | | — | | — | | | 9Mar | | | | | | | | | | | | | | 31Dec | | | | | | | | | 2005 | | 1839 | p | 51,081 | | — | | — | | — | | 51,081 | | 2008 | | — | | — | | — | | | 7Mar | | | | | | | | | | | | | | 31Dec | | | | | | | | | 2006 | | 2630 | p | 40,670 | | — | | — | | — | | 40,670 | | 2009 | | — | | — | | — | | | 13Apr | | | | | | | | | | | | | | 31Dec | | | | | | | | | 2007 | | 2681 | p | — | | 30,837 | | — | | — | | 30,837 | | 2010 | | — | | — | | — | | | | | | |
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| | | | | | | 143,301 | | 30,837 | | — | | — | | 174,138 | | | | | | | | — | | | | | | |
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| | Product group chief executives | | | | | | | | | | | | | | | | | | | | | | Preston | 22Apr | | | | | | | | | | | | | | 31Dec | | | | | | | | Chiaro | 2004 | | 1276 | p | 46,995 | | — | | — | | — | | 46,995 | | 2006 | | — | | — | | — | | | 9Mar | | | | | | | | | | | | | | 31Dec | | | | | | | | | 2005 | | 1839 | p | 42,351 | | — | | — | | — | | 42,351 | | 2007 | | — | | — | | — | | | 7Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | 2630 | p | 34,182 | | — | | — | | — | | 34,182 | | 2008 | | — | | — | | — | | | 13Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2007 | | 2681 | p | — | | 25,679 | | — | | — | | 25,679 | | 2010 | | — | | — | | — | | | | | | |
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| | | | | | | 123,528 | | 25,679 | | — | | — | | 149,207 | | | | | | | | — | | | | | | |
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| | Bret | 22Apr | | | | | | | | | | | | | | 31Dec | | | | | | | | Clayton | 2004 | | 1276 | p | 13,315 | | — | | — | | — | | 13,315 | | 2007 | | — | | — | | — | | | 9Mar | | | | | | | | | | | | | | 31Dec | | | | | | | | | 2005 | | 1839 | p | 11,539 | | — | | — | | — | | 11,539 | | 2008 | | — | | — | | — | | | 7Mar | | | | | | | | | | | | | | 31Dec | | | | | | | | | 2006 | | 2630 | p | 10,767 | | — | | — | | — | | 10,767 | | 2009 | | — | | — | | — | | | 13Apr | | | | | | | | | | | | | | 31Dec | | | | | | | | | 2007 | | 2681 | p | — | | 22,566 | | — | | — | | 22,566 | | 2010 | | — | | — | | — | | | | | | |
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| | | | | | | 35,621 | | 22,566 | | — | | — | | 58,187 | | | | | | | | — | | | | | | |
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Rio Tinto 2006 Annual report and financial statementsForm 20-F | 69114 |
Back to Contents Corporate governanceTable 4 – Awards to executive directors and product group chief executives under long term incentive plans
| Mining Companies Comparative Plan | | Plan terms and conditions | | |
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| | | Conditional | | Market | | 1 Jan | | Awarded3 | | Lapsed3 | | Vested3 | | 31 May | | Perfor- | | Date | | Market | | Monetary | | | award | | price at | | 20073 | | | | | | | | 200710 | | mance | | award | | price at | | 5 value of | | | granted | | award | | | | | | | | | | | | period | | vests | | vesting | | vested | | | | | | | | | | | | | | | | | concludes | | | | | | award | | | | | | | | | | | | | | | | | | | | | | | US$’000 | | |
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| | Oscar | 22 Apr | | A$ | | | | | | | | | | | | 31 Dec | | | | | | | | Groeneveld | 2004 | | 33.17 | | 43,785 | | — | | — | | — | | 43,785 | | 2007 | | — | | — | | — | | | 9 Mar | | A$ | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | 47.39 | | 45,024 | | — | | — | | — | | 45,024 | | 2008 | | — | | — | | — | | | 7 Mar | | A$ | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | 69.60 | | 36,460 | | — | | — | | — | | 36,460 | | 2009 | | — | | — | | — | | | 13 Apr | | A$ | | | | | | | | | | | | 31 Dec | | | | | | | | | 2007 | | 74.50 | | — | | 26,590 | | — | | — | | 26,590 | | 2010 | | — | | — | | — | | | | | | |
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| | | | | | | 125,269 | | 26,590 | | — | | — | | 151,859 | | | | | | | | — | | | | | | |
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| | Keith | 22 Apr | | | | | | | | | | | | | | 31 Dec | | — | | — | | | | Johnson | 2004 | | 1276 | p | 30,387 | | — | | — | | — | | 30,387 | | 2007 | | | | | | — | | | 9 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | 1839 | p | 33,556 | | — | | — | | — | | 33,556 | | 2008 | | — | | — | | — | | | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | 2630 | p | 26,508 | | — | | — | | — | | 26,508 | | 2009 | | — | | — | | — | | | 13 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2007 | | 2681 | p | — | | 19,805 | | — | | — | | 19,805 | | 2010 | | — | | — | | — | | | | | | |
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| | | | | | | 90,451 | | 19,805 | | — | | — | | 110,256 | | | | | | | | — | | | | | | |
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| | Andrew | 22 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | Mackenzie | 2004 | | 1276 | p | 16,270 | | — | | — | | — | | 16,270 | | 2007 | | — | | — | | — | | | 9 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | 1839 | p | 37,638 | | — | | — | | — | | 37,638 | | 2008 | | — | | — | | — | | | 7 Mar | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | 2630 | p | 29,413 | | — | | — | | — | | 29,413 | | 2009 | | — | | — | | — | | | 13 Apr | | | | | | | | | | | | | | 31 Dec | | | | | | | | | 2007 | | 2681 | p | — | | 21,811 | | — | | — | | 21,811 | | 2010 | | — | | — | | — | | | | | | |
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| | | | | | | 83,321 | | 21,811 | | — | | — | �� | 105,132 | | | | | | | | — | | | | | | |
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| | Sam Walsh | 22 Apr | | A$ | | | | | | | | | | | | 31 Dec | | | | | | | | | 2004 | | 33.17 | | 38,023 | | — | | — | | — | | 38,023 | | 2007 | | — | | — | | — | | | 9 Mar | | A$ | | | | | | | | | | | | 31 Dec | | | | | | | | | 2005 | | 47.39 | | 41,176 | | — | | — | | — | | 41,176 | | 2008 | | — | | — | | — | | | 7 Mar | | A$ | | | | | | | | | | | | 31 Dec | | | | | | | | | 2006 | | 69.60 | | 33,655 | | — | | — | | — | | 33,655 | | 2009 | | — | | — | | — | | | 13 Apr | | A$ | | | | | | | | | | | | 31 Dec | | | | | | | | | 2007 | | 74.50 | | — | | 25,103 | | — | | — | | 25,103 | | 2010 | | — | | — | | — | | | | | | |
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| | | | | | | 112,854 | | 25,103 | | — | | — | | 137,957 | | | | | | | | — | | | | | | |
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Notes to Table 4 | 1. | Awards denominated in pence were for Rio Tinto plc ordinary shares of 10p each. Awards denominated in A$ were for Rio TintoLimited shares. | 2. | The fair value of conditional awards granted in 2006 was 964p for Rio Tinto plc and A$24.96 for Rio Tinto Limited shares. | 3. | The Group’s 10th place ranking against the comparator group for the MCCP 2003 award will not generate any vesting of the conditional award to any participant who was an executive director at the time of the initial grant. Tom Albanese was not an executive director at that time and along with participating senior employees of the Group he will qualify for a 25 per cent vesting based on the scales applied to conditional awards made prior to 2004. | 4. | The value of the vested awards have been based on share prices of 2697p and A$75.60 being the respective closing share prices for Rio Tinto plc and Rio Tinto Limited ordinary shares on 9 February 2007, the latest practicable date prior to the publication of the 2006 Annual report and financial statements. The amount in US dollars has been converted from sterling at the rate of US$1 = £0.5092 and Australian dollars at the rate of US$1 = A$1.2653, being the year end exchange rate used elsewhere in this publication. | 5. | Conditional awards are awarded at no cost to the recipient and no amount remains unpaid on any shares granted. No award would be vested and unexercisable at the reporting date. | 6. | Leigh Clifford was given a conditional award over 84,661 Rio Tinto Limited shares during the year. These awards were approved by the shareholders under the ASX Listing Rule 10.14 at the 2004 annual general meeting. | 7. | A full explanation of the MCCP can be found on pages 97 to 98. |
Rio Tinto 2006 Form 20-F | 115 |
Back to Contents Table 5 – Directors’ and senior management’s options to acquire Rio Tinto is committedplc and Rio Tinto Limited shares | | | | | | | | | Vested and | | | | | | Value of | | | | | | | | | | | | | | | | | exercisable | | | | | | options | | Market | | | | | | | | | | | Vested | | | | on | | | | | | exercised | | price on | | Date from | | | | | 1 Jan | | | | during | | | | 31Dec | | 31 Dec | | Option | | during | | date of | | which first | | Expiry | | | 2006 | | Granted | | 2006 | | Exercised | | 2006 | | 2006 | | price | | 20069 | | exercise | | exercisable | | date | |
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| | Rio Tinto plc Share Savings Plan | | | | | | | | | | | | | | | | | | | |
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| | Tom | | | | | | | | | | | | | | | | | | | 1 Jan | | 7 Jan | | Albanese | 530 | | — | | 530 | | 530 | | — | | — | | 1150 | p | £8,072 | | 2673 | p | 2006 | | 2006 | | | | | | | | | | | | | | | | | | | | | 1 Jan | | 30 Jun | | | — | | 791 | | — | | — | | — | | 791 | | 2068 | p | — | | — | | 2012 | | 2012 | |
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| | Preston | | | | | | | | | | | | | | | | | | | 1 Jan | | 5 Jan | | Chiaro | 490 | | — | | — | | — | | — | | 490 | | 1277 | p | — | | — | | 2007 | | 2007 | | | | | | | | | | | | | | | | | | | | | 1 Jan | | 6 Jan | | | — | | 298 | | — | | — | | — | | 298 | | 2088 | p | — | | — | | 2009 | | 2009 | |
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| | Bret | | | | | | | | | | | | | | | | | | | 1 Jan | | 7 Jan | | Clayton2 | 530 | | — | | 530 | | 530 | | — | | — | | 1150 | p | £8,072 | | 2673 | p | 2006 | | 2006 | |
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| | Guy | | | | | | | | | | | | | | | | | | | 1 Jan | | 30 Jun | | Elliott | 1,431 | | — | | — | | — | | — | | 1,431 | | 1107 | p | — | | — | | 2009 | | 2009 | |
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| | Keith | | | | | | | | | | | | | | | | | | | 1 Jan | | 5 Jan | | Johnson | 1,078 | | — | | 1,078 | | 1,078 | | — | | — | | 876 | p | £21,528 | | 2873 | p | 2007 | | 2007 | | | | | | | | | | | | | | | | | | | | | 1 Jan | | 6 Jan | | | — | | 456 | | — | | — | | — | | 456 | | 2068 | p | — | | — | | 2009 | | 2009 | |
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| | Andrew | | | | | | | | | | | | | | | | | | | 1 Jan | | 30 Jun | | Mackenzie | 1,021 | | — | | — | | — | | — | | 1,021 | | 1576 | p | — | | — | | 2009 | | 2009 | |
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| | Rio Tinto plc Share Option Plan | | | | | | | | | | | | | | | | | | | |
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| | Tom | | | | | | | | | | | | | | | | | | | 27 May | | 27 May | | Albanese | 11,142 | | — | | — | | 11,142 | | — | | — | | 820 | p | £221,280 | | 2806 | p | 2001 | | 2008 | | | | | | | | | | | | | | | | | | | | | 12 Mar | | 12 Mar | | | 12,382 | | — | | — | | 12,382 | | — | | — | | 808.8 | p | £247,293 | | 2806 | p | 2002 | | 2009 | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | 7,530 | | — | | — | | 7,530 | | — | | — | | 965.4 | p | £138,597 | | 2806 | p | 2003 | | 2010 | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | 3,766 | | — | | — | | 3,766 | | — | | — | | 965.4 | p | £69,317 | | 2806 | p | 2005 | | 2010 | | | | | | | | | | | | | | | | | | | | | 6 Mar | | 6 Mar | | | 102,718 | | — | | — | | — | | 102,718 | | 102,718 | | 1265.6 | p | — | | — | | 2005 | | 2011 | | | | | | | | | | | | | | | | | | | | | 13 Mar | | 13 Mar | | | 125,336 | | — | | — | | — | | 125,336 | | 125,336 | | 1458.6 | p | — | | — | | 2005 | | 2012 | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | 139,165 | | — | | 139,165 | | — | | 139,165 | | 139,165 | | 1263 | p | — | | — | | 2006 | | 2013 | | | | | | | | | | | | | | | | | | | | | 22 Apr | | 22 Apr | | | 84,020 | | — | | — | | — | | — | | 84,020 | | 1329 | p | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | | | | | | | 9 Mar | | 9 Mar | | | 83,926 | | — | | — | | — | | — | | 83,926 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | — | | 67,511 | | — | | — | | — | | 67,511 | | 2711.2 | p | — | | — | | 2009 | | 2016 | |
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| | Preston | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | Chiaro | 37,160 | | — | | 37,160 | | — | | 37,160 | | 37,160 | | 1263 | p | — | | — | | 2006 | | 2013 | | | | | | | | | | | | | | | | | | | | | 22 Apr | | 22 Apr | | | 70,490 | | — | | — | | — | | — | | 70,490 | | 1329 | p | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | | | | | | | 9 Mar | | 9 Mar | | | 63,527 | | — | | — | | — | | — | | 63,527 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | — | | 51,274 | | — | | — | | — | | 51,274 | | 2711.2 | p | — | | — | | 2009 | | 2016 | |
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Rio Tinto 2006 Form 20-F | 116 |
Back to Contents Table 5 – Directors’ and senior management’s options to acquire Rio Tinto plc and Rio Tinto Limited shares | | | | | | | | | Vested and | | | | | | Value of | | | | | | | | | | | | | | | | | exercisable | | | | | | options | | Market | | | | | | | | | | | Vested | | | | on | | | | | | exercised | | price on | | Date from | | | | | 1 Jan | | | | during | | | | 31 Dec | | 31 Dec | | Option | | during | | date of | | which first | | Expiry | | | 2006 | | Granted | | 2006 | | Exercised | | 2006 | | 2006 | | price | | 20069 | | exercise | | exercisable | | date | |
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| | Rio Tinto plc Share Option Plan (continued) | | | | | | | | | | | | | | | | | |
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| | Bret | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | Clayton2 | 24,573 | | — | | 24,573 | | 24,573 | | — | | — | | 1263 | p | £343,531 | | 2661 | p | 2006 | | 2013 | | | | | | | | | | | | | | | | | | | | | 22 Apr | | 22 Apr | | | 13,315 | | — | | — | | — | | — | | 13,315 | | 1329 | p | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | | | | | | | 9 Mar | | 9 Mar | | | 11,539 | | — | | — | | — | | — | | 11,539 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | 10,767 | | — | | — | | — | | — | | 10,767 | | 2711.2 | p | — | | — | | 2009 | | 2016 | |
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| | Guy | | | | | | | | | | | | | | | | | | | 13 Mar | | 13 Mar | | Elliott | 61,703 | | — | | — | | — | | 61,703 | | 61,703 | | 1458.6 | p | — | | — | | 2005 | | 2012 | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | 97,387 | | — | | 97,387 | | | | 97,387 | | 97,387 | | 1263 | p | — | | — | | 2006 | | 2013 | | | | | | | | | | | | | | | | | | | | | 22 Apr | | 22 Apr | | | 73,700 | | — | | — | | — | | — | | 73,700 | | 1329 | p | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | | | | | | | 9 Mar | | 9 Mar | | | 72,972 | | — | | — | | — | | — | | 72,972 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | — | | 58,100 | | — | | — | | — | | 58,100 | | 2711.2 | p | — | | — | | 2009 | | 2016 | |
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| | Keith | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | Johnson | 3,855 | | — | | — | | 3,855 | | — | | — | | 965.4 | p | 68,488 | | 2742 | p | 2005 | | 2010 | | | | | | | | | | | | | | | | | | | | | 6 Mar | | 6 Mar | | | 11,667 | | — | | — | | 11,667 | | — | | — | | 1265.6 | p | 172,252 | | 2742 | p | 2005 | | 2011 | | | | | | | | | | | | | | | | | | | | | 13 Mar | | 13 Mar | | | 10,595 | | — | | — | | 10,595 | | — | | — | | 1458.6 | p | 135,976 | | 2742 | p | 2005 | | 2012 | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | 16,231 | | — | | 16,231 | | 16,231 | | — | | — | | 1263 | p | 240,056 | | 2742 | p | 2006 | | 2013 | | | | | | | | | | | | | | | | | | | | | 22 Apr | | 22 Apr | | | 43,500 | | — | | — | | — | | — | | 43,500 | | 1329 | p | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | | | | | | | 9 Mar | | 9 Mar | | | 47,937 | | — | | — | | — | | — | | 47,937 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | — | | 37,869 | | — | | — | | — | | 37,869 | | 2711.2 | p | — | | — | | 2009 | | 2016 | |
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| | Andrew | | | | | | | | | | | | | | | | | | | 9 Mar | | 9 Mar | | Mackenzie10 | 53,769 | | — | | — | | — | | — | | 53,769 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | — | | 42,019 | | — | | — | | — | | 42,019 | | 2711.2 | p | — | | — | | 2009 | | 2016 | |
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| | Rio Tinto Limited Share Savings Plan | | | | | | | | | | | | | | | | | |
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| | Leigh | | | | | | | | | | | | | A$ | | | | | | 30 Sep | | 31 Mar | | Clifford11 | 1,486 | | — | | — | | — | | — | | 1,486 | | 29.04 | | — | | — | | 2007 | | 2008 | |
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| | Oscar | | | | | | | | | | | | | A$ | | | | | | 1 Jan | | 30 Jun | | Groeneveld | 1,431 | | — | | — | | — | | — | | 1,431 | | 27.48 | | — | | — | | 2009 | | 2009 | |
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| | Sam | | | | | | | | | | | | | A$ | | A$ | | A$ | | 1 Jan | | 30 Jun | | Walsh | 1,078 | | — | | 1,078 | | 1,078 | | — | | — | | 25.57 | | 53,787 | | 75.465 | | 2006 | | 2006 | | | | | | | | | | | | | | | A$ | | | | | | 1 Jan | | 30 Jun | | | 601 | | — | | — | | — | | — | | 601 | | 40.92 | | — | | — | | 2009 | | 2009 | |
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Rio Tinto 2006 Form 20-F | 117 |
Back to Contents Table 5 – Directors’ and senior management’s options to acquire Rio Tinto plc and Rio Tinto Limited shares | | | | | | | | | Vested and | | | | | | Value of | | | | | | | | | | | | | | | | | exercisable | | | | | | options | | Market | | | | | | | | | | | Vested | | | | on | | | | | | exercised | | price on | | Date from | | | | | 1 Jan | | | | during | | | | 31 Dec | | 31 Dec | | Option | | during | | date of | | which first | | Expiry | | | 2006 | | Granted | | 2006 | | Exercised | | 2006 | | 2006 | | price | | 20069 | | exercise | | exercisable | | date | |
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| | Rio Tinto Limited Share Option Plan | | | | | | | | | | | | | | | | | |
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| | Leigh | | | | | | | | | | | | | A$ | | | | | | 28 May | | 28 May | | Clifford11 | 52,683 | | — | | — | | — | | 52,683 | | 52,683 | | 23.4382 | | — | | — | | 2002 | | 2009 | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 7 Mar | | | 59,318 | | — | | — | | — | | 59,318 | | 59,318 | | 24.069 | | — | | — | | 2003 | | 2010 | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 7 Mar | | | 29,660 | | — | | — | | — | | 29,660 | | 29,660 | | 24.069 | | — | | — | | 2005 | | 2010 | | | | | | | | | | | | | | | A$ | | | | | | 6 Mar | | 6 Mar | | | 241,430 | | — | | — | | — | | 241,430 | | 241,430 | | 33.0106 | | — | | — | | 2005 | | 2011 | | | | | | | | | | | | | | | A$ | | | | | | 13 Mar | | 13 Mar | | | 208,882 | | — | | — | | — | | 208,882 | | 208,882 | | 39.8708 | | — | | — | | 2005 | | 2012 | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 30 Sept | | | 254,132 | | — | | 254,132 | | — | | 254,132 | | 254,132 | | 33.336 | | — | | — | | 2006 | | 2012 | | | | | | | | | | | | | | | A$ | | | | | | 22 Apr | | 30 Sept | | | 179,370 | | — | | — | | — | | — | | 179,370 | | 34.406 | | — | | — | | 2007 | | 2012 | | | | | | | | | | | | | | | A$ | | | | | | 9 Mar | | 30 Sept | | | 169,987 | | — | | — | | — | | — | | 169,987 | | 47.042 | | — | | — | | 2008 | | 2012 | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 30 Sept | | | — | | 126,992 | | — | | — | | — | | 126,992 | | 71.06 | | — | | — | | 2009 | | 2012 | |
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| | Oscar | | | | | | | | | | | | | A$ | | A$ | | A$ | | 6 Mar | | 6 Mar | | Groeneveld | 80,920 | | — | | — | | 80,920 | | — | | — | | 33.0106 | | 3,136,411 | | 71.77 | | 2005 | | 2011 | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 30 Sept | | | 90,080 | | — | | 90,080 | | — | | 90,080 | | 90,080 | | 33.336 | | — | | — | | 2006 | | 2012 | | | | | | | | | | | | | | | A$ | | | | | | 22 Apr | | 30 Sept | | | 62,600 | | — | | — | | — | | — | | 62,600 | | 34.406 | | — | | — | | 2007 | | 2012 | | | | | | | | | | | | | | | A$ | | | | | | 9 Mar | | 30 Sept | | | 64,321 | | — | | — | | — | | — | | 64,321 | | 47.042 | | — | | — | | 2008 | | 2012 | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 30 Sept | | | — | | 52,086 | | — | | — | | — | | 52,086 | | 71.06 | | — | | — | | 2009 | | 2012 | |
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| | Sam | | | | | | | | | | | | | A$ | | A$ | | | | 6 Mar | | 6 Mar | | Walsh | 49,983 | | — | | — | | 49,983 | | — | | — | | 33.0106 | | 2,494,122 | | $82.91 | | 2005 | | 2011 | | | | | | | | | | | | | | | A$ | | A$ | | | | 13 Mar | | 13 Mar | | | 60,194 | | — | | — | | 60,194 | | — | | — | | 39.8708 | | 2,590,702 | | $82.91 | | 2005 | | 2012 | | | | | | | | | | | | | | | A$ | | A$ | | | | 7 Mar | | 7 Mar | | | 75,863 | | — | | 75,863 | | 75,863 | | — | | — | | 33.336 | | 3,760,832 | | $82.91 | | 2006 | | 2013 | | | | | | | | | | | | | | | A$ | | | | | | 22 Apr | | 22 Apr | | | 54,400 | | — | | — | | — | | — | | 54,400 | | 34.406 | | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | A$ | | | | | | 9 Mar | | 9 Mar | | | 58,823 | | — | | — | | — | | — | | 58,823 | | 47.042 | | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 7 Mar | | | — | | 48,079 | | — | | — | | — | | 48,079 | | 71.06 | | — | | — | | 2009 | | 2016 | |
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| |
Rio Tinto 2006 Form 20-F | 118 |
Back to Contents Table 5 – Directors’ and senior management’s options to acquire Rio Tinto plc and Rio Tinto Limited shares | | | | | | | | | | Vested and | | | | | | Value of | | | | | | | | | | | | | | | | | | exercisable | | | | | | options | | Market | | | | | | | | | | | | Vested | | | | on | | | | | | exercised | | price on | | Date from | | | | | | 1 Jan | | | | during | | | | 31May | | 31 May | | Option | | during | | date of | | which first | | Expiry | | | | 2007 | | Granted | | 2007 | | Exercised | | 2007 | | 2007 | | price | | 20079 | | exercise | | exercisable | | date | |
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| | Rio Tinto plc Share Savings Plan | | | | | | | | | | | | | | | | | | | |
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| | Tom | | | | | | | | | | | | | | | | | | | | 1 Jan | | 30 Jun | | Albanese | | 791 | | — | | — | | — | | — | | 791 | | 2068 | p | — | | — | | 2012 | | 2012 | |
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| | Preston | | | | | | | | | | | | | | | | | | | | 1Jan | | 5 Jan | | Chiaro | | 490 | | — | | 490 | | �� | | — | | — | | 1277 | p | £6,017 | | £25.05 | | 2007 | | 2007 | | | | | | | | | | | | | | | | | | | | | | 1 Jan | | 6 Jan | | | | 298 | | — | | — | | — | | — | | 298 | | 2088 | p | — | | — | | 2009 | | 2009 | |
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| | Bret | | | | | | | | | | | | | | | | | | | | | | | | Clayton2 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
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| | Guy | | | | | | | | | | | | | | | | | | | | 1 Jan | | 30 Jun | | Elliott | | 1,431 | | — | | — | | — | | — | | 1,431 | | 1107 | p | — | | — | | 2009 | | 2009 | |
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| | Keith | | | | | | | | | | | | | | | | | | | | 1 Jan | | 6 Jan | | Johnson | | 456 | | — | | — | | — | | — | | 456 | | 2068 | p | — | | — | | 2009 | | 2009 | |
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| | Andrew | | | | | | | | | | | | | | | | | | | | 1 Jan | | 30 Jun | | Mackenzie | | 1,021 | | — | | — | | — | | — | | 1,021 | | 1576 | p | — | | — | | 2009 | | 2009 | |
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| | Rio Tinto plc Share Option Plan | | | | | | | | | | | | | | | | | | | |
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| | Tom | | | | | | | | | | | | | | | | | | | | 6 Mar | | 6 Mar | | Albanese | | 102,718 | | — | | — | | — | | 102,718 | | 102,718 | | 1265.6 | p | — | | — | | 2005 | | 2011 | | | | | | | | | | | | | | | | | | | | | | 13 Mar | | 13 Mar | | | | 125,336 | | — | | — | | — | | 125,336 | | 125,336 | | 1458.6 | p | — | | — | | 2005 | | 2012 | | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | | 139,165 | | — | | — | | — | | 139,165 | | 139,165 | | 1263.0 | p | — | | — | | 2006 | | 2013 | | | | | | | | | | | | | | | | | | | | | | 22 Apr | | 22 Apr | | | | 84,020 | | — | | — | | — | | — | | 84,020 | | 1329.0 | p | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | | | | | | | | 9 Mar | | 9 Mar | | | | 83,926 | | — | | — | | — | | — | | 83,926 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | | 67,511 | | — | | — | | — | | — | | 67,511 | | 2711.2 | p | — | | — | | 2009 | | 2016 | | | | | | | | | | | | | | | | | | | | | | 13 Mar | | 13 Mar | | | | — | | 66,186 | | — | | — | | — | | 66,186 | | 2701.2 | p | — | | — | | 2010 | | 2017 | |
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| | Preston | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | Chiaro | | 37,160 | | — | | — | | — | | 37,160 | | 37,160 | | 1263.0 | p | — | | — | | 2006 | | 2013 | | | | | | | | | | | | | | | | | | | | | | 22 Apr | | 22 Apr | | | | 70,490 | | — | | — | | — | | — | | 70,490 | | 1329.0 | p | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | | | | | | | | 9 Mar | | 9 Mar | | | | 63,527 | | — | | — | | — | | — | | 63,527 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | | 51,274 | | — | | — | | — | | — | | 51,274 | | 2711.2 | p | — | | — | | 2009 | | 2016 | | | | | | | | | | | | | | | | | | | | | | 7 Mar | | 7 Mar | | | | — | | 38,519 | | — | | — | | — | | 38,519 | | 2701.2 | p | — | | — | | 2010 | | 2017 | |
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| |
Rio Tinto 2006 Form 20-F | 119 |
Back to Contents Table 5 – Directors’ and senior management’s options to acquire Rio Tinto plc and Rio Tinto Limited shares | | | | | | | | | | | | | | | | Value of | | | | | | | | | | | | | | | | | | Vested and | | | | | | options | | Market | | | | | | | | | | | | Vested | | | | exercisable | | | | | | exercised | | price on | | Date from | | | | | | 1 Jan | | | | during | | | | on 31 May | | 31 May | | Option | | during | | date of | | which first | | Expiry | | | | 2007 | | Granted | | 2007 | | Exercised | | 2007 | | 2007 | | price | | 20079 | | exercise | | exercisable | | date | |
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| | Rio Tinto plc Share Option Plan (continued) | | | | | | | | | | | | | | | | | |
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| | Bret | | | | | | | | | | | | | | | | | | | | 22Apr | | 22Apr | | Clayton2 | | 13,315 | | — | | — | | — | | — | | 13,315 | | 1329.0 | p | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | | | | | | | | 9Mar | | 9Mar | | | | 11,539 | | — | | — | | — | | — | | 11,539 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | | 7Mar | | 7Mar | | | | 10,767 | | — | | — | | — | | — | | 10,767 | | 2711.2 | p | — | | — | | 2009 | | 2016 | | | | | | | | | | | | | | | | | | | | | | 7Mar | | 7Mar | | | | — | | 33,850 | | — | | — | | — | | 33,850 | | 2701.2 | p | — | | — | | 2010 | | 2017 | |
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| | Guy | | | | | | | | | | | | | | | | | | | | 13Mar | | 13Mar | | Elliott | | 61,703 | | — | | — | | — | | 61,703 | | 61,703 | | 1458.6 | p | — | | — | | 2005 | | 2012 | | | | | | | | | | | | | | | | | | | | | | 7Mar | | 7Mar | | | | 97,387 | | — | | — | | – | | 97,387 | | 97,387 | | 1263.0 | p | — | | — | | 2006 | | 2013 | | | | | | | | | | | | | | | | | | | | | | 22Apr | | 22Apr | | | | 73,700 | | — | | — | | — | | — | | 73,700 | | 1329.0 | p | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | | | | | | | | 9Mar | | 9Mar | | | | 72,972 | | — | | — | | — | | — | | 72,972 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | | 7Mar | | 7Mar | | | | 58,100 | | — | | — | | — | | — | | 58,100 | | 2711.2 | p | — | | — | | 2009 | | 2016 | | | | | | | | | | | | | | | | | | | | | | 7Mar | | 7Mar | | | | — | | 44,052 | | — | | — | | — | | 44,052 | | 2701.2 | p | — | | — | | 2010 | | 2017 | |
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| | Keith | | | | | | | | | | | | | | | | | | | | 22Apr | | 22Apr | | Johnson | | 43,500 | | — | | — | | — | | — | | 43,500 | | 1329.0 | p | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | | | | | | | | 9Mar | | 9Mar | | | | 47,937 | | — | | — | | — | | — | | 47,937 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | | 7Mar | | 7Mar | | | | 37,869 | | — | | — | | — | | — | | 37,869 | | 2711.2 | p | — | | — | | 2009 | | 2016 | | | | | | | | | | | | | | | | | | | | | | 7Mar | | 7Mar | | | | — | | 28,294 | | — | | — | | — | | 28,294 | | 2701.2 | p | — | | — | | 2010 | | 2017 | |
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| | Andrew | | | | | | | | | | | | | | | | | | | | 9Mar | | 9Mar | | Mackenzie10 | | 53,769 | | — | | — | | — | | — | | 53,769 | | 1826.2 | p | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | | | | | | | 7Mar | | 7Mar | | | | 42,019 | | — | | — | | — | | — | | 42,019 | | 2711.2 | p | — | | — | | 2009 | | 2016 | | | | | | | | | | | | | | | | | | | | | | 7Mar | | 7Mar | | | | — | | 31,159 | | — | | — | | — | | 31,159 | | 2701.2 | p | — | | — | | 2010 | | 2017 | |
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| | Rio Tinto Limited Share Savings Plan | | | | | | | | | | | | | | | | | |
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| | Leigh | | | | | | | | | | | | | | A$ | | | | | | 30 Sep | | 31 Mar | | Clifford11 | | 1,486 | | — | | — | | — | | — | | 1,486 | | 29.04 | | — | | — | | 2007 | | 2008 | |
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| | Oscar | | | | | | | | | | | | | | A$ | | | | | | 1Jan | | 30Jun | | Groeneveld | | 1,431 | | — | | — | | — | | — | | 1,431 | | 27.48 | | — | | — | | 2009 | | 2009 | |
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| | Sam | | | | | | | | | | | | | | A$ | | | | | | 1Jan | | 30Jun | | Walsh | | 601 | | — | | — | | — | | — | | 601 | | 40.92 | | — | | — | | 2009 | | 2009 | |
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Rio Tinto 2006 Form 20-F | 120 |
Back to Contents Table 5 – Directors’ and senior management’s options to acquire Rio Tinto plc and Rio Tinto Limited shares | | | | | | | | | | | | | | | | Value of | | | | | | | | | | | | | | | | | | Vested and | | | | | | options | | Market | | | | | | | | | | | | Vested | | | | exercisable | | | | | | exercised | | price on | | Date from | | | | | | 1 Jan | | | | during | | | | on 31 May | | 31 May | | Option | | during | | date of | | which first | | Expiry | | | | 2007 | | Granted | | 2007 | | Exercised | | 2007 | | 2007 | | price | | 20079 | | exercise | | exercisable | | date | |
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| | Rio Tinto Limited Share Option Plan | | | | | | | | | | | | | | | | | |
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| | Leigh | | | | | | | | | | | | | | A$ | | | | | | 12 Mar | | 12 Mar | | Clifford11 | | 52,683 | | — | | — | | — | | 52,683 | | 52,683 | | 23.4382 | | — | | — | | 2002 | | 2009 | | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 7 Mar | | | | 59,318 | | — | | — | | — | | 59,318 | | 59,318 | | 24.069 | | — | | — | | 2003 | | 2010 | | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 7 Mar | | | | 29,660 | | — | | — | | — | | 29,660 | | 29,660 | | 24.069 | | — | | — | | 2005 | | 2010 | | | | | | | | | | | | | | | | A$ | | | | | | 6 Mar | | 6 Mar | | | | 241,430 | | — | | — | | — | | 241,430 | | 241,430 | | 33.0106 | | — | | — | | 2005 | | 2011 | | | | | | | | | | | | | | | | A$ | | | | | | 13 Mar | | 13 Mar | | | | 208,882 | | — | | — | | — | | 208,882 | | 208,882 | | 39.8708 | | — | | — | | 2005 | | 2012 | | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 30 Sept | | | | 254,132 | | — | | — | | — | | 254,132 | | 254,132 | | 33.336 | | — | | — | | 2006 | | 2012 | | | | | | | | | | | | | | | | A$ | | | | | | 22 Apr | | 30 Sept | | | | 179,370 | | — | | — | | — | | — | | 179,370 | | 34.406 | | — | | — | | 2007 | | 2012 | | | | | | | | | | | | | | | | A$ | | | | | | 9 Mar | | 30 Sept | | | | 169,987 | | — | | — | | — | | — | | 169,987 | | 47.042 | | — | | — | | 2008 | | 2012 | | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 30 Sept | | | | 126,992 | | — | | — | | — | | — | | 126,992 | | 71.06 | | — | | — | | 2009 | | 2012 | | | | | | | | | | | | | | | | A$ | | | | | | 13 Mar | | 13 Mar | | | | — | | 92,325 | | — | | — | | — | | 92,325 | | 74.588 | | — | | — | | 2010 | | 2017 | |
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| | Oscar | | | | | | | | | | | | | | A$ | | A$ | | A$ | | 7 Mar | | 30 Sept | | Groeneveld | | 90,080 | | — | | — | | — | | 90,080 | | 90,080 | | 33.336 | | 5,464,613 | | 94.00 | | 2006 | | 2012 | | | | | | | | | | | | | | | | A$ | | | | | | 22 Apr | | 30 Sept | | | | 62,600 | | — | | — | | — | | — | | 62,600 | | 34.406 | | — | | — | | 2007 | | 2012 | | | | | | | | | | | | | | | | A$ | | | | | | 9 Mar | | 30 Sept | | | | 64,321 | | — | | — | | — | | — | | 64,321 | | 47.042 | | — | | — | | 2008 | | 2012 | | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 30 Sept | | | | 52,086 | | — | | — | | — | | — | | 52,086 | | 71.06 | | — | | — | | 2009 | | 2012 | | | | | | | | | | | | | | | | A$ | | | | | | 13 Mar | | 13 Mar | | | | — | | 37,987 | | — | | — | | — | | 37,987 | | 74.588 | | — | | — | | 2010 | | 2017 | |
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| | Sam | | | | | | | | | | | | | | A$ | | | | | | 22 Apr | | 22 Apr | | Walsh | | 54,400 | | — | | — | | — | | — | | 54,400 | | 34.406 | | — | | — | | 2007 | | 2014 | | | | | | | | | | | | | | | | A$ | | | | | | 9 Mar | | 9 Mar | | | | 58,823 | | — | | — | | — | | — | | 58,823 | | 47.042 | | — | | — | | 2008 | | 2015 | | | | | | | | | | | | | | | | A$ | | | | | | 7 Mar | | 7 Mar | | | | 48,079 | | — | | — | | — | | — | | 48,079 | | 71.06 | | — | | — | | 2009 | | 2016 | | | | | | | | | | | | | | | | A$ | | | | | | 13 Mar | | 13 Mar | | | | — | | 35,861 | | — | | — | | — | | 35,861 | | 74.588 | | — | | — | | 2010 | | 2017 | |
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Notes to Table 5 | 1 | Or at date of appointment if later. | 2 | Bret Clayton was appointed chief executive of the Copper group on 1 July 2006. | 3 | All options are granted over ordinary shares. Rio Tinto plc – ordinary shares of 10p each stated in pence sterling; Rio Tinto Limited ordinary shares – stated in Australian dollars. Each option is granted over one share. | 4 | No options lapsed during the year. | 5 | The closing price of Rio Tinto plc ordinary shares at 31 December 2006 was 2718p (2005: 2655p) and the closing price of RioTinto Limitedshares at 31 December 2006 was A$74.30 (2005: A$69.00). The highest and lowest prices during the year were 3322p and 2352p respectively for Rio Tinto plc and A$88.10 and A$65.01 for Rio Tinto Limited. | 6 | The option price represents the exercise price payable on the options. No amount was paid or payable by the recipient at thedate of grant. Noamounts are unpaid on any shares allocated on the exercise of the options. | 7 | Under the plans no options would be vested and unexercisable at the reporting date. | 8 | The fair value per option, granted during 2006, at date of grant was as follows: Rio Tinto plc Share Savings Plan two year contract 676p; threeyear contract 812p and five year contract 944p; Rio Tinto Limited Share Savings Plan three year contract A$22.37 and five year contract A$26.07. Rio Tinto plc Share Option Plan 740p; Rio Tinto Limited Share Option Plan A$17.09. | 9 | The value of options exercised during 2006 is calculated by multiplying the number of options exercised by the difference between the marketprice and the option price on date of exercise. | 10 | Andrew Mackenzie was granted 40,216 phantom options over Rio Tinto plc shares at a price of 1329p per share, exercisable between 22 April2007 and 22 April 2014. This grant will not vest in 2007, but will be subject to retest after a further two years. | 11. | Leigh Clifford was granted options over 126,992 Rio Tinto Limited shares during the year. This option grant was approved by shareholders underASX Listing Rule 10.14 at the 2004 annual general meeting. Subject to the rules of the Rio Tinto Limited Share Savings Plan, Leigh Clifford’soptions granted under that plan will be reduced proportionally to reflect the actual portion of 2007 he was an employee of the Group. |
Rio Tinto 2006 Form 20-F | 121 |
Back to Contents CORPORATE GOVERNANCE The directors of Rio Tinto believe that high standards of corporate governance for whichare central to business integrity andperformance. The following describes how this philosophy is applied in practice. As Rio Tinto’s three main listings are in London, Melbourne and New York, the directors are accountablehave referred to shareholders. Over the last several years, corporate governance discussions have taken centre stage inTheCombined Code on Corporate Governance, published by the UK AustraliaFinancial Reporting Council (the Code), the AustralianSecurities Exchange (ASX) Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations (the ASX Principles), and the US, where Rio Tinto has its three main listings. In setting out the Group’s corporate governance statement, the boards have therefore referred to the Combined Code as attached to the UK Listing Authority’s Listing Rules (the current Code), the new Combined Code (the new Code), the ASX Best PracticeNew York Stock Exchange (NYSE) Corporate Governance Guidelines and Standards(the NYSE Corporate Governance Listing Standards,Standards), as well as the Sarbanes-Oxley Act of 2002. Rio Tinto plc and Rio Tinto Limited have adopted a common approach to corporate governance. Both Companies have, forcomplied fully with the period under review, applied the principles contained in Part 1 of the current Code. The detailed provisions of Section 1 of the current Code have been complied withand the ASX Principles as describeddetailed further below. As at the date of the Directors’ report both Companies also compliedA statement on compliance with the ASX Best Practice Corporate Governance Guidelines. In addition, Rio Tinto has voluntarily adopted the recommendations of the US Blue Ribbon Committee in respect of disclosures to shareholders, as detailed in theAudit committee’sstatement on page 72. Rio Tinto intends to include on its website a brief summary of significant differences, if any, in the way its corporate governance practices differ from those followed by US companies under NYSE listing standards.
The boards will continue to monitor developments in the corporate governance area in Rio Tinto’s three principal share markets.
A statement relating to directors’ responsibilities for going concern and preparation of the financial statementsStandards is on pages 71 and 72.set out below. The board
The Companies have common boards of directors which are collectively responsible for the success of the Group.Board composition
On 1 November 2003, Paul Skinner, until then an independent non executive director, became chairman, succeeding Sir Robert Wilson, who retired after 33 years with Rio Tinto. The boards currently comprise 14 directors, four executive and nine non executive directors and the chairman.
The boards have reviewed the independence of all non executive directors and determined that, of the nine non executive directors, seven are independent. Notwithstanding that Sir Richard Giordano has served as a director since 1992, the strength, objectivity and nature of his contribution to board and committee discussions were fully consistent with those of an independent director. Two have connections with the Group: Leon Davis
is a former chief executive of the Group and David Mayhew is chairman of one of Rio Tinto plc’s stockbrokers. The directors’ biographies are set out on pages 58 and 59.
Chairman and chief executive
The roles of the chairman and chief executive are separate and the division of their responsibilities has been formally approved by the boards.
The role of the board
Collectively, the non executive directors bring broadly based knowledge and experience to the boards’ deliberations and their contribution is vital to corporate accountability. As recommended in the new Code, they have agreed performance targets for management against the Group’s 2004 financial plan.
The boards had eight scheduled and one special meeting in 2003. Details of directors’ attendances at board and committee meetings are set out in the Directors’ report on page 61.
In line with best practice, the boards have regular scheduled discussions on various aspects of the Group’s strategy. In addition, one meeting was a two day meeting, the main purpose of which was an in depth discussion of Group strategy. Management of the business is the responsibility of executive management. The board approves strategy, major investments and acquisitions and is ultimately accountable to the shareholders for the performance of the business. Throughout this report, they are described as the board.
AllThe board currently consists of 14 directors: the chairman, three executive directors and ten non executive directors.The Nominations committeecontinually assesses the balance of executive and non executive directors and the composition of the board in terms of the skills and diversity required to ensure it remains relevant in the current environment. The skills, experience and expertise of each director together with their term s in office are shown in the biographical details on pages 89 to 92.
The role and responsibilities of the board The role of the board is to provide the Group with good governance and strategic direction. The board also reviews theGroup’s control and accountability framework. The directors have full and timely access to the information required to discharge their responsibilities fully and effectively.
There isagreed a formal schedule of matters specifically reserved for decision by the boards, a copyboard, including strategy, major investments and acquisitions. This is available on RioTinto’s website at www.riotinto.com. Responsibility for day-to-day management of the business lies with the executive team, with the board agreeing annual performance targets for management against the Group’s financial plan. The board is ultimately accountable to shareholders for the performance of the business. To ensure an efficient process, the board meets regularly and, in 2006, had eight scheduled and one unscheduled meeting. Details of directors’ attendance at board and committee meetings are set out on page 123. The board has regular scheduled discussions on aspects of the Group’s strategy, as well as two separate strategy review meetings, one half day and one two day meeting, both of which is postedare dedicated to in-depth discussions on Groupstrategy. Directors receive timely, regular and necessary management and other information to en able them to fulfil their duties. The board has agreed a procedure for the directors to have access to independent professional advice at theGroup’s expense and to the advice and services of both company secretaries. In addition to these formal processes, directors are in regular communication with senior executives from the product groups, at both formal and informal meetings, to ensure regular exchange of knowledge and experience between management and non executive directors. To continue building on the formal induction programmes, which all new non executive directors undertake, they are encouraged to take every opportunity to visit the Group’s website. This schedule is reviewed regularlyoperatinglocations. The full board also takes the opportunity to ensure continued relevance. combine attendance at the annual general meeting in Australiaand at the two day strategy review meeting with site visits when they are able to witness at first hand operations at Going forward, theindividual business units and to meet local staff. The chairman will be holdingholds regular meetings with non executive directors without the executive directors being present. Furthermore Rio Tinto 2006 Form 20-F | 122 |
Back to Contents Directors’ attendance at board and committee meetings during 2006 | | | | | | Committee on | | | | | | | | | | social and | | | | | | | | Audit | | Remuneration | environmental | | Nominations | | | | Board | | committee | | committee | accountability | | committee | | | |
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| | Name of Director | | A1,2 | | B1 | | A | | B | | A | | B | | A | | B | | A | | B | |
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| | Tom Albanese3 | | 7 | | 7 | | | | | | | | | | | | | | | | | | Ashton Calvert | | 9 | | 9 | | | | | | | | | | 4 | | 4 | | 4 | | 4 | | Sir David Clementi | | 9 | | 8 | | 7 | | 6 | | 4 | | 4 | | | | | | | | | | Leigh Clifford | | 9 | | 9 | | | | | | | | | | | | | | | | | | Vivienne Cox | | 9 | | 7 | | 7 | | 7 | | | | | | | | | | | | | | Sir Rod Eddington | | 9 | | 8 | | | | | | | | | | 4 | | 2 | | 4 | | 4 | | Guy Elliott | | 9 | | 9 | | | | | | | | | | | | | | | | | | Michael Fitzpatrick4 | | 6 | | 6 | | 3 | | 2 | | 1 | | — | | | | | | | | | | Richard Goodmanson | | 9 | | 9 | | | | | | 4 | | 4 | | 4 | | 4 | | | | | | Andrew Gould | | 9 | | 8 | | 7 | | 6 | | 4 | | 4 | | | | | | | | | | Lord Kerr | | 9 | | 8 | | 7 | | 7 | | | | | | 4 | | 4 | | | | | | David Mayhew | | 9 | | 9 | | | | | | | | | | | | | | 4 | | 4 | | Paul Skinner | | 9 | | 9 | | | | | | | | | | | | | | 4 | | 4 | | Sir Richard Sykes | | 9 | | 9 | | | | | | 4 | | 4 | | | | | | 4 | | 4 | |
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Notes | 1 | A = Maximum number of meetings the director could have attended; B = Number of meetings attended | 2 | Eight of the board meetings were scheduled and one was called at short notice. | 3 | Tom Albanese was appointed on 7 March 2006. | 4 | Michael Fitzpatrick was appointed on 6 June 2006 and became an Audit committee andRemuneration committeemember on the same date. |
Board performance In 2006 the non executive directors will meet annuallyboard conducted a formal process, facilitated by external consultants, to evaluate once again itseffectiveness and that of the board committees and individual directors. Each director’s performance was appraised by the chairman and, in a meeting chaired by the senior independent non executive director, to appraisethe non executive directors assessed the chairman’s performance.performance, taking into consideration the views of executive colleagues.
CommunicationThe evaluation process takes place annually and aims to cover board dynamics, board capability, board process, board structure, corporate governance, strategic clarity and alignment and the performance of individual directors. Thedirectors believe that, through this evaluation process, they comply with the investor communityrequirements of Clause A.6 of the Code,Principle 8 of the ASX Principles, and of the NYSE Standards.
Independence The main channelstests of communicationdirector independence in the jurisdictions where Rio Tinto is listed are not wholly consistent. The boardhas, therefore, adopted a formal policy for the determination of independence of directors. The policy, which containsthe materiality thresholds approved by the board, can be viewed on the Rio Tinto website. Among the key criteria are independence of management and the absence of any business relationship which could materially interfere with thedirector’s independence of judgement and ability to provide a strong, valuable contribution to the board’s deliberationsor which could interfere with the investor community are throughdirector’s ability to act in the chief executive, the finance director and the chairman. The Group also organises regular investor seminars, which provide a two way communication with investors and analysts, with valuable feedback which is communicated to the boards. In addition, the Group’s external investor relations advisors carry out a survey of major shareholders’ opinion and perceptionbest interest of the Group. The ensuing report is distributedWhere contracts in the ordinary course of business exist between Rio Tinto and a formal annual presentation is madecompany in which a director has declared an interest, theseare reviewed for materiality to both the Group and the other party to the boardscontract. Applying these criteria, the board issatisfied that the majority of the non executive directors: Ashton Calvert, Sir David Clementi, Vivienne Cox, Sir Rod Eddington, Michael Fitzpatrick, Richard Goodmanson, Andrew Gould, Lord Kerr and Sir Richard Sykes areindependent. The board is also satisfied that the strength and objectivity of Sir Richard Sykes contribution to the board, as a non executive director since 1997, is fully consistent with that of an independent director and so continues to regard him as independent. He was re-elected at the 2007 annual general meetings, to serve one more year, to support the board during a period of executive transition. Sir Richard is the senior independent director and also chairs theRemuneration committee. David Mayhew, who is chairman of one of Rio Tinto plc’s stockbrokers, is not considered independent in accordance with the Code. Paul Skinner was, until his appointment as chairman in 2003, an independent non executive director in compliance with the Code. He also satisfies the tests for independence under the ASX Principles and the NYSEStandards. The directors’ biographies are set out on the subject.pages 89 to 92. Rio Tinto 2006 Form 20-F | 123 |
Back to Contents Independent advice
A procedure has been established for
directors to obtain independent professional advice at the Group’s expense in furtherance of their duties as directors. They also have access to the advice and services of both company secretaries.
Election and re-election
All directorsDirectors are elected by shareholders at the first annual general meetings followingafter their appointment and, thereafter, are subject toafter that, offerthemselves for re-election at least once every three years. Non executive directors are normally expected to serve at least two terms of three years and, except where special circumstances justify it, would not normally serve more than three such terms. Board performanceChairman and chief executive
In compliance with Clause A.6The roles of the new Codechairman and Principle 8chief executive are separate and the division of the ASX Best Practice Corporate Governance Guidelines, the performance of Rio Tinto’s board, its committees and individual directors have been evaluated. The assessmentresponsibilities has been carried outformallyapproved by external advisers and has covered the following areas: board dynamics; board capability; board process; corporate governance, strategic clarity and alignment; board structure; and the performance of individual directors. In the opinion of the boards they comply with the requirements of the new Code and the ASX Best Practice Corporate Governance Guidelines. It is the intention of the boards to continue to review both board and director performance on an annual basis.board.
Board committees
The directors have establishedThere are four board committees, all of which are fundamental totheAudit committee,Remuneration committee,Nominations committeeand theCommittee on social and environmental accountability. Each committee plays a vital role in ensuring that good corporate governance inis maintained throughout the Group. All committeeCommittee terms of reference are reviewed annually by the boardsboard and the committees themselves,to ensure they continue to be at the forefront of best practice; and appearare posted on the Group’s website. Regular reportsMinutes of all committee business and activities are given to the boards and minutesmeetings are circulated to all directors. Committeethe board, with oral reports at the next board meeting. None of the executive directors are members shown on pages 58 and 59, are all non executive directors. of any of these committees. TheAudit committee’scommittee TheAudit committee’smain responsibilities include the review of accounting principles, policies and practices adoptedin the preparation of public financial information; theinformation, review with management of procedures relating to financial and capital expenditure controls, including internal audit plans and reports; thereports, review with external auditors of the scope and results of their audit;audit, the nomination of auditors for appointment by shareholders;shareholders, and the review of and recommendation to the board for approval of Rio Tinto’s risk management policy. Its responsibilities also include the review of corporate governance practices of Group sponsored pension funds.
A The committee has a number of training sessions which may cover new legislation and other relevant information, have been incorporated into the committee’s normal schedule of business.
70 | Rio Tinto 2003 Annual report and financial statements | |
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information. The external auditors, the finance director, the Group controller and Group internal auditor all attend meetings. A copy of theAudit committeecharter is reproduced on page 73129 to 130 and can also be found on the Group website. TheAudit committeeis chaired by Andrew Gould and its members are Sir David Clementi, Vivienne Cox, Michael Fitzpatrick and Lord Kerr. David Mayhew attends in an advisory capacity. Remuneration committee TheRemuneration committeeis responsible for determining the policy for executive remuneration and for theremuneration and benefits of individual executive directors.directors and senior executives. Full disclosure of all elements of directors’directors’ and certainrelevant senior executives’ remuneration can be found in theRemuneration reporton pages 6295 to 69,121, together with details of the GroupGroup’s remuneration policies. The committee is chaired by Sir Richard Sykes and its’s remuneration policies.members are Sir David Clementi, Michael Fitzpatrick, Richard Goodmanson and Andrew Gould.
TheNominations committee TheNominations committeeis chaired by the chairman of Rio Tinto. ItTinto, Paul Skinner. The committee is the committeeresponsible, on’s responsibility to ensurebehalf of the board, for ensuring that therea suitable process is a clear, appropriate and transparent process in place to source and appoint new directors. Its responsibilities also include evaluatingmeet the balancerecruitment requirements of skills, knowledgethe board. It reviews the mix, structure and experience onof the boardsboard and identifyingthe desired profiles of potential candidates for membership. In consultation with external search consultants it oversees the review and nominating, for the approval by the boards, candidatesrecruitment process to fill board vacancies as and when they arise. The committee reviewsrecruitment process itself includes identification of suitable candidates, followed by a formal assessment of each candidate, leading to a final selection process. Proposals for new members are submitted to the structure, size and compositionfull board for approval. On behalf of the boardsboard it also reviews proposals for senior executive appointments and make recommendations with regard to any changes it considers appropriate. Finally, thesuccession planning. The committee further reviews the time required to be committed to Group business by non executive directors and assessassesses whether non executive directors are spending enoughdevoting sufficient time to carry out their duties. In addition to Paul Skinner, the committee consists of Ashton Calvert, Sir Rod Eddington, David Mayhew and Sir Richard Sykes. Under the Code, two members of the committee are not considered independent: Paul Skinner, following his appointment as chairman, and David Mayhew. The Code specifically allows the chairman to chair theTheNominations committee. As stated above, the board takes the view that Sir Richard continues to be an independent director and the composition of the committee is therefore compliant with the Code.
Committee on social and environmental accountability
is responsible for reviewingTheCommittee on social and environmental accountabilityreviews the effectiveness of management policies andprocedures in delivering theplace to deliver those standards set out in our statement of business practice,The way we work,, Rio Tinto’s statement of business practice, which doare not fall withincovered by the remit of other board committees and, in particular, those relating to health, safety, the environment and social issues. The overall objective of the committee is to promote the development of high quality business practices throughout the Group consistent with the high standards expected of a responsibly managed company and to develop the necessary clear accountability on these practices. Members of the committee, which is chaired by Richard Goodmanson, are Ashton Calvert, Sir Rod Eddington and Lord Kerr. Rio Tinto 2006 Form 20-F | 124 |
Back to Contents DirectorsExecutive directors’ other directorships Executive directors are likely to be invited to become non executive directors of other companies. For full details of theGroup policy and fees, see page 74.
Directors’ dealings in shares Rio Tinto has a Group policy in place to govern the dealing in Rio Tinto securities.securities by directors and employees. The policy, which can be viewed on the Rio Tinto website, is no less stringent than the Model Code set out in the UK Listing Rules.
Directors and employees are prohibited from dealingprohibits dealings when in possession of price sensitive information. Directorsinformation and certain employeesshortly before a results announcement, can be viewed on the website. Communication Rio Tinto recognises the importance of effective communication with shareholders and the general investment community. To ensure shareholders are prohibited from dealing duringkept informed in a timely manner, the ‘close periods’ Group has adoptedContinuous disclosure standards,which are appended to theCorporate governance standardsand posted on the periodswebsite. In addition to statutory documents, Rio Tinto has a recently redesigned website featuring in-depth information on health, safety and the environment, as well as general investor information and Group policies. Results presentations and investor seminars are made available as they happen as well as in the form of upan archive on the website. The Group produces a range of informative publications, which are available on request. For further details, see our website. Full advantage is taken of the annual general meetings to two months before a profit announcement. Directorsinform shareholders of current developments and designated employeesto give shareholders the opportunity to ask questions. As recommended by the ASX Principles, Rio Tinto Limited’s external auditor attends the annual general meeting and is available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report. Rio Tinto Limited shareholders are also prohibited from dealing inable to submit written questions regarding the statutory audit report to the auditors via the Company. Any questions received and answers provided are made available to the members at the Rio Tinto securities at any time on considerationsLimited annual general meeting. Rio Tinto plc’s auditors attend the annual general meeting in London and are available to respond to audit related shareholderquestions. The main channels of communication with the general investment community are through the chairman, chief executive and finance director, who conduct regular meetings with the Companies’ major shareholders. The seniorindependent director and other non executive directors are also available as appropriate. The Group organises regular investor seminars which provide a short term nature.two way communication with investors and analysts; the valuable feedback is communicated to the board. An annual survey of major shareholders’ opinion and perception of the Group is presented to the board by the Group’s investor relations advisors. Statement of business practice The way we workprovides the directors and all Group employees with a summary of the principalglobal policies and procedurescontrols in place to help ensure that high governance and business standards are met.communicated and maintain ed throughout theGroup.
PoliciesGlobal policies are adopted by the directorsboard after wide consultation, both externally and within the Group. Once adopted, they are communicated to business units worldwide, together with mandatory standards and guidance andnotes to support on implementation. Business units are then required to devote the necessary effort by management to implement and report on these policies.policies and standards.
The way we workwas reviewed and updated in 2003 to reflect best practice and procedures were introduced to meet changed requirements.In 2006, Rio Tinto undertook a review of its global policies. The following policies are currently in place: accessto land; communities; corporate governance; employment; environment; human rights; information management; occupational health; political involvement; safety and sustainable development. To complete the suite of policies, the following are being revised: business integrity; information security management and information technology; internal controls and reporting; transparency; and risk. Each of these policies is supported by standards expanding on the minimum expectations on topics such as antitrust, continuous disclosure, compliance, and health, safety and the environment; communities; human rights; access to land; employees; business integrity; briberyenvironment. Many of these standards are supplemented by guidance notes. These policies and corruption; corporate governance; compliance; external disclosures, including continuous disclosure and code of ethics covering the preparation of financial statements and political involvement. These policiesstandards apply to all Rio Tinto managed businesses.
In line with best practice, the Group has in placeThere is also a Group wide“whistleGroupwide “whistle blowing” programme entitledcalledSpeak-OUTSpeak-OUT.. Under this programme, employeesEmployees are encouraged to report any concerns, including any suspicion of a violation of the Group’sGroup’s financial reporting and environmentalprocedures, through an independent third party and without fear of recrimination. A process has been established for the investigation of any matters reported with clear lines of reporting and responsibility in each Group business.
In the case of business partners, such as joint ventures and associated companies, whereWhere the Group does not have operating responsibility for a business, Rio Tinto’sTinto’s policies are communicated to themits business partners and they are encouraged to adopt similar policies of their own. Practical advice is offered wherever appropriate.
In 2001, the Association of British Insurers issued its guidelines relating to socially responsible investment. Rio Tinto’sTinto’s report on social and environmental matters follows thesethe guidelines of the Global Reporting Initiativeand the Association of British Insurers. This report can be found on pages 55 and 56 of 2003Annual report and financial statementsand on pages 22 to 25 of the 2003Annual review.page 71. Details of the Group’sGroup’s overall and individual businesses’ social and environmental performance continue to be published on Rio Tinto’s website: www.riotinto.comthe website and in theSustainable development review. Responsibilities of the directors The directors are required by UK and Australian company law to prepare financial statements for each financial period which give a true and fair view of thestate of affairs of the Group as at the end of the financial period and of the profit or loss and cash flows for that period. This includes, in respect of Rio Tinto plc, preparing financial statements in accordance with UK company law which Rio Tinto 2006 Form 20-F | 125 |
Back to Contents give a true and fair view of the state of the Company’s affairs, and preparing a Remuneration report which includes the information required by Part 3 of Schedule 7A to the UK Companies Act 1985 and Australian Accounting Standard AASB 124 “Related Party Disclosures”. To ensure that this requirement isthese requirements are satisfied, the directors are responsible for establishing and maintaining adequate internal controls, including disclosure controls and procedures for financial reporting throughout the Group.
The directors consider that the 2006Annual report and financial statementspresent a true and fair view and havebeen prepared in accordance with applicable accounting standards, using the most appropriate accounting policies for Rio Tinto’s business and supported by reasonable and prudent judgments.judgements and estimates. The accounting policies have been consistently applied. The directors have received a written statement from the chief executive and the finance director to this effect. In accordance with ASX Principle 7.2, this written statement relies on a sound system of risk management and internal compliance and controls which implements the policies adopted by the board and confirms that the Group’s risk management and internal compliance and control systems are operating efficiently and effectively in all material respects. The directors, senior management,executives, senior financial managers and other members of staff who are required toexercise judgmentjudgement in the course of the preparation of the financial statements are required to conductco nduct themselves with integrity and honesty and in accordance with the ethical standards of their profession and/or business. The directors are responsible for maintaining proper accounting records, in accordance with the UK CompaniesAct 1985 and the Australian Corporations Act 2001 as modified by the Australian Securities and Investment Commission order dated21 July 2003, and2001. They have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The directors are also responsible for ensuring that appropriate systems are in place to maintain and preserve the maintenance and integrity of the Group’sGroup’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from current and future legislation in other jurisdictions. The work carried out by the auditors does not involve consideration of these matterssuch developments and, accordingly, the auditors accept no responsibilityre sponsibility for any changes, that may have occurredshould any be made, to the financial statements since they were initially loadedavailable on the website. Going concern The financial statements have been prepared on the going concern basis. As required by the current Code, theThe directors report that they have satisfied themselves that the Companies and the Group isare a going concern since it hasthey have adequate financial resources to continue in operational existence for the foreseeable future. Boards’Board’s statement on internal control Rio Tinto’s overriding corporate objective is to maximise long term shareholder value through responsiblyresponsible and sustainably investingsustainable investment in mining and related assets. The directors recognise that creating shareholder value is thereward for taking and accepting risk. The directors are responsible for the Group’sGroup’s system of internal controlcontrols and for reviewing its effectiveness in providing shareholders with a return on their investments that is consistent with a responsible assessment and mitigation of risks. This includes reviewing financial, operational and compliance controls and risk management procedures. Because ofDue to the limitations inherent in any such system, this is designed to manage rather than eliminate risk. Accordingly, it providesrisk and to provide reasonable but not absolute assurance against material misstatement or loss.
The directors have established a process for identifying, evaluating and managing the significant risks faced bythe Group. This process was in place during 20032006 and up to and including the date of approval of the 20032006Annual report and financial
Rio Tinto 2003 Annual report and financial statements | 71 |
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Corporate governance continued
statements. The process is reviewed annually by the directors and accords with the guidance set outinInternal Control: Guidance for Directors on the Combined Code.
The Group’sTwo of the Group’s management committees, theExecutive committeeand theDisclosures and procedures committeeregularly review information onrelated to the Group’s significant risks, with relevant control and monitoring procedures, for completeness and accuracy.framework. This information is presented to the directors Audit committeeto enable themits members to assess the effectiveness of the internal controls. In addition, the boardsboard and theirits committees monitor the Group’s significant risks on an ongoing basis. Assurance functions, including internal auditors and health, safety and environmental auditors, perform reviews of control activities and provide regular written and oral reports to directors and management committees. The directorsreceive and review minutes of the meetings of each board committee, in addition to oral reports from the respective chairmen at the first board meeting following the relevant committee meeting. Certain risks, for example natural disasters, cannot be mitigated to an acceptable degree using internal controls. Such major risks are transferred to third parties in the international insurance markets, to the extent consideredappropriate. Each year, the leaders of Groupthe Group’s businesses and administrative offices complete an internal control questionnaire that seeks to confirm that adequate internal controls are in place, are operating effectively and operating effectively.aredesigned to capture and evaluate failings and weaknesses, if any exist, and take prompt action as appropriate. The results of this process are reviewed by theExecutive executive committee and it is then presented to theAudit committeeand board as a further part of their review of the Group’sGroup’s internal controls. This process is continually reviewed andstrengthened as appropriate. In 2002,The Group has material investments in a number of jointly controlled entities and associates. Where Rio Tinto does not have managerial control, it cannot guarantee that local management of mining and related assets will complywith Rio Tinto standards or objectives. Accordingly, the Group also established areview of their internal controls is less comprehensive than that of the Group’s managed operations. Rio Tinto 2006 Form 20-F | 126 |
Back to Contents Disclosure controls and procedures The common management of each of Rio Tinto plc and Rio Tinto Limited, with the participation of their common chief executive and finance director, have evaluated the effectiveness of the design and operation of the Group’s disclosure controls and procedures as of 31 December 2006 and have concluded that these disclosure controls and procedures were effective to provide reasonable assurance that the information it is required to disclose is reported fairly as and when required. TheDisclosure and procedures committeewhich wasis tasked with reviewing the adequacy and effectiveness of Group controls over and procedures forover the public disclosure of financial and related information. The committee has been presenting the results of this process to senior management andthe directors since its establishment in 2002 and will continue to do so. Management’s report on internal control over financial reporting has been set out on page 147. New York Stock Exchange
The Group has material investments in a number of joint ventures and associated companies. Rio Tinto cannot guaranteeplc, as a foreign issuer with American Depositary Shares listed on the NYSE, is obliged by the NYSEStandards to disclose any significant ways in which its practices of corporate governance differ from the NYSE standards. The Company has reviewed the NYSE Standards and believes that local managementits practices are broadly consistent with them,with one exception. The NYSE Standards state that companies must have a nominating/corporate governance committee composed entirely of mining assets, where it does not have managerial control, will complyindependent directors and with the Group’s standards or objectives.
Accordingly, the reviewwritten terms of their internal controls is less comprehensive than that for the Group’s managed operations. Communications
Communications with shareholders are given high priority. The boards have responsibility to ensure that a satisfactory dialogue with shareholders takes place. Inreference which, in addition to statutory documents, such asidentifying individuals qualified to become board members, develops and recommends to the board a set of corporate governance principles applicable to the Company. Rio Tinto has aAnnual report and financial statements, Annual reviewandHalf year reportNominations committee, information about which is set out on page 128. This committee does not develop corporate governance principles for the board’s approval. Theboard itself performs this task and approves the Group’s overall system of governance and internal controls.
New Zealand Stock Exchange Rio Tinto produces documentsLimited is also listed on the New Zealand Stock Exchange (“NZX”) which has introduced a wide rangeCorporateGovernance Best Practice Code (the NZX Code). As an overseas listed issuer on the NZX, Rio Tinto Limited is deemed to comply generally with the NZX Listing Rules, including the NZX Code, while it remains listed on the ASX. Whilst the ASX Principles and the NZX Code are substantially the same, there may be some AS X Principles or other ASX corporate governance rules which differ materially from the NZX’s corporate governance rules or the NZX Code. The ASX Principles and other corporate governance rules can be found on the ASX website: www.asx.com.au. Principal auditors The remuneration of subjects, including corporate social responsibility, which are available on request.the Group’s principal auditors for audit services and other services, as well as remuneration Further details arepayable to other accounting firms, has been set out in note 41 to the Shareholder information on page 79.2006 financial statements. Rio Tinto maintainshas adopted policies designed to uphold the independence of the Group’s principal auditors by prohibiting their engagement to provide a comprehensive website, www.riotinto.com, from which its reportsrange of accounting and other publications can be freely downloaded and through which shareholders can gain secure online access toprofessional services that might compromise their shareholding details. It is also linked to websites maintained by Group operations, thus offering easy access to a wealth of detailed information about the Group. Results presentations and other significant events are also availableappointment as they happen and as an archive on the website.
Full use is madeindependent auditors. The engagement of the annual general meetings to inform shareholders of current developments through appropriate presentations andGroup’s principal auditors to provide opportunities for questions.Significant matters affecting bothCompaniesstatutory audit services, certain other assurance services, tax services and some other specific services are dealt with underpre-approved annually by the joint voting procedure, detailed on page 78. Votes, which are cast on a poll, are announced after the closeAudit committee. Each engagement of the laterGroup’s principal auditors to provide other permitted services is subject to the specific approval of the two annual general meetings. In additionAudit committeeor its chairman. Prior to the Companies respondcommencement of each financial year, the Group’s finance director submits to individual queries on many issues.
theAudit committee: US Blue Ribbon
Compliance statementcommitteea schedule of the types of services that are expected to be performed during the following year for its approval. TheAudit committeemay impose a US dollar limit on the total value of other permitted services that can be provided. Any non audit service provided by the Group’s principal auditors, where the expected fee exceeds a pre-determined level, mustbe subject to the Group’s normal tender procedures. However, in exceptional circumstances the finance director is authorised to engage the Group’s principal auditors to provide such services without going to tender, but if the fees are expected to exceed US$250,000 then the chairman of theAudit committeemust approve the engagement. TheAudit committeehas adopted policies for the pre-approval of permitted services provided by the Group’s principal auditors. These are regularly reviewed by the committee. Engagements for services provided by the Group’s principal auditors since the adoption of these policies were either within the pre-approval policies or approved by theAudit committee. Audit committee TheAudit committeemeets the membership requirements of the Combined Code, in the UKASX Principles and the Blue Ribbon Report in the US.NYSE Standards. The Group also meets the disclosurecomposition, operation and responsibility requirements in respect of audit committees requiredmandated by the Australian Stock Exchange.ASX. TheAudit committeeis governed by a written charter approved by the boards,board, which theAudit committeereviews and reassesses each year for adequacy. A copy of this charter is reproduced on page 73.129 to 130.
TheAudit committeecomprises the five members set out below. Michael Fitzpatrick became a member of the committee with effect from June 2006. The members withof the exception of David Mayhew,committee are independent and are free of any relationship that would interfere with impartial judgmentjudgement in carrying out their responsibilities. MrDavid Mayhew is technically not deemedattends the meetings in an advisory capacity. Rio Tinto 2006 Form 20-F | 127 |
Back to be independent by virtue of his professional association with the Group in his capacity as chairman of Cazenove Group plc, a stockbroker and financial adviser to Rio Tinto plc. However, the boards have determined that, in their business judgment, the relationship does not interfere with Mr Mayhew’s exercise of independent judgment and they believe that his appointment is in the best interests of the Group because of the substantial financial knowledge and expertise he brings to the committee.Contents Report of the Audit committee TheAudit committeemet eightseven times in 2003. We monitor2006. It monitors developments in corporate governance in the US,UK, Australiaand the UK. We do soUS, to ensure the Group continues to apply high and appropriate standards relevant to the jurisdictions in which we operate.
Many of the new US requirements have long been best practice and are incorporated into the committeestandards.’s Charter, The charter, reproduced on page 73. The Charter129, is subject to regular discussion and has been reviewed in the light of new requirements and emerging best practice.review. There is in place a set of procedures, including budgetary guidelines, for the appointment of the external auditorto undertake non audit work, which aims to provide the best possible goods and services for the Group at the most advantageous price. We reviewThe committee reviews the independence of the external auditors on an annual basis and a process is also in place to review their effectiveness to ensure that the Group continues to receive an efficient and unbiased service. Financial expert
In January 2003, the TheAudit committeeadvised the directors that it is satisfied that the provision of non audit services by the external auditors during2006 is compatible with the general standard of independence for auditors imposed by the Australian Corporations Act 2001. Furthermore, as part of its responsibility to foster open communication, the committee meets separately with management, the external auditors and the internal auditor.
Financial expert TheAudit committeereviewed the SEC requirements for audit committee’scommittees’ financial experts and following an indepth assessment,the Code requirement that at least one committee member should have recent and relevant financial experience. Following a detailed review, the committee recommended to the board that the boards consider indentifying Sir Richard Giordano,Michael Fitzpatrick, Andrew Gould and Sir David Clementi and Andrew Gould as theAudit committee’sfinancial experts, to be identified as suchtheAudit committee’sfinancial experts in the 20032006Annual report and financial statements, subject. The board has also concluded that Michael Fitzpatrick, Andrew Gould and Sir David Clementi possess the requisite skills, experience and background to qualify for the board satisfying itself that they fulfilled the SEC criteria. At their subsequent meeting, the boards considered eachpurpose of clause C.3.1 of the above and resolved that they each possessed the requisite experience, appropriately required, to qualify as financial experts.Code. 20032006 financial statements
We haveTheAudit committeehas reviewed and discussed with management the Group’s audited financial statements for theyear ended 31 December 2003.2006. We have discussed with the external auditors the matters described in the American Institute of Certified Public AccountantsAccountant Auditing Standard No. 90,Audit Committee Communications, committee communications,and in the UK StatementInternational Standard on Auditing (UK and Ireland) 260,Communication of Auditing Standard No 610, Reporting toAudit Matters with those charged with Governance (SAS 610)governance (ISA 260),including their judgmentsjudgements regarding the quality of the Group’sGroup’s accounting principles and underlying estimates.
We haveThe committee has discussed with the external auditors their independence, and received and reviewed their written disclosures, as required by the US Independence Standards Board’sBoard’s Standard No. 1, Independence Discussions with Audit Committees and SAS 610.ISA 260. Based on the reviews and discussions referred to above, we havethe committee has recommended to the boardsboard ofdirectors that the financial statements referred to above be included in the annual report.2006Annual report and financial statements.
Sir Richard GiordanoAndrew Gould(Chairman) Sir David Clementi
Andrew GouldVivienne Cox Michael Fitzpatrick Lord Kerr
Report of the Nominations committee TheNominations committee’sactivities during 2006 covered executive and non executive succession and appointments.2006 saw the appointment of both an executive director, Tom Albanese, and a non executive director, Michael Fitzpatrick, as well as the appointment of Bret Clayton as Tom Albanese’s successor as chief executive, Copper, followed by the announcement in December 2006 of Tom’s succession as chief executive in May 2007. Michael Fitzpatrick is an Australian independent director, who brings extensive Australian and international business experience to the board. A short biography of each is set out on pages 89 to 92. As part of his annual performance assessment of individual directors, Paul Skinner, who is chairman of theNominations committee, has also reviewed the time committed by directors to Group business and confirmed this to be appropriate in each case. Paul Skinner(Chairman) Ashton Calvert, AC Sir Rod Eddington David Mayhew
Lord TugendhatSir Richard Sykes
72 | Rio Tinto 20032006 Form 20-F | Annual report and financial statements128 |
Back to Contents Audit committee charterAUDIT COMMITTEE CHARTER
Scope and authority | The Company is required by the UK Listing Authority (UKLA), the New York Stock Exchange (NYSE), and the Australian Stock Exchange (ASX) to establish an Audit committee. Each of the UKLA, the NYSE and the ASX also lay down rules and guidelines for the composition of the committee and the work to be undertaken by it. These requirements, where not self evident, have been incorporated into this Charter. The primary function of theAudit committeeis to assist the boards of directors in fulfilling their responsibilities by reviewingreviewing: The financial information that will be provided to shareholders and the public; | • | the financial information that will beprovided to shareholders and the public; | • | theThe systems of internal financial controlsthatcontrols that the boards and management haveestablished; andhave established; | • | theThe Group’s auditing, accounting andfinancialand financial reporting processes. |
In carrying out its responsibilities the committee has full authority to investigate all matters that fall within the terms of reference of this Charter. Accordingly, the committee may: | • | obtainObtain independent professional advice in the satisfaction of its duties at the cost oftheof the Group; and | • | haveHave such direct access to the resources oftheof the Group as it may reasonably requireincludingrequire including the external and internal auditors. |
Composition
TheAudit committeeshall comprise three or more non executive directors, at least threeall of whom shall be independent. The chairman of the Audit committee will be an independent director, who is not also the chairman of the boards. The boards will determine each director’sdirector’s independence having regard to the Independence Policy adopted by the boards, which includes consideration of any past and present relationships with the Group which, in the opinion of the boards, could influence the director’s judgment. All members of the committee shall have a working knowledge of basic finance and accounting practices. At least one member of the committee will have accounting or related financial management expertise, as determined by the boards. A quorum will comprise any two independent directors.committee members. The committee may invite members of the management team to attend the meetings and to provide information as necessary. Meetings
The committee shall meet not less than four times a year or more frequently as circumstances require.Audit committeeminutes will be confirmed at the following meeting of the committee and tabled as soon as practicable at a meeting of the boards. The Group’sCompany’s senior financial management, external auditors and internal auditor shall be available to attend all meetings. As part of its responsibility to foster open communication, the committee should meet with management, the external auditors and the internal auditor, at least annually, to discuss any matters that are best dealt with privately. Responsibilities
The boards and the external auditors are accountable to shareholders. TheAudit committeeis accountable to the boards. The internal auditor is accountable to theAudit committeeand the finance director.
To fulfil its responsibilities the committee shall: Charter | • | Review and, if appropriate, update thisCharterthis Charter at least annually. | • |
Financial reportingReporting and internal financial controlsInternal Financial Controls | • | Review with management and the external auditors the Group’s financial statements, Form 20-F, stock exchange and media releases inrespectin respect of each half year and full year. | • | Review with management and the externalauditorsexternal auditors the accounting policies andpracticesand practices adopted by the Companies andtheircompany and their compliance with accountingstandards,accounting standards, stock exchange listing rules andrelevantand relevant legislation. | • | Discuss with management and the externalauditorsexternal auditors management’s choice ofaccountingof accounting principles and materialjudgments,material judgments, including whether they areaggressiveare aggressive or conservative and whethertheywhether they are common or minority practices. | • | Recommend to the boards that the annual and interim financial statements and Form 20-F reviewed by thecommitteethe committee (or the chairman representingtherepresenting the committee for this purpose) beincludedbe included in the Group’s annual report. | • | Review the regular reports prepared by theinternalthe internal auditor including the effectivenessofeffectiveness of the Group’s internal financial controls. | | |
External auditors | • | RecommendReview and recommend to the boards the externalauditorsexternal auditors to be proposed to shareholders.shareholders, following a commercial tender if deemed necessary. | • | Review with the external auditors theplannedthe planned scope of their audit andsubsequentlyand subsequently their audit findings includinganyincluding any internal control recommendations. |
Rio Tinto 2006 Form 20-F | 129 |
Back to Contents • | Periodically consult with the externalauditorsexternal auditors out of the presence ofmanagementof management about the quality of theGroup’sthe Group’s accounting principles, materialjudgmentsmaterial judgments and any other matters that thecommitteethe committee deems appropriate. | • | ReviewPeriodically review the performance of the externalauditorsexternal auditors and the effectiveness of the auditprocess,audit process, taking into consideration relevantprofessionalrelevant professional and regulatory requirements. | • | Review and approve the fees and othercompensationother compensation to be paid to the externalauditors.external auditors. | • | Review and approve any non audit work and related fees to be carried out by the external auditors. | • | Ensure that the external auditors submit awrittena written statement outlining all of itsprofessionalits professional relationships with the GroupincludingGroup including the provision of services that mayaffectmay affect their objectivity or independence. Review and discuss with the externalauditors all significant relationships theyhavethey have with the Groupcompany to determine theirindependence.their independence. | | |
Internal auditor | • | Review the qualifications, organisation,strategic focus and resourcing of internalaudit.internal audit. | • | Review and approve the internal audit plans. | • | Review internal audit performance. | • | Periodically consult privately with theinternalthe internal auditor about any significantdifficultiessignificant difficulties encountered includingrestrictionsincluding restrictions on scope of work, access to |
| required information or any other matters that the committee deems appropriate. |
Risk management | • | Review and evaluate the internal processesforprocesses for determining and managing key riskareas.risk areas. | • | Ensure the GroupCompany has an effective riskmanagementrisk management system and that macro risksarerisks are reported at least annually to the boards.board. | • | Require periodic reports from nominated senior managers: | | – | confirming the operation of the risk management system including advice that accountable management have confirmed the proper operation of agreed risk mitigation strategies and controls, and | | – | detailing material risks.risks | • | Address the effectiveness of the Group’sinternalCompany’s internal control system with managementandmanagement and the internal and external auditors. | • | Evaluate the process the CompaniesCompany has inplacein place for assessing and continuouslyimprovingcontinuously improving internal controls, particularlythoseparticularly those related to areas of material risk. | | |
Other matters
| The committee shall also perform any other activities consistent with this Charter that the committee or boards deem appropriate. This will include but not be limited to: | • | Review of the Group’s insurance cover. | • | Review of the corporate governanceGroup’s tax planning and compliance. | practices of Group sponsored pensionfunds.• | Review the Group’s whistle-blowing procedures for financial reporting. |
Rio Tinto 2006 Form 20-F | 130 |
Back to Contents Item 7. | Major Shareholders and Related Party Transactions |
MAJOR SHAREHOLDERS As far as is known, Rio Tinto plc is not directly or indirectly owned or controlled by another corporation or by any government. Rio Tinto plc does not know of any arrangements which may result in a change in its control. As of 8 June 2007, the total amount of the voting securities owned by the directors of Rio Tinto plc as a group wa s 112,964 ordinary shares of 10p each representing less than one per cent of the number in issue. As far as is known, Rio Tinto Limited, with the exception of the arrangements for the dual listed companies merger described on pages 136 to 139, is not directly or indirectly owned or controlled by another corporation or by any government. As of 8 June 2007, the only person known to Rio Tinto Limited as owning more than five per cent of its shares was Tinto Holdings Australia Pty Limited, which is an indirect wholly owned subsidiary of Rio Tinto plc, with 171,072,520 shares, representing 37.48 per cent of its issued capital. Rio Tinto Limited does not know of any arrangements which may result in a change in its control. As of 8 June 2007 the total amount of the voting securities owned by the directors of Rio Tinto Limited as a group was 96,190 shares representing less than one per cent of the number in issue. Directors’ interests in Group voting securities are shown in Table 3 on page 111. Their total beneficial interest in the Group amounts to less than one per cent. Except as provided under the DLC Merger Sharing Agreement as explained on pages 136 to 137, the Group’s major shareholders have the same voting and other rights as other shareholders. As at 8 June 2007 there were 250 shareholders who had registered addresses in the US holding 157,241 shares in Rio Tinto plc, and 255 who had registered addresses in the US holding 342,609 shares in Rio Tinto Limited. SUBSTANTIAL SHAREHOLDERS Under the Listing Rules, any shareholder of Rio Tinto plc with a beneficial interest of more than three per cent, or of Rio Tinto Limited with a beneficial interest of more than five per cent, is required to provide the Companies with notice. Excluding the interest held by Tinto Holdings Australia Pty Limited in Rio Tinto Limited, the shareholders to have provided such notice are: Rio Tinto plc | Date of | | Number of | | Percentage | | | notice | | shares | | of issued | | | | | | | share capital | |
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| | Barclays PLC | 12 Jul 2006 | | 42,129,019 | | 4.02 | | The Capital Group Companies, Inc | 13 Jun 2006 | | 41,031,494 | | 3.90 | | Legal & General plc | 5 Oct 2005 | | 33,539,570 | | 3.13 | |
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| | Note | | | | | | | As far as it is known, Rio Tinto is not directly or indirectly owned or controlled by another corporation or by any government. | | | | | | |
Rio Tinto 2003 Limited | Date of notice | | Number of | | Percentage | | | | | shares | | of issued | | | | | | | share capital | |
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| | None | | | — | | — | |
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| | Note | | | | | | | Rio Tinto is not aware of any arrangement which may result in a change in its control. | | | | | | |
Rio Tinto 2006 Annual report and financial statementsForm 20-F | 73131 |
Back to Contents ANALYSIS OF ORDINARY SHAREHOLDERS As at 9 February 2007 | | | | | Rio Tinto plc | | | | | | Rio Tinto Limited | | | No of | | % | | Shares | | % | | No of | | % | | Shares | | % | | | accounts | | | | | | | | accounts | | | | | | | |
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| | 1 to 1,000 shares | 38,405 | | 71.07 | | 14,822,316 | | 1.46 | | 82,340 | | 80.40 | | 29,578,002 | | 10.35 | | 1,001 to 5,000 shares | 12,810 | | 23.70 | | 25,735,953 | | 2.53 | | 17,665 | | 17.25 | | 34,745,068 | | 12.16 | | 5,001 to 10,000 shares | 1,098 | | 2.03 | | 7,540,348 | | 0.74 | | 1,489 | | 1.45 | | 10,395,908 | | 3.64 | | 10,001 to 25,000 shares | 560 | | 1.04 | | 8,800,248 | | 0.86 | | 597 | | 0.58 | | 8,920,489 | | 3.12 | | 25,001 to 125,000 shares | 550 | | 1.02 | | 31,301,789 | | 3.07 | | 225 | | 0.22 | | 11,279,596 | | 3.95 | | 125,001 to 250,000 shares | 204 | | 0.38 | | 37,073,012 | | 3.64 | | 40 | | 0.04 | | 6,602,885 | | 2.31 | | 250,001 to 1,250,000 shares | 273 | | 0.50 | | 148,918,025 | | 14.63 | | 36 | | 0.04 | | 20,609,086 | | 7.21 | | 1,250,001 to 2,500,000 | 71 | | 0.13 | | 124,513,650 | | 12.23 | | 8 | | 0.01 | | 15,088,234 | | 5.28 | | 2,500,001 and over | 68 | | 0.13 | | 515,236,968 | | 50.61 | | 10 | | 0.01 | | 148,524,155 | | 51.98 | | ADRs | — | | — | | 104,131,792 | | 10.23 | | — | | — | | — | | — | |
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| | Publicly held shares | 54,309 | | 100 | | 1,018,074,101 | | 100 | | 102,411 | | 100 | | 285,743,423 | | 100 | | Shares held in treasury | | | | | 53,607,337 | | | | | | | | — | | | | Tinto Holdings Australia Pty Limited | | | | | | | | | | | | | 171,072,520 | | | |
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| | | | | | | 1,071,681,438 | | | | | | | | 456,815,943 | | | |
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| | Number of holdings less than marketable parcel of A$500. | | | | | | 1,378 | | | | | | | |
TWENTY LARGEST REGISTERED SHAREHOLDERS In accordance with the ASX Listing Rules, below are the names of the twenty largest registered holders of Rio Tinto Limited shares and the number of shares and the percentage of issued capital each holds: Rio Tinto Limited | | | | Percentage | | | | | | of issued | | | | Number of | | share | | | | shares | | capital | |
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| | 1 | Tinto Holdings Australia Pty Limited | 171,072,520 | | 37.45 | | 2 | National Nominees Limited | 38,626,816 | | 8.46 | | 3 | J P Morgan Nominees Australia Limited | 36,164,864 | | 7.92 | | 4 | Westpac Custodian Nominees Pty Limited | 33,163,997 | | 7.26 | | 5 | Citicorp Nominees Pty Limited | 10,141,523 | | 2.22 | | 6 | ANZ Nominees Limited | 8,209,196 | | 1.80 | | 7 | Cogent Nominees Pty Limited | 6,320,939 | | 1.38 | | 8 | Queensland Investment Corporation | 6,151,422 | | 1.35 | | 9 | HSBC Custody Nominees (Australia) Limited | 4,006,203 | | 0.88 | | 10 | Citicorp Nominees Pty Limited | 3,186,324 | | 0.70 | | 11 | Westpac Financial Services Limited | 2,552,871 | | 0.56 | | 12 | Australian Foundation Investment Company Limited | 2,438,414 | | 0.53 | | 13 | AMP Life Limited | 2,424,837 | | 0.53 | | 14 | UBS Wealth Management Australia Nominees Pty Ltd | 2,332,068 | | 0.51 | | 15 | Citicorp Nominees Pty Limited | 2,125,342 | | 0.47 | | 16 | RBC Dexia Investor Services Australia Nominees Pty Ltd | 1,793,472 | | 0.39 | | 17 | Citicorp Nominees Pty Limited | 1,397,217 | | 0.31 | | 18 | Argo Investments Limited | 1,298,920 | | 0.28 | | 19 | RBC Dexia Investor Services Australia Nominees Pty Ltd | 1,277,964 | | 0.28 | | 20 | Suncorp Custodian Services Pty Limited | 1,240,193 | | 0.27 | |
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| | | | 335,925,102 | | 73.55 | |
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Notes | 1 | Tinto Holdings Australia Pty Limited is a wholly owned subsidiary of Rio Tinto plc. | 2 | Other large registered shareholders are nominees who hold securities on behalf of beneficial shareholders. |
RELATED PARTY TRANSACTIONS Information about material related party transactions of the Rio Tinto Group is set out in note 42 to the 2006 financial statements. Rio Tinto 2006 Form 20-F | 132 |
Back to Contents Item 8. | Financial Information |
Shareholder informationLEGAL PROCEEDINGS
Neither Rio Tinto plc nor Rio Tinto Limited nor any of their subsidiaries is a defendant in any proceedings which the directors believe will have a material effect on either Company’s financial position or profitability. DIVIDENDS
Both Companies have paid dividends on their shares every year since incorporation in 1962. The rights of Rio Tinto shareholders to receive dividends are explained under the description of the dual listed companies structureDual Listed Companies Structure on page 77.pages 136 to 139. Dividend policy The aim of Rio Tinto’sTinto’s progressive dividend policy is to increase the US dollar value of ordinary dividends over time, without cutting them during economic downturns. The rate of the total annual dividend, in US dollars, is determined taking into account the results for the past year and the outlook for the current year. The interim dividend is set at one half of the total ordinary dividend for the previous year. Under Rio Tinto’s dividend policy the final ordinary dividend for each year is expected to be at least equal to the previous interim dividend. Dividend determination
As theThe majority of the Group’sGroup’s sales are transacted in US dollars, it ismaking this the most reliable currency in which to measure for the Group’s financial performance andglobal business performance. It is itsRio Tinto’s main reporting currency. So the US dollar iscurrency and consequently the natural currency for dividend determination. Dividends determined in US dollars are translated at exchange rates prevailing two days prior to the announcement and are then declared payable in sterling by Rio Tinto plc and in Australian dollars by Rio Tinto Limited. AustralianOn request shareholders of Rio Tinto plc can elect to receive dividends in Australian dollars and UK shareholders of Rio Tinto Limited can elect to receive dividends in sterling. If you would likeShareholders requiring further information should contact Computershare. 20032006 dividends The 20032006 interim and final dividends were determined at 30.040.0 US cents and at 34.064.0 US cents per share respectively and the applicable translation rates were US$1.62561.8674 and US$1.82021.96145 to the pound sterling and US$0.66640.7622 and US$0.7610 0.77255 to the Australian dollar. Final dividends of 18.6832.63 pence per share and of 44.6882.84 Australian cents per share will bewere paid on 613 April 2004.2007. A final dividend of 136256 US cents per Rio Tinto plc ADR (each representing four shares) will bewas paid by TheJPMorgan Chase Bank of New YorkNA to the ADR holders of both Companies on 716 April 2004.2007. The tables below set out the amounts of interim, final and totalspecial cash dividends paid or payable on each share or ADS in respect of each financial year, but before deduction of any withholding tax.
Rio Tinto Group – US cents per share | | 2003 | | 2002 | | 2001 | | 2000 | | 1999 |
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| Interim | 30.0 | | 29.5 | | 20.0 | | 19.0 | | 16.5 | Final | 34.0 | | 30.5 | | 39.0 | | 38.5 | | 38.5 | Total | 64.0 | | 60.0 | | 59.0 | | 57.5 | | 55.0 |
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Rio Tinto Group – US cents per share | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | |
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| | Interim | 40.0 | | 38.5 | | 32.0 | | 30.0 | | 29.5 | | Final | 64.0 | | 41.5 | | 45.0 | | 34.0 | | 30.5 | | Special | — | | 110.0 | | — | | — | | — | |
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| | Total | 104.0 | | 190.0 | | 77.0 | | 64.0 | | 60.0 | |
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| | | | | | | | | | | | | Rio Tinto plc – UK pence per share | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | |
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| | Interim | 21.42 | | 21.75 | | 17.54 | | 18.45 | | 18.87 | | Final | 32.63 | | 23.35 | | 23.94 | | 18.68 | | 18.60 | | Special | — | | 61.89 | | — | | — | | — | |
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| | Total | 54.05 | | 106.99 | | 41.48 | | 37.13 | | 37.47 | |
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| | | | | | | | | | | | | Rio Tinto Limited – Australian cents per share | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | |
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| | Interim | 52.48 | | 50.56 | | 45.53 | | 45.02 | | 54.06 | | Final | 82.84 | | 54.86 | | 58.29 | | 44.68 | | 51.87 | | Special | — | | 145.42 | | — | | — | | — | |
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| | Total | 135.32 | | 250.84 | | 103.82 | | 89.70 | | 105.93 | |
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Rio Tinto 2006 Form 20-F | 133 |
Rio Tinto plc – UK pence per share | | 2003 | | 2002 | | 2001 | | 2000 | | 1999 |
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| Interim | 18.45 | | 18.87 | | 14.03 | | 12.66 | | 10.39 | Final | 18.68 | | 18.60 | | 27.65 | | 26.21 | | 23.84 | Total | 37.13 | | 37.47 | | 41.68 | | 38.87 | | 34.23 |
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Rio Tinto Limited – Australian cents per share | | 2003 | | 2002 | | 2001 | | 2000 | | 1999 |
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| Interim | 45.02 | | 54.06 | | 39.42 | | 32.68 | | 25.64 | Final | 44.68 | | 51.87 | | 75.85 | | 69.76 | | 61.47 | Total | 89.70 | | 105.93 | | 115.27 | | 102.44 | | 87.11 |
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Rio Tinto plc and | Rio Tinto Limited – US cents per ADS | | 2003 | | 2002 | | 2001 | | 2000 | | 1999 |
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| Interim | 120 | | 118 | | 80 | | 76 | | 66 | Final | 136 | | 122 | | 156 | | 154 | | 154 | Total | 256 | | 240 | | 236 | | 230 | | 220 |
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Back to Contents Rio Tinto plc and Rio Tinto Limited – US cents per ADS | | | | | | | | | | | | | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | |
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| | Interim | | 160 | | 154 | | 128 | | 120 | | 118 | | Final | | 256 | | 166 | | 180 | | 136 | | 122 | | Special | | — | | 440 | | — | | — | | — | |
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| | Total | | 416 | | 760 | | 308 | | 256 | | 240 | |
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Dividend reinvestment plan (DRP) Rio Tinto offers shareholders a DRP to registered shareholders, which provides the opportunity to use cash dividends to purchase RioTinto shares in the market free of commission. Please seeSee Taxation on pages 75 and 76page 143 for an explanation of the tax consequences. The DRP is available only to shareholders whose names are recorded on the respective Company’s register and dueDue to local legislation the DRP cannot be extended to shareholders in the US, Canada and certain other countries. Please contact Computershare for further information. POST BALANCE SHEET EVENTS No significant changes have occurred since the date of the financial statements. Item 9. | The Offer and Listing |
MARKET LISTINGS AND SHARE PRICES
Rio Tinto plc The principal market for Rio Tinto plc shares is the London Stock Exchange (LSE). As a constituent of the Financial Times Stock Exchange 100 index (FTSE 100), Rio Tinto plc shares trade through the Stock Exchange Electronic Trading Service (SETS) system. Central to the SETS system is the electronic order book on which an LSE member firm can post buy and sell orders, either on its own behalf or for its clients. Buy and sell orders are executed against each other automatically in strict price, then size, priority. The order book operates from 8.00 am to 4.30 pm daily. From 7.50 am to 8.00 am ordersmay be added to, or deleted from the book, but execution does not occur. At 8.00 am the market opens by means of an uncrossing algorithm which calculates the greatest volume of trades on the book which can be executed, then matches the orders, leaving unexecuted orders on the book at the start of trading. All orders placed on the order book are firm and are for standard three day settlement. While the order book isvital to all market participants, orders are anonymous, with the counterparties being revealed to each other only after execution of the trade. Use of the order book is not mandatory but all trades, regardless of size, executed over the SETS system arepublished immediately. The only exception to this is where a Worked Principal Agreement (WPA) is entered into for trades greater than 8 x Normal Market Size (NMS). Rio Tinto plc has an NMS of 75,000100,000 shares. Publication of trades entered under a WPA is delayed until the earlier of 80 per cent of the risk position assumed by the member firm taking on the trade being unwound or the end of the business day. Closing LSE share prices are published in most UK national newspapers and are also available during the day onthe Rio Tinto and other websites. ShareIn addition, share prices are also available on CEEFAX and TELETEXT and can be obtained through the Cityline service operated by the Financial Times in the UK: telephone 0906 843 3880; calls3880. Calls are currently charged at 60p per minute.minute plus VAT, in addition to any mobile phone charges. Rio Tinto plc has a sponsored American Depositary Receipt (ADR) facility with TheJPMorgan Chase Bank of New YorkNA (JPMorgan) under a Deposit Agreement, dated 13 July 1988, as amended on 11 June 1990, as further amended andrestated on 15 February 1999 and as further amended and restated on 1518 February 1999.20 05 when JPMorgan became Rio Tinto plc’s depository. The ADRs evidence Rio Tinto plc American Depositary Shares (ADS), with each ADR representing four ordinary shares. The shares are registered with the US Securities and Exchange Commission (SEC), are listed on the New York Stock Exchange (NYSE) and are traded under the symbol ‘RTP’‘RTP’. Rio Tinto plc shares are also listed on Euronext and on Deutsche BöBörse. The following table shows share prices for the period indicated, the reported high and low middle marketquotations, (whichwhich represent an average of bid and asked prices)prices, for Rio Tinto plc’s shares on the LSE based on the LSE Daily Official List, and the highest and lowest sale prices of the Rio Tinto plc ADSs as reported on the NYSE composite tape. | Pence per | | US$ per | | Rio Tinto plc | | Rio Tinto plc | | share | | ADS |
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| 1999 | 1,495 | | 698 | | 95.13 | | 46.13 | 2000 | 1,478 | | 900 | | 96.56 | | 55.13 | 2001 | 1,475 | | 930 | | 84.10 | | 55.00 | 2002 | 1,492 | | 981 | | 85.93 | | 62.00 | 2003 | 1,543 | | 1,093 | | 111.35 | | 71.70 |
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| Aug 2003 | 1,407 | | 1,270 | | 90.30 | | 82.30 | Sept 2003 | 1,420 | | 1,283 | | 93.83 | | 86.41 | Oct 2003 | 1,474 | | 1,290 | | 100.34 | | 86.85 | Nov 2003 | 1,461 | | 1,366 | | 100.52 | | 92.82 | Dec 2003 | 1,543 | | 1,421 | | 111.35 | | 98.50 | Jan 2004 | 1,574 | | 1,426 | | 116.33 | | 103.95 |
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| 2002 | | | | | | | | First quarter | 1,492 | | 1,285 | | 85.93 | | 73.90 | Second quarter | 1,411 | | 1,168 | | 81.85 | | 71.99 | Third quarter | 1,261 | | 981 | | 77.31 | | 62.00 | Fourth quarter | 1,324 | | 1,016 | | 83.23 | | 64.00 |
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| 2003 | | | | | | | | First quarter | 1,298 | | 1,093 | | 83.80 | | 71.70 | Second quarter | 1,272 | | 1,129 | | 85.26 | | 72.30 | Third quarter | 1,420 | | 1,132 | | 93.83 | | 75.31 | Fourth quarter | 1,543 | | 1,290 | | 111.35 | | 86.85 |
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As at 6 February 2004, there were 66,906 holders of record of Rio Tinto plc’s shares. Of these holders, 254 had registered addresses in the US and held a total of 158,205 Rio Tinto plc shares, representing 0.01 per cent of the total number of Rio Tinto plc shares issued and outstanding as at such date. In addition, 82.8 million Rio Tinto plc
74 | Rio Tinto 20032006 Form 20-F | Annual report and financial statements134 |
Back to Contents | Pence per | | US$ per | | | Rio Tinto plc share | | Rio Tinto plc ADS | | | High | | Low | | High | | Low | |
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| | 2002 | 1,492 | | 981 | | 85.93 | | 62.00 | | 2003 | 1,543 | | 1,093 | | 111.35 | | 71.70 | | 2004 | 1,574 | | 1,212 | | 119.39 | | 86.42 | | 2005 | 2,657 | | 1,472 | | 183.29 | | 111.57 | | 2006 | 3,322 | | 2,352 | | 253.33 | | 176.09 | |
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| | Aug 2006 | 2,807 | | 2,640 | | 216.11 | | 198.01 | | Sep 2006 | 2,824 | | 2,352 | | 214.50 | | 176.09 | | Oct 2006 | 2,897 | | 2,401 | | 221.87 | | 178.70 | | Nov 2006 | 3,015 | | 2,658 | | 231.15 | | 200.67 | | Dec 2006 | 2,850 | | 2,649 | | 225.93 | | 205.23 | | Jan 2007 | 2,760 | | 2,505 | | 218.99 | | 193.60 | | Feb2007 | 2,940 | | 2,686 | | 230.60 | | 208.81 | | Mar 2007 | 2,902 | | 2,582 | | 228.10 | | 203.68 | | Apr 2007 | 3,183 | | 2,888 | | 255.30 | | 230.60 | | May 2007 | 3,675 | | 3,060 | | 296.27 | | 244.73 | |
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| | 2005 | | | | | | | | | First quarter | 1,851 | | 1,472 | | 142.80 | | 111.57 | | Second quarter | 1,762 | | 1,557 | | 130.75 | | 115.80 | | Third quarter | 2,346 | | 1,724 | | 166.90 | | 122.98 | | Fourth quarter | 2,657 | | 2,073 | | 183.29 | | 148.81 | |
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| | 2006 | | | | | | | | | First quarter | 2,981 | | 2,588 | | 212.94 | | 176.81 | | Second quarter | 3,322 | | 2,547 | | 253.33 | | 184.05 | | Third quarter | 2,901 | | 2,352 | | 216.11 | | 176.09 | | Fourth quarter | 3,015 | | 2,401 | | 231.15 | | 178.70 | |
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| | 2007 | | | | | | | | | First quarter | 2,940 | | 2,505 | | 230.60 | | 193.60 | |
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sharesAs at 8 June 2007, there were registered in the name of a custodian account in London. These shares were represented by 20.725.9 million Rio Tinto plc ADSs in issue, representing 103.6 million Rio Tinto plc shares which were held of record by 373 ADS holders.380 ADR holders and which represented 10.35 per cent of the publicly held shares. There were 53,482 holders of record of Rio Tinto plc’s shares of whom 250 had registered addresses in the US, holding 157,241 Rio Tinto plc shares which represented 0.016 per cent of the publicly held shares. In addition, certain accounts of record with registered addresses other than in the US hold shares, in whole or in part, beneficially for US persons.
Rio Tinto Limited Rio Tinto Limited shares are listed on the Australian StockSecurities Exchange (ASX) and the Stock Exchange of New Zealand.Zealand SecuritiesExchange. The ASX is the principal trading market for Rio Tinto Limited shares. The ASX is a national stock exchange operating in the capital city of each Australian State with an automated trading system. Although not listed, Rio Tinto Limited shares are also traded on the LSE.in London. Closing ASX share prices are published in most Australian newspapers and are also available during the day on the Rio Tinto and other websites. Rio Tinto Limited also hashad an ADR facility with TheJPMorgan Chase Bank of New YorkNA under a Deposit Agreement, dated6 June 1989, as amended on 1 August 1989, and as further amended and restated on 2 June 1992. The ADRs evidence1992 and as further amended and restated on 7 July 2005 when JPMorgan became Rio Tinto LimitedLimited’s depository.
’s ADSs, each representing four shares Rio Tinto Limited had established a separate ADR programme before the DLC merger in 1995 but the Group didnot believe that there was any benefit in continuing to maintain two separate ADR programmes and are traded in 2006 decided that, due to the overrelative size of the counter market underRio Tinto Limited ADR programme, it should be terminated. In February 2006 formal notice of termination of the symbol ‘RTOLY’.Deposit Agreement was given to JPMorgan and it was terminated on 10 April 2006, immediately after the payment of the final dividend to the ADR holders. Any questions concerning holdings of Rio Tinto Limited ADRs should be directed to the JPMorgan Service Center on (800) 990 1135. The following tables settable sets out for the periods indicated the high and low closing sale prices of Rio Tinto Limitedshares based upon information provided by the ASX and the highest and lowest trading prices of Rio Tinto Limited ADSs, as advised by The Bank of New York.ASX. There is no established trading market in the US for Rio Tinto Limited’s shares or ADSs.shares. | A$ per | | US$ per | | Rio Tinto Ltd | | Rio Tinto Ltd | | share | | ADS |
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| 1999 | 32.76 | | 18.71 | | 87.00 | | 39.25 | 2000 | 33.54 | | 22.65 | | 87.50 | | 50.00 | 2001 | 38.62 | | 28.40 | | 80.55 | | 54.00 | 2002 | 41.35 | | 29.05 | | 85.24 | | 63.62 | 2003 | 37.54 | | 28.17 | | 112.42 | | 73.85 |
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| Aug 2003 | 34.31 | | 31.55 | | 88.83 | | 83.19 | Sept 2003 | 35.31 | | 32.87 | | 94.00 | | 88.34 | Oct 2003 | 36.59 | | 32.32 | | 101.00 | | 88.22 | Nov 2003 | 35.96 | | 33.68 | | 102.56 | | 97.52 | Dec 2003 | 37.54 | | 34.79 | | 112.42 | | 101.11 | Jan 2004 | 38.41 | | 35.36 | | 118.35 | | 107.75 |
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| 2002 | | | | | | | | First quarter | 41.35 | | 36.42 | | 85.24 | | 74.96 | Second quarter | 38.63 | | 32.81 | | 82.47 | | 73.71 | Third quarter | 36.00 | | 29.32 | | 81.77 | | 63.62 | Fourth quarter | 34.89 | | 29.05 | | 78.11 | | 63.75 |
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| 2003 | | | | | | | | First quarter | 35.25 | | 30.69 | | 83.22 | | 73.85 | Second quarter | 33.26 | | 29.21 | | 84.00 | | 74.53 | Third quarter | 35.31 | | 28.17 | | 94.00 | | 76.55 | Fourth quarter | 37.54 | | 32.32 | | 112.42 | | 88.22 |
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Rio Tinto 2006 Form 20-F | 135 |
Back to Contents | A$ per | | | Rio Tinto Limited share | | | High | | Low | |
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| | 2002 | 41.35 | | 29.05 | | 2003 | 37.54 | | 28.17 | | 2004 | 40.20 | | 31.98 | | 2005 | 69.10 | | 38.82 | | 2006 | 87.97 | | 65.38 | |
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| | Aug 2006 | 76.15 | | 72.05 | | Sep 2006 | 74.80 | | 65.38 | | Oct 2006 | 79.77 | | 68.01 | | Nov 2006 | 82.00 | | 72.57 | | Dec 2006 | 77.80 | | 72.99 | | Jan 2007 | 77.45 | | 69.50 | | Feb 2007 | 80.11 | | 75.48 | | Mar 2007 | 79.20 | | 72.53 | | Apr 2007 | 84.89 | | 77.20 | | May 2007 | 96.36 | | 81.15 | |
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| | 2005 | | | | | First quarter | 47.93 | | 38.82 | | Second quarter | 45.90 | | 41.40 | | Third quarter | 60.01 | | 45.12 | | Fourth quarter | 69.10 | | 54.27 | |
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| | 2006 | | | | | First quarter | 78.85 | | 67.50 | | Second quarter | 87.97 | | 70.90 | | Third quarter | 78.56 | | 65.38 | | Fourth quarter | 82.00 | | 68.01 | |
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| | 2007 | | | | | First quarter | 80.11 | | 69.50 | |
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As at 6 February 2004, a total8 June 2007, there were 104,491 holders of 304,153record of Rio Tinto LimitedLimited’s shares were held of record by 208 persons withwhom 255 had registered addresses in the US holding 342,609 Rio Tinto Limited shares which represented approximately 0.0610.12 per cent of the total number of Rio Tinto Limited shares issued and outstanding as of such date.publicly held shares. In addition, an aggregate of 234,778 Rio Tinto Limited ADSs were outstanding (representing 0.9 million Rio Tinto Limited shares) and were held of record by 31 persons with registered addresses in the US, which represented less than one per cent of the total number of Rio Tinto Limited shares issued and outstanding. In addition, nomineecertain accounts of record with registered addresses other than in the US may hold Rio Tinto Limited shares, in whole or in part, beneficially for US persons.
ADR holders ADR holders may instruct The Bank of New YorkJPMorgan as to how the shares represented by their ADRs should be voted. Registered holders of ADRs will have theAnnual reviewand interim reports mailed to them at their record address. Brokers or financial institutions, which hold ADRs for shareholder clients, are responsible for forwarding shareholder information to their clients andADR holders will be provided with copies ofreceive theAnnual reviewand interim reports for this purpose.on request. Rio Tinto is subject to the US Securities and Exchange Commission (SEC) reporting requirements for foreign companies. A Form 20-F, incorporating by reference most ofwhich corresponds with the informationForm 10-K in the 2003Annual report and financial statements,US public companies, will be filed with the SEC. The Form 20-F corresponds to the Form-10K which US public companies are required to file with the SEC. Rio Tinto’sTinto’s Form 20-F and other filings can be viewed on the Rio Tinto website as well as the SEC websiteweb site at www.sec.gov Investment warning Past performance of shares is not necessarily a guide to future performance. The value of shares and investments and anythe income derived from them is not guaranteed and can fallgo down as well as rise depending on market movements. Youup, and investors maynot get back the original amount they invested. Credit ratings
Rio Tinto has strong international credit ratings:
Item 10. | Short term | | Long term |
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| Standard & Poor’s Corporation | A-1 | | A+ | Moody’s Investors Service | P-1 | | Aa3 |
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| Additional Information |
The ratings by Standard & Poor’s Corporation were downgraded during 2002 from A-1+/AA- and are on a “stable” outlook. The ratings by Moody’s Investor Services are on a “negative” outlook.DUAL LISTED COMPANIES STRUCTURE
TAXATION
UK resident individuals
Taxation of dividends
Dividends carry a tax credit equal to one ninthIn 1995, Rio Tinto shareholders approved the terms of the dividend. Individuals who are not liabledual listed companies merger (the DLC merger) which was designed to income tax atplace the higher rate will have no further tax to pay. Higher rate tax payers are liable to tax on UK dividends at 32.5 per cent which, after taking accountshareholders of the tax credit, produces a further tax liability of 25 per cent of the dividend received.
Reclaiming income tax on dividends
Tax credits on dividends are no longer
reclaimable. However, tax credits on dividends paid into Personal Equity Plans or Individual Savings Accounts will continue to be refunded on dividends paid prior to 6 April 2004.
Dividend reinvestment plan (DRP)
The taxation effect of participationboth Companies in the DRP will depend on individual circumstances. Shareholders will generally be liable for tax on dividends reinvested in the DRP onsubstantially the same basisposition as if they had received the cash and arranged the investment. The dividend should therefore be includedheld shares in the annual tax return in the normal way.
The shares acquired should be added to shareholdings at the date and at the net cost shown on the share purchase advice. The actual costa single enterprise owning all of the shares (forassets of both Companies. As a condition of its approval of the DLC merger, the Australian Government required Rio Tinto plc shareholders includingto reduce its shareholding in Rio Tinto Limited to 39 per cent by the stamp duty/stamp duty reserve tax) will formend of 2005. Consistent with the base cost for capital gains tax purposes.
Capital gains tax
Shareholders who have any queries on capital gains tax issues are advisedcommitments made to consult their financial adviser.
A leaflet which includes details of relevant events since 31 March 1982 and provides adjusted values forthe Australian Government in 1995, the Rio Tinto plc securities as at that date is available from the company secretary.
Australian resident individuals
Taxation of dividends
The basis of the Australian dividend imputation system is that when Australian resident shareholders receive dividends fromshareholding in Rio Tinto Limited they may be entitled to a credit forhas been reduced over time and it now stands at approximately 37.5 per cent. Following the tax paid by the Group in respect of that income, depending on the tax statusapproval of the shareholder.
The applicationDLC merger, both Companies entered into a DLC Merger Sharing Agreement (the Sharing Agreement) through which each Company agreed to ensure that the businesses of the system results in tax paid by the Group being allocated to shareholders by way of franking credits attaching to the dividends they receive. Such dividends are known as franked dividends. A dividend may be partly or fully franked. The current Rio Tinto Limited dividend is fully frankedplc and the franking credits attached to the dividend are shown in the distribution statement provided to shareholders.
The extent to which a company will frank a dividend depends on the credit balance in its franking account. Credits to this account can arise in a number of ways, including when a company pays company tax or receives a franked dividend from another company. The dividend is required to be included in a resident individual shareholder’s assessable income. In addition, an amount equal to the franking credit attached to the franked dividend is also included in the assessable income of the resident individual, who may then be entitled to a rebate of tax equal to the franking credit amount included in their income.
The effect of the dividend imputation system on non resident shareholders is that, to the extent that the dividend is franked, noRio Tinto
Rio Tinto 2003 2006 Annual report and financial statementsForm 20-F | 75136 |
Back to Contents Shareholder information continued
Australian tax will be payableLimited are managed on a unified basis, to ensure that the boards of directors of each Company is the same, and there is an exemption from dividend withholding tax.to give effect to certain arrangements designed to provide shareholders of each Company with a common economic interest in the combined enterprise. A withholding tax is normally levied atIn order to achieve this third objective, the rateSharing Agreement provided for the ratio of 15 per cent when unfranked dividends are paiddividend, voting andcapital distribution rights attached to residents of countries with which Australia has a taxation treaty. Most Western countries have a taxation treaty with Australia. A rate of 30 per cent applieseach Rio Tinto plc share and to countries where there is no taxation treaty.
Since 1988, all dividends paid byeach Rio Tinto Limited have been fully franked. It is the Group’s policy to pay fully franked dividends whenever possible.
Dividend reinvestment plan (DRP)
Shareholders will generally be liable for tax on dividends reinvested in the DRP on the same basis as if they had received the cash and arranged the investment. The dividend should therefore be included in the annual tax return in the normal way.
The shares acquired should be added to the shareholding at the date of acquisition at the actual cost of the shares, which is the amount of the dividend applied by the shareholder to acquire shares and any incidental costs associated with the acquisition, including stamp duty, will form part of the cost base or reduced cost base of the shares for capital gains tax purposes.
Capital gains tax
The Australian capital gains tax legislation is complex. Shareholders are advised to seek the advice of an independent taxation consultant on any possible capital gains tax exposure. If shareholders have acquired shares after 19 September 1985 they may be subject to capital gains tax on the disposal of those shares.
US resident individuals
The following is a summary of the principal UK tax, Australian tax and US Federal income tax consequences of the ownership of Rio Tinto plc ADSs, Rio Tinto plc shares, Rio Tinto Limited ADSs and Rio Tinto Limited shares (‘the Group’s ADSs and Shares’) by a US holder (as defined below). It is not intendedshare to be a comprehensive description of all the tax considerations that are relevant to all classes of taxpayer. Future changesfixed in legislation, may affect the tax consequences of the ownership of the Group’s ADSs and shares.
It is based in part on representations by The Bank of New York as Depositary for the ADRs evidencing the ADSs and assumes that each obligation in the deposit agreements will be performed in accordance with its terms.
A ‘US holder’ is a beneficial owner of securities who, for purposes of the income tax conventions between the US and both the UK and Australia (‘the Conventions’), is a resident of the US and is not a US corporation owning directly or indirectly ten per cent or more of the stock issued by either of the Companies.
For the purposes of the Conventions and
of the US Internal Revenue Code of 1986, as amended, (‘the Code’) US holders of ADSs are treated as the owners of the underlying shares.
The summary describes the treatment applicable under the Conventions in force at the date of this report.
UK taxation of shareholdings in
Rio Tinto plc
Taxation of dividends
US holders do not suffer deductions of UK withholding tax on dividends paid by Rio Tinto plc. Dividends carry a tax credit equal to one ninth of the net dividend, or ten per cent of the net dividend plus the tax credit. The tax credit is not repayable to US holders.
Capital gains
A US holder will not normally be liable to UK tax on capital gains realised on the disposition of Rio Tinto plc ADSs or shares unless the holder carries on a trade, profession or vocation in the UK through a permanent establishment in the UK and the ADSs or shares have been used for the purposes of the trade, profession or vocation or are acquired, held or used for the purposes of such a permanent establishment.
Inheritance tax
Under the UK Estate Tax Treaty a US holder, who is domiciled in the US and is not a national of the UK, will not be subject to UK inheritance tax upon the holder’s death or on a transfer during the holder’s lifetime unless the ADSs and shares form part of the business property of a permanent establishment in the UK or pertain to a fixed base situated in the UK used in the performance of independent personal services. In the exceptional case where ADSs or shares are subject both to UK inheritance tax and to US Federal gift or estate tax, the UK Estate Tax Treaty generally provides for tax payments to be relieved in accordance with the priority rules set out in the Treaty.
Stamp duty and stamp duty reserve tax
Transfers of Rio Tinto plc ADSs will not be subject to UK stamp duty provided that the transfer instrument is not executed in, and at all times remains outside of, the UK.
Purchases of Rio Tinto plc shares are subject either to stamp duty at a rate of 50 pence per £100 or to stamp duty reserve tax (SDRT) at a rate of 0.5 per cent. Conversions of Rio Tinto plc shares into Rio Tinto plc ADSs will be subject to additional SDRT at a rate of 1.5 per cent on all transfers to the Depositary or its nominee.
Australian taxation of shareholdings in
Rio Tinto Limited
Taxation of dividends
US holders are not normally liable to Australian withholding tax on dividends paid by Rio Tinto Limited because such dividends are normally fully ‘franked’ under the
Australian dividend imputation system, meaning that they are paid out of income thatan Equalisation Ratio which has borne Australian income tax. Any ‘unfranked’ dividends would suffer Australian withholding tax which under the Australian income tax convention is limited to 15 per cent of the gross dividend.
Capital gains
US holders are not normally subject to any Australian tax on the disposal of Rio Tinto Limited ADSs or shares unless they have been used in carrying on a trade or business wholly or partly through a permanent establishment in Australia, or the gain is in the nature of income sourced in Australia.
Gift, estate and inheritance tax
Australia does not impose any gift, estate or inheritance taxes in relation to gifts of shares or upon the death of a shareholder.
Stamp duty
An issue or transfer of Rio Tinto Limited ADSs or a transfer of Rio Tinto Limited shares does not require the payment of Australian stamp duty.
US Federal income tax
Dividends
Dividends on the Group’s ADSs and shares will generally be treated as dividend income for purposes of US Federal income tax. In the case of Rio Tinto Limited the income will be the net dividend plus, in the event of a dividend not being fully franked, the withholding tax.
Dividend income will not be eligible for the dividends received deduction allowed to US corporations.
Under the Jobs and Growth Tax Relief Reconciliation Act 2003, dividends paid by Qualified Foreign Corporations (QFCs) are subject to a maximum rate of income tax of 15 per cent. This maximum rate applies to taxable years beginning after 31 December 2002 and ending before 1 January 2009. Both Rio Tinto plc and Rio Tinto Limited expect to be QFCs throughout this period. To qualify for the 15 per cent maximum income tax rate on dividends the stock of the QFC must be held for more than 60 days during the 120 day period beginning on the date which is 60 days before the ex dividend date.
EXCHANGE CONTROLS
Rio Tinto plc
At present, there are no UK foreign exchange controls or other restrictions on the export or import of capital or on the payment of dividends to non resident holders of Rio Tinto plc shares or the conduct of Rio Tinto plc’s operations. The Bank of England however upholds international law and maintains financial sanctions against specified terrorist organisations and specific targets related to Burma, Federal Republic of Yugoslavia and Serbia, Iraq and Zimbabwe.
There are no restrictions under Rio Tinto plc’s memorandum and articles of association
76 | Rio Tinto 2003 Annual report and financial statements |
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or under English law that limit the right of non resident or foreign owners to hold or vote Rio Tinto plc’s shares.
Rio Tinto Limited | Under existing Australian legislation, the Reserve Bank of Australia does not restrict the import and export of funds, and no permission is required by Rio Tinto Limited for the movement of funds into or out of Australia, except that restrictions apply to certain transactions relating to the following: | (a) | supporters of the former government of the Federal Republic of Yugoslavia; and | (b) | Ministers and senior officials of the Government of Zimbabwe. | The Department of Foreign Affairs and Trade upholds international law that prohibits anyone from making assets available to terrorists and their sponsors.
Members of the general public are required to report the sending of A$10,000 or more in currency out of Australia to the Australian Transaction and Reports Analysis Centre. Rio Tinto Limited must also deduct withholding tax from foreign remittances of dividends (to the extent that they are unfranked) and of interest payments.
There are no limitations, either under the laws of Australia or under the constitution of Rio Tinto Limited, on the right of non residents, other than the Foreign Acquisitions and Takeovers Act 1975 (‘the Takeovers Act’). The Takeovers Act may affect the right of non Australian residents, including US residents, to acquire or hold Rio Tinto Limited shares but does not affect the right to vote, or any other right associated with any Rio Tinto Limited shares held in compliance with its provisions.
Under the Takeovers Act, a foreign person must notify the Treasurer of the Commonwealth of Australia of a proposal to acquire a “substantial shareholding” in an Australian corporation, which involves a person, together with associates, holding 15 per cent or more of the issued shares or voting power of the corporation. In addition, acquisition or issue of shares (including an option to acquire shares) in a corporation that carries on an Australian business (such as Rio Tinto Limited) which would result in foreign persons “controlling” the corporation, or a change in the foreign persons “controlling” it, is also subject to prior notification to, and review and approval by, the Treasurer, who may refuse approval if satisfied that the result would be contrary to the Australian national interest. A foreign person will “control” a corporation if it, together with associates, holds 15 per cent or more of the issued shares or voting power, and the Treasurer is satisfied that it is in a position to determine the policy of the corporation, and a number of foreign persons will “control” a corporation if it, together with associates, holds 40 per cent or more of the issued shares or voting power, and the Treasurer is satisfied that it is in a position to determine the policy of the corporation. |
In the context of the Takeovers Act, a ‘foreign person’ is: | (a) | an individual not ordinarily resident in Australia; | (b) | any corporation or trust in which there is a substantial foreign interest. | Unless the Treasurer in the particular circumstances deems otherwise, a “ substantial foreign interest” in a corporation is an interest of 15 per cent or more in the ownership of voting power by a single foreign interest either alone or together with associates, or an interest of 40 per cent or more in aggregate in the ownership or voting power by more than one foreign interest and the associates of any of them.
If a single foreign interest (either alone or together with associates) holds a beneficial interest in 15 per cent or more of the capital or income of a trust, or if two or more foreign interests (and any associates) together hold 40 per cent or more, there will be a substantial foreign interest in the trust. A beneficiary under a discretionary trust is deemed, for this purpose, to hold a beneficial interest in the maximum percentage that could be distributed to the beneficiary.
In addition to the Takeovers Act, there are statutory limitations in Australia on foreign ownership of certain businesses, such as banks and airlines, not relevant to Rio Tinto Limited. There are no other statutory or regulatory provisions of Australian law or ASX requirements that restrict foreign ownership or control of Rio Tinto Limited. |
| DUAL LISTED COMPANIES STRUCTURE
In December 1995, Rio Tinto shareholders approved the terms of the dual listed companies merger (‘the DLC merger’) which was designed to place the shareholders of both Companies in substantially the same position as if they held shares in a single enterprise owning all of the assets of both Companies. As a condition of its approval of the DLC merger, the Australian Government required Rio Tinto plc to reduce its shareholding in Rio Tinto Limited and, specifically, to 39 per cent by the end of 2005. The current holding is 37.6 per cent.
Following the approval of the DLC merger, both Companies entered into a DLC Merger Sharing Agreement (‘the Sharing Agreement’) through which each Company agreed: | (a) | to ensure that the businesses of Rio Tinto plc and Rio Tinto Limited are managed on a unified basis, | (b) | to ensure that the boards of directors of each Company is the same, and | (c) | to give effect to certain arrangements designed to provide shareholders of each Company with a common economic interest in the combined enterprise. | In order to achieve this third objective the Sharing Agreement provided for the ratio of dividend, voting and capital distribution rights attached to each Rio Tinto plc share and to each Rio Tinto Limited share to be fixed in an Equalisation Ratio which has remained |
remained unchanged at 1:1. The Sharing Agreement has provided for this ratio to be revised in specifiedspecial circumstances where, for example, certain modifications are made to the share capital of one Company, such as rights issues, bonus issues, share splits and share consolidations, but not to the share capital of the other. Outside these specified circumstances, the Equalisation Ratio can only be altered with the approval of shareholders under the ‘ClassClass Rights Action’Action approval procedure (describeddescribed under Voting rights).rights. In addition, any adjustments are required to be confirmed by the auditors.
One consequence of the DLC merger is that Rio Tinto is subject to a wide range of laws, rules and regulatoryreview across multiple jurisdictions. Where these rules differ in many instances it means that Rio Tinto, as a Group, compliesaims to comply with the strictest applicable level.
Consistent with the creation of a single combined enterprise under the DLC merger, directors of each Company are to act in the best interests of the shareholders of both Companies (ie in the best interests of Rio Tinto as a whole). Identified areas where therewhole. When matters may beinvolve a conflict of the interests ofbetween the shareholders of each Company they must be approved under the Class Rights ActionsAction approval procedure.
To ensure that directorsthe boards of each Companyboth Companies are the same,identical, resolutions to appoint or remove directors must be putto shareholders of both Companies as a joint electorate (a‘as Joint Decision’Decisions as described under Voting rights)rights, and it is a requirement that a person can only be a director of one Company if thethat person is also a director of the other Company. So, for example, if a person was removed as a director of one Company,Rio Tinto plc, he or she would also cease to be a director of the other.Rio Tinto Limited. Dividend rights
The Sharing Agreement provides for dividends paid on Rio Tinto plc and Rio Tinto Limited shares to be equalised on a net cash basis, that is without taking into account any associated tax credits. Dividends are determined in US dollars and are then, except for ADR holders, translated and paid in sterling and Australian dollars. The Companies are also required to announce and pay their dividends and other distributions as close in time to each other as possible.
In the unlikely event that one Company did not have sufficient distributable reserves to pay the equaliseddividend (oror the equalised capital distribution),distribution, it would be entitled to receive a‘top up payment’payment from the other Company. The top up payment could be made as a dividend on the DLC Dividend Share, on the Equalisation Share (if on issue) or by way of a contractual payment.
If the payment of an equalised dividend would contravene the law applicable to one of the Companies, then theymay depart from the Equalisation Ratio. However, should such
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Shareholder information continued
a departure occur, then the relevant Company will put aside reserves to be held for payment on the relevant shares at a later date. Rio Tinto shareholders have no direct rights to enforce the dividend equalisation provisions of the Sharing Agreement.
The DLC Dividend Share can also be utilised to provide the Group with flexibility for internal fundsmanagement by allowing dividends to be paid between the two parts of the Group. Such dividend payments are of no economic significance to the shareholders of either Company, as they will have no effect on the Group’sGroup’s overall resources. Voting rights
In principle, the Sharing Agreement provides for the public shareholders of Rio Tinto plc and Rio Tinto Limited to voteas a joint electorate on all matters which affect shareholders of both Companies in similar ways. These are referred to as‘Joint Decisions’.Decisions. Such Joint Decisions include the creation of new classes of share capital, the appointment or removal of directors and auditors and the receiving of annual financial statements. Joint Decisions are voted on a poll. The Sharing Agreement also provides for the protection of the public shareholders of each Company by treating the shares issued by each Company as if they were separate classes of shares issued by a single company. So decisions that do not affect the shareholders of both Companies equally require the separate approval of the shareholders of both Companies. Matters requiring this approval procedure are referred to as‘Class Rights Actions’Actions and are voted on a poll. Thus, the interests of the shareholders of each Company are protected against decisions which affect them and the shareholders in the other companyCompany differently, by requiring their separate approval. For example, fundamentalelements of the DLC merger cannot be changed unless approved by shareholders under the Class Rights ActionsAction approval procedure.
Exceptions to these principles can arise in situations such as where legislation requires the separate approval of adecision by the appropriate majority of shareholders in one Company and where approval of the matter by shareholders of the other Company is not required. Where a matter has been expressly categorised as either a‘Joint Decision’Decision or a ‘ClassClass Rights Action’,Action, the directorsdo not have the power to change that categorisation. If a matter falls within both categories, it is treated as a Class Rights Action. In addition, the directors can determine that matters not expressly listed in either category should be put to shareholders for their approval under either procedure.
To facilitate the joint voting arrangements each Company has entered into shareholder voting agreements. Each Company has issued a Special Voting Share to a special purpose company held in trust by a common Trustee. Rio Tinto 2006 Form 20-F | 137 |
Back to Contents Rio Tinto plc has issued its Special Voting Share (RTP Special Voting Share) to RTL Shareholder SVC and RioTinto Limited has issued its Special Voting Share (RTL Special Voting Share) to RTP Shareholder SVC. The total number of votes cast on Joint Decisions by the public shareholders of one Company are voted at the parallel meeting of the other Company. The role of these special purpose companies in achieving this is described below. In exceptional circumstances, certain public shareholders of the Companies can be excluded from voting at the respective Company’sCompany’s general meetings (becausebecause they have acquired shares in one Company in excess of a giventhreshold without making an offer for all the shares in the other Company).Company. If this should occur, the votes cast by these excluded shareholders will be disregarded.
Following the Companies’Companies’ general meetings the overall results of the voting on Joint Decisions and the results ofvoting on separate decisions will bewere announced to the stock exchanges, published on the Rio Tinto website and advertised in the Financial Times and The Australian newspapers. The results of the 2004 annual general meetings may also be obtained on the appropriate shareholder helpline (Rio Tinto plc: Freephone 0800 435021, and Rio Tinto Limited toll free 1800 813 292). Rio Tinto plc
At a Rio Tinto plc shareholders’shareholders’ meeting at which a Joint Decision will be considered, each Rio Tinto plc share willcarry one vote and the holder of its Special Voting Share will have one vote for each vote cast by the public shareholders of Rio Tinto Limited. The holder of the Special Voting Share is required to vote strictly and only in accordance with the votes cast by public shareholders for and against the equivalent resolution at the parallel Rio Tinto Limited shareholders’ meeting. The holders of Rio Tinto Limited ordinary shares do not actually hold any voting shares in Rio Tinto plc by virtue of their holding in Rio Tinto Limited and cannot enforce the voting arrangements relating to the Special VotingShare. Rio Tinto Limited
At a Rio Tinto Limited shareholders’shareholders’ meeting at which a Joint Decision will be considered, each Rio Tinto Limitedshare will carry one vote and, together with the Rio Tinto Limited ordinary shares held by Tinto Holdings Australia, Pty Ltd, the holder of its Special Voting Share will carry one vote for each vote cast by the public shareholders of Rio Tinto plc in their parallel meeting. Tinto Holdings Australia Pty Ltd and the holder of the Special Voting Share are required to vote strictly, and only, in accordance with the votes cast for and against the equivalent resolution at the parallel Rio Tinto plc shareholders’ meeting.
The holders of Rio Tinto plc ordinary shares do not actually hold any voting shares in Rio Tinto Limited byvirtue of their holding in Rio Tinto plc and cannot enforce the voting arrangements relating to the Special Voting Share. Capital distribution rights
If either of the Companies goes into liquidation, the Sharing Agreement provides for a valuation to be made of thesurplus assets of both Companies. If the surplus assets available for distribution by one Company on each of the shares held by its public shareholders exceed the surplus assets available for distribution by the other Company on each of the shares held by its public shareholders, then an equalising payment between the two Companies willshall be made, to the extent permitted by applicable law, such that the amount available for distribution on each Shareshare held by public shareholders of each Company conforms to the Equalisation Ratio. The objective is to ensure that the public shareholders of both Companies have equivalent rights to the assets of the combined Group on a per share basis, taking account of the equalisation ratio.Equalisation Ratio. The Sharing Agreement does not grant any enforceable rights to the shareholders of either Company upon liquidation of a Company. Limitations on ownership of shares and merger obligations
The laws and regulations of the UK and Australia impose certain restrictions and obligations on persons who control interestsin public quoted companies in excess of certaindefined thresholds that, under specificcertain circumstances, include obligations to make a public offer for all of the outstanding issued shares of the relevant company. The threshold applicable to Rio Tinto plc under UK law and regulations is 30 per cent and to Rio Tinto Limited under Australian lawslaw and regulations is 20 per cent.
As part of the DLC merger, the memorandum and articles of association of Rio Tinto plc and the constitution of Rio Tinto Limited were amended with the intention of extending these laws and regulations to the combined enterpriseand, in particular, to ensure that a person cannot exercise control over one Company without having made offers to the public shareholders of both Companies. It is consistent with the creation of the single economic enterprise and the equal treatment of the two sets of shareholders, that these laws and regulations should operate in this way. The articles of association of Rio Tinto plc and the constitution of Rio Tinto Limited impose restrictions on any person who controls, directly or indirectly, 20 per cent or more of the votes on a Joint Decision. If, however, such a person only has an interest in either Rio Tinto Limited or Rio Tinto plc, then the restrictions will only apply if they control, directly or indirectly, 30 per cent or more
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of the votes at that Company’s general meetings. If one of the thresholds specified above is breached then, subject to certain limited exceptions and notification bythe relevant Company, such persons (i) may not attend or vote at general meetings of the relevant Company; (ii)Company, may not receive dividends or other distributions from the relevant Company;Company, and (iii) may be divested of their interest by the directors of the relevant Company. These restrictions will continue to apply until such persons have either made a Rio Tinto 2006 Form 20-F | 138 |
Back to Contents public offer for all of the publicly held shares of the other Company, or have reduced their controlling interest below the thresholds specified, or have acquired through a permitted means at least 50 per cent of the voting rights of all the shares held by the public shareholders of each Company.
These provisions are designed to ensure that offers for the publicly held shares of both Companies would berequired to avoid the restrictions set forthout above, even if the interests which breach the thresholds are only held in one of the Companies. The directors do not have the discretion to exempt a person from the operation of these rules.
Under the Sharing Agreement, theCompaniesthe Companies agree to cooperate to enforce the restrictions contained in theirarticles of association and constitution and also agree that no member of the Rio Tinto Group shall accept a third party offer for Rio Tinto Limited shares unless such acceptance is approved by a Joint Decision of the public shareholders of both Companies. Guarantees
In December 1995, each Company entered into a Deed Poll Guarantee in favour of creditors of the other Company. Pursuant to the Deed Poll Guarantees, each Company guaranteed the contractual obligations of the other Company (andand the obligationsof other persons which are guaranteed by the other Company),Company, subject to certain limited exceptions. Beneficiaries under the Deed Poll Guarantees may make demand upon the guarantor thereunder without first having recourse to the Company or persons whose obligations are being guaranteed. The obligations of the guarantor under each Deed Poll Guarantee expire upon termination of the Sharing Agreement and under other limited circumstances, but only in respect of obligations arising after such termination and, in the case of other limited circumstances, the publication and expiry of due notice. The shareholders of the Companies cannot enforce the provision of the Deed Poll Guarantees. MEMORANDUM AND ARTICLES OF ASSOCIATION Rio Tinto plc adopted new Articles of Association by special resolution passed on 11 April 2002 and, amended on 14 April 2005 and 13 April 2007. And Rio Tinto Limited adopted a new Constitution by special resolution passed on 24 May 2000 and, amended by special resolution on 18 April 2002, 29 April 2005 and 27 April 2007. The resolution passed during April 2007 was in response to the implementation in the United Kingdom of the European Union Directive on Takeover Bids on 20 May 2006. Following the DLC merger in 1995 the Group introduced some change of control provisions which were designed to ensure that no one could gain control of one Company without making an offer to the shareholders of the other. The resolution removed certain discretions conferred on the directors by the change of control provisions which might have been impacted by the implementation of the Directive on Takeover Bids. SUPPLEMENTARY INFORMATIONIntroduction
General shareholder enquiries
Computershare Investor Services PLCAs explained on pages 136 to 139 under the terms of the DLC merger the shareholders of Rio Tinto plc and Computershare Investor Services Ptyof Rio Tinto Limited entered into certain contractual arrangements which are designed to place the registrars forshareholders of bothCompanies in substantially the same position as if they held shares in a single enterprise which owned all of the assets of both Companies. Generally and as far as is permitted by the UK Companies Act and the Australian Corporations Law this principle is reflected in the Memorandum and Articles of Association of Rio Tinto plc and in the Constitution of Rio Tinto Limited. The summaries below include descriptions of material rights of the shareholders of both Rio Tinto plc and Rio Tinto Limited. Unless stated otherwise the Memorandum and Articles of Association of and Constitution are identical. Rio Tinto plc is incorporated under the name “Rio Tinto plc” and is registered in England and Wales withregistered number 719885 and Rio Tinto Limited respectively. All enquiries
is incorporated under the name “Rio Tinto Limited” and correspondence concerning shareholdings (other thanis registered in Australia with ABN 96 004 458 404. No holder of shares, which may be held in ADR form) shouldeither certificated or uncertificated form, will be directedrequired to the respective registrar. Their addresses and telephone numbers are given under Useful addresses on the inside back cover. Shareholders should notify Computershare promptly in writingmake anyadditional contributions of any change of address.
All enquiries concerning shares held in ADR form should be directed to The Bank of New York, whose address and telephone number is also given under Useful addresses.
Shareholders can obtain details about their shareholding on the internet. Full details, including how to gain secure access to this personalised enquiry facility, are given on the Computershare website: www.computershare.comcapital. ConsolidationObjects The objects of share certificates
If a certificated shareholding in Rio Tinto plc are represented by several individual shares certificates, they can be replaced by one consolidated certificate; there is no charge for this service. Share certificates should be sent to Computershare together with a letter of instruction.
Share certificates – name change
Share certificatesset out in the namefourth clause of The RTZ Corporation PLC remain valid notwithstandingits Memorandum of Association and the name change to Rio Tinto plc in 1997.
Share warrants to bearer
All outstanding share warrants to bearerobjects of Rio Tinto plc have been converted into registered ordinary shares under the terms of a Scheme of Arrangement sanctioned by the Court in 2001. Holders of any outstanding share warrants to bearer should contact the company secretary of Rio Tinto plc for an application form in order to obtain their rights to registered ordinary shares.
Low cost share dealing service
Stocktrade operates the Rio Tinto Low Cost Share Dealing Service which provides a simple telephone facility for buying and selling Rio Tinto plc shares. Basic commission is 0.5 per cent up to £10,000, reducing to 0.2 per cent thereafter (subject to a minimum commission of £15). Further information is available from Stocktrade, a division of Brewin Dolphin Securities which is authorised and regulated by the Financial Services Authority. Their details are given under Useful addresses.
Individual Savings Account (ISA)
Stocktrade offers UK residents the opportunity to hold Rio Tinto plc shares in an ISA. Existing PEPs or ISAs may also be transferred to Stocktrade. Further information can be obtained from Stocktrade whose details are given under Useful addresses.
Corporate nominee service
Computershare in conjunction with Rio Tinto plc, have introduced a corporate nominee
service for private individuals. Further information can be obtained from Computershare.
Publication of financial statements
Shareholders wishing to receive theAnnual report and financial statementsand/or the Annual reviewin electronic rather than paper form should register their instruction on the Computershare website.
Unsolicited mail
Rio Tinto is aware that some shareholders have had occasion to complain that outside organisations, for their own purposes, have used information obtained from the Companies’ share registers. Rio Tinto, like other companies, cannot by law refuse to supply such information provided that the organisation concerned pays the appropriate statutory fee.
Shareholders in the UK who wish to stop receiving unsolicited mail should register with The Mailing Preference Service by letter, telephone or through their website.
The Mailing Preference Service
Freepost 22
London W1E 7EZ
Telephone: 020 7291 3310
Website: www.mpsonline.org.uk
Rio Tinto on the web
Rio Tinto maintains a substantial amount of information on its website, including this and previous annual reports, many other publications and links to websites of Group companies.
The maintenance and integrity of the Rio Tinto website is the responsibility of the directors. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Website: www.riotinto.com
General enquiries
If you require general information about the Group please contact the External Affairs department. For all other enquiries please contact the relevant company secretary or the share registrar.
Full parent entity Financial statements for Rio Tinto Limited are available freeset out in the second clause of charge fromits Constitution. Included in these objects is the Rio Tinto Limited company secretary on request. These Financial statements are also available onright for each Company to enter into, with one another, operate and carry into effect an Agreement known as the Rio Tinto website.DLC Merger Sharing Agreement and a Deed Poll Guarantee.
Other objects of Rio Tinto plc include provisions: | • | to carry on as an Investment Holding Company; | • | to subscribe for, sell, exchange or dispose of any type of security or investment; | • | to purchase any estate or interest in property or assets; | • | to borrow and raise money to secure or discharge any debt or obligation of or binding on the Company; | • | to draw, make or deal in negotiable or transferable instruments; |
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Back to Contents • | to amalgamate with and co-operate with or assist or subsidise any company, firm or person and to purchase orotherwise acquire or undertake all or any part of the business property or liabilities of any person, body orcompany carrying on any business which this Company is authorised to carry on; | • | to promote the Company; | • | to lend money and guarantee contracts or obligations of the Company and to give all kinds of indemnities; | • | to sell, lease, grant licences and other rights over any part of the Company; | • | to procure the registration of the Company outside England; | • | to subscribe or guarantee money to any national, charitable, benevolent, public, general or exhibition which mayfurther the objects of the Company or the interest of its members; | • | to grant pensions or gratuities to employees, ex-employees, officers and ex-officers; | • | to establish any scheme or trust which may benefit employees; | • | to lend money to employees to purchase Company shares; | • | to purchase and maintain insurance for employees and to carry on the objects of the Company in any part of theworld either as principals, agents, contractors, trustees or otherwise. | | |
Other objects of Rio Tinto Limited include the powers: | • | to prospect for, explore, quarry, develop, excavate, dredge for, open, work, win, purchase or otherwise obtain allminerals, metals and substances; | • | to carry on business as proprietors of and to purchase, take on, lease or in exchange or otherwise acquire andcontrol mineral and other properties, lands and hereditaments of any tenure, mines and other rights or optionsthereon; | • | to raise, win, get, quarry, crush, smelt, calcine, refine, dress, amalgamate, manipulate and otherwise treat,prepare, sell and deal in ores, metals and other products of mines; | • | to carry on business as ship owners, railway proprietors, motor car, lorry and coach proprietors, and garageproprietors, carriers and hauliers, bankers, storekeepers, wharfingers, cartage, storage, building and generalcontractors and to buy and sell or otherwise deal in real or personal property of any kind; | • | to carry on business as manufacturers of and dealers in and exporters and importers of goods and merchandise ofall kinds and merchants generally; and | • | to guarantee the payment of premiums on any sinking fund or endowment policy or policies taken out by anycompany having objects similar to the objects of the Company. | | |
79Directors Under Rio Tinto plc's Articles of Association a director may not vote in respect of any proposal in which he or any other person connected with him, has any material interest other than by virtue of his interests in shares or debentures or other securities of or otherwise in or through the Company, except where resolutions: | (a) | indemnify him or a third party in respect of obligations incurred by the director on behalf of, or for the benefit of, the Company, or in respect of obligations of the Company, for which the director has assumed responsibility under an indemnity, security or guarantee; | (b) | relate to an offer of securities in which he may be interested as a holder of securities or as an underwriter; | (c) | concern another body corporate in which the director is beneficially interested in less than one per cent of the issued shares of any class of shares of such a body corporate; | (d) | relate to an employee benefit in which the director will share equally with other employees; and | (e) | relate to liability insurance that the Company is empowered to purchase for the benefit of directors of the Company in respect of actions undertaken as directors (or officers) of the Company. | Under Rio Tinto Limited's Constitution, except where a director is constrained by Australian law, a director may be present at a meeting of the board while a matter in which the director has a material interest is being considered and may vote in respect of that matter. The directors are empowered to exercise all the powers of the Companies to borrow money, to charge any property or business of the Companies or all or any of their uncalled capital and to issue debentures or give any other security for a debt, liability or obligation of the Companies or of any other person. The directors shall restrict the borrowings of Rio Tinto plc to the limitation that the aggregate amount of all moneys borrowed by the Company and its subsidiaries shall not exceed an amount equal to one and one half times the Company’s share capital plus aggregate reserves unless sanctioned by an ordinary resolution of the Company. Directors are not required to hold any shares of either Company by way of qualification, but a director is nevertheless entitled to attend and speak at shareholders' meetings. Nevertheless, as disclosed in the Remuneration report on pages 95 to 121 the Remuneration committee has informed the executive directors that they would be expected to build up a shareholding equal in value to two times salary over five years. Directors are required to retire in accordance with statutory age limits. Directors who we re elected or re-elected a director in the third year before each annual general meeting are required to retire by rotation and such further directors (if any) shall retire by rotation as would bring the number retiring by rotation up to one third of the number of directors in office at the date of the notice of meeting (or, if their number is not a multiple of three, the number nearest to but not greater than one third). These further directors required to retire shall be selected from the other directors subject to |
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Back to Contents Other disclosuresretirement by rotation who have been longest in office since their last re-election and where directors were re-elected on the same day then, unless they otherwise agree amongst themselves, they will be selected by the alphabetical order of their names. In addition any director appointed by the directors since the last annual general meeting is also required to retire. A retiring director shall be eligible for re-election. In the absence of an independent quorum, the directors are not competent to vote compensation to themselves or to any members of their body.
MajorRights attaching to shares Under English law, dividends on shares may only be paid out of profits available for distribution, as determined inaccordance with generally accepted accounting principles and by the relevant law. Shareholders are entitled to receive such dividends as may be declared by the directors. The directors may also pay shareholders and related party transactionssuch interim dividends as appear to them to be justified by the financial position of the Group.
Major shareholders
As far as is known, Any Rio Tinto plc is not directlydividend unclaimed after 12 years from the date the dividend was declared, or indirectly ownedbecame due for payment, will be forfeited and returned to the Company. Any Rio Tinto Limited dividend unclaimed may be invested or controlledotherwise made use of by another corporation or by any government. The Capital Groupthe board for the benefit of Companies Inc. by way of a notice dated 5 February 2004 informed the Company until claimed or otherwise disposed of its interest in 65,148,434 Ordinaryaccording to Australian law.
Voting rights Voting at any general meeting of shareholders on a resolution on which the holder of the Special Voting Share is entitled to vote shall be decided by a poll, being a written vote, and any other resolution shall be decided by a show of hands unless a poll has been duly demanded. On a show of hands, every shareholder who is present in person or by proxy at a general meeting has one vote regardless of the number of shares held. On a poll, every shareholder who is present in person or by proxy has one vote for every ordinary share or share for which he or she is the holder and, in the case of Joint Decisions, the holder of the Special Voting Share has one vote for each vote cast by the public shareholders at the parallel meeting of shareholders. The voting rights attached to the Special Voting Share have been set out on pages 137 to 138. A poll may be demanded by any of the following: | • | the chairman of the meeting; | • | at least five shareholders entitled to vote at the meeting; | • | any shareholder or shareholders representing in the aggregate not less than one tenth (Rio Tinto plc) or onetwentieth (Rio Tinto Limited) of the total voting rights of all shareholders entitled to vote at the meeting; | • | any shareholder or shareholders holding shares conferring a right to vote at the meeting on which there have beenpaid-up sums in the aggregate equal to not less than one tenth of the total sum paid up on all the shares conferringthat right; or | • | the holder of the Special Voting Share. | A proxy form will be treated as giving the proxy the authority to demand a poll, or to join others in demanding one. The necessary quorum for a Rio Tinto plc general meeting is three persons and for a Rio Tinto Limited general meeting is two persons carrying a right to vote upon the business to be transacted, whether present in person or by proxy. Matters are transacted at general meetings by the proposing and passing of resolutions, of which there are three kinds: |
• | an ordinary resolution, which includes resolutions for the election of directors, the receiving of financialstatements, the cumulative annual payment of dividends, the appointment of auditors, the increase of authorisedshare capital or the grant of authority to allot shares; | • | a special resolution, which includes resolutions amending the Company’s Memorandum and Articles of Association of Rio Tinto plc or the Constitution of Rio Tinto Limited, disapplying statutory pre-emption rights orchanging the Company’s name; and | • | an extraordinary resolution, which includes resolutions modifying the rights of any class of the Group’s shares ata meeting of the holders of such class of shares or relating to certain matters concerning the winding up of eitherCompany. | An ordinary resolution requires the affirmative vote of a majority of the votes of those persons voting at a meeting at which there is a quorum. Special and extraordinary resolutions require the affirmative vote of not less than three fourths of the persons voting at a meeting at which there is a quorum. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting is entitled to cast the deciding vote in addition to any other vote he may have. The DLC Merger Sharing Agreement further classifies these three kinds of resolutions into ‘Joint Decisions’ and ‘Class Rights Actions’ as explained under voting rights on pages 137 to 138. Annual general meetings must be convened with 21 days advance written notice for Rio Tinto plc and with 28 days for Rio Tinto Limited. Other meetings must be convened with 21 days advance written notice for the passing of a special resolution and with 14 days for any other resolution, depending on the nature of the business to be transacted. The days of delivery or receipt of the notice are not included. The notice must specify the nature of the business to be transacted. The board of directors may, if they choose, make arrangements for shareholders who are unable to attend the place of the meeting to participate at other places. |
Rio Tinto 2006Form 20-F | 141 |
Back to Contents Variation of Rights If, at any time, the share capital is divided into different classes of shares, representing 6.1 per cent of its shares as at 6 February 2004. Rio Tinto plc does not know ofthe rights attached to any arrangements whichclass may result in a change in its control. As of 6 February 2004,be varied,subject to the total amountprovisions of the voting securities owned byrelevant legislation, with the directorsconsent in writing of Rio Tinto plc as a group was 152,054 Ordinaryholders of three fourths in value of the shares of 10p each representingthat class or upon the adoption of an extraordinary resolution passed at a separate meeting of the holders of the shares of that class. At every such separate meeting, all of the provisions of the Articles of Association and Constitution relating to proceedings at a general meeting apply, except that the quorum is to be the number of persons (which must be two or more) who hold or represent by proxy not less than one per centthird in nominal value of the numberissued shares of shares in issue.the class.
As far The Sharing Agreement provides for the protection of the public shareholders of both Companies and so anyvariations of rights would be dealt with as is known,‘Class Rights Actions’ that require the separate approval of the shareholders of both Companies. Rights in a Winding-up Except as the shareholders have agreed or may otherwise agree, upon a winding up, the balance of assets available for distribution: | • | after the payment of all creditors including certain preferential creditors, whet her statutorily preferred creditors ornormal creditors; and | • | subject to any special rights attaching to any class of shares; | is to be distributed among the holders of ordinary shares according to the amounts paid-up on the shares held by them. This distribution is generally to be made in cash. A liquidator may, however, upon the adoption of an extraordinary resolution of the shareholders, divide among the shareholders the whole or any part of the assets in kind. The DLC Merger Sharing Agreement further sets out the rights of ordinary shareholders in a liquidation as explained on page 138. |
Limitations on Voting and Shareholding Except for the provisions of the Foreign Acquisitions and Takeovers Act 1975 which impose certain conditions on the foreign ownership of Australian companies, there are no limitations imposed by law, Rio Tinto Limited, with the exceptionplc's Memorandum andArticles of the arrangements for the dual listed companies structure described under Shareholder information on page 77, is not directlyAssociation or indirectly owned or controlled by another corporation or by any government. As of 6 February 2004, the only person known to Rio Tinto Limited as owning more than five per centLimited's Constitution, on the rights of itsnon residents or foreign persons to hold or vote the Group’s ordinary shares was Tinto Holdings Australia Pty Limited with 187,439,520 shares, representing 37.5 per cent of its issued capital. Rio Tinto Limited doesor ADSs that would not know of any arrangements which may result in a change in its control. As of 6 February 2004, the total amount of the voting securities owned by the directors of Rio Tinto Limited as a group was 287,236 shares representing less than one per cent of the number in issue.apply generally to all shareholders. EXCHANGE CONTROLS Related party transactions
Details of the Group’s material related party transactions are set out in note 38 – Related party transactions, on page 122 of the Financial statements.
As explained on page 32, the Group’s Financial statements show the full extent of the Group’s financial commitments including debt and similar exposures. It has never been the Group’s practice to engineer financial structures as a way of avoiding disclosure. Substance rather than form is a fundamental principle of Rio Tinto’s reporting.
Financial information
Legal proceedings
Neither Rio Tinto plc nor Rio Tinto Limited nor any of their subsidiaries is a defendant in any proceedings which the directors believe will have a material effect on either Company’s financial position and results of operations.
Dividends
The Group’s policy on dividend distributions is set out under Shareholder information on page 74.
Post balance sheet events There have beenare no significant post balance sheet events.
The offer and listing
Share prices and details of the markets on which the Group’s shares are traded are set out under Shareholder information on page 74.
Additional information
Memorandum and articles of association
There have been no changes to either Rio Tinto plc’s memorandum and articles of association since new articles of association were adopted by Special Resolution passed on 11 April 2002 or to Rio Tinto Limited’s constitution since it was amended by Special Resolution passed on 18 April 2002.
Exchange controls
At present, there are noUK foreign exchange controls or other restrictions on the import or export of capital or on the payment of dividends to non resident holders of Rio Tinto plc shares or that affect remittancethe conduct of the GroupRio Tinto plc’s operations. The’s dividends to US residents, but see Shareholder information on page 77 for controls on remittances from AustraliaBank of England, however, administers financial sanctions against specified targets related to certain specific territories.regimes.
There are no restrictions under Rio Tinto plc’splc’s memorandum and articles of association or under EnglishUK law that limit the right of non resident or foreign owners to hold or vote itsRio Tinto plc shares.
Rio Tinto Limited Under current Australian legislation, the Reserve Bank of Australia does not restrict the import and export of funds and no permission is required for the movement of funds into or out of Australia, except that restrictions apply to certainfinancial transactions relating to specified individuals and entities associated with certain regimes. The Department of Foreign Affairs and Trade has responsibility for the administration of restrictions relating toterrorists and their sponsors, and the former Iraqi regime. Rio Tinto Limited may be required to deduct withholding tax from foreign remittances of dividends, to the extentthat they are unfranked, and from payments of interest. There are also no restrictions under the constitution of Rio Tinto Limited’s constitution or under Australian lawLimited that limit the right of non residents to hold or vote itsRio Tinto Limited shares. However acquisitions of interests in shares exceptin Australian companies by foreign interests are subject to review andapproval by the Treasurer of the Commonwealth of Australia under the Foreign Acquisitions and Takeovers Act 1975 see Shareholder information on page 77 for details.(the Takeovers Act). The Takeovers Act applies to any acquisition of 15 per cent or more of the outstanding shares of an Australian company or to any transaction that results in one non resident, or a group of associated non residents, controlling 15 per cent or more of an Australian company. The Takeovers Act also applies to any transaction which results in a group of non associated non residents controlling 40 per cent or more of an Australian company. Persons who are proposing such acquisitions or transactions are required to notify the Treasurer of their intention. The Treasurer has the power to order divestment in cases where such acquisitions or transactions have already occurred. The Takeovers Act does not affect the rights of owners whose interests are held in compliance with the legislation. Rio Tinto 2006Form 20-F | 142 |
Back to Contents TAXATION UK resident individuals shareholdings in Rio Tinto plc Taxation of dividends Dividends carry a tax credit equal to one ninth of the dividend. Individuals who are not liable to income tax at the
See Shareholder informationhigher rate will have no further tax to pay. Higher rate tax payers are liable to tax on page 75 for information regardingUK dividends at 32.5 per cent which, after taking account of the tax consequencescredit, produces a further tax liability of holding25 per cent of the Groupdividend received. Dividend reinvestment plan (DRP) The taxation effect of participation in the DRP will depend on individual circumstances. Shareholders will generally be liable for tax on dividends reinvested in the DRP on the same basis as if they had received the cash and arranged the investment. The dividend should, therefore, be included in the annual tax return in the normal way. The shares acquired should be added to shareholdings at the date and at the net cost shown on the share purchase advice. The actual cost of the shares, for Rio Tinto plc shareholders including the stamp duty/stamp duty reserve tax, will form the base cost for capital gains tax purposes. Capital gains tax Shareholders who have any queries on capital gains tax issues are advised to consult their financial adviser. Details of relevant events since 31 March 1982 and adjusted values for Rio Tinto plc securities as at that date are’savailable from the company secretary. Australian resident individuals shareholdings in Rio Tinto Limited Taxation of dividends The basis of the Australian dividend imputation system is that when Australian resident shareholders receive dividends from Rio Tinto Limited, they may be entitled to a credit for the Australian tax paid by the Group in respect of thatincome, depending on the tax status of the shareholder. The application of the system results in the Australian tax paid by the Group being allocated to shareholders byway of franking credits attaching to the dividends they receive. Such dividends are known as franked dividends. A dividend may be partly or fully franked. The current Rio Tinto Limited dividend is fully franked and the franking credits attached to the dividend are shown in the distribution statement provided to shareholders. The extent to which a company can frank a dividend depends on the credit balance in its franking account.Credits to this account can arise in a number of ways, including when a company pays company tax or receives a franked dividend from another company. The dividend is required to be included in a resident individual shareholder’s assessable income. In addition, an amount equal to the franking credit attached to the franked dividend is also included in the assessable income of the resident individual, who may then be entitled to a rebate of tax equal to the franking credit amount included in their income. Should the franking credits exceed the tax due, the excess is refunded to the resident individual. The effect of the dividend imputation system on non resident shareholders is that, to the extent that the dividendis franked, no Australian tax will be payable and there is an exemption from dividend withholding tax. A withholding tax is normally levied at the rate of 15 per cent when unfranked dividends are paid to residents ofcountries with which Australia has a taxation treaty. Most Western countries have a taxation treaty with Australia. A rate of 30 per cent applies to countries where there is no taxation treaty. Since 1988, all dividends paid by Rio Tinto Limited have been fully franked. It is the Group’s policy to pay fully franked dividends whenever possible. Dividend reinvestment plan (DRP) Shareholders will generally be liable for tax on dividends reinvested in the DRP on the same basis as if they hadreceived the cash and arranged the investment. The dividend should therefore be included in the annual tax return as assessable income. The shares acquired should be added to the shareholding at the date of acquisition at the actual cost of the shares, which is the amount of the dividend applied by the shareholder to acquire shares and any incidental costs associatedwith the acquisition, including stamp duty, will form part of the cost base or reduced cost base of the shares for capital gains tax purposes. Capital gains tax The Australian capital gains tax legislation is complex. If shareholders have acquired shares after 19 September 1985 they may be subject to capital gains tax on the disposal of those shares. Generally, disposal of shares held on capital account would give rise to a capital gain or loss. A capital gain arises when the proceeds on disposal are greater than the cost base of shares. A capital loss arises when the proceeds on sale are less than the cost base or reduced cost base. Where a capital gain arises on shares held for at least 12 months, Rio Tinto 2006Form 20-F | 143 |
Back to Contents individual, trust and superannuation fund shareholders may be eligible for a capital gains tax discount. Shareholders are advised to seek the advice of an independent taxation consultant on any possible capital gains tax exposure. US residents The following is a summary of the principal UK tax, Australian tax and US Federal income tax consequences of the ownership of Rio Tinto plc ADSs, Rio Tinto plc shares and Rio Tinto Limited shares ‘the Group’s ADSs and shares’ by a US holder as defined below. It is not intended to be a comprehensive description of all the tax considerations that are relevant to all classes of taxpayer. Future changes in legislation may affect the tax consequences of the ownership of the Group’s ADSs and shares. It is based in part on representations by the Group’s depositary bank as Depositary for the ADRs evidencing the ADSs and assumes that each obligation in the deposit agreements will be performed in accordance with its terms. You are a US holder if you are a beneficial owner of the Group’s ADSs and shares, you are eligible for the benefits of the relevant Convention, and you are: a citizen or resident of the United States, a domestic corporation, an estate whose income is subject to United States federal income tax regardless of its source, or a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust. This section applies to US holders only if shares or ADSs are held as capital assets for tax purposes. This section does not apply to shareholders who are members of a special class of holders subject to special rules, including a dealer in securities, a trader in securities who elects to use a mark-to-market method of accounting for securities holdings, a tax-exempt organization, a life insurance company, a person liable for alternative minimum tax, a person that actually or constructively owns ten per cent or more of Rio Tinto’s voting stock, a person that holds shares or ADSs as part of a straddle or a hedging or conversion transaction, or a US holder whose functional currency is not the US dollar. This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, and on the convention between the United States of America and United Kingdom, and the convention between the United States of America and Australia which may affect the tax consequences of the ownership of the Group’s ADSs and shares. These laws and conventions are subject to change, possibly on a retroactive basis. | US holders should consult their own tax adviser regarding the United States federal, state and local and foreign and other tax consequences of owning and disposing of shares and ADSs in their particular circumstances. | For the purposes of the Conventions and of the US Internal Revenue Code of 1986, as amended, (the Code) US holders of ADSs are treated as the owners of the underlying shares. Exchanges of shares for ADSs, and ADSs for shares, generally will not be subject to US federal income tax. The summary describes the treatment applicable under the Conventions in force at the date of this report. |
UK taxation of shareholdings in Rio Tinto plc Taxation of dividends US holders do not suffer deductions of UK withholding tax on dividends paid by Rio Tinto plc. Dividends carry a tax credit equal to one ninth of the net dividend, or ten per cent of the net dividend plus the tax credit. The tax credit is notrepayable to US holders. Capital gains A US holder will not normally be liable to UK tax on capital gains realised on the disposition of Rio Tinto plc ADSs orshares unless the holder carries on a trade, profession or vocation in the UK through a permanent establishment in the UK and the ADSs or shares have been used for the purposes of the trade, profession or vocation or are acquired, held or used for the purposes of such a permanent establishment. Inheritance tax Under the UK Estate Tax Treaty, a US holder, who is domiciled in the US and is not a national of the UK, will not besubject to UK inheritance tax upon the holder’s death or on a transfer during the holder’s lifetime unless the ADSs and shares byform part of the business property of a permanent establishment in the UK or pertain to a fixed base situated in the UK used in the performance of independent personal services. In the exceptional case where ADSs or shares are subject both to UK inheritance tax and to US residents.Federal gift or estate tax, the UK Estate Tax Treaty generally provides for tax payments to be relieved in accordance with the priority rules set out in the Treaty. Stamp duty and stamp duty reserve tax Transfers of Rio Tinto plc ADSs will not be subject to UK stamp duty provided that the transfer instrument is notexecuted in, and at all times remains outside, the UK. Purchases of Rio Tinto plc shares are subject either to stamp duty at a rate of 50 pence per £100 or to stamp duty reserve tax (SDRT) at a rate of 0.5 per cent. Conversions of Rio Tinto plc shares into Rio Tinto plc ADSs will be subject to additional SDRT at a rate of 1.5 per cent on all transfers to the Depositary or its nominee. Rio Tinto 2006 Form 20-F | 144 |
QuantitativeBack to Contents Australian taxation of shareholdings in Rio Tinto Limited Taxation of dividends US holders are not normally liable to Australian withholding tax on dividends paid by Rio Tinto Limited because suchdividends are normally fully franked under the Australian dividend imputation system, meaning that they are paid out of income that has borne Australian income tax. Any unfranked dividends would suffer Australian withholding tax which under the Australian income tax convention is limited to 15 per cent of the gross dividend. Capital gains US holders are not normally subject to any Australian tax on the disposal of Rio Tinto Limited ADSs or shares unlessthey have been used in carrying on a trade or business wholly or partly through a permanent establishment in Australia, or the gain is in the nature of income sourced in Australia. Gift, estate and qualitative disclosures about market riskinheritance tax Australia does not impose any gift, estate or inheritance taxes in relation to gifts of shares or upon the death of ashareholder. Stamp duty An issue or transfer of Rio Tinto Limited shares does not require the payment of Australian stamp duty. US Federal income tax United States Internal Revenue Service Circular 230 Notice To ensure compliance with Internal Revenue Service Circular 230, holders are hereby notified that, any discussion of US federal tax issues contained or referred to in this report or any document referred to herein is not intended or writtento be used, and cannot be used by holders for the purpose of avoiding penalties that may be imposed on them under the United States Internal Revenue Code, such discussion is written for use in connection with the matters addressed herein, and holders should seek advice based on their particular circumstances from an independent tax adviser. Taxation of dividends Under the US federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussedbelow, the gross amount of any dividend that we pay out of our current or accumulated earnings and profits (as determined for US federal income tax purposes) will generally be treated as dividend income for purposes of US Federal income tax. In the case of Rio Tinto Limited, the income will be the net dividend plus, in the event of a dividend being subject to withholding tax, the withholding tax. The dividend is taxable to you when you, in the case of shares, or the Depositary, in the case of ADSs, receive the dividend, actually or constructively. Dividend income will not be eligible for the dividends received deduction allowed to US corporations. Distributions in excess of current accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as non-taxable return of capital to the extent of your basis in the shares or ADSs and thereafter as capital gain. Dividends paid by Qualified Foreign Corporations (QFCs) are subject to a maximum rate of income tax of 15 per cent. This maximum rate applies to taxable years beginning before 1 January 2011. Both Rio Tinto plc and Rio Tinto Limited expect to be QFCs throughout this period. To qualify for the 15 per cent maximum income tax rate on dividends the stock of the QFC must be held for more than 60 days during the 121 day period beginning on the date which is 60 days before the ex-dividend date. Dividends will be income from sources outside the US, but dividends paid in taxable years beginning before January 1, 2007 generally will be “passive” or “financial services” income, and dividends paid in taxable years beginning after December 31, 2006 will, depending on the circumstances, be “passive” or “general” income which, in either case, is treated separately from other types of income for purposes of computing the foreign tax credit allowable to you. Taxation of Capital Gains Subject to the PFIC rules discussed below, if you are a US holder and you sell or otherwise dispose ofthe Group’s ADSs or shares, you will recognise capital gain or loss for US federal income tax purposes equal to the differencebetween the US dollar value of the amount that you realize and your tax basis, determined in US dollars, in your shares or ADSs. Capital gain of a non corporate US holder that is recognised in taxable years beginning before 1 January 2011 is generally taxed at a maximum rate of 15% where the holder has a holding period greater than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. Passive Foreign Investment Company (PFIC) Rules We believe that the Group’s shares or ADSs should not be treated as stock of PFIC for US federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. If we were to betreated as a PFIC, unless the shares or ADSs are “marketable stock” and a US Holder elects to be taxed annually on a mark-to-market basis with respect to the shares or ADSs, gain realized on the sale or other disposition of the shares or ADSs would in general not be treated as capital gain. Instead, if you are a US Holder, you would be treated as if you Rio Tinto 2006 Form 20-F | 145 |
Back to Contents had realized such gain and certain “excess distributions” rateably over your holding period for the shares or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. In addition, dividends that you receive from us will not be eligible for the special tax rates applicable to qualified dividend income if we are a PFIC either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income. DOCUMENTS ON DISPLAY Rio Tinto plc and Rio Tinto Limited file reports and other information with the SEC. You may read without charge and copy at prescribed rates any document filed at the public reference facilities of the SEC’s principal office at 100 F Street NE, Washington, DC 20549, United States of America. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. Item 11. | Quantitative and Qualitative Disclosures about Market Risk |
The Rio Tinto Group’sGroup’s policies for currency, interest rate and commodity price exposures, and the use of derivative financial instruments are discussed in the FinancialOperating and financial review on pages 3276 to 36.81. In addition, the Group’s quantitative and qualitative disclosures about market risk are set out in note 28Note 32 to the Financial2006 financial statements. The discussion regarding market risk contains certain forward looking statements and attention is drawn to the Cautionary statement on pages 111page 6. Item 12. | Description of Securities other than Equity Securities |
Not applicable. Rio Tinto 2006 Form 20-F | 146 |
Back to 116.Contents Defaults, dividend arrearages and delinquencies PART II
Item 13. | Defaults, Dividend Arrearages and Delinquencies |
There are no defaults, dividend arrearages or delinquencies. Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
Material modification to the rights of security holders and use of proceeds There are no material modifications to the rights of security holders.
Item 15. | Controls and Procedures |
Controls and procedures
In designing and evaluating the disclosureDisclosure controls and procedures of each of Rio Tinto plc and Rio Tinto Limited, the management of each of Rio Tinto plc and Rio Tinto Limited, including their chief executive and finance director, recognised that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, and the management of each of Rio Tinto plc and Rio Tinto Limited necessarily was required to apply its judgement in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within each of Rio Tinto plc and Rio Tinto Limited have been detected. The common management of each of Rio Tinto plc and Rio Tinto Limited, with the participation of their common chief executive and finance director, have evaluated the effectiveness of the design and operation of itsthe Group’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c) as of 31 December 2006 and have concluded that these disclosure controls and procedures were effective to provide reasonable assurance that the end of the period covered by this annual report. Basedinformation it is required to disclose is reported fairly as and when required.
Management’s report on that evaluation, the chief executive and finance directorinternal control over financial reporting The common management of each of Rio Tinto plc and Rio Tinto Limited have concluded that these disclosure controlsis responsible for establishing and procedures are effective atmaintaining adequate internal control over financial reporting. The Companies’ internal control over financial reporting is a process designed under the supervision of their common chief executive and finance director to provide reasonable assurance level.
There were no significant changesregarding the reliability of financial reporting and the preparation and fair presentation of the Group’s published financial statements for external reporting purposes in accordance with EU IFRS and the required reconciliation to US GAAP. Because of its inherent limitations, internal controlscontrol over financial reporting cannot provide absolute assurance, and may not prevent or in other factors that could significantly affect internal controls ofdetect all misstatements whether caused by error or fraud, if any, within each of Rio Tinto plc and Rio Tinto Limited subsequentLimited. The Group’s internal control over financial reporting includes policies and procedures that pertain to the datemaintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with EU IFRS and the required reconciliation to US GAAP. Management conducted an assessment of the effectiveness of internal control over financial reporting as of 31 December 2006, based on theInternal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and concluded that it was effective. The Group’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets;provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with EU IFRS and the required reconciliation to US GAAP, and that receipts and expenditures are being made only in accordance with authorisation of management and the directors of the Companies; and provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements. PricewaterhouseCoopers LLP and PricewaterhouseCoopers, the auditors of Rio Tinto plc and Rio Tinto Limited respectively, have audited the 2006 financial statements, and have also audited management’s assessment of the internal controls over financial reporting and the internal controls over financial reporting as of 31 December 2006 and have issued their most recent evaluation.report included herein. Audit committeeChanges in internal control over financial expertreporting There has been no change in Rio Tinto’s internal control over financial reporting during the year ended 31 December 2006 that has materially affected or is reasonably likely to materially affect, Rio Tinto’s internal control over financial reporting.
Item 16A. | Audit Committee Financial Expert |
See Corporate governance on page 72128 for information regarding the identification of theAudit committeefinancial expert.expert.
Rio Tinto 2006 Form 20-F | 147 |
Back to ContentsCode of ethics
The way we work, Rio Tinto’sTinto’s statement of business practice, summarises the Group’s principles and policies for all directors and employees.
Since the first edition ofThe way we workin 1997, expectations of corporate responsibilities have increased. Although the Group’s values and objectives are unchanged, its responses have evolved and have been further developed and reflected in a revised 2003 edition.
The way we workis supported by supplementary guidance documents and applies to all Rio Tinto managed businesses. The way we workand the supplementary guidance documents are discussed more fully under Corporategovernance on page 71.pages 122 to 130 and in Group society and environment on pages 71 to 74. They can be viewed on Rio Tinto’sTinto’s website: www.riotinto.com and will be provided to any person without charge upon written request received by one of the company secretaries. Item 16C. | Principal Accountant Fees and Services |
Principal accountant fees and services
Auditors’The remuneration of the Group’s principal auditors including audit fees, audit related fees, taxationtax fees and all other fees, haveas well as remuneration payable to other accounting firms, has been dealt withset out in note 37 – Auditors’ remuneration, on page 12141 to the 2006 financial statements. Rio Tinto has adopted policies designed to uphold the independence of the Financial statements.Group’s principal auditors by prohibiting their engagement to provide a range of accounting and other professional services that might compromise their appointment as independent auditors. The engagement of the Group’s principal auditors to provide statutory audit services, certain other assurance services, tax services and certain limited other services are pre approved. Each engagement of the Group’s principal auditors to provide other permitted services is subject to the specific approval of the
Audit committeeor its chairman.
Prior to the commencement of each financial year the Group’s Finance director and its principal auditors submit to theAudit committeea schedule of the types of services that are expected to be performed during the following yearfor its approval. TheAudit committeemay impose a US dollar limit on the total value of other permitted services that can be provided. Any non audit service provided by the Group’s principal auditors, where the expected fee exceeds apre determined level, must be subject to the Group’s normal tender procedures. However, in exceptional circumstances the Finance director is authorised to engage the Group’s principal auditors to provide such services without going to tender, but if the fees are expected to exceed $250,000 then the chairman of the audit committee must approve the engagement. TheAudit committeehas adopted policies for the pre approval of permitted services provided by the Group’s principal auditors. Engagements for services provided by the Group’s principal auditors since the adoption of these policies were either within the pre approval policies or approved by theAudit committee.80Item 16D. | Rio Tinto 2003Annual report and financial statementsExemptions from the Listing Standards for Audit Committees |
Back to ContentsNot applicable.
Contents
Item 16E. | Page | Primary financial statements | | ProfitPurchases of Equity Securities by the Issuer and loss account | 82 | Cash flow statement | 83 | Balance sheet | 84 | Reconciliation with Australian GAAP | 85 | Statement of total recognised gains and losses | 86 | Reconciliation of movements in shareholders’ funds | 86 | Outline of dual listed companies structure and | | basis of financial statements | 87 | | | Notes to the 2003 financial statements | | Note 1 – Principal accounting policies | 88 | | | Profit and loss account | | Note 2 – Net operating costs | 90 | Note 3 – Employee costs | 90 | Note 4 – Exceptional items | 91 | Note 5 – Net interest payable and similar charges | 91 | Note 6 – Amortisation of discount | 91 | Note 7 – Taxation charge for the year | 92 | Note 8 – Dividends | 93 | Note 9 – Earnings per ordinary share | 93 | | | Assets | | Note 10 – Goodwill | 94 | Note 11 – Exploration and evaluation | 94 | Note 12 – Property, plant and equipment | 95 | Note 13 – Fixed asset investments | 96 | Note 14 – Net debt of joint ventures and associates | 97 | Note 15 – Inventories | 98 | Note 16 – Accounts receivable and prepayments | 98 | Note 17 – Current asset investments, cash and | | liquid resources | 98 | | | Liabilities | | Note 18 – Short term borrowings | 99 | Note 19 – Accounts payable and accruals | 99 | Note 20 – Provisions for liabilities and charges | 100 | Note 21 – Deferred taxation | 100 | Note 22 – Medium and long term borrowings | 101 | Note 23 – Net debt | 102 | | | Shareholders’ funds | | Note 24 – Share capital | 103 | Note 25 – Share premium and reserves | 105 | | | Additional disclosures | | Note 26 – Product analysis | 106 | Note 27 – Geographical analysis | 108 | Note 28 – Financial instruments | 111 | Note 29 – Contingent liabilities and commitments | 117 | Note 30 – Average number of employees | 117 | Note 31 – Principal subsidiaries | 118 | Note 32 – Principal joint venture interests | 119 | Note 33 – Principal associates | 119 | Note 34 – Principal joint arrangements | 120 | Note 35 – Purchases and sales of subsidiaries, joint | | arrangements, joint ventures and associates | 120 | Note 36 – Directors’ remuneration | 121 | Note 37 – Auditors’ remuneration | 121 | Note 38 – Related party transactions | 122 | Note 39 – Exchange rates in US$ | 122 | Note 40 – Bougainville Copper Limited (BCL) | 123 | Note 41 – Post retirement benefits | 123 | Note 42 – Parent company balance sheets | 129 | Note 43 – Other parent company disclosures | 130 | Note 44 – Rio Tinto Limited profit and loss account | 131 | Note 45 – Rio Tinto Limited cash flow | 131 |
| PageAffiliated Purchasers | | | Financial information by business unit | 132 | | | Australian Corporations Act – summary of ASIC class order relief | 134 | | | Directors’ Declaration | 134 | | | Report of the Independent Auditors | 135 |
| Rio Tinto plc | | Rio Tinto Limited | | | | |
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| | | | Period | (a) Total | | (b) Average | | (c) Total number | | (a) Total | | (b) Average | | (c) Total number | | (d) Approximate | | | number of | | price | | of shares | | number of | | price | | of shares | | dollar value of | | | shares | | paid per share | | purchased as part | | shares | | paid per share | | purchased as part | | shares that may | | | purchased | | | | of publicly | | purchased | | | | of publicly | | yet be purchased | | | | | | | announced plans | | | | | | announced plans | | under the plans | | | | | | | or programmes | | | | | | or programmes | | or programmes | | | | | US$ | | | | | | US$ | | | | US$m | |
| | 2006 | | | | | | | | | | | | | | | 1 Jan to 31 Jan | 1,965,000 | | 48.41 | | 1,965,000 | | 118,728 | | 53.69 | | — | | 528 | | 1 Feb to 28 Feb | 4,200,000 | | 48.90 | | 4,200,000 | | 403,712 | | 54.74 | | — | | 2,295 | | 1 Mar to 31 Mar | 3,710,000 | | 47.06 | | 3,710,000 | | 348,943 | | 52.61 | | — | | 2,120 | | 1 Apr to 30 Apr | 2,749,659 | | 55.92 | | 1,750,000 | | 1,229,034 | | 60.73 | | — | | 2,022 | | 1 May to 31 May | 4,750,000 | | 55.54 | | 4,750,000 | | 74,764 | | 63.64 | | — | | 1,758 | | 1 Jun to 30 Jun | 5,790,000 | | 50.39 | | 5,790,000 | | 61,233 | | 54.73 | | — | | 1,467 | | 1 Jul to 31 Jul | 4,325,000 | | 51.76 | | 4,325,000 | | 7,611 | | 58.38 | | — | | 1,243 | | 1 Aug to 31 Aug | 2,775,000 | | 52.11 | | 2,775,000 | | 24,154 | | 51.35 | | — | | 1,098 | | 1 Sep to 30 Sep | 7,484,059 | | 47.57 | | 7,300,000 | | 253,734 | | 55.48 | | — | | 752 | | 1 Oct to 31 Oct | 3,675,000 | | 48.61 | | 3,675,000 | | 55,136 | | 58.09 | | — | | 3,573 | | 1 Nov to 30 Nov | 4,050,000 | | 53.81 | | 4,050,000 | | 17,951 | | 62.53 | | — | | 3,355 | | 1 Dec to 31 Dec | 2,850,000 | | 54.26 | | 2,850,000 | | 41,832 | | 59.70 | | — | | 3,201 | |
| | Total | 48,323,718 | | 50.80 | | 47,140,000 | | 2,636,832 | | 57.71 | | — | | | |
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Rio Tinto 20032006 Annual report and financial statementsForm 20-F | 81148 |
Back to Contents Profit and loss accountYears ended 31 December
| | | | | 2003 | | | | 2002 | | | Note | | | | US$m | | | | US$m | |
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| | Gross turnover (including share of joint ventures and associates) | | | | | 11,755 | | | | 10,828 | | | | | | | | | | | | | Share of joint ventures' turnover | | | | | (1,820 | ) | | | (1,662 | ) | Share of associates’ turnover | | | | | (707 | ) | | | (723 | ) |
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| | Consolidated turnover | | | | | 9,228 | | | | 8,443 | | Net operating costs | 2 | | | | (7,732 | ) | | | (7,612 | ) |
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| | Group operating profit | | | | | 1,496 | | | | 831 | | | | | | | | | | | | | Share of operating profit of joint ventures | | | | | 536 | | | | 532 | | Share of operating profit of associates | | | | | 234 | | | | 239 | | Profit on disposal of interests in subsidiary, joint venture and associate | 35 | | | | 126 | | | | - | |
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| | Profit on ordinary activities before interest | | | | | 2,392 | | | | 1,602 | | | | | | | | | | | | | Net interest payable | 5 | | | | (206 | ) | | | (237 | ) | Amortisation of discount | 6 | | | | (92 | ) | | | (54 | ) |
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| | Profit on ordinary activities before taxation | | | | | 2,094 | | | | 1,311 | | | | | | | | | | | | | Taxation | 7 | | | | (567 | ) | | | (708 | ) |
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| | Profit on ordinary activities after taxation | | | | | 1,527 | | | | 603 | | | | | | | | | | | | | Attributable to outside equity shareholders | | | | | (19 | ) | | | 48 | |
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| | Profit for the financial year (net earnings) | | | | | 1,508 | | | | 651 | | | | | | | | | | | | | | | | | | | | | | | | Exceptional items impact on the above revenues and costs as follows: | | | | | | | | | | | Profit on disposal of interests in subsidiary, joint venture and associate | | | 126 | | | | - | | | | Asset write downs | | | - | | | | (978 | ) | | | Environmental remediation charge | | | - | | | | (116 | ) | | | Taxation | | | - | | | | 42 | | | | Attributable to outside equity shareholders | | | - | | | | 173 | | | |
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| | Net exceptional items | 4 | | 126 | | | | (879 | ) | | |
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| | Adjusted earnings | | | 1,382 | | | | 1,530 | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends to shareholders | 8 | | | | (882 | ) | | | (826 | ) |
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| | Retained profit/(loss) for the financial year | | | | | 626 | | | | (175 | ) |
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| | Earnings per ordinary share | 9 | | | | 109.5 | c | | | 47.3 | c | Adjusted earnings per ordinary share | 9 | | | | 100.3 | c | | | 111.2 | c | | | | | | | | | | | | Dividends per share to Rio Tinto shareholders | 8 | | | | | | | | | | - Rio Tinto plc | | | | | 64.0 | c | | | 60.0 | c | - Rio Tinto Limited | | | | | 64.0 | c | | | 60.0 | c |
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| | 2007 | | | | | | | | | | | | | | | 1 Jan to 31 Jan | 5,185,000 | | 51.12 | | 5,185,000 | | 104,741 | | 57.71 | | — | | 2,935 | | 1 Feb to 28 Feb | 6,600,000 | | 54.45 | | 6,600,000 | | 231,101 | | 60.82 | | — | | 2,576 | | 1 Mar to 31 Mar | 6,250,000 | | 52.64 | | 6,250,000 | | 79,472 | | 58.37 | | — | | 2,247 | | 1 Apr to 30 Apr | 2,150,000 | | 60.99 | | 2,150,000 | | 554,049 | | 69.30 | | — | | 2,116 | | 1 May to 31 May | 2,850,000 | | 69.66 | | 2,850,000 | | 151,687 | | 77.19 | | — | | 1,917 | | 1 Jun to 8 Jun | 300,000 | | 73.47 | | 300,000 | | 8,223 | | 80.80 | | — | | 1,895 | |
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| | (a) | Diluted earnings per share figures are 0.2 US cents (2002: 0.1 US cents) lower than the earnings per share figures above. | (b) | The results for both years relate wholly to continuing operations. | (c) | The results for both years are stated after the exceptional items set out in the box; 'Adjusted earnings' excludes these items. | (d) | Certain information in the financial statements, which are presented in accordance with the Companies Act and UK GAAP, would be viewed as ‘non-GAAP’ under regulations issued by the United States Securities and Exchange Commission (‘SEC’). The Group has described such items in note 4, and has included a Condensed income statement in the format prescribed by the SEC. The disclosure of asset write downs in 2002 and profit on disposal of interests in subsidiary, joint venture and associate in 2003 as exceptional items is expressly permitted under FRS3 but would otherwise be prohibited within the Form 20-F. Management consider these asset write downs and this profit on disposal to be exceptional because of their nature and because large items of this type do not occur regularly. Their impact on earnings may be positive in some years and negative in others. The environmental remediation charge in 2002 is similarly presented as an exceptional item under FRS3. Management consider this charge to be exceptional in nature because large items of this type do not occur regularly. Such items do not reflect the performance of the business unit to which they relate in the particular year in which they are recognised. |
Condensed income statement (US GAAP format) NotesYears ended 31 December
| 2003 | | | | 2002 | | | US$m | | | | US$m | |
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| | Revenues | 9,228 | | | | 8,443 | | | | | | | | | Operating costs and expenses | | | | | | | Costs and expenses applicable to revenues (exclusive of depreciation and | | | | | | | amortisation shown separately below) | (5,150 | ) | | | (4,337 | ) | Depreciation of fixed assets and amortisation of goodwill | (1,006 | ) | | | (954 | ) | Fixed asset write downs | - | | | | (962 | ) | Environmental remediation costs | - | | | | (116 | ) | Selling, general and administrative expenses | (817 | ) | | | (656 | ) | Royalties | (439 | ) | | | (390 | ) | Exploration, research & development | (150 | ) | | | (155 | ) | Bad and doubtful debts | (31 | ) | | | (15 | ) | Foreign currency exchange gain/(loss) | (123 | ) | | | (41 | ) | Other operating expense | (16 | ) | | | 14 | |
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| | | (7,732 | ) | | | (7,612 | ) | | | | | | | | Non operating income/(expenses) | | | | | | | Gain on sale of fixed asset investments | 126 | | | | - | | Interest expense & amortisation of discount on provisions | (228 | ) | | | (213 | ) |
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| | Income before income tax, minority interest and equity income | 1,394 | | | | 618 | | | | | | | | | Income tax expense | (325 | ) | | | (483 | ) | Minority interest in income of consolidated subsidiaries | (19 | ) | | | 48 | | Equity income of unconsolidated joint ventures and affiliates | 458 | | | | 468 | |
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| | Net income | 1,508 | | | | 651 | |
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| | | | | | | | | Earnings per ordinary share | 109.5 | c | | | 47.3 | c |
| | (a)1. | Diluted earnings per share figures are 0.2 US cents (2002: 0.1 US cents) lower than the earnings per share figures above.Rio Tinto plc ordinary shares of 10p each; Rio Tinto Limited shares. | (b) | This Condensed income statement is in the format prescribed by the SEC as referred to in note (d) to the Profit and loss account. | | |
82 | Rio Tinto 2003Annual report and financial statements |
Back to Contents
Cash flow statementYears ended 31 December | | | | | | | | | | | | | | | | | | | | | | | | 2003 | | 2002 | | Note | US$m | US$m |
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| | | | | | | | | Cash inflow from operating activities (see below) | | | 2,888 | | 3,134 | | | | | | | | | Dividends from joint ventures | | | 470 | | 513 | | Dividends from associates | | | 128 | | 96 | |
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| | Total cash flow from operations | | | 3,486 | | 3,743 | | | | | | | | | Interest received | | | 30 | | 80 | | Interest paid | | | (231 | ) | (264 | ) | Dividends paid to outside shareholders | | | (76 | ) | (117 | ) |
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| | Returns on investment and servicing of finance | | | (277 | ) | (301 | ) | | | | | | | | Taxation | | | (917 | ) | (722 | ) | | | | | | | | Purchase of property, plant and equipment | | | (1,533 | ) | (1,296 | ) | Funding of Group share of joint ventures’ and associates’ capital expenditure | | | (94 | ) | (137 | ) | Other funding of joint ventures and associates | | | (18 | ) | (6 | ) | Exploration and evaluation expenditure | 11 | | (130 | ) | (124 | ) | Sale of property, plant and equipment | | | 19 | | 16 | | Net sales/(purchases) of other investments | | | 83 | | (323 | ) |
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| | Capital expenditure and financial investment | | | (1,673 | ) | (1,870 | ) | | | | | | | | Purchase of subsidiaries and joint arrangements | 35 | | – | | (106 | ) | Sale of subsidiaries, joint ventures and associates | 35 | | 405 | | 233 | |
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| | Disposals less acquisitions | | | 405 | | 127 | | | | | | | | | Equity dividends paid to Rio Tinto shareholders | | | (833 | ) | (948 | ) | | | | | | | | Cash inflow before management of liquid resources and financing | | | 191 | | 29 | | | | | | | | | Net cash (outflow)/inflow from management of liquid resources | 23 | | (105 | ) | 213 | | Ordinary shares in Rio Tinto issued for cash | | | 25 | | 15 | | Ordinary shares in subsidiaries issued to outside shareholders | | | 8 | | 22 | | Loans received less repaid | 23 | | (202 | ) | (409 | ) |
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| | Management of liquid resources and financing | | | (274 | ) | (159 | ) |
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| | Decrease in cash | 23 | | (83 | ) | (130 | ) |
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| | | | | | | | | | | | | | | | Cash flow from operating activities | | | | | | | Group operating profit | | | 1,496 | | 831 | | Exceptional charges (all non cash items) | | | – | | 1,078 | |
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| | | | | 1,496 | | 1,909 | | Depreciation and amortisation | 2 | | 1,006 | | 954 | | Exploration and evaluation charged against profit | 11 | | 127 | | 130 | | Provisions | 20 | | 154 | | 58 | | Utilisation of provisions | 20 | | (159 | ) | (118 | ) | Change in inventories | | | (43 | ) | 85 | | Change in accounts receivable and prepayments | | | 154 | | 158 | | Change in accounts payable and accruals | | | 66 | | (57 | ) | Other items | | | 87 | | 15 | |
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| | Cash flow from operating activities | | | 2,888 | | 3,134 | |
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Rio Tinto 2003 Annual report and financial statements | 83 |
Back to Contents
Balance sheetAt 31 December
2003 | | 2002 | | | | | 2003 | | 2002 | | A$m | A$m | Note | US$m | US$m |
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| | | | | | | | | | | | | | | | | Intangible fixed assets | | | | | | | 1,583 | | 1,791 | | Goodwill | 10 | | 1,185 | | 1,015 | | 92 | | 101 | | Exploration and evaluation | 11 | | 69 | | 57 | |
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| | 1,675 | | 1,892 | | | | | 1,254 | | 1,072 | | | | | | Tangible fixed assets | | | | | | | 20,294 | | 21,503 | | Property, plant and equipment | 12 | | 15,196 | | 12,183 | | | | | | | | | | | | | | | | | Investments | | | | | | | 4,318 | | 5,487 | | Share of gross assets of joint ventures | 13 | | 3,233 | | 3,109 | | (1,349 | ) | (2,097 | ) | Share of gross liabilities of joint ventures | 13 | | (1,010 | ) | (1,188 | ) |
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| | 2,969 | | 3,390 | | | | | 2,223 | | 1,921 | | 690 | | 1,158 | | Investments in associates/other investments | 13 | | 517 | | 656 | |
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| | 3,659 | | 4,548 | | Total investments | | | 2,740 | | 2,577 | |
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| | | | | | | | | | | | | 25,628 | | 27,943 | | Total fixed assets | | | 19,190 | | 15,832 | |
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| | | | | | | | | | | | | | | | | Current assets | | | | | | | 2,381 | | 2,651 | | Inventories | 15 | | 1,783 | | 1,502 | | | | | | Accounts receivable and prepayments | | | | | | | 2,236 | | 2,820 | | Falling due within one year | 16 | | 1,674 | | 1,598 | | 1,080 | | 1,131 | | Falling due after more than one year | 16 | | 809 | | 641 | |
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| | 3,316 | | 3,951 | | Total accounts receivable | | | 2,483 | | 2,239 | | 307 | | 540 | | Investments | 17 | | 230 | | 306 | | 528 | | 574 | | Cash | 17 | | 395 | | 325 | |
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| | 6,532 | | 7,716 | | Total current assets | | | 4,891 | | 4,372 | |
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| | | | | | | | | | | | | | | | | Current liabilities | | | | | | | (2,930 | ) | (5,941 | ) | Short term borrowings | 18 | | (2,194 | ) | (3,366 | ) | (2,858 | ) | (3,484 | ) | Accounts payable and accruals | 19 | | (2,140 | ) | (1,974 | ) |
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| | (5,788 | ) | (9,425 | ) | Total current liabilities | | | (4,334 | ) | (5,340 | ) |
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| | | | | | | | | | | | | 744 | | (1,709 | ) | Net current assets/(liabilities) | | | 557 | | (968 | ) |
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| | | | | | | | | | | | | 26,372 | | 26,234 | | Total assets less current liabilities | | | 19,747 | | 14,864 | | | | | | | | | | | | | | | | | Liabilities due after one year | | | | | | | (5,140 | ) | (4,780 | ) | Medium and long term borrowings | 22 | | (3,849 | ) | (2,708 | ) | (430 | ) | (537 | ) | Accounts payable and accruals | 19 | | (322 | ) | (304 | ) | | | | | | | | | | | | (6,058 | ) | (6,375 | ) | Provisions for liabilities and charges | 20 | | (4,536 | ) | (3,612 | ) | (1,340 | ) | (1,373 | ) | Outside shareholders’ interests (equity) | | | (1,003 | ) | (778 | ) |
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| | 13,404 | | 13,169 | | Net assets | | | 10,037 | | 7,462 | |
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| | | | | | | | | | | | | | | | | Capital and reserves | | | | | | | | | | | Share capital | | | | | | | 207 | | 272 | | – Rio Tinto plc | 24 | | 155 | | 154 | | 1,449 | | 1,440 | | – Rio Tinto Limited (excluding Rio Tinto plc interest) | 24 | | 1,085 | | 816 | | 2,176 | | 2,842 | | Share premium account | 25 | | 1,629 | | 1,610 | | 446 | | 535 | | Other reserves | 25 | | 334 | | 303 | | 9,126 | | 8,080 | | Profit and loss account | 25 | | 6,834 | | 4,579 | |
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| | 13,404 | | 13,169 | | Equity shareholders’ funds | | | 10,037 | | 7,462 | |
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| | (a) 2. | The balance sheet hasaverage prices paid have been translated into AustralianUS dollars usingat the year end exchange rate.rate on the day of settlement. | 3. | The average prices paid for shares purchased each month between 1 January 2006 and 31 May 2006 have, where applicable, been restated to include stamp duty. | 4. | Shares purchased by the Companies’ registrars in connection with the dividend reinvestment plans and employee share plans were not deemed to form part of any publicly announced plan or programme. |
PART III Item 17. | Financial Statements |
Not applicable. Item 18. | Financial Statements |
The financial statements on pages 82 to 134 were approved by the directors on 20 February 2004 and signed on their behalf by | | | | Paul Skinner | Leigh Clifford | Guy Elliott | | Chairman | Chief executive | Finance director | | | | | | | | | |
84 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents
Reconciliation with Australian GAAP31 December
2003 | | 2002 | | | 2003 | | 2002 | | A$m | A$m | US$m | US$m |
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| | 2,133 | | 2,818 | | Adjusted earnings reported under UK GAAP | 1,382 | | 1,530 | | 194 | | (1,619 | ) | Exceptional items | 126 | | (879 | ) |
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| | | | | | | | | | | 2,327 | | 1,199 | | Net earnings under UK GAAP | 1,508 | | 651 | | | | | | Increase/(decrease) net of tax in respect of: | | | | | (253 | ) | (308 | ) | Goodwill amortisation | (164 | ) | (167 | ) | – | | (35 | ) | Adjustments to asset carrying values | – | | (19 | ) | (8 | ) | (24 | ) | Taxation | (5 | ) | (13 | ) | 11 | | 6 | | Other | 7 | | 3 | |
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| | | | | | | | | | | 2,077 | | 838 | | Net earnings attributable to members under Australian GAAP | 1,346 | | 455 | |
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| | | | | | | | | | | 150.8 | c | 60.9 | c | Earnings per ordinary share under Australian GAAP | 97.7 | c | 33.1 | c |
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Diluted earnings per share under Australian GAAP are 0.2 US cents (2002: 0.1 US cents) less than the above earnings per share figures.
Exceptional Items
Net earnings under United Kingdom generally accepted accounting principles (‘UK GAAP’) include exceptional gains of US$126 million. In 2002 there was an exceptional charge, for asset write downs and environmental remediation, of US$879 million. The concepts of Adjusted earnings and exceptional items do not exist under Australian generally accepted accounting principles (‘Australian GAAP’).
2003 | | 2002 | | | 2003 | | 2002 | | A$m | | A$m | | | US$m | | US$m | |
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| | 13,404 | | 13,169 | | Shareholders’ funds under UK GAAP | 10,037 | | 7,462 | | | | | | Increase/(decrease) net of tax in respect of: | | | | | 1,165 | | 1,843 | | Goodwill | 872 | | 1,044 | | 92 | | 131 | | Taxation | 69 | | 74 | | 626 | | – | | Dividend | 469 | | – | | (32 | ) | (41 | ) | Other | (24 | ) | (23 | ) |
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| | | | | | | | | | | 15,255 | | 15,102 | | Shareholders’ funds under Australian GAAP | 11,423 | | 8,557 | |
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The Group’s financial statements have been prepared in accordance with UK GAAP, which differs in certain respects from Australian GAAP. These differences relate principally to the following items, and the effect of each of the adjustments to net earnings and shareholders’ funds that would be required under Australian GAAP is set out above.
Goodwill
For 1997 and prior years, UK GAAP permitted the write off of purchased goodwill on acquisitions directly against reserves. Under Australian GAAP, goodwill is capitalised and amortised by charges against income over the period during which it is expected to be of benefit, subject to a maximum of 20 years. Goodwill previously written off directly to reserves in the UK GAAP accounts has been reinstated and amortised for the purpose of the reconciliation statements.
For acquisitions in 1998 and subsequent years, goodwill is capitalised under UK GAAP, in accordance with Financial Reporting Standard 10. Adjustments are required for Australian GAAP purposes where such capitalised goodwill is amortised over periods exceeding 20 years in the UK GAAP accounts.
Taxation
Under UK GAAP, provision for the taxes arising on remittances of earnings can only be made if the dividends have been accrued or if there is a binding agreement for the distribution of the earnings. Under Australian GAAP, provision must be made for tax arising on expected future remittances of past earnings.
Under UK GAAP, tax benefits associated with goodwill charged directly to reserves, in 1997 and previous years, must be accumulated in the deferred tax provision. This means that the tax benefits are not included in earnings until the related goodwill is charged through the profit and loss account on disposal or closure. For Australian GAAP, no provision is required for such deferred tax because the goodwill that gave rise to these tax benefits was capitalised and gives rise to amortisation charges against profit.
Proposed dividends
Under UK GAAP, ordinary dividends are recognised in the financial year in respect of which they are paid. Under Australian GAAP, with effect from 1 January 2003, such dividends are not recognised until they are declared, determined or publicly recommended by the board of directors. Prior to 1 January 2003, Australian GAAP was consistent with UK GAAP.
Rio Tinto 2003 Annual report and financial statements | 85 |
Back to Contents
Statement of total recognised gains and lossesYears ended 31 December
| 2003 | | 2002 | | US$m | US$m |
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| | Profit for the financial year | | | | | Subsidiaries | 1,050 | | 183 | | Joint ventures | 360 | | 339 | | Associates | 98 | | 129 | |
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| | | 1,508 | | 651 | |
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| | Adjustment on currency translation | | | | | Subsidiaries | 1,864 | | 560 | | Joint ventures | 53 | | 13 | | Associates | 7 | | 6 | |
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| | | 1,924 | | 579 | |
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| | Total recognised gains and losses relating to the financial year | | | | | Subsidiaries | 2,914 | | 743 | | Joint ventures | 413 | | 352 | | Associates | 105 | | 135 | |
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| | | 3,432 | | 1,230 | |
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Reconciliation of movements in shareholders’ fundsYears ended 31 December
| | | | | | 2003 | | 2002 | | US$m | US$m |
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| | Profit for the financial year | 1,508 | | 651 | | Dividends | (882 | ) | (826 | ) |
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| | | 626 | | (175 | ) | Adjustment on currency translation | 1,924 | | 579 | | Share capital issued | 25 | | 15 | |
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| | | 2,575 | | 419 | | Opening shareholders’ funds | 7,462 | | 7,043 | |
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| | Closing shareholders’ funds | 10,037 | | 7,462 | |
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| |
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| Rio Tinto 2003Annual report and financial statements |
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Outline of dual listed companies structure and basis of financial statements
The Rio Tinto Group
These are the2006 financial statements of the Rio Tinto Group (the‘Group’)and the separate 2006 financial statements of Minera EscondidaLimitada (Rio Tinto: 30 per cent), formed throughwhich exceeded certain tests of significance under Rule 3-09 of Regulation S-X, are included as the merger of economic interests (‘merger’) of Rio Tinto plc and Rio Tinto Limited, and presented by both Rio Tinto plc and Rio Tinto Limited as their consolidated accounts“A” pages in accordance with both United Kingdom and Australian legislation and regulations.this annual report on Form 20-F.
Merger termsItem 19.
| On 21 December 1995, Rio Tinto plc and Rio Tinto Limited, which are listed respectively on Stock Exchanges in the United Kingdom and Australia, entered into a dual listed companies (Exhibits |
Exhibits marked “*” have been filed as exhibits to this annual report on Form 20-F and other exhibits have been incorporated by reference as indicated. INDEX Exhibit | | ‘DLC’) merger. This was effected by contractual arrangements between the companies and amendments to Rio Tinto plc’s Number | Description | | | 1.1* | Memorandum and Articles of Association and Rio Tinto Limited’s constitution.
As a result, Rio Tinto plc and Rio Tinto Limited and their respective groups operate together as a single economic enterprise, with neither assuming a dominant role. In particular, the arrangements: | – | confer upon the shareholders of Rio Tinto plc (adopted by special resolution passed on 11 April 2002 and amended on 14 April 2005 and 13 April 2007) | 1.2* | Constitution of Rio Tinto Limited a common economic interest in both groups;(ACN 004 458 404) (as adopted by special resolution passed on 24 May 2000 and amended by special resolution on 18 April 2002, 29 April 2005 and 27 April 2007) | –3.1 | provide for common boardsDLC Merger Implementation Agreement, dated 3 November 1995 between CRA Limited and The RTZ Corporation PLC relating to the implementation of directors and a unified management structure; | – | provide for common boards of directors and a unified management structure; | – | provide for equalised dividends and capital distributions; and | – | provide for the shareholdersDLC merger (incorporated by reference to Exhibit 2.1 of Rio Tinto plcplc's Annual report on Form 20-F for the financial year ended 31 December 1995, File No. 1-10533) | 3.2 | DLC Merger Sharing Agreement, dated 21 December 1995 and amended on 29 April 2005 between CRA Limited and The RTZ Corporation PLC relating to the ongoing relationship between CRA and RTZ following the DLC merger (incorporated by reference to Exhibit 4.23 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2004, File No. 1-10533) | 3.3 | RTZ Shareholder Voting Agreement, dated 21 December 1995 between The RTZ Corporation PLC, RTZ Shareholder SVC Pty. Limited, CRA Limited, R.T.Z. Australian Holdings Limited and The Law Debenture Trust Corporation p.l.c. (incorporated by reference to take key decisions, includingExhibit 2.3 of Rio Tinto plc's Annual report on Form 20-F for the electionfinancial year ended 31 December 1995, File No. 1-10533) | 3.4 | CRA Shareholder Voting Agreement, dated 21 December 1995 between CRA Limited, CRA Shareholder SVC Limited, The RTZ Corporation PLC and The Law Debenture Trust Corporation p.l.c., relating to the RTZ Special Voting Share (incorporated by reference to Exhibit 2.4 of directors, through an electoral procedure in whichRio Tinto plc's Annual report on Form 20-F for the public shareholders of the two companies effectively vote on a joint basis.financial year ended 31 December 1995, File No. 1-10533) |
The merger involved no change in the legal ownership of any assets of Rio Tinto plc or Rio Tinto Limited, nor any change in the ownership of any existing shares or securities of Rio Tinto plc or Rio Tinto Limited, nor the issue of any shares, securities or payment by way of consideration, save for the issue by each company of one special voting share to a trustee company which provides the joint electoral procedure for public shareholders. During 2002, each of the parent companies issued a DLC Dividend Share to facilitate the efficient management of funds within the DLC structure.
Accounting standards
The financial statements have been drawn up in accordance with United Kingdom accounting standards. The merger of economic interests is accounted for as a merger under FRS 6.
Australian Corporations Act
The financial statements are drawn up in accordance with an order, under section 340 of the Australian Corporations Act 2001, issued by the Australian Securities and Investments Commission (‘ASIC’) on 21 July 2003. The main provisions of the order are that the financial statements are: | – | to be made out in accordance with United Kingdom requirements applicable to consolidated accounts; | – | to be expressed in United States dollars, but may also be expressed in United Kingdom and Australian currencies; and | – | to include a reconciliation from UK GAAP to Australian GAAP (see page 85). |
For further details of the ASIC Class Order relief see page 134.
United Kingdom Companies Act
In order to present a true and fair view of the Rio Tinto Group, in accordance with FRS 6, the principles of merger accounting have been adopted. This represents a departure from the provision of the United Kingdom Companies Act 1985 which sets out the conditions for merger accounting based on the assumption that a merger is effected through the issue of equity shares.
The main consequence of adopting merger rather than acquisition accounting is that the balance sheet of the merged group includes the assets and liabilities of Rio Tinto Limited at their carrying values prior to the merger, subject to adjustments to achieve uniformity of accounting policies, rather than at their fair values at the date of the merger. In the particular circumstances of the merger, the effect of applying acquisition accounting cannot reasonably be quantified.
In order that the financial statements should present a true and fair view, it is necessary to differ from the presentational requirements of the United Kingdom Companies Act 1985 by including amounts attributable to both Rio Tinto plc and Rio Tinto Limited public shareholders in the capital and reserves shown in the balance sheet and in the profit for the financial year. The Companies Act 1985 would require presentation of the capital and reserves and profit for the year attributable to Rio Tinto Limited public shareholders (set out in note 25) as a minority interest in the financial statements of the Rio Tinto Group. This presentation would not give a true and fair view of the effect of the Sharing Agreement under which the position of all public shareholders is as nearly as possible the same as if they held shares in a single company.
Rio Tinto 20032006Annual report and financial statementsForm 20-F | 87149 |
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Notes to the 2003 financial statements
1 PRINCIPAL ACCOUNTING POLICIES
a Basis of preparation
The Group’s accounting policies comply with applicable United Kingdom accounting standards and are consistent with last year. As explained in the section headed ‘Outline of dual listed companies structure and basis of financial statements’, the accounting policies depart from the requirements of the Companies Act in order to provide a true and fair view of the merger between Rio Tinto plc and Rio Tinto Limited.
b Basis of consolidation
The financial statements consist of the consolidation of the accounts of Rio Tinto plc and Rio Tinto Limited and their respective subsidiary undertakings (‘subsidiaries’). They are prepared on the historical cost basis. The Group’s shares of the assets, liabilities, earnings and reserves of associated undertakings (‘associates’) and joint ventures are included in the Group financial statements using the equity and gross equity accounting methods respectively. The Group consolidates its own share of the assets, liabilities, income and expenditure of joint arrangements that are not entities.
c Turnover
Turnover comprises sales to third parties at invoiced amounts, with most sales being priced ex works, free on board (f.o.b.) or cost, insurance and freight (c.i.f.). A large proportion of Group production is sold under medium to long term contracts and is included in sales when deliveries are made. Gross turnover shown in the profit and loss account includes the Group’s share of the turnover of joint ventures and associates. By-product revenues are included in turnover.
d Shipping and handling costs
All shipping and handling costs incurred by the Group are recognised as operating costs. Amounts billed to customers in respect of shipping and handling, where the Group is responsible for the carriage, insurance and freight, are classified as revenue. If, however, the Group is acting solely as an agent, amounts billed to customers are credited to operating costs.
e Currency translation
Transactions in foreign currencies are translated at the exchange rate ruling at the date of transaction or, where foreign currency forward contracts have been arranged, at contractual rates. Monetary assets and liabilities denominated in foreign currencies are retranslated at year-end exchange rates, or at a contractual rate if applicable.
On consolidation, profit and loss account items are translated into US dollars at average rates of exchange. Balance sheet items are translated into US dollars at year end exchange rates. Certain non United States resident companies, whose functional currency is the US dollar, account in that currency.
The Group finances its operations primarily in US dollars and a significant proportion of the Group’s US dollar debt is located in subsidiaries having functional currencies other than the US dollar. Exchange gains and losses relating to US dollar debt impact on the profit and loss accounts of such subsidiaries. However, such exchange gains and losses are excluded from the Group’s profit and loss account on consolidation, with a corresponding adjustment to reserves. This means that financing in US dollars impacts in a consistent manner on the Group’s consolidated accounts irrespective of the functional currency of the particular subsidiary where the debt is located. Exchange differences on the translation of the net operating assets of companies with functional currencies other than the US dollar, less offsetting exchange differences on net debt in currencies other than the US dollar financing those net assets, are dealt with through reserves.
All other exchange differences are charged or credited to the profit and loss account in the year in which they arise, except as set out below in note (p) relating to derivative contracts.
f Goodwill and intangible assets
Goodwill represents the difference between the cost of acquisition and the fair value of the identifiable net assets acquired. Goodwill and intangible assets arising on acquisitions after 31 December 1997 are capitalised in accordance with FRS 10. These assets are amortised over their useful economic lives, which may exceed 20 years. Amortisation is charged on a straight line or units of production basis as appropriate. In 1997 and previous years, goodwill was eliminated against reserves in the year of acquisition as a matter of accounting policy. Such goodwill was not reinstated on implementation of FRS 10; but on sale or closure of a business, any related goodwill eliminated against reserves is charged to the profit and loss account.
g Exploration and evaluation
During the initial stage of a project, full provision is made for the costs thereof by charge against profits for the year. Expenditure on a project after it has reached a stage at which there is a high degree of confidence in its viability is carried forward and transferred to tangible fixed assets if the project proceeds. If a project does not prove viable, all irrecoverable costs associated with the project are written off. If an undeveloped project is sold, any gain or loss is included in operating profit, such transactions being a normal part of the Group’s activities. Where expenditure is carried forward in respect of a project which may not proceed to commercial development for some time, provision is made against the possibility of non development by charge against profits over a period of up to seven years. When it is decided to proceed with development, any provisions made in previous years are reversed to the extent that the relevant costs are recoverable.
h Tangible fixed assets
The cost of a tangible fixed asset comprises its purchase price and any costs directly attributable to bringing it into working condition for its intended use. Costs associated with a start up period are capitalised where the asset is available for use but incapable of operating at normal levels without a commissioning period. Net interest before tax payable on borrowings related to construction or development projects is capitalised until the point when substantially all the activities that are necessary to make the asset ready for use are complete.
i Mining properties and leases
Once a mining project has been established as commercially viable, expenditure other than that on buildings, plant and equipment is capitalised under mining properties and leases together with any amount transferred from exploration and evaluation. Such expenditure is amortised against profits, applying the same principles as for other tangible fixed assets.
In open pit mining operations, it is necessary to remove overburden and other waste materials to access mineral deposits. The costs of removing waste materials are referred to as‘stripping costs’. During the development of a mine, before production commences, such costs are capitalised as part of the investment in construction of the mine.
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| Rio Tinto 2003Annual report and financial statements |
Back to Contents i Mining properties and leases continued4.01 | Removal of waste materials continues during the production stage of the mine. The Group defers such production stage stripping costs where this is the most appropriate basis for matching revenue and costs and the effect is material. The deferral of, and subsequent charges for, these stripping costs are based on the‘life of mine stripping ratio’. This ratio is calculated by dividing the estimated total volume of production stage stripping by the estimated future ore production over the life of the operation. The ratio is then appliedLetter dated 1 January 1992 to the quantity of ore mined in the period to determine the current period production cost charged against earnings.
| | | j Depreciation and carrying values of fixed assets | Depreciation of tangible fixed assets is calculated on a straight line or units of production basis, as appropriate. Assets are fully depreciated over their economic lives, or over the remaining life of the mine if shorter. Depreciation rates for the principal assets of the Group vary from two and a half per cent to ten per cent per annum.
Tangible and intangible fixed assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. In addition, goodwill is reviewed for impairment at the end of the first complete financial year after the relevant acquisition and, where the goodwill is being amortised over a period exceeding 20 years, annually thereafter. When a review for impairment is conducted, the recoverable amount is assessedMr R Adams about supplementary pension arrangements (incorporated by reference to the net present valueExhibit 4.23 of expected future cash flows of the relevant income generating unit, or disposal value if higher. The discount rate applied is based upon the Group’s weighted average cost of capital with appropriate adjustmentRio Tinto plc's Annual report on Form 20-F for the risks associated with the relevant unit. Estimates of future net cash flows are based on ore reserves and mineral resources for which there is a high degree of confidence of economic extraction. financial year ended 31 December 2000, File No. 1-10533) | 4.02 | Supplementary letter dated 1 January 1992 to Mr R Adams about pension arrangements (incorporated by reference to Exhibit 4.24 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533) | k Determination4.03 | Letter dated 22 November 1994 to Mr R Adams about supplementary pension arrangements (incorporated by reference to Exhibit 4.29 of ore reservesRio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533) | 4.04 | Letter dated 20 January 1997 to Mr R Adams about directors' pension arrangements (incorporated by reference to Exhibit 4.32 of Rio Tinto estimates its ore reserves and mineral resources basedplc's Annual report on information compiled by Competent Persons (as defined in accordance withForm 20-F for the Australasian Code for Reporting of Mineral Resources and Ore Reserves of September 1999 (the JORC code))financial year ended 31 December 2001, File No. 1-10533). Reserves and, for certain mines, resources determined in this way are used in the calculation of depreciation, amortisation, impairment and close down and restoration costs. | 4.05 | Service Agreement dated 15 April 2003 between Mr R Adams and Rio Tinto London Limited (incorporated by reference to Exhibit 4.30 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2002, File No. 1-10533) | l Provisions4.06 | Memorandum effective 1 March 2004 to Service Agreement dated 15 April 2003 between Mr R Adams and Rio Tinto London Limited (incorporated by reference to Exhibit 4.06 of Rio Tinto plc's Annual report on Form 20-F for close down and restoration and for environmental clean up coststhe financial year ended 31 December 2003, File No. 1-10533) | Both4.07 | Service Agreement dated 12 April 2006 between Mr T Albanese and Rio Tinto London Limited (incorporated by reference to Exhibit 4.07 of Rio Tinto plc's Annual report on Form 20-F for close down and restoration and for environmental clean up costs, provision is made in the accounting period when the related environmental disturbance occurs, based on the net present value of estimated future costs.
The amortisation or‘unwinding’ of the discount applied in establishing the net present value of provisions is charged to the profit and loss account in each accounting period. The amortisation of the discount is shown as a financing cost rather than as an operating cost. For close down and restoration costs, which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas, movements in provisions other than the amortisation of the discount, such as those resulting from changes in the cost estimates, in the lives of operations or in discount rates, are capitalised and depreciated over future production. financial year ended 31 December 2005, File No. 1-10533) | 4.08 * | Memorandum effective 1 March 2007 to Service Agreement dated 12 April 2006 between Mr T Albanese and Rio Tinto London Limited |
4.09 | Service Agreement dated 30 March 2004 between Mr R L Clifford and Rio Tinto Limited (incorporated by reference to Exhibit 4.23 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2004, File No. 1-10533) | m Inventories4.10 | Supplemental letter dated 30 March 2004 to Service Agreement dated 30 March 2004 between Mr R L Clifford and Rio Tinto Limited (incorporated by reference to Exhibit 4.23 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2004, File No. 1-10533) | Inventories are valued at4.11 | Memorandum effective 1 March 2005 to Service Agreement dated 30 March 2004 between Mr R L Clifford and Rio Tinto Limited (incorporated by reference to Exhibit 4.23 of Rio Tinto plc's Annual report on Form 20-F for the lower of cost and net realisable value. Cost for raw materials and stores is purchase price and for partly processed and saleable products is generally the cost of production, including the appropriate proportion of depreciation and overheads. Inventories are valued on a first in, first out (‘FIFO’) basis.financial year ended 31 December 2004, File No. 1-10533) | 4.12 | Memorandum effective 1 March 2006 to Service Agreement dated 30 March 2004 between Mr R L Clifford and Rio Tinto Limited (incorporated by reference to Exhibit 4.11 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2005, File No. 1-10533) | n Deferred tax4.13* | Memorandum effective 1 March 2007 to Service Agreement dated 30 March 2004 between Mr R L Clifford and Rio Tinto Limited |
4.14 | Service Agreement dated 19 June 2002 between Mr G R Elliott and Rio Tinto London Limited (incorporated by reference to Exhibit 4.31 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2002, File No. 1-10533) | Full provision is made4.15 | Memorandum effective 1 March 2003 to Service Agreement dated 19 June 2002 between Mr G R Elliott and Rio Tinto Limited (incorporated by reference to Exhibit 4.32 of Rio Tinto plc's Annual report on Form 20-F for deferred taxation on all timing differences that have arisen but have not reversed at the balance sheet date, except in limited circumstances. The main exceptions are as follows:financial year ended 31 December 2002, File No. 1-10533) | –4.16 | Tax payableMemorandum effective 1 March 2004 to Service Agreement dated 19 June 2002 between Mr G R Elliott and Rio Tinto London Limited (incorporated by reference to Exhibit 4.32 of Rio Tinto plc's Annual report on Form 20-F for the future remittance of the past earnings of subsidiaries, associates and joint ventures is provided only to the extent that dividends have been accrued or there is a binding agreement to distribute such past earnings.financial year ended 31 December 2002, File No. 1-10533) | –4.17 | Deferred tax is not recognisedMemorandum effective 1 March 2005 to Service Agreement dated 19 June 2002 between Mr G R Elliott and Rio Tinto London Limited (incorporated by reference to Exhibit 4.23 of Rio Tinto plc's Annual report on revaluations of non monetary assets arising on acquisitions unless there is a binding agreement to sellForm 20-F for the asset and the gain or loss expected to arise from the disposal has been recognised.financial year ended 31 December 2004, File No. 1-10533) | –4.18 | Deferred tax assets are recognised onlyMemorandum effective 1 March 2006 to Service Agreement dated 19 June 2002 between Mr G R Elliott and Rio Tinto London Limited (incorporated by reference to Exhibit 4.16 of Rio Tinto plc's Annual report on Form 20-F for the extent that it is more likely than not that they will be recovered.financial year ended 31 December 2005, File No. 1-10533) | Provisions for deferred tax are made in respect of tax benefits related4.19* | Memorandum effective 1 March 2007 to goodwill that was charged directly to reserves on acquisitions made prior to 1998. Such provisions are released when the related goodwill is charged through the profitService Agreement dated 19 June 2002 between Mr G R Elliott and loss account on disposal or closure. Deferred tax balances are not discounted to their present value.Rio Tinto London Limited | 4.20 | Mining Companies Comparative Plan (incorporated by reference to Exhibit 4.65 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533) | o Post retirement benefits4.21 | Share Option Plan (incorporated by reference to Exhibit 4.66 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533) | In accordance with SSAP 24,4.22 | Medical expenses plan (incorporated by reference to Exhibit 4.67 of Rio Tinto plc's Annual report on Form 20-F for the expected costs of post retirement benefits under defined benefit arrangements are charged to the profit and loss account so as to spread the costs over the service lives of employees entitled to those benefits. Variations from the regular cost are spread on a straight line basis over the expected average remaining service lives of relevant current employees. Costs are assessed in accordance with the advice of qualified actuaries.financial year ended 31 December 2000, File No. 1-10533) | 4.23 | | p Financial instruments | The Group’s policy with regardPension plan (incorporated by reference to ‘Treasury management andExhibit 4.68 of Rio Tinto plc's Annual report on Form 20-F for the financial instruments’ is set out in the Financial review. When the Group enters into derivative contracts these transactions are designed to reduce exposures related to assets and liabilities, firm commitments or anticipated transactions, and are therefore accounted for as hedges. Amounts receivable and payable in respect of interest rate swaps are recognised as an adjustment to net interest over the life of the contract. Gains or losses on foreign currency forward contracts and currency swaps relating to financial assets and liabilities are matched against the losses or gains on the hedged items, either in the profit and loss account or through reserves as appropriate. Gains and losses on financial instruments relating to firm commitments or anticipated transactions for revenue items are deferred and recognised when the hedged transaction occurs. Gains and losses on financial instruments relating to firm commitments or anticipated transactions for capital expenditure are capitalised and depreciated in line with the underlying asset. The cash flows from these contracts are classified in a manner consistent with the underlying nature of the related transaction.year ended 31 December 2000, File No. 1-10533) |
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Back to Contents NotesSIGNATURE
The Registrants hereby certify that they meet all of the requirements for filing on Form 20-F and that they have dulycaused and authorised the undersigned to the 2003 financial statements continuedsign this Annual Report on their behalf. 2Rio Tinto plc | | NET OPERATING COSTSRio Tinto Limited |
| | | | | | | | | | 2003 | | 2002 | | | Note | | US$m | | US$m | |
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| | Raw materials and consumables | | | 2,975 | | 2,591 | | Depreciation and amortisation (a) | | | 1,006 | | 954 | | Employment costs | 3 | | 1,666 | | 1,337 | | Royalties and other mining taxes | | | 439 | | 390 | | Decrease in inventories | | | 55 | | 81 | | Other external costs (a) | | | 1,451 | | 1,143 | | Provisions (a) | 20 | | 154 | | 58 | | Exploration and evaluation | 11 | | 127 | | 130 | | Research and development | | | 23 | | 25 | | Net exchange losses on monetary items | | | 123 | | 41 | | Costs included above qualifying for capitalisation | | | (168 | ) | (113 | ) | Other operating income | | | (119 | ) | (103 | ) |
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| | Net operating costs before exceptional charges | | | 7,732 | | 6,534 | | Exceptional charges (a) | | | – | | 1,078 | |
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| | | | | 7,732 | | 7,612 | |
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(a) (Registrant) | The above detailed analysis of 2002 costs is before exceptional charges. Including exceptional charges, the total 2002 charge for depreciation and amortisation was US$1,893 million; the charge for provisions was US$174 million and other external costs were US$1,166 million. | (Registrant) | (b)
| Information on Auditors’ remuneration is included in note 37. | |
| | | | | | | | | /s/ Anette Lawless | | /s/ Anette Lawless | Name:3Anette Lawless | | Name:EMPLOYEE COSTSAnette Lawless |
| | | 2003 | | 2002 | | | Note | | US$m | | US$m | |
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| | Employment costs, excluding joint ventures and associates: | | | | | | | – Wages and salaries | | | 1,515 | | 1,262 | | – Social security costs | | | 72 | | 68 | | – Net post retirement cost (a) | | | 184 | | 79 | |
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| | | | | 1,771 | | 1,409 | | Less: charged within provisions | | | (105 | ) | (72 | ) |
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| | | | | 1,666 | | 1,337 | |
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(a)Title: Secretary | The net post retirement cost includes the gradual recognition under SSAP 24 of the deficits and surpluses in the Group’s defined benefit pension schemes. | Title: Assistant Secretary | (b) | UITF Abstract 17 requires the intrinsic value of share options to be recognised as a cost. However, the Group’s SAYE schemes are exempt from this requirement. None of the Group’s other share option schemes involves granting new options at a discount to market value. | | Date: 27 June 2007 | | Date: 27 June 2007 |
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The exceptional items analysed at the foot of the profit and loss account are added back in arriving at adjusted earnings and adjusted earnings per share. In 2003 the exceptional gains total US$126 million, of which US$19 million related to subsidiaries and associates and US$107 million to joint ventures. These gains arose on sales of operations. These transactions did not give rise to a tax charge.
The exceptional charges of US$879 million recognised in 2002 comprised provisions of US$763 million for the impairment of asset carrying values and a charge of US$116 million related to environmental remediation works at Kennecott Utah Copper (‘KUC’). Of the impairment charge, US$480 million related to KUC and US$235 million related to the Iron Ore Company of Canada (‘IOC’). Of the total charge, US$16 million before tax related to joint ventures and the remainder to subsidiaries.
Most of the 2002 impairment provisions were calculated so as to ensure that the carrying value of the relevant assets were the same as the present value of the expected future cash flows relating to those assets. The discount rates used in calculating the present value of expected future cash flows were derived from the Group’s weighted average cost of capital, with appropriate risk adjustments. When adjusted to include inflation and grossed up at the Group’s average tax rate for 2002, before exceptional items, the discount rate applied to the relevant income generating units was equivalent to ten per cent, except for gold production for which a rate equivalent to seven per cent was used. The impairment provision against IOC aligned the carrying value with the value negotiated between shareholders during 2002 as part of a financial restructuring exercise.
5 | NET INTEREST PAYABLE AND SIMILAR CHARGES152 |
| | | 2003 | | 2002 | | Note | | US$m | | US$m | |
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| | Interest payable on | | | | | | | – Bank borrowings | | | (56 | ) | (44 | ) | – Other loans | | | (153 | ) | (189 | ) |
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| | | | | (209 | ) | (233 | ) | Amounts capitalised | | | 39 | | 22 | |
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| | | | | (170 | ) | (211 | ) |
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| | Interest receivable and similar income from fixed asset investments | | | | | | | – Joint ventures | | | 8 | | 10 | | – Associates | | | 5 | | 1 | | – Other investments | | | 4 | | 9 | |
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| | | | | 17 | | 20 | | Other interest receivable | | | 14 | | 30 | |
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| | | | | 31 | | 50 | |
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| | Group net interest payable | | | (139 | ) | (161 | ) | Share of joint ventures’ net interest payable (a) | | | (13 | ) | (26 | ) | Share of associates’ net interest payable (a) | | | (54 | ) | (50 | ) |
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| | Net interest payable | | | (206 | ) | (237 | ) | Amortisation of discount | 6 | | (92 | ) | (54 | ) |
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| | Net interest payable and similar charges | | | (298 | ) | (291 | ) |
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(a) | The Group’s share of net interest payable by joint ventures and associates relates to its share of the net debt of joint ventures and associates, which is disclosed in note 14. |
6 | AMORTISATION OF DISCOUNT |
| 2003 | | 2002 | | | US$m | | US$m | |
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| | Subsidiaries | (97 | ) | (62 | ) | Share of joint ventures | (3 | ) | (2 | ) |
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| | | (100 | ) | (64 | ) | Amounts capitalised (b) | 8 | | 10 | |
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| | Amortisation of discount | (92 | ) | (54 | ) |
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(a) | The amortisation of discount relates principally to provisions for close down and restoration and environmental clean up costs as explained in accounting policy 1(l). It also includes the unwinding of the discount on non-interest bearing long term accounts payable. | (b) | Amounts capitalised relate to costs on specific projects for which operations have not yet commenced. |
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7 | TAXATION CHARGE FOR THE YEAR |
| | | | | | 2003 | | 2002 | | | US$m | | US$m | |
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| | UK taxation | | | | | Corporation tax at 30% | | | | | – Current | 99 | | 54 | | – Deduct: relief for overseas taxes | (96 | ) | (63 | ) |
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| | | 3 | | (9 | ) | – Deferred | (7 | ) | 12 | |
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| | | (4 | ) | 3 | | Australian taxation | | | | | Corporation tax at 30% | | | | | – Current | 300 | | 345 | | – Deferred | 9 | | 21 | |
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| | | 309 | | 366 | | Other countries | | | | | – Current | 47 | | 163 | | – Deferred | (27 | ) | (7 | ) |
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| | | 20 | | 156 | | | | | | | Joint ventures – charge for year(a) | 160 | | 165 | | Associates – charge for year(a) | 82 | | 60 | | Subsidiary companies’ deferred tax related to exceptional charges(e) | – | | (42 | ) |
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| | | 567 | | 708 | |
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(a) | Some tax recognised by subsidiary holding companies is presented in these accounts as part of the tax charge on the profits of the joint ventures and associates to which it relates. | (b)
| A benefit of US$34 million was recognised in 2003 (2002: US$20 million) for operating losses that are expected to be recovered in future years. | (c) | Adjustments of prior year accruals reduced the total tax charge by US$28 million (2002: US$16 million). | (d) | The 2003 tax charge was reduced by US$11 million (US$8 million excluding outside shareholder interests) as a result of the proposed entry into the Australian tax consolidation regime with effect from 1 January 2003. | (e) | The deferred tax relief on exceptional charges in 2002 primarily related to ‘Other countries’. | (f) | A current tax charge of US$194 million (2002: charge of US$48 million) and a deferred tax charge of US$162 million (2002: charge of US$13 million), are dealt with in the Statement of Total Recognised Gains and Losses (‘STRGL’). These tax charges relate to exchange gains and losses which are themselves dealt with in the STRGL. | (g) | The Group’s effective tax rate for 2003 is 28.8 per cent (2002: 31.2 per cent) excluding exceptional items and 27.1 per cent (2002: 54.0 per cent) including exceptional items. | (h) | Tax paid during the year, of US$917 million, includes an amount of US$106 million relating to the disputed tax assessment from the Australian Tax Office described in note 29. The amount paid has been recorded as a receivable in these accounts because the directors believe that the relevant tax assessments are not sustainable. Tax payments also include amounts related to exchange gains on US dollar debt, which are recorded directly in the Statement of Total Recognised Gains and Losses. |
| | | | | Prima facie tax reconciliation | | | | | Profit on ordinary activities before taxation | 2,094 | | 1,311 | |
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| | Prima facie tax payable at UK and Australian rate of 30% | 628 | | 393 | | | | | | | Impact of exceptional items | (38 | ) | 328 | | | | | | | Other permanent differences | | | | | Other tax rates applicable outside the UK and Australia | 59 | | 56 | | Permanently disallowed amortisation/depreciation | 53 | | 51 | | Research, development and other investment allowances | (5 | ) | (7 | ) | Resource depletion allowances | (54 | ) | (58 | ) | Other (a) | (24 | ) | 24 | |
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| | | 29 | | 66 | | Other deferral of taxation | | | | | Capital allowances in excess of other depreciation charges | (48 | ) | (69 | ) | Other timing differences | 14 | | – | |
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| | Total timing differences related to the current year | (34 | ) | (69 | ) |
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| | | | | | | Current taxation charge for the year | 585 | | 718 | |
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| | | | | | | Deferred tax recognised on timing differences | 34 | | 27 | | Deferred tax impact of changes in tax rates | – | | (14 | ) | Other deferred tax items (b) | (52 | ) | (23 | ) |
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| | Total taxation charge for the year | 567 | | 708 | |
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(a) | ‘Other’ impacts on the current tax charge include the benefit of reduced Alternative Minimum Tax payable in the United States. | (b) | ‘Other deferred tax items’ include benefits from adjustments of prior year accruals (see (c) above) and from Australian tax consolidation (see (d) above). | | |
92 | Rio Tinto 2003 Annual report and financial statements |
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| 2003 | | 2002 | | US$m | US$m |
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| | | | | | | Rio Tinto plc Ordinary Interim dividend | 320 | | 314 | | Rio Tinto plc Ordinary Final dividend | 363 | | 325 | | Rio Tinto Limited Ordinary Interim dividend (b) | 93 | | 92 | | Rio Tinto Limited Ordinary Final dividend (b) | 106 | | 95 | |
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| | | 882 | | 826 | |
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| | | | | | | | 2003 | | 2002 | | Number | Number | of shares | of shares | (millions) | (millions) |
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| | Rio Tinto plc Interim | 1,066.1 | | 1,065.4 | | Rio Tinto plc Final | 1,066.7 | | 1,065.5 | | Rio Tinto Limited Interim – fully franked at 30% (b) | 311.6 | | 311.4 | | Rio Tinto Limited Final – fully franked at 30% (b) | 311.6 | | 311.4 | |
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(a) | The 2003 dividends have been based on the following US cents per share amounts: interim – 30.0 cents, final – 34.0 cents (2002: interim – 29.5 cents, final – 30.5 cents). | (b) | The number of shares on which the Rio Tinto Limited dividends are based excludes those shares held by Rio Tinto plc, in order that the dividends shown represent those paid to public shareholders. | (c) | The proposed Rio Tinto Limited dividends will be franked out of existing franking credits or out of franking credits arising from the payment of income tax during 200 | (d)
| It is expected that Rio Tinto Limited will be forming a tax consolidated group in Australia with effect from 1 January 2003. As a consequence, franking credits of the wholly owned subsidiaries are transferred to the parent entity, Rio Tinto Limited. The approximate amount of the Rio Tinto Limited tax consolidated group retained profits and reserves that could be distributed as dividends and franked out of the existing franking credits which arose from net payments of income tax in respect of periods up to31 December 2003 (after deducting franking credits on the proposed final dividend) is US$2,042 million. |
| | | | | | | 9 | EARNINGS PER ORDINARY SHARE | | | | | | | Note | 2003 | | 2002 | | US$m | US$m |
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| | Profit for the financial year | | 1,508 | | 651 | | Exceptional items | 4 | (126 | ) | 879 | |
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| | Adjusted earnings (a) | | 1,382 | | 1,530 | |
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| | Earnings per share | | 109.5 | c | 47.3 | c | Exceptional items per share | | (9.2 | )c | 63.9 | c |
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| | Adjusted earnings per share(a) | | 100.3 | c | 111.2 | c |
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(a) | Adjusted earnings and adjusted earnings per share exclude exceptional items of such magnitude that their exclusion is necessary in order that adjusted earnings fulfil their purpose of reflecting the underlying performance of the Group. | (b) | The daily average number of ordinary shares in issue of 1,378 million (2002: 1,377 million) excludes the Rio Tinto Limited shares held by Rio Tinto plc. | (c) | Diluted earnings per share figures are 0.2 US cents (2002: 0.1 US cents) lower than the earnings per share figures above. The daily average number of ordinary shares used for the diluted earnings per share calculation is 1,379 million (2002: 1,379 million) and excludes the Rio Tinto Limited shares held by Rio Tinto plc. The extra one million shares included in the calculation relate to unexercised share options. | | |
Rio Tinto 2003Annual report and financial statements | 93 |
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Notes to the 2003 financial statements continued
| 2003 | | 2002 | | US$m | US$m |
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| | Cost | | | | | At 1 January | 1,282 | | 1,198 | | Adjustment on currency translation | 260 | | 76 | | Additions (note 35) | 20 | | 8 | |
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| | At 31 December | 1,562 | | 1,282 | |
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| | Accumulated amortisation | | | | | At 1 January | (267 | ) | (176 | ) | Adjustment on currency translation | (30 | ) | (1 | ) | Amortisation for the year | (76 | ) | (90 | ) | Other movements | (4 | ) | – | |
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| | At 31 December | (377 | ) | (267 | ) |
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| | | | | | | Net balance sheet amount | 1,185 | | 1,015 | |
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(a) | Goodwill is being amortised over the economic lives of the relevant business units, which involves periods ranging from four to 40 years with a weighted average of around 26 years. |
| | | | | 11 | EXPLORATION AND EVALUATION | | | | | | 2003 | | 2002 | | US$m | US$m |
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| | At cost less amounts written off | | | | | At 1 January | 694 | | 678 | | Adjustment on currency translation | 119 | | 25 | | Expenditure in year | 130 | | 124 | | Charged against profit for the year | (47 | ) | (50 | ) | Disposals, transfers and other movements | (62 | ) | (83 | ) |
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| | At 31 December | 834 | | 694 | |
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| | Provision | | | | | At 1 January | (637 | ) | (623 | ) | Adjustment on currency translation | (104 | ) | (22 | ) | Charged against profit for the year | (80 | ) | (80 | ) | Disposals, transfers and other movements | 56 | | 88 | |
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| | At 31 December | (765 | ) | (637 | ) |
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| | | | | | | Net balance sheet amount | 69 | | 57 | |
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(a) | The total of US$127 million (2002: US$130 million) charged against profit in respect of exploration and evaluation includes US$47 million (2002: US$50 million) written off cost and an increase in the provision of US$80 million (2002: US$80 million). |
| | 94 | Rio Tinto 2003 Annual report and financial statements |
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12 | PROPERTY, PLANT AND EQUIPMENT |
| | | | | | | | | | | | | | Mining | | Land | | Plant | | Capital | | 2003 | | 2002 | | properties | and | and | works in | Total | Total | and leases | buildings | equipment | progress | US$m | US$m |
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| | Cost | | | | | | | | | | | | | At 1 January | 4,002 | | 2,867 | | 14,567 | | 1,891 | | 23,327 | | 20,777 | | Adjustment on currency translation | 947 | | 438 | | 2,480 | | 408 | | 4,273 | | 1,261 | | Capitalisation of additional closure costs (note 20) | 167 | | – | | – | | – | | 167 | | 55 | | Other additions | 124 | | 66 | | 404 | | 868 | | 1,462 | | 1,617 | | Disposals | (48 | ) | (130 | ) | (271 | ) | – | | (449 | ) | (548 | ) | Subsidiaries acquired/newly consolidated | – | | – | | 3 | | – | | 3 | | 120 | | Subsidiaries sold | (84 | ) | (10 | ) | (77 | ) | (14 | ) | (185 | ) | – | | Transfers and other movements (c) | 284 | | 292 | | 836 | | (1,414 | ) | (2 | ) | 45 | |
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| | At 31 December | 5,392 | | 3,523 | | 17,942 | | 1,739 | | 28,596 | | 23,327 | |
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| | | | | | | | | | | | | | | Accumulated depreciation | | | | | | | | | | | | | At 1 January | (1,076 | ) | (1,297 | ) | (8,636 | ) | (135 | ) | (11,144 | ) | (9,265 | ) | Adjustment on currency translation | (272 | ) | (210 | ) | (1,404 | ) | – | | (1,886 | ) | (573 | ) | Depreciation for the year | (192 | ) | (110 | ) | (628 | ) | – | | (930 | ) | (864 | ) | Exceptional charges | – | | – | | – | | – | | – | | (939 | ) | Disposals | 47 | | 123 | | 249 | | – | | 419 | | 522 | | Subsidiaries acquired | – | | – | | – | | – | | – | | (34 | ) | Subsidiaries sold | 67 | | 7 | | 74 | | – | | 148 | | – | | Transfers and other movements (c) | 17 | | (53 | ) | 28 | | 1 | | (7 | ) | 9 | |
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|
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|
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|
| | At 31 December | (1,409 | ) | (1,540 | ) | (10,317 | ) | (134 | ) | (13,400 | ) | (11,144 | ) |
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| | | | | | | | | | | | | | | Net balance sheet amount at 31 December 2003 | 3,983 | | 1,983 | | 7,625 | | 1,605 | | 15,196 | | | |
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| | | | | | | | | | | | | | | Net balance sheet amount at 31 December 2002 | 2,926 | | 1,570 | | 5,931 | | 1,756 | | | | 12,183 | |
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| |
(a) | The net balance sheet amount at 31 December 2003 includes US$243 million (2002: US$198 million) of pledged assets, in addition to assets held under the finance leases disclosed in note 22. | (b) | The net balance sheet amount for land and buildings includes freehold US$1,921 million; long leasehold US$55 million; and short leasehold US$7 million. | (c) | ‘Transfers and other movements’ includes reclassifications between categories. | (d) | Accumulated depreciation on ‘Capital works in progress’ at 1 January 2003 related to the exceptional charge made in 2002. | (e) | Interest is capitalised at a rate based on the Group’s cost of borrowing or at the rate on project specific debt where applicable. | (f) | During 2002, the Group acquired North Jacobs Ranch for US$380 million. Payments of US$76 million were made in each of 2002 and 2003. The remainder of the consideration, US$228 million, is payable over the next three years. | (g) | At 31 December 2003, net tangible assets per share amounted to US$6.38 (31 December 2002: US$4.64). | (h) | Details of deferred stripping costs, which have been included in ‘Mining properties and leases’, are set out in the following table: | | |
| 2003 | | 2003 | | 2003 | | 2002 | | 2002 | | 2002 | | Sub- | Share | Total | Sub- | Share | Total | sidiaries | of joint | | sidiaries | of joint | | | ventures | | | ventures | | | and | | | and | | | associates | | | associates | | US$m | US$m | US$m | US$m | US$m | US$m | | | | restated | restated | restated |
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| | Carrying values | | | | | | | | | | | | | At 1 January | 326 | | 198 | | 524 | | 292 | | 175 | | 467 | | Adjustment on currency translation | 17 | | 3 | | 20 | | – | | – | | – | | Net deferral of stripping costs during year | 77 | | 32 | | 109 | | 29 | | 27 | | 56 | | Other | 21 | | (3 | ) | 18 | | 5 | | (4 | ) | 1 | |
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| | Deferred stripping balance carried forward at 31 December | 441 | | 230 | | 671 | | 326 | | 198 | | 524 | |
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Rio Tinto 2003Annual report and financial statements | 95 |
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Notes to the 2003 financial statements continued
13 | FIXED ASSET INVESTMENTS |
| Investments | | Loans to | | Investments | | Loans to | | 2003 | | 2002 | | in joint | joint | in associates | associates | Total | Total | ventures | ventures | /other | | US$m | US$m |
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| | | | | | | | | | | | | | | At 1 January | 1,744 | | 177 | | 580 | | 76 | | 2,577 | | 2,290 | | Adjustment on currency translation | 255 | | 5 | | 23 | | – | | 283 | | 83 | | Group’s share of earnings net of distributions (excluding exceptional charges) | 15 | | – | | (3 | ) | – | | 12 | | 21 | | Exceptional charges | – | | – | | – | | – | | – | | (39 | ) | Additions (excluding acquisitions) | 122 | | – | | 13 | | – | | 135 | | 184 | | Acquisitions (note 35) | – | | – | | – | | – | | – | | 8 | | Disposals and repayments of advances | (78 | ) | (10 | ) | (93 | ) | (73 | ) | (254 | ) | (17 | ) | Transfers and other movements | (7 | ) | – | | (5 | ) | (1 | ) | (13 | ) | 47 | |
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| | At 31 December | 2,051 | | 172 | | 515 | | 2 | | 2,740 | | 2,577 | |
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(a) | The Group’s investments in joint ventures and associates include, where appropriate, entry premiums on acquisition plus interest capitalised by the Group during the development period of the relevant mines. At 31 December 2003, this capitalised interest less accumulated amortisation amounted to US$12 million (2002: US$13 million). | (b) | In 2002, ‘Transfers and other movements’ included US$55 million in relation to the revision to fair values relating to assets held for resale. | (c) | The cash flow statement analyses additions to joint ventures and associates between the following: | | – | ‘Funding of Group share of joint ventures’ and associates’ capital expenditure’, which reports cash supplied by the Group for the formation of new operating assets whose benefits will be attributable to the Group, and | – | ‘Other funding of joint ventures and associates’ which includes any financial investment in joint ventures and associates that does not have the above characteristics, and all loan repayments. | (d) | Further details of investments in joint ventures and associates are set out below and in notes 14, 32 and 33. |
| 2003 | | 2002 | | US$m | US$m |
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|
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| | Joint ventures | | | | | Rio Tinto’s share of assets | | | | | Fixed assets | 2,768 | | 2,758 | | Current assets | 465 | | 351 | |
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| | | 3,233 | | 3,109 | |
|
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| | Rio Tinto’s share of third party liabilities | | | | | Liabilities due within one year | (312 | ) | (295 | ) | Liabilities due after more than one year (including provisions) | (698 | ) | (893 | ) |
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| | | (1,010 | ) | (1,188 | ) |
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| | | | | | | Rio Tinto’s share of net assets | 2,223 | | 1,921 | |
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(a) | The Group’s share of joint venture liabilities set out above excludes US$172 million (2002: US$177 million) due to the Group. These excluded liabilities correspond with the loans to joint ventures that are presented earlier in this note as an asset of the Group. Including these loans, the Group’s share of the total liabilities of joint ventures was US$1,182 million (2002: US$1,365 million). | | (b) | Of the US$698 million of liabilities due after more than one year, US$436 million relates to long term debt, which matures as follows: US$120 million between one to two years; US$92 million between two to three years; US$97 million between three to four years; US$111 million between four to five years and US$16 million after five years. | |
96 | Rio Tinto 2003 Annual report and financial statements |
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13 | FIXED ASSET INVESTMENTS CONTINUED |
| 2003 | | 2002 | | US$m | US$m |
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| | Associates | | | | | Rio Tinto’s share of assets | | | | | Fixed assets | 1,083 | | 1,512 | | Current assets | 327 | | 297 | |
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| | | 1,410 | | 1,809 | |
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|
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| | Rio Tinto’s share of third party liabilities | | | | | Liabilities due within one year | (214 | ) | (345 | ) | Liabilities due after more than one year (including provisions) | (733 | ) | (789 | ) |
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| | | (947 | ) | (1,134 | ) | Non-equity capital and outside shareholders’interests | (42 | ) | (105 | ) |
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| | Rio Tinto’s share of net assets | 421 | | 570 | |
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(a) | The Group’s share of associate liabilities set out above excludes US$2 million (2002: US$76 million) due to the Group. These excluded liabilities correspond with the loans to associates that are presented earlier in this note as an asset of the Group. Including these loans, the Group’s share of the total liabilities of associates was US$949 million (2002: US$1,210 million). | | (b) | Of the US$733 million of liabilities due after more than one year, US$563 million relates to long term debt which matures as follows: US$44 million between one to two years; US$233 million between two to three years; US$38 million between three to four years; US$32 million between four to five years and US$216 million after five years. | | | | |
| 2003 | | 2002 | | US$m | US$m |
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| | Investments in and loans to associates/other | | | | | Investments in and loans to associates | 421 | | 570 | | Other investments (a) | 96 | | 86 | |
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| | | 517 | | 656 | |
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(a) | Other investments include listed investments with a market value of US$92 million (2002: US$70 million). The Group owns 20.3 per cent of the Labrador Iron Ore Royalty Income Fund which itself owns 15.1 per cent of Iron Ore Company of Canada Inc. Further information on the net debt of joint ventures and associates is shown in note 14. | | | | | 14 | NET DEBT OF JOINT VENTURES AND ASSOCIATES | |
| Rio Tinto | | Rio Tinto | | Rio Tinto | | Rio Tinto | | percentage | share of | percentage | share of | | net debt | | net debt | 2003 | 2003 | 2002 | 2002 | % | US$m | % | US$m |
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| | Joint Ventures | | | | | | | | | Minera Escondida Limitada | 30.0 | | 414 | | 30.0 | | 464 | | P.T. Kaltim Prima Coal | – | | – | | 50.0 | | 79 | | Leichhardt | 44.7 | | 31 | | 44.7 | | 40 | | Colowyo | 20.0 | | 32 | | 20.0 | | 35 | | Warkworth | 42.1 | | 34 | | 42.1 | | 26 | | | | | | | | | | | Associates | | | | | | | | | Freeport-McMoRan Copper & Gold Inc. | 13.1 | | 236 | | 16.5 | | 405 | | Minera Alumbrera Limited | – | | – | | 25.0 | | 47 | | Tisand (Pty) Limited | 50.0 | | 121 | | 50.0 | | 62 | | Port Waratah Coal Services | 27.6 | | 114 | | 27.6 | | 103 | | Sociedade Mineira de Neves-Corvo SA (Somincor) | 49.0 | | 37 | | 49.0 | | 28 | | Other | | | (15 | ) | | | 20 | |
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| | | | | 1,004 | | | | 1,309 | |
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| |
(a) | In accordance with FRS 9, the Group includes its net investment in joint ventures and associates in its consolidated balance sheet. This investment is shown net of the Group’s share of the net debt of joint ventures and associates due to third parties, which is set out above. | | (b) | Some of the debt of joint ventures and associates is subject to financial and general covenants. | | (c) | The Group holds 44.7 per cent of the equity of the Leichhardt joint venture, which has a 31.4 per cent interest in the Blair Athol joint venture. Leichhardt has US$85 million of shareholders’ funds and US$70 million of debt finance. | | (d) | The debt of joint ventures and associates is without recourse to the Rio Tinto Group except that Rio Tinto has guaranteed US$6 million of its share of Somincor’s debt. | | (e) | The Group has a partnership interest in the Colowyo Coal Company and has undertaken, via a subsidiary company which entered into a management agreement, to cause the partnership to perform its obligations under certain coal supply contracts. The debt of US$163 million owed by the Colowyo Coal Company is to be serviced and repaid out of the proceeds of these contracts. | |
Rio Tinto 2003Annual report and financial statements | 97 |
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Notes to the 2003 financial statements continued | | | | | | | | | | | | | | | 15 INVENTORIES | | | | | | | | | | | 2003 | | 2002 | | US$m | US$m |
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| | Raw materials and purchased components | 347 | | 347 | | Consumable stores | 290 | | 248 | | Work in progress | 382 | | 245 | | Finished goods and goods for resale | 764 | | 662 | |
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| | | 1,783 | | 1,502 | |
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| | Comprising: | | | | | Inventories expected to be sold or used within 12 months | 1,746 | | 1,463 | | Inventories not expected to be sold nor used within 12 months | 37 | | 39 | |
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| | | 1,783 | | 1,502 | |
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| |
(a) | As reported in the Cash flow statement, the increase in inventories during 2003 was US$43 million excluding the effects of changes in exchange rates on translation into US dollars. |
| | | | | 16 ACCOUNTS RECEIVABLE AND PREPAYMENTS
| | | | | | | | | | | 2003 | | 2002 | | US$m | US$m |
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| | Trade debtors | 1,266 | | 1,176 | | Bills receivable | 19 | | 17 | | Amounts owed by joint ventures | – | | 5 | | Amounts owed by associates | 4 | | 17 | | Other debtors | 261 | | 217 | | Current tax recoverable | 232 | | 62 | | Deferred tax assets | 17 | | 44 | | Pension prepayments | 620 | | 634 | | Other prepayments | 64 | | 67 | |
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| | | 2,483 | | 2,239 | |
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| |
(a) | Amounts falling due after more than one year of US$809 million (2002: US$641 million) relate to: pension prepayments US$615 million (2002: US$551 million), tax recoverable US$130 million (2002: US$10 million), other debtors US$36 million (2002: US$36 million), deferred tax assets US$17 million (2002: US$44 million), bills receivable US$6 million (2002: nil) and other prepayments US$5 million (2002: nil). | (b) | Movements in pension prepayments are included in ‘Other items’ in the cash flow. |
| | | | | | 17 CURRENT ASSET INVESTMENTS, CASH AND LIQUID RESOURCES | | | | | | | | | | | | | | 2003 | | 2002 | | Note | US$m | US$m |
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| | Liquid resources | | | | | | Time deposits | | 206 | | 85 | | Other | | 2 | | 2 | |
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| | Total liquid resources | 23 | 208 | | 87 | | Deduct: investments qualifying as cash | | (206 | ) | (85 | ) |
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| | | | 2 | | 2 | | Other current asset investments | | | | | | US Treasury bonds | | 228 | | 304 | |
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|
|
| | Investments per balance sheet (unlisted) | | 230 | | 306 | |
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|
| | | | | | | | Cash | | | | | | Cash as defined in FRS 1 Revised (‘FRS 1 cash’) | 23 | 41 | | 79 | | Add back bank borrowings repayable on demand included in FRS 1 cash | 18 | 148 | | 161 | | Investments qualifying as cash | | 206 | | 85 | |
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|
| | Cash per balance sheet | | 395 | | 325 | |
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| |
(a) | Current asset investments include US$228 million relating to US treasury bonds that are not regarded as liquid assets because they are held as security for the deferred consideration for certain assets acquired during 2002. | |
98 | Rio Tinto 2003 Annual report and financial statements |
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| 2003 | | 2002 | | US$m | US$m |
|
|
|
| | Secured | | | | | Bank loans repayable within 12 months | 52 | | 16 | | Other loans repayable within 12 months | 59 | | 90 | |
|
|
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| | 111 | | 106 | |
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|
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| | Unsecured | | | | | Bank borrowings repayable on demand | 148 | | 161 | | Bank loans repayable within 12 months | 91 | | 62 | | Other loans repayable within 12 months | 157 | | 1,288 | | Commercial paper | 1,687 | | 1,749 | |
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| | | 2,083 | | 3,260 | |
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| | Total short term borrowings per balance sheet | 2,194 | | 3,366 | |
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(a) | In accordance with FRS 4, all commercial paper is classified as short term borrowings although US$1,100 million of the amount outstanding at 31 December 2003 (31 December 2002: US$1,749 million) is backed by medium term facilities. Under US and Australian GAAP, the US$1,100 million would be grouped within non current borrowings at 31 December 2003. Further details of available facilities are given in note 28. |
| | 19 | ACCOUNTS PAYABLE AND ACCRUALS |
| 2003 | | 2002 | | US$m | US$m |
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| | Due within one year | | | | | Trade creditors | 737 | | 584 | | Amounts owed to joint ventures | 9 | | – | | Amounts owed to associates | 44 | | 23 | | Other creditors (a) | 226 | | 202 | | Tax on profits | 250 | | 371 | | Employee entitlements | 125 | | 121 | | Royalties and mining taxes | 133 | | 130 | | Accruals and deferred income | 123 | | 109 | | Dividends payable to outside shareholders of subsidiaries | 1 | | 4 | | Dividends payable to Rio Tinto shareholders | 492 | | 430 | |
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| | | 2,140 | | 1,974 | |
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| | Due in more than one year | | | | | Other creditors (a) | 194 | | 276 | | Accruals and deferred income | 29 | | 28 | | Tax on profits | 99 | | – | |
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| | | 322 | | 304 | |
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(a) | Other creditors’ include deferred consideration of US$219 million (2002: US$287 million) relating to certain assets acquired during 2002. The deferred consideration is included at its net present value. The amortisation of the discount applied in establishing the net present value is treated as a finance cost. |
| | | | | | | | Rio Tinto 2003 Annual report and financial statements | 99 |
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Notes to the 2003 financial statements continued | | | | | 20 | PROVISIONS FOR LIABILITIES AND CHARGES |
| Post | | Other | | Close down & | | Other | | 2003 | | 2002 | | | retirement | | employee | | restoration/ | | | | Total | | Total | | | health care | | entitlements | | environmental | | | | US$m | | US$m | |
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| | At 1 January | 466 | | 240 | | 1,662 | | 194 | | 2,562 | | 2,279 | | Adjustment on currency translation | 20 | | 56 | | 219 | | 40 | | 335 | | 100 | | Capitalisation of additional closure costs (note 12) | – | | – | | 167 | | – | | 167 | | 55 | | Charged to profit for the year | 34 | | 71 | | 18 | | 31 | | 154 | | 58 | | Exceptional charge | – | | – | | – | | – | | – | | 116 | | Amortisation of discount related to provisions | – | | – | | 89 | | – | | 89 | | 52 | | Utilised in year: | | | | | | | | | | | | | provisions set up on acquisition of businesses | – | | – | | – | | (4 | ) | (4 | ) | (6 | ) | other provisions | (22 | ) | (44 | ) | (48 | ) | (41 | ) | (155 | ) | (112 | ) | Subsidiaries acquired (note 35) | – | | – | | – | | – | | – | | 5 | | Subsidiaries sold | – | | (1 | ) | (5 | ) | (1 | ) | (7 | ) | – | | Transfers and other movements | – | | 15 | | (10 | ) | (8 | ) | (3 | ) | 15 | |
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| | | 498 | | 337 | | 2,092 | | 211 | | 3,138 | | 2,562 | |
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| | Provision for deferred taxation (see note 21) | | | | | | | | | 1,398 | | 1,050 | |
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| | Provisions for liabilities and charges per balance sheet | | | | | | | | | 4,536 | | 3,612 | |
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(a) | The main assumptions used to determine the provision for post retirement healthcare are disclosed in note 41. The provision is expected to be utilised over the next 15 to 20 years. | (b) | The provision for other employee entitlements includes pension entitlements of US$77 million and a provision for long service leave, based on the relevant entitlements in certain Group operations. Some US$116 million is expected to be utilised within the next year. | (c) | The Group’s policy on close down and restoration costs is shown in note 1(l). Close down and restoration costs are a normal consequence of mining, and the majority of close down and restoration expenditure is incurred at the end of the life of the mine. Remaining lives of mines and smelters range from two to over 50 years with an average, weighted by closure provision, of around 20 years. Although the ultimate cost to be incurred is uncertain, subsidiary companies have estimated their respective costs based on feasibility and engineering studies using current restoration standards and techniques Provisions of US$2,092 million for close down and restoration costs and other environmental obligations include estimates of the effect of future inflation and have been discounted to their present value at six per cent per annum, being an estimate of the risk free pre-tax cost of borrowing. Excluding the effects of future inflation, but before discounting, this is equivalent to some US$3.0 billion. | (d) | Some US$126 million of environmental clean up expenditure is expected to take place within the next five years. The remainder includes amounts for the operation and maintenance of remediation facilities in later years. The provision for environmental expenditure includes the issue described in (e) below. | (e) | In 1995, Kennecott Utah Copper (‘KUC’) agreed with the US Environmental Protection Agency (‘EPA’) and the State of Utah to complete certain source control projects and perform specific environmental studies regarding contamination of ground water in the vicinity of the Bingham Canyon mine. A remedial investigation and feasibility study on the South Zone ground water contamination, completed in March 1998, identified a range of alternative measures to address this issue. Additional studies were conducted to refine the workable alternatives. A remedial design document was completed in 2002. A joint proposal and related agreements were updated and provided to the Trustee in the third quarter of 2003. Some modifications of the original plan may be necessary in response to comments from the public. It is anticipated that formal agreement with the State of Utah Natural Resource Damage Trustee, the State of Utah and the Jordan Valley Water Conservancy District will be complete in the first quarter of 2004. KUC also anticipates entering into a formal agreement with the EPA in 2004, for the remedial action on the ground water, including the acidic portion of the contamination. | (f) | Other provisions deal with a variety of issues and include US$39 million relating to the remaining provision for the market valuation of the hedge books held by companies acquired in 2000 and 2001, which will be utilised over the next eight years (see note 28), and US$44 million relating to payments received from employees for accommodation at some sites which are refundable in certain circumstances. |
| 2003 | | 2002 | | US$m | US$m |
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| | At 1 January | 1,006 | | 915 | | Adjustment on currency translation | 197 | | 79 | | Reported in the STRGL | 162 | | 13 | | Adjustment related to subsidiary sold | 6 | | – | | Credited to profit for the year on reversal of timing differences | (25 | ) | (16 | ) | Other movements (a) | 35 | | 15 | |
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| | | 1,381 | | 1,006 | |
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| | Included in provisions for liabilities and charges | 1,398 | | 1,050 | | Included in accounts receivable | (17 | ) | (44 | ) |
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| | | 1,381 | | 1,006 | |
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(a) | ‘Other movements’ include deferred tax recognised by subsidiary holding companies that is presented in these accounts as part of the tax charge on the profits of the joint ventures and associates to which it relates. The amounts reported in the Statement of Total Recognised Gains and Losses relate to the provisions for tax relief on exchange differences on net debt recorded directly in reserves. | | |
| | 100 | Rio Tinto 2003 Annual report and financial statements |
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21 | DEFERRED TAXATION CONTINUED |
| UK | | Australian | | Other | | 2003 | | 2002 | | tax | tax | countries’ | Total | Total | | | tax | US$m | US$m |
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| | Provided in the accounts | | | | | | | | | | | Deferred tax assets | 12 | | 311 | | 1,046 | | 1,369 | | 1,491 | | Deferred tax liabilities | (134 | ) | (988 | ) | (1,628 | ) | (2,750 | ) | (2,497 | ) |
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| | Balance as shown above | (122 | ) | (677 | ) | (582 | ) | (1,381 | ) | (1,006 | ) |
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| | Comprising: | | | | | | | | | | | Accelerated capital allowances | (6 | ) | (630 | ) | (938 | ) | (1,574 | ) | (1,439 | ) | Other timing differences | (130 | ) | (66 | ) | 107 | | (89 | ) | 225 | | Tax losses | 14 | | 19 | | 249 | | 282 | | 208 | |
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| | Balance as shown above | (122 | ) | (677 | ) | (582 | ) | (1,381 | ) | (1,006 | ) |
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(b) | US$380 million (2002: US$430 million) of potential deferred tax assets have not been recognised as an asset in these accounts. There is no time limit for the recovery of these potential assets. This total includes US$306 million (2002: US$366 million) of United States Alternative Minimum Tax credits and US tax losses for which recovery is dependent on the level of taxable profits in the US tax group and US$74 million (2002: US$64 million) of tax losses arising in countries other than the US. | (c) | There is a limited time period for the recovery of US$26 million (2002: US$20 million) of tax losses which have been recognised as deferred tax assets in the accounts. | | |
| | 22 | MEDIUM AND LONG TERM BORROWINGS |
| 2003 | | 2002 | | US$m | US$m |
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| | At 1 January | 5,913 | | 6,252 | | Adjustment on currency translation | 184 | | 70 | | Loans drawn down | 1,817 | | 1,572 | | Loan repayments | (2,019 | ) | (1,981 | ) |
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| | At 31 December | 5,895 | | 5,913 | | Deduct: short term | (2,046 | ) | (3,205 | ) |
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| | Medium and long term borrowings | 3,849 | | 2,708 | |
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| | Borrowings at 31 December | | | | | Commercial paper | 1,687 | | 1,749 | |
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| | Bank loans | | | | | Secured | 150 | | 262 | | Unsecured | 435 | | 203 | |
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| | | 585 | | 465 | |
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| | Other loans | | | | | Secured | | | | | Loans | 47 | | 90 | | Finance leases | 119 | | 119 | | Unsecured | | | | | Rio Tinto Canada Inc 6% guaranteed bonds 2003 | – | | 300 | | Rio Tinto Finance (USA) Limited Bonds 5.75% 2006 | 500 | | 500 | | Rio Tinto Finance (USA) Limited Bonds 2.625% 2008 | 600 | | – | | Rio Tinto Finance (USA) Limited Bonds 6.5% 2003 | – | | 200 | | Rio Tinto Finance (USA) Limited Bonds 7.125% 2013 | 100 | | 100 | | Eurobond 2007 (b) | 781 | | 716 | | European Medium Term Notes (b) | 837 | | 1,117 | | North Finance (Bermuda) Limited 7% 2005 | 200 | | 200 | | Other unsecured loans | 439 | | 357 | |
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| | | 3,623 | | 3,699 | |
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| | Total | 5,895 | | 5,913 | |
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(a) | The majority of the fixed rate borrowings shown above are swapped to floating rates. Details of interest rate and currency swaps and of available standby credit facilities are shown in note 28. | (b) | The Group has a US$3.0 billion European programme for the issuance of short to medium term debt of which US$1.6 billion was drawn down at 31 December 2003. | (c) | In accordance with FRS 4 all commercial paper is classified as short term borrowings, although US$1,100 million outstanding at 31 December 2003 (31 December 2002: US$1,749 million) is backed by medium term facilities. Under US and Australian GAAP, the US$1,100 million would be grouped within non current borrowings at 31 December 2003. Further details of available facilities are given in note 28. |
| | Rio Tinto 2003 Annual report and financial statements | 101 |
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Notes to the 2003 financial statements continued | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 23 NET DEBT | | | | | | | | | | | | FRS 1 cash (a) | | Borrowings | | Liquid resources (a) | | 2003 Net debt US$m | | 2002 Net debt US$m | |
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| | Analysis of changes in consolidated net debt | | | | | | | | | | | At 1 January | 79 | | (5,913 | ) | 87 | | (5,747 | ) | (5,711 | ) | Adjustment on currency translation | 45 | | (184 | ) | 16 | | (123 | ) | (102 | ) | Per cash flow statement | (83 | ) | 202 | | 105 | | 224 | | 66 | |
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| | At 31 December | 41 | | (5,895 | ) | 208 | | (5,646 | ) | (5,747 | ) |
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| | (a) | A reconciliation of these figures to their respective balance sheet categories is shown in note 17. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2003 US$m | | 2002 US$m | |
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| | Reconciliation of cash flow to movement in net debt | | | | | | | | | | | Decrease in cash per cash flow statement | | | | | | | (83 | ) | (130 | ) | Cash outflow from decrease in borrowings | | | | | | | 202 | | 409 | | Cash outflow/(inflow) from increase/(decrease) in liquid resources | | | | | | | 105 | | (213 | ) |
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| | Decrease in net debt | | | | | | | 224 | | 66 | |
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| | Net cash flow from movement in liquid resources comprises: | | | | | | | | | | | Increase/(decrease) in time deposits | | | | | | | 113 | | (204 | ) | Decrease in certificates of deposit | | | | | | | – | | (7 | ) | Increase/(decrease) in other liquid investments | | | | | | | (8 | ) | (2 | ) |
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| | Net cash outflow/(inflow) | | | | | | | 105 | | (213 | ) |
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| | 102 | Rio Tinto 2003 Annual report and financial statements |
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24 SHARE CAPITAL– RIO TINTO PLC | | | | | | | | | | | | | | | | | | | 2003 | | 2002 | | 2003 | | 2002 | | | Number (m) | | Number (m) | | US$m | | US$m | |
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| | Share capital account | | | | | | | | | At 1 January | 1,065.48 | | 1,064.59 | | 154 | | 154 | | Ordinary shares issued | 1.19 | | 0.89 | | 1 | | – | |
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| | At 31 December | 1,066.67 | | 1,065.48 | | 155 | | 154 | |
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| | Issued and fully paid share capital | | | | | | | | | Special voting share of 10p (d) | 1 only | | 1 only | | – | | – | | DLC dividend share (d) | 1 only | | 1 only | | – | | – | | Ordinary shares of 10p each (equity) | 1,066.67 | | 1,065.48 | | 155 | | 154 | |
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| | Total issued share capital | | | | | 155 | | 154 | |
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| | Unissued share capital | | | | | | | | | Ordinary shares of 10p each | 353.36 | | 354.55 | | 51 | | 52 | | Equalisation share of 10p (d) | 1 only | | 1 only | | – | | – | |
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| | Total authorised share capital | 1,420.03 | | 1,420.03 | | 206 | | 206 | |
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| | Options outstanding | | | | | | | | | Options outstanding at 1 January | 9.34 | | 7.93 | | | | | | – granted | 2.70 | | 2.61 | | | | | | – exercised | (1.43 | ) | (0.89 | ) | | | | | – cancelled | (1.00 | ) | (0.31 | ) | | | | |
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| | Options outstanding at 31 December (b) | 9.61 | | 9.34 | | | | | |
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(a)
| 1,192,702 Ordinary shares were issued during the year resulting from the exercise of options under Rio Tinto plc employee share option schemes at prices between 521p and 1,061p (2002: 887,488 shares at prices between 476.99p and 1,061.0p). | (b) | At 31 December 2003, options over the following number of Ordinary shares were outstanding: | | – | 23,000 under the Rio Tinto plc Executive Share Option Scheme 1985 at a price of 861p and exercisable up to April 2004 (31 December 2002: 62,000 shares at prices between 689.0p and 861.0p). | – | 7,662,925 under the Rio Tinto Share Option Plan 1998 at prices between 808.8p and 1,458.6p (31 December 2002: 7,186,254 shares at prices between 808.8p and 1458.6p). The exercise of share options is subject to the satisfaction of a graduated performance condition set by the Remuneration committee at various dates up to March 2013. | – | 1,920,430 under the Rio Tinto plc Share Savings Plan at prices between 521p and 1,150p and exercisable at various dates up to June 2009 (31 December 2002: 2,079,845 shares at prices between 521.0p and 1061.0p). | (c)
| At the 2003 annual general meeting the shareholders resolved to renew the general authority for the company to buy back up to ten per cent of its Ordinary shares of 10p each for a further period of 18 months. During the year to 31 December 2003, no shares were bought back (2002: nil). | (d) | The ‘Special Voting Share’ was issued to facilitate the joint voting by shareholders of Rio Tinto plc and Rio Tinto Limited on Joint Decisions, following the DLC merger. Directors have the ability to issue an equalisation share if that is required under the terms of the DLC Merger Sharing Agreement. The ‘DLC Dividend Share’ was issued to facilitate the efficient management of funds within the DLC structure. | (e) | The aggregate consideration received for shares issued during 2003 was US$20 million (2002: US$10 million). |
| | Rio Tinto 2003 Annual report and financial statements | 103 |
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Notes to the 2003 financial statements continued | | | | | | | | | | | | | | | | | | | | | | | | | | | 24 SHARE CAPITAL– RIO TINTO LIMITED | | | | | | | | | | | | | | | | | | | 2003 | | 2002 | | 2003 | | 2002 | | | Number (m) | | Number (m) | | US$m | | US$m | |
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| | Share capital account | | | | | | | | | At 1 January | 311.38 | | 311.02 | | 816 | | 732 | | Adjustment on currency translation | | | | | 264 | | 79 | | Share issues | 0.24 | | 0.36 | | 5 | | 5 | |
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| | At 31 December | 311.62 | | 311.38 | | 1,085 | | 816 | |
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| | Share capital held by Rio Tinto plc | 187.44 | | 187.44 | | | | | |
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| | Total share capital (c) | 499.06 | | 498.82 | | | | | |
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| | Options outstanding | | | | | | | | | Options outstanding at 1 January | 4.69 | | 3.08 | | | | | | – granted | 1.63 | | 2.25 | | | | | | – exercised | (0.07 | ) | (0.21 | ) | | | | | – cancelled | (0.25 | ) | (0.43 | ) | | | | |
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| | Options outstanding at 31 December (d) | 6.00 | | 4.69 | | | | | |
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(a) | 240,466 (2002: 359,821) shares were issued during the year, of which 71,563 (2002: 210,658) resulted from the exercise of options under various Rio Tinto Limited employee share option schemes at prices between A$20.37 and A$27.86 (2002: A$20.14 and A$39.30) and 168,903 (2002: 149,163) from the vesting of shares under the Rio Tinto Limited Mining Companies Comparative Plan. | (b) | Rio Tinto Limited is authorised by shareholder approvals obtained in 2003 to buy back up to all the Rio Tinto Limited shares held by Tinto Holdings Australia Pty Limited (a wholly owned subsidiary of Rio Tinto plc) plus, on-market, up to ten percent of the publicly held capital in any 12 month period. Rio Tinto Limited is seeking a renewal of these approvals at its annual general meeting in 2004. During the year to 31 December 2003 no shares were bought back (2002: nil). | (c) | Total share capital in issue at 31 December 2003 was 499.1 million shares plus one special voting share and one DLC dividend share (31 December 2002: 498.8 million shares plus one special voting share and one DLC Dividend Share). The ‘Special Voting Share’ was issued to facilitate the joint voting by shareholders of Rio Tinto plc and Rio Tinto Limited on Joint Decisions following the DLC merger. Directors have the ability to issue an equalisation share if that is required under the terms of the DLC Merger Sharing Agreement. The ‘DLC Dividend Share’ was issued to facilitate the efficient management of funds within the DLC structure. | (d) | At 31 December 2003, options over the following number of shares were outstanding: | | – | 3,602,137 shares under the Rio Tinto Share Option Plan at prices between A$20.14 and A$39.87 (31 December 2002: 2,439,330 shares at prices between A$20.14 and A$39.87). These share options are exercisable at various dates up to March 2013, subject to the satisfaction of a graduated performance condition set by the Remuneration committee. | – | 2,385,453 shares under the Rio Tinto Limited Share Savings Plan at prices between A$25.57 and A$27.86 (31 December 2002: 2,246,174 at prices between A$25.57 and A$27.86). These share options are exercisable at various dates up to June 2009. | (e) | The aggregate consideration received for shares issued during 2003 was US$5 million (2002: US$5 million). |
| | 104 | Rio Tinto 2003 Annual report and financial statements |
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25 | SHARE PREMIUM AND RESERVES |
| | | | | | 2003 | | 2002 | | | US$m | | US$m | |
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| | Share Premium account | | | | | At 1 January | 1,610 | | 1,600 | | Premium on issues of ordinary shares | 19 | | 10 | |
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| | At 31 December | 1,629 | | 1,610 | |
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| | | | | | | | 2003 | | 2002 | | | US$m | | US$m | |
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| | Parent and subsidiary companies’profit and loss account | | | | | At 1 January | 3,968 | | 3,676 | | Adjustment on currency translation (b) | 1,569 | | 472 | | Retained profit/(loss) for the year | 614 | | (180 | ) | Transfers and other movements (c) | 115 | | – | |
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| | At 31 December | 6,266 | | 3,968 | |
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| | | | | | | Joint ventures’profit and loss account | | | | | At 1 January | 504 | | 531 | | Adjustment on currency translation (b) | 53 | | 13 | | Retained profit/(loss) for the year | 15 | | (40 | ) | Transfers and other movements (c) | (46 | ) | – | |
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| | At 31 December | 526 | | 504 | |
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| | | | | | | Associates’profit and loss account | | | | | At 1 January | 107 | | 56 | | Adjustment on currency translation (b) | 7 | | 6 | | Retained (loss)/profit for the year | (3 | ) | 45 | | Transfers and other movements (c) | (69 | ) | – | |
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| | At 31 December | 42 | | 107 | |
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| | | | | | | Total profit and loss account | 6,834 | | 4,579 | |
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| | | | | | | Other reserves | | | | | At 1 January | 303 | | 294 | | Adjustment on currency translation (b) | 31 | | 9 | |
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| | At 31 December | 334 | | 303 | |
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| | | | | | | Total reserves | | | | | –Parent and subsidiary companies | 6,585 | | 4,256 | | –Joint ventures | 526 | | 504 | | –Associated companies | 57 | | 122 | |
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| | | 7,168 | | 4,882 | |
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(a) | A substantial portion of Group reserves are in overseas companies. If these reserves were distributed, there would be a liability to withholding taxes and to corporate tax in the UK and Australia. This would, however, be reduced by double taxation relief. Provision is made in these accounts for such additional tax only to the extent that dividends have been accrued or there is a binding agreement to distribute such past earnings. | (b) | Adjustments on currency translation include net of tax exchange gains on net debt of US$715 million (2002: gains of US$211 million). | (c) | Transfers and other movements primarily relate to the disposal of a subsidiary, joint venture and associate during 2003. | (d) | At 31 December 2003, cumulative goodwill written off directly to reserves amounted to US$3,142 million (2002: US$3,087 million). |
Amounts attributable to Rio Tinto Limited public shareholders
The consolidated shareholders’ funds of the DLC include US$2,270 million (2002: US$1,688 million) and profit for the financial year includes US$341 million (2002: US$147 million) attributable to the economic interests of shareholders in Rio Tinto Limited other than Rio Tinto plc.
Rio Tinto 2003 Annual report and financial statements | 105 |
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Notes to the 2003 financial statements continued
| | | | | | | | | | 2003 | | 2002 | | 2003 | | 2002 | | | % | | % | | US$m | | US$m | |
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| | Operating assets(b) | | | | | | | | | Copper, gold and by-products | 18.2 | | 23.0 | | 2,877 | | 3,109 | | Iron ore | 25.0 | | 20.7 | | 3,951 | | 2,803 | | Coal | 14.1 | | 13.9 | | 2,234 | | 1,879 | | Aluminium | 20.6 | | 17.5 | | 3,261 | | 2,365 | | Industrial minerals | 12.9 | | 15.5 | | 2,044 | | 2,100 | | Diamonds | 8.0 | | 7.1 | | 1,261 | | 968 | | Other products | 1.2 | | 2.3 | | 181 | | 320 | |
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| | Total | 100.0 | | 100.0 | | 15,809 | | 13,544 | | Unallocated items | | | | | (126 | ) | (335 | ) | Less: net debt | | | | | (5,646 | ) | (5,747 | ) |
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| | Net assets | | | | | 10,037 | | 7,462 | |
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|
|
| | Gross turnover | | | | | | | | | Copper | 12.7 | | 12.4 | | 1,495 | | 1,348 | | Gold (all sources) | 9.1 | | 9.7 | | 1,068 | | 1,046 | | Iron ore | 18.4 | | 16.4 | | 2,165 | | 1,772 | | Coal | 18.1 | | 20.3 | | 2,125 | | 2,203 | | Aluminium | 15.7 | | 15.4 | | 1,847 | | 1,663 | | Industrial minerals | 15.7 | | 17.5 | | 1,849 | | 1,898 | | Diamonds | 4.7 | | 3.4 | | 556 | | 372 | | Other products | 5.6 | | 4.9 | | 650 | | 526 | |
|
|
|
|
|
|
|
| | Total | 100.0 | | 100.0 | | 11,755 | | 10,828 | |
|
|
|
|
|
|
|
| | Profit before tax | | | | | | | | | Copper, gold and by-products | 27.3 | | 19.0 | | 680 | | 536 | | Iron ore | 30.1 | | 24.2 | | 748 | | 680 | | Coal | 10.2 | | 18.5 | | 255 | | 520 | | Aluminium | 11.5 | | 13.0 | | 287 | | 365 | | Industrial minerals | 11.5 | | 19.9 | | 286 | | 559 | | Diamonds | 7.5 | | 3.4 | | 187 | | 96 | | Other products | 1.9 | | 2.0 | | 46 | | 58 | |
|
|
|
|
|
|
|
| | | 100.0 | | 100.0 | | 2,489 | | 2,814 | | Exploration and evaluation | | | | | (127 | ) | (130 | ) | Net interest (d) | | | | | (139 | ) | (161 | ) | Other items | | | | | (255 | ) | (118 | ) |
|
|
|
|
|
|
|
| | | | | | | 1,968 | | 2,405 | | Exceptional items (e) | | | | | 126 | | (1,094 | ) |
|
|
|
|
|
|
|
| | Total | | | | | 2,094 | | 1,311 | |
|
|
|
|
|
|
|
| | Net earnings | | | | | | | | | Copper, gold and by-products | 27.1 | | 20.8 | | 429 | | 369 | | Iron ore | 31.6 | | 25.6 | | 500 | | 455 | | Coal | 10.3 | | 17.9 | | 163 | | 318 | | Aluminium | 11.9 | | 14.5 | | 189 | | 257 | | Industrial minerals | 10.0 | | 16.4 | | 159 | | 292 | | Diamonds | 7.0 | | 3.5 | | 111 | | 63 | | Other products | 2.1 | | 1.3 | | 33 | | 22 | |
|
|
|
|
|
|
|
| | | 100.0 | | 100.0 | | 1,584 | | 1,776 | | Exploration and evaluation | | | | | (98 | ) | (109 | ) | Net interest (d) | | | | | (59 | ) | (95 | ) | Other items | | | | | (45 | ) | (42 | ) |
|
|
|
|
|
|
|
| | | | | | | 1,382 | | 1,530 | | Exceptional items (e) | | | | | 126 | | (879 | ) |
|
|
|
|
|
|
|
| | Total | | | | | 1,508 | | 651 | |
|
|
|
|
|
|
|
| |
(a) | In 2003, the way in which post retirement costs are attributed to business units, and consequently product groups, has been revised. The regular cost component of post retirement costs is included in business unit earnings and the balance of post retirement cost is recognised centrally in other items. The analyses of 2002 Operating assets, Profit before tax and Net earnings have been restated to reflect this allocation. There was no impact on Net earnings, Profit before tax or Operating assets for the Group. | (b) | 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 (ie net of such companies’ debt). For joint ventures and associates, Rio Tinto’s net investment is shown. | (c) | The above analyses include Rio Tinto’s shares of the results of joint ventures and associates including interest. | (d) | The amortisation of discount is included in the applicable product category. All other financing costs of subsidiaries are shown as Net interest. | (e)
| Of the exceptional charges in 2002, US$596 million before and after tax relates to Kennecott Utah Copper which is part of the copper, gold and by-products segment and US$443 million before tax (US$235 million after tax and minorities) relates to the Iron Ore Company of Canada which is part of the iron ore segment. Exceptional charges are shown separately in the above analysis of Profit before tax and Net earnings. |
| | 106 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents
26 | PRODUCT ANALYSIS CONTINUED | | | The Group figures on page 106 include the following amounts for joint ventures: |
| | | | | | 2003 | | 2002 | | | US$m | | US$m | |
|
|
|
| | Net investment | | | | | Copper, gold and by-products | 1,072 | | 1,027 | | Coal | 1,080 | | 828 | | Other | 71 | | 66 | |
|
|
|
| | Total | 2,223 | | 1,921 | |
|
|
|
| | Gross turnover | | | | | Copper | 625 | | 419 | | Gold | 283 | | 236 | | Coal | 836 | | 956 | | Other | 76 | | 51 | |
|
|
|
| | Total | 1,820 | | 1,662 | |
|
|
|
| | Profit before tax | | | | | Copper, gold and by-products | 378 | | 232 | | Coal | 139 | | 285 | | Other | 3 | | 3 | |
|
|
|
| | | 520 | | 520 | | Exceptional items | – | | (16 | ) |
|
|
|
| | Total | 520 | | 504 | |
|
|
|
| | Net earnings | | | | | Copper, gold and by-products | 256 | | 155 | | Coal | 102 | | 198 | | Other | 2 | | 2 | |
|
|
|
| | | 360 | | 355 | | Exceptional items | – | | (16 | ) |
|
|
|
| | Total | 360 | | 339 | |
|
|
|
| | | | | | | The Group figures on page 106 include the following amounts for associates: | | | | | | 2003 | | 2002 | | | US$m | | US$m | |
|
|
|
| | Net investment | | | | | Copper, gold and by-products | 362 | | 505 | | Other | 59 | | 65 | |
|
|
|
| | Total | 421 | | 570 | |
|
|
|
| | Gross turnover | | | | | Copper | 185 | | 259 | | Gold | 411 | | 355 | | Other | 111 | | 109 | |
|
|
|
| | Total | 707 | | 723 | |
|
|
|
| | Profit before tax | | | | | Copper, gold and by-products | 147 | | 130 | | Other | 33 | | 59 | |
|
|
|
| | Total | 180 | | 189 | |
|
|
|
| | Net earnings | | | | | Copper, gold and by-products | 77 | | 93 | | Other | 21 | | 36 | |
|
|
|
| | Total | 98 | | 129 | |
|
|
|
| |
| | Rio Tinto 2003 Annual report and financial statements | 107 |
Back to Contents
Notes to the 2003 financial statements continued | | | | | | | | | | | | | | | | | | | | | | | | | | | 27 GEOGRAPHICAL ANALYSIS | | | | | | | | | | | | | | | | | | By location | | | | | | | | | | 2003 | | 2002 | | 2003 | | 2002 | | % | % | US$m | US$m |
|
|
|
|
|
|
|
| | Operating assets | | | | | | | | | North America | 30.7 | | 36.5 | | 4,846 | | 4,949 | | Australia and New Zealand | 55.7 | | 47.6 | | 8,799 | | 6,446 | | South America | 4.1 | | 5.2 | | 652 | | 703 | | Africa | 3.6 | | 3.5 | | 577 | | 477 | | Indonesia | 3.5 | | 4.4 | | 554 | | 599 | | Europe and other countries | 2.4 | | 2.8 | | 381 | | 370 | |
|
|
|
|
|
|
|
| | Total | 100.0 | | 100.0 | | 15,809 | | 13,544 | | Unallocated items | | | | | (126 | ) | (335 | ) | Less: net debt | | | | | (5,646 | ) | (5,747 | ) |
|
|
|
|
|
|
|
| | Net assets | | | | | 10,037 | | 7,462 | |
|
|
|
|
|
|
|
| | Turnover by country of origin | | | | | | | | | North America | 30.3 | | 31.2 | | 3,567 | | 3,377 | | Australia and New Zealand | 43.8 | | 41.6 | | 5,152 | | 4,500 | | South America | 5.8 | | 4.8 | | 682 | | 525 | | Africa | 5.6 | | 7.2 | | 662 | | 783 | | Indonesia | 8.8 | | 9.6 | | 1,037 | | 1,039 | | Europe and other countries | 5.7 | | 5.6 | | 655 | | 604 | |
|
|
|
|
|
|
|
| | Total | 100.0 | | 100.0 | | 11,755 | | 10,828 | |
|
|
|
|
|
|
|
| | Profit before tax | | | | | | | | | North America | 18.9 | | 17.1 | | 399 | | 439 | | Australia and New Zealand | 53.7 | | 57.1 | | 1,131 | | 1,464 | | South America | 11.1 | | 3.4 | | 234 | | 86 | | Africa | 3.1 | | 11.8 | | 65 | | 303 | | Indonesia | 16.5 | | 12.2 | | 348 | | 312 | | Europe and other countries | (3.3 | ) | (1.6 | ) | (70 | ) | (38 | ) |
|
|
|
|
|
|
|
| | | 100.0 | | 100.0 | | 2,107 | | 2,566 | | Net interest (c) | | | | | (139 | ) | (161 | ) |
|
|
|
|
|
|
|
| | | | | | | 1,968 | | 2,405 | | Exceptional items (d) | | | | | 126 | | (1,094 | ) |
|
|
|
|
|
|
|
| | Total | | | | | 2,094 | | 1,311 | |
|
|
|
|
|
|
|
| | Net earnings | | | | | | | | | North America | 25.2 | | 20.1 | | 363 | | 326 | | Australia and New Zealand | 52.3 | | 57.8 | | 754 | | 939 | | South America | 10.8 | | 4.0 | | 156 | | 65 | | Africa | 0.8 | | 7.1 | | 12 | | 115 | | Indonesia | 12.6 | | 11.4 | | 181 | | 185 | | Europe and other countries | (1.7 | ) | (0.4 | ) | (25 | ) | (5 | ) |
|
|
|
|
|
|
|
| | | 100.0 | | 100.0 | | 1,441 | | 1,625 | | Net interest (c) | | | | | (59 | ) | (95 | ) |
|
|
|
|
|
|
|
| | | | | | | 1,382 | | 1,530 | | Exceptional items (d) | | | | | 126 | | (879 | ) |
|
|
|
|
|
|
|
| | Total | | | | | 1,508 | | 651 | |
|
|
|
|
|
|
|
| |
(a) | 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 (ie net of such companies’ debt). For joint ventures and associates, Rio Tinto’s net investment is shown. | (b) | The above analyses include the Rio Tinto share of the results of joint ventures and associates including interest. | (c) | The amortisation of discount is included in the applicable geographical category. All other financing costs of subsidiaries are shown as Net interest. | (d) | The exceptional items in 2003 relate to the profit on disposal of interests in a subsidiary, joint venture and associate. Of the exceptional charges in 2002, US$596 million before tax related to Kennecott Utah Copper and US$443 million before tax related to the Iron Ore Company of Canada. Both of these businesses are included in North America. Exceptional items are shown separately in the above analysis of the profit before tax and net earnings. | | |
108 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents
27 GEOGRAPHICAL ANALYSIS CONTINUED | | | | | | | | | | By location | | | | | The Group figures shown on page 108 include the following amounts for joint ventures: | | | | | | 2003 | | 2002 | | US$m | US$m |
|
|
|
| | Net investment | | | | | Australia and New Zealand | 1,108 | | 834 | | South America | 552 | | 498 | | Indonesia | 523 | | 567 | | Other | 40 | | 22 | |
|
|
|
| | Total | 2,223 | | 1,921 | |
|
|
|
| | Turnover by country of origin | | | | | Australia and New Zealand | 550 | | 587 | | South America | 502 | | 283 | | Indonesia | 539 | | 565 | | Other | 229 | | 227 | |
|
|
|
| | Total | 1,820 | | 1,662 | |
|
|
|
| | Profit before tax | | | | | Australia and New Zealand | 57 | | 214 | | South America | 183 | | 49 | | Indonesia | 241 | | 231 | | Other | 39 | | 26 | |
|
|
|
| | | 520 | | 520 | | Exceptional items | – | | (16 | ) |
|
|
|
| | Total | 520 | | 504 | |
|
|
|
| | Net earnings | | | | | Australia and New Zealand | 46 | | 151 | | South America | 122 | | 32 | | Indonesia | 155 | | 149 | | Other | 37 | | 23 | |
|
|
|
| | | 360 | | 355 | | Exceptional items | – | | (16 | ) |
|
|
|
| | Total | 360 | | 339 | |
|
|
|
| | | | | | | | | | | | By location | | | | | The Group figures shown on page 108 include the following amounts for associates: | | | | | | 2003 | | 2002 | | US$m | US$m |
|
|
|
| | Net investment | | | | | North America | 53 | | 71 | | Indonesia | 143 | | 127 | | Other | 225 | | 372 | |
|
|
|
| | Total | 421 | | 570 | |
|
|
|
| | Turnover by country of origin | | | | | North America | 155 | | 131 | | Indonesia | 344 | | 306 | | Other | 208 | | 286 | |
|
|
|
| | Total | 707 | | 723 | |
|
|
|
| | Profit before tax | | | | | North America | 67 | | 42 | | Indonesia | 72 | | 54 | | Other | 41 | | 93 | |
|
|
|
| | Total | 180 | | 189 | |
|
|
|
| | Net earnings | | | | | North America | 49 | | 33 | | Indonesia | 23 | | 19 | | Other | 26 | | 77 | |
|
|
|
| | Total | 98 | | 129 | |
|
|
|
| | | | | | |
Rio Tinto 2003 Annual report and financial statements | 109 |
Back to Contents
Notes to the 2003 financial statements continued | | | | | | | | | | | | | | | | | | | | | | | | | | | 27 GEOGRAPHICAL ANALYSIS CONTINUED | | | | | | | | | | | | | | | | | | By destination | | | | | | | | | | 2003 | | 2002 | | 2003 | | 2002 | | % | % | US$m | US$m |
|
|
|
|
|
|
|
| | Turnover by destination | | | | | | | | | North America | 25.7 | | 29.0 | | 3,024 | | 3,143 | | Europe | 23.3 | | 21.6 | | 2,742 | | 2,340 | | Japan | 18.0 | | 17.9 | | 2,119 | | 1,943 | | Other Asia | 21.5 | | 19.2 | | 2,527 | | 2,083 | | Australia and New Zealand | 7.2 | | 8.2 | | 845 | | 887 | | Other | 4.3 | | 4.1 | | 498 | | 432 | |
|
|
|
|
|
|
|
| | Total | 100.0 | | 100.0 | | 11,755 | | 10,828 | |
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | The Group figures shown above include the following amounts for joint ventures: | | | | | | | | | | | | | | 2003 | | 2002 | | US$m | US$m |
|
|
|
|
|
|
|
| | Turnover by destination | | | | | | | | | North America | | | | | 191 | | 214 | | Europe | | | | | 300 | | 303 | | Japan | | | | | 543 | | 575 | | Other | | | | | 786 | | 570 | |
|
|
|
|
|
|
|
| | Total | | | | | 1,820 | | 1,662 | |
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | The Group figures shown above include the following amounts for associates: | | | | | | | | | | | | | | 2003 | | 2002 | | US$m | US$m |
|
|
|
|
|
|
|
| | Turnover by destination | | | | | | | | | North America | | | | | 172 | | 157 | | Europe | | | | | 220 | | 248 | | Other | | | | | 315 | | 318 | |
|
|
|
|
|
|
|
| | Total | | | | | 707 | | 723 | |
|
|
|
|
|
|
|
| | | | | | | | | | |
110 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents
28 | FINANCIAL INSTRUMENTS | | | The Group’s policies with regard to currency, interest rate and commodity price exposures, and the use of derivative financial instruments, are discussed in the following sections on pages 34 and 35 of the Financial review: | A – | Exchange rates, reporting currencies and currency exposure | B – | Interest rates | C – | Commodity prices | D – | Treasury management and financial instruments |
Except where stated, the information given below relates to the financial instruments of the parent companies and their subsidiaries and excludes joint ventures and associates. The information provided is as at the end of the financial year. Short term debtors and creditors are included only in the currency analysis.
Financial instruments held by companies acquired are marked to market as part of the adjustment of assets and liabilities acquired to fair value. Where appropriate, these fair value adjustments, calculated on a basis consistent with that disclosed in Section E, are shown in the disclosures below.
A) | Currency | The Group’s material currency derivatives are itemised below: | | | a) | Forward contracts hedging trading transactions |
| Buy | | Sell | | Weighted | | Fair value | | Total | | currency | currency | average | | fair | amount | amount | exchange | | value | | | rate | | | Buy Australian dollar: sell US dollar | A$m | | US$m | | A$/US$ | | US$m | | US$m | |
|
|
|
|
|
|
|
|
|
| | Less than 1 year | 257 | | 156 | | 0.61 | | 32 | | | | 1 to 5 years | 657 | | 399 | | 0.61 | | 56 | | | | More than 5 years | 111 | | 67 | | 0.60 | | 7 | | | |
|
|
|
|
|
|
|
|
|
| | Total | 1,025 | | 622 | | 0.61 | | | | 95 | |
Of the above, contracts to sell US$540 million were acquired with companies purchased in 2000 and 2001 and US$62 million were entered into by Comalco before it became a wholly owned subsidiary.
Buy New Zealand dollar: sell US dollar | NZ$m | | US$m | | NZ$/US$ | | US$m | | | |
|
|
|
|
|
|
|
|
|
| | Less than 1 year | 130 | | 65 | | 0.50 | | 19 | | | | 1 to 5 years | 485 | | 220 | | 0.45 | | 69 | | | | More than 5 years | 260 | | 117 | | 0.45 | | 29 | | | |
|
|
|
|
|
|
|
|
|
| | Total | 875 | | 402 | | 0.46 | | | | 117 | | | | | | | | | | | | | Buy Canadian dollar: sell US dollar (all of which were acquired with companies purchased in 2000) | C$m | | US$m | | C$/US$ | | US$m | | | |
|
|
|
|
|
|
|
|
|
| | Less than 1 year | 18 | | 12 | | 0.68 | | 2 | | 2 | | Other currency forward contracts | | | | | | | | | (7 | ) |
|
|
|
|
|
|
|
|
|
| | Total fair value | | | | | | | | | 207 | | Adjust: Fair value recognised in respect of these contracts (of which US$14m was recognised on acquisition) | | | | | | | | | 22 | |
|
|
|
|
|
|
|
|
|
| | Fair value not recognised | | | | | | | | | 229 | |
|
|
|
|
|
|
|
|
|
| |
| Rio Tinto 2003 Annual report and financial statements | 111 |
Back to Contents
Notes to the 2003 financial statements continued | | | 28 | FINANCIAL INSTRUMENTS CONTINUED | | | b) | Options hedging trading transactions | The Group acquired a series of bought call options with companies purchased in 2000. The majority of these bought call options are matched at 31 December 2003 by sold puts. The combination of these instruments has a similar effect to forward contracts. In the event that the Australian dollar strengthens above pre-determined levels, the put options are ‘knocked out’ ie cancelled. During 2003, US$57 million of these sold puts were knocked out and the remainder were knocked out in January 2004. | |
| Buy | | Sell | | Weighted | | Fair | | Total | | currency | currency | average | value | fair | amount | amount | strike | | value | | | rate | | | Bought A$ call options | A$m | | US$m | | A$/US$ | | US$m | | US$m | |
|
|
|
|
|
|
|
|
|
| | Less than 1 year | 94 | | 66 | | 0.70 | | 4 | | | | 1 to 5 years | 340 | | 239 | | 0.70 | | 13 | | | |
|
|
|
|
|
|
|
|
|
| | Total | 434 | | 305 | | 0.70 | | | | 17 | |
As noted above, the following sold A$ put options which were outstanding at 31 December 2003, automatically expired when the Australian dollar strengthened above the pre-determined ‘barrier’ rate in early January 2004. Details are shown below:
| | Buy | | Sell | | Weighted | | Weighted | | Fair | | | | currency | currency | average | average | value | amount | amount | strike rate | barrier | | | | | rate | | Sold ‘knock out’ A$ put options | A$m | | US$m | | A$/US$ | | A$/US$ | | US$m | | | |
|
|
|
|
|
|
|
|
|
|
|
| | Less than 1 year | 76 | | 54 | | 0.70 | | 0.77 | | (1 | ) | | | 1 to 5 years | 275 | | 194 | | 0.70 | | 0.77 | | (6 | ) | | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Total | 351 | | 248 | | 0.70 | | 0.77 | | | | (7 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| | Total fair value | | | | | | | | | | | 10 | | Adjust: Fair value recognised on acquisition in respect of these contracts | | | | | | | | | | | 27 | |
|
|
|
|
|
|
|
|
|
|
|
| | Fair value not recognised | | | | | | | | | | | 37 | |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | c) | Forward contracts hedging future capital expenditure | | | | | | Buy | | Sell | | Weighted | | Fair | | Total | | currency | currency | average | value | fair | amount | amount | exchange | | value | | | rate | | | Buy Australian dollar: sell US dollar | | | A$m | | US$m | | A$/US$ | | US$m | | US$m | |
|
|
|
|
|
|
|
|
|
|
|
| | Less than 1 year | | | 393 | | 198 | | 0.50 | | 93 | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Fair value not recognised | | | | | | | | | | | 93 | |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | d) | Currency swaps hedging non US dollar debt | | Buy Euro: sell US dollars | | | Buy | | Sell | | Weighted | | Fair | | Total | | currency | currency | average | value (a) | fair | amount | amount | exchange | | value | | US$m | rate | | US$m |
|
|
|
|
|
|
|
|
|
|
|
| | Less than myear | Euro 40m | | 46 | | 0.88 | | 5 | | | | 1 to 5 years | Euro 975m | | 934 | | 1.04 | | 292 | | | |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | 980 | | 1.04 | | 297 | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Buy Japanese yen: sell US dollars | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| | 1 to 5 years | Yen 21 billion | | 177 | | 119 | | 20 | | | |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | Buy sterling: sell US dollars | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| | 1 to 5 years | | | £175 | m | 251 | | 0.70 | | 61 | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | Buy Swiss francs: sell US dollars | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| | 1 to 5 years | | | CHF70 | m | 48 | | 1.47 | | 9 | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Total currency swaps | | | | | 1,456 | | | | | | 387 | | Fair value recognised within carrying value of debt | | | | | | | | | | | (387 | ) |
|
|
|
|
|
|
|
|
|
|
|
| | Fair value not recognised | | | | | | | | | | | – | |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | (a) | These fair values comprise only the ‘currency element’ of the swaps. The fair value of the ‘interest element’ is presented in the summary of interest rate swaps. |
112 | Rio Tinto 2003 Annual report and financial statements | |
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28 | FINANCIAL INSTRUMENTS CONTINUED | | | e) | Currency exposures arising from the Group’s net monetary assets/(liabilities) | After taking into account the effect of relevant derivative instruments, almost all the Group’s net debt is either denominated in US dollars or in the functional currency of the entity holding the debt. The table below sets out the currency exposures arising from net monetary assets/(liabilities), other than net debt, which are not denominated in the functional currency of the relevant business unit. Gains and losses resulting from such exposures are recorded in the profit and loss account. This table reflects the currency exposures before adjusting for tax and outside interests. | | |
| Currency of exposure | | Currency of exposure | |
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| | | United | | Other | | 2003 | | United | | Other | | 2002 | | States | currencies | Total | States | currencies | Total | dollar | | | dollar | | | US$m | US$m | US$m | US$m | US$m | US$m |
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| | Functional currency of business unit: | | | | | | | | | | | | | United States dollar | – | | 30 | | 30 | | – | | 32 | | 32 | | Australian dollar | 385 | | (16 | ) | 369 | | 346 | | 35 | | 381 | | Canadian dollar | 51 | | (1 | ) | 50 | | 56 | | – | | 56 | | South African rand | 47 | | 6 | | 53 | | 105 | | 26 | | 131 | | Other currencies | 20 | | 15 | | 35 | | 28 | | (1 | ) | 27 | |
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| | Total | 503 | | 34 | | 537 | | 535 | | 92 | | 627 | |
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| | | | | | | | | | | | | | | The table below shows the Rio Tinto share of the above currency exposures after tax and outside interests: | | | | | | | | | | | | | | | Currency of exposure | | Currency of exposure | |
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| | | United | | Other | | 2003 | | United | | Other | | 2002 | | States | currencies | Total | States | currencies | Total | dollar | | | dollar | | | US$m | US$m | US$m | US$m | US$m | US$m |
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| | Functional currency of business unit: | | | | | | | | | | | | | United States dollar | – | | 20 | | 20 | | – | | 22 | | 22 | | Australian dollar | 251 | | (11 | ) | 240 | | 224 | | 24 | | 248 | | Canadian dollar | 19 | | (1 | ) | 18 | | 21 | | – | | 21 | | South African rand | 16 | | 2 | | 18 | | 37 | | 9 | | | | Other currencies | 14 | | 9 | | 23 | | 17 | | (1 | ) | 16 | | | | | | | | | | | | | | | Total | 300 | | 19 | | 319 | | 299 | | 54 | | 353 | |
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| | B) | Interest rates | (i) | Financial liabilities and assets including the effect of interest rate and currency swaps | This table analyses the currency and interest rate composition of the Group’s financial assets and liabilities: | |
| | | | | | | | | | | 2003 | | 2002 | | United | Australian | Sterling | South | Other | Total | Total | States | dollar | | African | currencies | carrying | carrying | dollar | | | rand | | value | value | US$m | US$m | US$m | US$m | US$m | US$m | US$m |
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| | Financial liabilities(f) | | | | | | | | | | | | | | | Fixed rate | (721 | ) | – | | – | | – | | – | | (721 | ) | (685 | ) | Floating rate | (4,661 | ) | (339 | ) | (15 | ) | (233 | ) | (74 | ) | (5,322 | ) | (5,389 | ) | Non interest bearing (g) | (219 | ) | – | | – | | – | | – | | (219 | ) | (287 | ) |
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| | | (5,601 | ) | (339 | ) | (15 | ) | (233 | ) | (74 | ) | (6,262 | ) | (6,361 | ) | Financial assets(f) | | | | | | | | | | | | | | | Fixed rate | 239 | | – | | – | | – | | – | | 239 | | 304 | | Floating rate (including loans to joint ventures and associates) | 368 | | 92 | | 21 | | 3 | | | | 571 | | 580 | |
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| | | (4,994 | ) | (247 | ) | 6 | | (230 | ) | 13 | | (5,452 | ) | (5,477 | ) |
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| | Adjusted to exclude: | | | | | | | | | | | | | | | US Treasury bonds (fixed rate) | | | | | | | | | | | (239 | ) | (304 | ) | Deferred consideration payable (non interest bearing) | | | | | | | | | | | 219 | | 287 | | Loans to joint ventures and associates (floating rate) | | | | | | | | | | | (174 | ) | (253 | ) |
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| | Net debt(note 23) | | | | | | | | | | | (5,646 | ) | (5,747 | ) |
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| Rio Tinto 2003 Annual report and financial statements | 113 |
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Notes to the 2003 financial statements continued
28 | FINANCIAL INSTRUMENTS CONTINUED | | | (ii)
| Fixed rate liabilities and assets, presented gross, and interest rate and currency swaps | The US$721 million (2002: US$685 million) of fixed rate liabilities shown in (i) above comprise the gross liabilities of US$2,716 million (2002: US$2,539 million) less the interest rate and currency swaps of US$1,995 million (2002: US$1,854 million) below: |
| | | | | | | | | | | | | Gross liabilities | | | | | 2003 | | | | | | 2002 | | | Principal | | Average | | Excess of | | Principal | | Average | | Excess of | | | | | fixed | | fair value | | | | fixed | | fair value | | | | | rate | | over | | | | rate | | over | | | | | | | principal | | | | | | principal | | Maturity | US$m | | % p.a. | | US$m | | US$m | | % p.a. | | US$m | |
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| | Less than 1 year | – | | – | | – | | 621 | | 5.4 | | (17 | ) | 1 to 5 years | 1,350 | | 4.6 | | (33 | ) | 750 | | 6.1 | | (66 | ) | More than 5 years | 100 | | 7.2 | | (17 | ) | 100 | | 7.2 | | (18 | ) |
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| | US$ fixed rate liabilities | 1,450 | | 4.8 | | (50 | ) | 1,471 | | 5.9 | | (101 | ) |
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| | Less than 1 year | 46 | | 2.3 | | – | | – | | – | | – | | 1 to 5 years | 1,220 | | 4.5 | | (62 | ) | 1,068 | | 4.7 | | (46 | ) |
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| | Non US dollar fixed rate liabilities (a) | 1,266 | | 4.4 | | (62 | ) | 1,068 | | 4.7 | | (46 | ) |
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| | Fixed rate liabilities before interest rate swaps | 2,716 | | | | (112 | ) | 2,539 | | | | (147 | ) |
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| | | | | | | | | | | | | | | Interest rate swaps | Principal | | Average | | 2003 | | Principal | | Average | | 2002 | | | | | fixed | | Fair | | | | fixed | | Fair | | | | | rate | | value(i) | | | | rate | | value | | Maturity | US$m | | % p.a. | | US$m | | US$m | | % p.a. | | US$m | |
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| | Less than 1 year | – | | – | | – | | 321 | | 4.7 | | 9 | | 1 to 5 years | 1,050 | | 5.1 | | 41 | | 750 | | 6.1 | | 74 | |
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| | Interest rate swaps to US$ floating rates | 1,050 | | 5.1 | | 41 | | 1,071 | | 5.7 | | 83 | |
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| | Less than 1 year | 46 | | 2.3 | | – | | – | | – | | – | | 1 to 5 years | 1,220 | | 4.5 | | 55 | | 1,068 | | 4.7 | | 48 | |
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| | Interest rate swaps from non US$ fixed rates to US$ floating rates (a) | 1,266 | | 4.4 | | 55 | | 1,068 | | 4.7 | | 48 | |
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| | Less than 1 year | 20 | | 7.5 | | (1 | ) | – | | – | | – | | 1 to 5 years | 225 | | 7.0 | | (19 | ) | 245 | | 7.1 | | (28 | ) | More than 5 years | 76 | | 5.6 | | (8 | ) | 40 | | 5.6 | | (9 | ) |
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| | Interest rate swaps to US$ fixed rates (b) | 321 | | 6.7 | | (28 | ) | 285 | | 6.9 | | (37 | ) |
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| | Interest rate swaps (net impact) | 1,995 | | | | 68 | | 1,854 | | | | 94 | |
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| | | | | | | | | | | | | | | Total fixed rate financial liabilities after interest rate swaps(b), (d) | 721 | | | | (44 | ) | 685 | | | | (53 | ) |
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| | (i) These fair values include the interest element of the currency swaps described earlier. | | | | | | | | | | | | | | Gross assets | | | | | 2003 | | | | | | 2002 | | | Principal | | Average | | Excess of | | Principal | | Average | | Excess of | | | | | fixed | | fair value | | | | fixed | | fair value | | | | | rate | | over | | | | rate | | over | | | | | | | principal | | | | | | principal | | | US$m | | % p.a. | | US$m | | US$m | | % p.a. | | US$m | |
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| | Less than 1 year | 239 | | 1.0 | | (1 | ) | 304 | | 1.7 | | 4 |
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| | Total fixed rate financial assets | 239 | | 1.0 | | (1 | ) | 304 | | 1.7 | | 4 | |
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(a) | All of the above non US$ liabilities are swapped to US$. The principal amounts shown above reflect the currency element of the related currency swaps. | (b) | As a consequence of acquisitions during 2000, the Group holds a number of interest rate swaps to receive US$ floating rates and pay US$ fixed rates which have been included in the total of fixed rate debt shown above. | (c) | The Group has US$119 million of finance leases (2002: US$119 million), the largest of which has a principal of US$85 million, a maturity of 2018 and a floating interest rate. | (d) | After taking into account all interest rate swaps, the Group’s fixed rate debt totals US$721 million and has a weighted average interest rate of 5.1 per cent and a weighted average time to maturity of four years (2002: US$685 million with a weighted average interest rate of 6.6 per cent and a weighted average time to maturity of three years). | (e) | Interest rates on the great majority of the Group’s floating rate financial liabilities and assets will have been reset within six months. The interest rates applicable to the Group’s US dollar denominated floating rate financial liabilities and assets did not differ materially at the year end from the three month US dollar LIBOR rate of 1.2 per cent. | (f) | The above table does not include the remaining US$39 million (2002: US$60 million) net provision for the mark to market valuation of the hedge books held by companies acquired in 2000 and 2001 and other financial assets of US$145 million (2002: US$122 million) all of which are non interest bearing. Further details of the instruments included within the acquisition provision for mark to market valuation of the hedge books held by companies acquired are shown in section A above and section C below. | (g) | These non interest bearing financial liabilities have been presented in the financial statements on a discounted basis, using a discount rate of 3.8 per cent. |
114 | Rio Tinto 2003 Annual report and financial statements |
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28 | FINANCIAL INSTRUMENTS CONTINUED |
| | | | | | C) | Commodities | | | | | The Group’s material commodity derivatives are itemised below: | 2003 | | 2002 | | | | Fair value | | Fair value | | | | US$m | | US$m | |
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| | Commodity derivatives, including options, of which US$2 million | | | | | relates to acquisitions during 2000 | (20 | ) | 6 | | Adjust: Fair value recognised on acquisition in respect of these contracts | (2 | ) | (3 | ) |
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| | Fair value not recognised | (22 | ) | 3 | |
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| | | | | | | | D) | Liquidity | | | | | The maturity profile of the Group’s net debt is discussed in the Balance sheet section of the Financial review on page 33. | | | | | | | | | | | Financial assets and liabilities are repayable as follows | | | | | | | 2003 | | 2002 | | | | US$m | | US$m | |
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| | Financial liabilities | | | | | | Within 1 year, or on demand | (2,270 | ) | (3,434 | ) | | Between 1 and 2 years | (672 | ) | (215 | ) | | Between 2 and 3 years | (1,109 | ) | (394 | ) | | Between 3 and 4 years | (1,019 | ) | (1,042 | ) | | Between 4 and 5 years | (745 | ) | (810 | ) | | After 5 years | (447 | ) | (466 | ) |
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| | | | (6,262 | ) | (6,361 | ) | Financial assets | | | | | | Within 1 year, or on demand | 670 | | 668 | | | Between 1 and 2 years | 10 | | 10 | | | Between 2 and 3 years | 14 | | 10 | | | Between 3 and 4 years | 15 | | 14 | | | Between 4 and 5 years | 14 | | 14 | | | After 5 years | 87 | | 168 | |
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| | Total per currency/interest rate analysis | (5,452 | ) | (5,477 | ) |
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In addition, of the remaining US$39 million net provision for the mark to market of the hedge books held by companies on acquisition in 2000 and 2001, US$9 million matures in 2004, US$29 million in 2005 to 2008 and US$1 million thereafter. There are other financial assets totalling US$145 million, of which US$96 million have no fixed maturity and US$49 million has a maturity greater than one year.
In accordance with FRS 4, all commercial paper is classified as short term borrowings, though of the US$1,687 million outstanding at 31 December 2003, US$1,100 million was backed by medium term facilities (2002: commercial paper of US$1,749 million all backed by medium term facilities). Under US and Australian GAAP, the US$1,100 million would be grouped within non current borrowings at 31 December 2003. Further details of available facilities are given below.
As at 31 December 2003, a total of US$1,618 million is outstanding under the US$3 billion European Medium Term Notes facility, of which US$70 million is repayable within one year. A US$600 million five year bond was issued in 2003 under the SEC shelf registration.
At 31 December 2003, the Group had unutilised standby credit facilities totalling US$2.75 billion. These facilities, which are summarised below, are for back upsupport for the Group’s commercial paper programmes and for general corporate purposes:
| | | | | | 2003 | | 2002 | | | US$m | | US$m | |
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| | Unutilised standby credit facilities | | | | | Within 1 year | 1,650 | | 1,050 | | Between 1 and 2 years | – | | 1,650 | | After 2 years | 1,100 | | 100 | |
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| | | 2,750 | | 2,800 | |
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Rio Tinto 2003 Annual report and financial statements
| 115
|
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Notes to the 2003 financial statements continued
28 | FINANCIAL INSTRUMENTS CONTINUED | | | E) | Fair values of financial instruments | The carrying values and the fair values of Rio Tinto’s financial instruments at 31 December are shown in the following table. Fair value is the amount at which a financial instrument could be exchanged in an arm’s length transaction between informed and willing parties. Where available, market values have been used to determine fair values. In other cases, fair values have been calculated using quotations from independent financial institutions, or by discounting expected cash flows at prevailing market rates. The fair value of cash, short term borrowings and loans to joint ventures and associates approximates to the carrying value, as a result of their short maturity, or because they carry floating rates of interest.
| If Rio Tinto’s financial instruments were realised at the fair values shown, tax of US$86 million would become payable (2002: US$37 million recoverable). The maturity of the financial instruments is shown in the notes above. |
| | | | | 2003 | | | | 2002 | | | | Carrying | | Fair | | Carrying | | Fair | | | | value | | value | | value | | value | | | | US$m | | US$m | | US$m | | US$m | |
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| | Primary financial instruments held or issued to finance the Group’s operations: | | | | | | | | | | Cash (note 17) | 395 | | 395 | | 325 | | 325 | | | Current asset investments (note 17) | 230 | | 229 | | 306 | | 310 | | | Short term borrowings (note 18) | (2,199 | ) | (2,199 | ) | (3,370 | ) | (3,387 | ) | | Medium and long term borrowings (note 22) | (4,231 | ) | (4,343 | ) | (2,856 | ) | (2,986 | ) | | Loans to joint ventures and associates (note 13) | 174 | | 174 | | 253 | | 253 | | | Other liabilities | (63 | ) | (63 | ) | (165 | ) | (165 | ) |
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| | | | (5,694 | ) | (5,807 | ) | (5,507 | ) | (5,650 | ) | Derivative financial instruments held to manage the interest rate and currency profile: | | | | | | | | | | Currency forward contracts hedging trading transactions (A) | (22 | ) | 207 | | (20 | ) | (115 | ) | | Currency option contracts hedging trading transactions (A) | (27 | ) | 10 | | (43 | ) | (82 | ) | | Currency forward contracts hedging future capital expenditure (A) | – | | 93 | | – | | 62 | | | Currency swaps hedging non US dollar debt (A) | 387 | | 387 | | 152 | | 152 | | | Interest rate swap agreements and options (B) | – | | 68 | | – | | 94 | | | Commodity forward/future contracts hedging trading transactions (C) | 2 | | (20 | ) | 3 | | 6 | |
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| | | | (5,354 | ) | (5,062 | ) | (5,415 | ) | (5,533 | ) |
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| | Less: mark to market provision at acquisition/other provisions | 47 | | | | 60 | | | | ‘other’ financial assets | (145 | ) | | | (122 | ) | | |
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| | Total per liquidity analysis | (5,452 | ) | | | (5,477 | ) | | |
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| | Gains and losses on hedges | | | | | | | | | Changes in the fair value of derivatives used as hedges of trading transactions, capital expenditure and interest rate exposures, including changes relating to derivatives held by companies acquired during 2000 and 2001, are not recognised in the financial statements until the hedged position matures. |
| | | | | 2003 | | 2002 | | | Gains | | Losses | | Total net | | Total net | | | | | | | gains/ | | gains/ | | | | | | | (losses) | | (losses) | | | US$m | | US$m | | US$m | | US$m | |
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| | Unrecognised gains and losses on hedges at 1 January | 202 | | (177 | ) | 25 | | (349 | ) | Gains and losses arising in previous years recognised in the year | (61 | ) | 26 | | (35 | ) | 88 | |
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| | Gains and losses arising before 1 January that were not recognised in the year | 141 | | (151 | ) | (10 | ) | (261 | ) | Gains and losses arising in the year that were not recognised in the year | 330 | | 85 | | 415 | | 286 | |
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| | Unrecognised gains and losses on hedges at 31 December | 471 | | (66 | ) | 405 | | 25 | |
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| | Of which: | | | | | | | | | Gains and losses expected to be recognised within one year | 161 | | (18 | ) | 143 | | 35 | | Gains and losses expected to be recognised in more than one year | 310 | | (48 | ) | 262 | | (10 | ) |
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| | | 471 | | (66 | ) | 405 | | 25 | |
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116 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents
29 | CONTINGENT LIABILITIES AND COMMITMENTS |
| 2003 US$m | | 2002 US$m | |
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| | Commitments | | | | | Contracted capital expenditure at 31 December | 612 | | 350 | | Operating lease commitments | 131 | | 102 | | Other commitments | 67 | | 51 | |
| | (a) | Included above are operating lease commitments falling due within one year of US$38 million (2002: US$26 million). |
Unconditional purchase obligations
The aggregate amount of future payment commitments under unconditional purchase obligations outstanding at 31 December was:
| 2003 US$m | | 2002 US$m | |
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| | Within 1 year | 268 | | 209 | | Between 1 and 2 years | 278 | | 213 | | Between 2 and 3 years | 275 | | 215 | | Between 3 and 4 years | 243 | | 187 | | Between 4 and 5 years | 234 | | 193 | | After 5 years | 1,712 | | 1,522 | |
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| | | 3,010 | | 2,539 | |
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Contingent liabilities
The aggregate amount of indemnities and other performance guarantees on which no material loss is expected is US$266 million (2002: US$145 million).
In 2002, the Australian Tax Office (‘ATO’) issued assessments of approximately A$500 million (which amount includes penalties and interest) in relation to certain transactions undertaken in 1997 to acquire franking credits. The transactions were conducted based on the Group’s considered view of the law prevailing at the time. Subsequently, the law was changed. The Group lodged objections to the assessments and on 26 May 2003 the ATO substantially disallowed those objections. The Group subsequently lodged proceedings in the Federal Court to dispute the assessments.
As required by Australian tax law and practice, part payment of the disputed tax assessments was required pending resolution of the dispute. A payment of A$164 million was made, which will be subject to recovery with interest if, as it is believed based on Counsels’ opinion, the Group is successful in challenging the assessments. Consequently, the amount paid has been recorded as a receivable on the balance sheet (see note 16).
As at the year end, the amount of the disputed tax assessments, penalties and interest stood at approximately A$454 million (US$340 million at the year end exchange rate) after tax relief on the general interest charge component.
There are a number of legal claims arising from the normal course of business which are currently outstanding against the Group. No material loss to the Group is expected to result from these claims.
30 | AVERAGE NUMBER OF EMPLOYEES | | |
| Subsidiaries and joint arrangements (a) | | Joint ventures and associates (Rio Tinto share) (restated) | | Group total (restated) | | | 2003 | | 2002 | | 2003 | | 2002 | | 2003 | | 2002 | |
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| | The principal locations of employment were: | | | | | | | | | | | | | Australia and New Zealand | 9,274 | | 8,721 | | 983 | | 995 | | 10,257 | | 9,716 | | North America | 8,478 | | 8,906 | | 1,034 | | 873 | | 9,512 | | 9,779 | | Africa | 5,661 | | 6,012 | | 422 | | 450 | | 6,083 | | 6,462 | | Europe | 3,059 | | 2,765 | | 386 | | 433 | | 3,445 | | 3,198 | | South America | 1,794 | | 1,708 | | 773 | | 940 | | 2,567 | | 2,648 | | Indonesia | 569 | | 908 | | 3,234 | | 4,154 | | 3,803 | | 5,062 | | Other countries | 205 | | 150 | | 144 | | 158 | | 349 | | 308 | |
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| | | 29,040 | | 29,170 | | 6,976 | | 8,003 | | 36,016 | | 37,173 | |
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(a) | Employee numbers, which represent the average for the year, include 100 per cent of employees of subsidiary companies. Employee numbers for joint arrangements, joint ventures and associates are proportional to the Group’s equity interest. | (b) | Part time employees are included on a full time equivalent basis. Temporary employees are included in employee numbers. | (c) | People employed by contractors are not included. |
| | Rio Tinto 2003 Annual report and financial statements | 117 |
Back to Contents
Notes to the 2003 financial statements continued
At 31 December 2003 | | | | | | | | | | | | | | | | Company and country of incorporation | Principal activities | Class of shares held | | Proportion of class held | | Group interest | | | | | | % | | % | |
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| | Australia | | | | | | | | Argyle Diamond Mines (g) | Mining and processing of diamonds | (g) | | | | 100 | | Coal & Allied Industries Limited | Coal mining | Ordinary | | 75.71 | | 75.71 | | Comalco Limited | Bauxite mining; alumina production; | Ordinary | | 100 | | 100 | | | primary aluminium smelting | | | | | | | Dampier Salt Limited | Salt production | Ordinary | | 64.94 | | 64.94 | | Energy Resources of Australia Limited | Uranium mining | Class A | | 68.39 | | 68.39 | | Hamersley Iron Pty Limited | Iron ore mining | Ordinary | | 100 | | 100 | | Rio Tinto Coal Australia Pty Limited | Coal mining | Ordinary | | 100 | | 100 | |
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| | Brazil | | | | | | | | Rio Paracatu Mineração S.A. | Gold mining | Common | | 51 | | 51 | | Mineração Serra da Fortaleza Limitada | Nickel mining | Common | | 99.9 | | 99.9 | |
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| | Canada | | | | | | | | Iron Ore Company of Canada Inc (c) | Iron ore mining; iron ore pellets | Series A & E | | 58.72 | | 58.72 | | QIT-Fer et Titane Inc | Titanium dioxide feedstock; high purity | Common shares | | 100 | | 100 | | | iron and steel | Preferred shares | | 100 | | 100 | |
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| | France | | | | | | | | Talc de Luzenac S.A. | Mining, refining and marketing of talc | E 15.25 | | 99.94 | | 99.94 | |
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| | Indonesia | | | | | | | | P.T. Kelian Equatorial Mining | Gold mining | Ordinary US$1 | | 90 | | 90 | |
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| | Namibia | | | | | | | | Rössing Uranium Limited (d) | Uranium mining | ‘B’N$1 | | 71.16 | ) | 68.58 | | | | ‘C’N10c | | 70.59 | ) | | |
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| | Papua New Guinea | | | | | | | | Bougainville Copper Limited (e) | Copper and gold mining | Ordinary 1 Kina | | 53.58 | | 53.58 | |
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| | South Africa | | | | | | | | Palabora Mining Company Limited | Copper mining, smelting and refining | R1 | | 75.2 | | 49.2 | | Richards Bay Iron and Titanium (Pty) Limited | Titanium dioxide feedstock; high purity iron | R1 | | 50.5 | | 50 | |
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| | Sweden | | | | | | | | Zinkgruvan AB | Zinc, lead and silver mining | Ordinary | | 100 | | 100 | |
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| | United Kingdom | | | | | | | | Anglesey Aluminium Metal Limited | Aluminium smelting | Ordinary £1 | | 51 | | 51 | |
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| | United States of America | | | | | | | | Kennecott Holdings Corporation | Copper and gold mining, smelting | Common US$0.01 | | 100 | | 100 | | (including Kennecott Utah Copper, | and refining, land development | | | | | | | Kennecott Minerals and Kennecott | | | | | | | | Land Company) | | | | | | | | Kennecott Energy and Coal Company | Coal mining | Common US$1 | | 100 | | 100 | | U.S. Borax Inc. | Mining, refining and marketing of borates | Common US$1 | | 100 | | 100 | |
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| | Zimbabwe | | | | | | | | Rio Tinto Zimbabwe Limited | Gold mining and metal refining | Ordinary Z40c | | 56.04 | | 56.04 | |
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(a) | The Group comprises a large number of companies and it is not practical to include all of them in this list. The list therefore only includes those companies that have a more significant impact on the profit or assets of the Group. | (b) | All companies operate mainly in the countries in which they are incorporated. | (c) | In addition, the Group holds 20.3 per cent of the Labrador Iron Ore Royalty Income Fund which has a 15.1 per cent interest in the Iron Ore Company of Canada. | (d) | The Group’s shareholding in Rössing Uranium Limited carries 35.54 per cent of the total voting rights. Rössing is consolidated by virtue of board control. | (e) | The results of Bougainville Copper Limited are not consolidated – refer to note 40. | (f) | The Group’s principal subsidiaries are held by intermediate holding companies and not directly by Rio Tinto plc or Rio Tinto Limited. | (g) | The entity marked (g) is unincorporated. |
| | 118 | Rio Tinto 2003Annual report and financial statements |
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32 | PRINCIPAL JOINT VENTURE INTERESTS | | |
At 31 December 2003 | | | | | | Name and country of incorporation/operation
| Principal activities
| Class of
shares held
| | Group
interest
| |
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| | Australia | | | | | | Blair Athol Coal | Coal mining | (b) | | 71.2 | | Kestrel | Coal mining | (b) | | 80.0 | | Hail Creek | Coal mining | (b) | | 92.0 | | Mount Thorley | Coal mining | (b) | | 60.6 | | Bengalla | Coal mining | (b) | | 30.3 | | Warkworth | Coal mining | (b) | | 42.1 | |
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| | Chile | | | | | | Minera Escondida Limitada | Copper mining and refining | | | 30 | |
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| | Indonesia | | | | | | Grasberg expansion | Copper and gold mining | (b) | | 40 | |
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| | United States of America | | | | | | Decker | Coal mining | (b) | | 50.0 | | Greens Creek | Silver, gold, zinc and lead mining | (b) | | 70.3 | | Rawhide | Gold mining | (b) | | 51.0 | |
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The Group has joint control of the above ventures and therefore includes them in its accounts using the gross equity accounting technique.
The references above are explained at the foot of note 34.
33 | PRINCIPAL ASSOCIATES | | | At 31 December 2003 |
Name and country of incorporation/operation | Principal activities | Number of shares held by the Group | | Class of shares held | | Proportion of class held % | | Group interest % | |
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| | Papua New Guinea | | | | | | | | | | Lihir Gold Limited (d) | Gold mining | 185,758,126 | | Ordinary Kina 0.1 | | 14.49 | | 14.49 | |
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| | Portugal | | | | | | | | | | Sociedade Mineira de Neves-Corvo S.A. (Somincor) | Copper mining | 7,178,500 | | E 5 | | 49 | | 49 | |
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| | South Africa | | | | | | | | | | Tisand (Pty) Limited | Rutile and zircon mining | 7,353,675 | | R1 | | 49.5 | | 50 | |
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| | United States of America | | | | | | | | | | Cortez | Gold mining | | | (b) | | | | 40.0 | | Freeport-McMoRan Copper & Gold Inc. (d) | Copper and gold mining in Indonesia | 23,931,100 | | Class ‘B’ Common US$0.10 | | 13.1 | | 13.1 | | | | | | | | | | | |
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| | The references above are explained at the foot of note 34. | | | | | | | | |
| | Rio Tinto 2003 Annual report and financial statements | 119 |
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Notes to the 2003 financial statements continued | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 34 PRINCIPAL JOINT ARRANGEMENTS | | | | | | | | | | | | | | | | | | | | At 31 December 2003 | | | | | | | | | | Name and country of incorporation/operation | Principal activities | Number of | | Class of | | Proportion | | Group | | | | shares held | shares held | of class held | interest | | | by the Group | | % | % |
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| | Australia | | | | | | | | | | Boyne Smelters Limited | Aluminium smelting | 153,679,560 | | Ordinary | | 59.4 | | 59.4 | | Gladstone Power Station | Power generation | | | (b) | | | | 42.1 | | Northparkes Mine | Copper/gold mining and processing | | | (b) | | | | 80 | | Queensland Alumina Limited | Alumina production | 854,078 | | Ordinary | | 38.6 | | 38.6 | | Robe River Iron Associates | Iron ore mining | | | (b) | | | | 53 | | HIsmelt®Kwinana | Iron technology | | | (b) | | | | 60 | | Bao-HI Ranges Joint Venture | Iron ore mining | | | (b) | | | | 50 | |
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| | Canada | | | | | | | | | | Diavik | Mining and processing of diamonds | | | (b) | | | | 60 | |
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| | New Zealand | | | | | | | | | | New Zealand Aluminium Smelters Limited | Aluminium smelting | 24,998,400 | | Ordinary | | 79.36 | | 79.36 | |
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(a) | The Group comprises a large number of companies and it is not practical to include all of them in notes 32 to 34. The list therefore only includes those companies that have a more significant impact on the profit or assets of the Group. | (b) | Those joint ventures, associates and joint arrangements marked (b) are unincorporated entities. | (c) | All entities operate mainly in the countries in which they are incorporated except where stated. | (d) | The Group continues to have significant influence over the activities of Freeport-McMoRan Copper & Gold Inc. and Lihir Gold Limited, including Board representation; consequently the Group equity accounts for its interests in these companies. | (e) | The Group’s principal joint ventures, associates and joint arrangements are held by intermediate holding companies and not directly by Rio Tinto plc or Rio Tinto Limited. |
35PURCHASES AND SALES OF SUBSIDIARIES, JOINT ARRANGEMENTS, JOINT VENTURES AND ASSOCIATES
Disposals
The Group disposed of its 25 per cent interest in Minera Alumbrera Limited, Argentina and the wholly owned Peak Gold, Australia during March 2003; and its 50 per cent interest in Kaltim Prima Coal, Indonesia during October 2003. The profit on disposal of these businesses was US$126 million; this has been classified as an exceptional item and consequently excluded from adjusted earnings at the foot of the profit and loss account. The entire sale proceeds of US$403 million have been included in the cash flow statement within ‘Sales of subsidiaries, joint ventures and associates’.
In 2002, total disposal proceeds for the sale of subsidiaries, joint ventures and associates were US$233 million. The Group disposed of the Moura joint venture and Ravensworth and Narama thermal coal complex which were acquired with the Australian coal operations of the Peabody Group in 2001.
Acquisitions
During 2003 Kennecott Energy increased its holding in Pegasus Technologies Inc. from 20 per cent to 86 per cent. The transaction gave rise to goodwill of US$20 million. The transaction did not involve any cash consideration.
On 6 June 2002, the Group acquired an additional 9.5 per cent interest in reduction lines 1 and 2 at Boyne Smelters at a cost of US$78 million. The Group also increased its interest in Coal & Allied from 72.71 to 75.71 per cent on 17 September 2002, for a consideration of US$29 million. On 20 December 2002, the Group contributed additional equity to IOC, increasing its shareholding from 56.1 to 58.7 per cent.
120 | Rio Tinto 2003 Annual report and financial statements |
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36 DIRECTORS’ REMUNERATION | | | | | | | | | | Aggregate remuneration of the directors of the parent companies was as follows: | | | | | | 2003 | | 2002 | | US$’000 | US$’000 |
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| | Emoluments | 9,571 | | 9,541 | | Long term incentive plans | 3,278 | | 8,443 | |
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| | | 12,849 | | 17,984 | |
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| | Pension contributions | 424 | | 65 | |
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| | Gains made on exercise of share options | 2,029 | | 2,992 | |
For 2003, a total of US$4,048,800 (2002: US$5,389,636) was attributable to the highest paid director in respect of the aggregate amounts disclosed in the above table, including gains made on exercise of share options. The accrued pension entitlement for the highest paid director was US$1,158,700 (2002: US$984,000).
The aggregate remuneration, including pension contributions and other retirement benefits, incurred by Rio Tinto plc in respect of its directors was US$9,794,000 (2002: US$11,492,000). There were no pension contributions.
The aggregate remuneration, including pension contributions and other retirement benefits, incurred by Rio Tinto Limited in respect of its directors was US$5,508,000 (2002: US$6,557,000). The aggregate pension contribution was US$423,938 (2002: US$64,730).
During 2003, six directors (2002: seven) accrued retirement benefits under defined benefit arrangements.
Shares awarded last year in respect of the FTSE 1997 and MCCP 1999 performance periods vested after the publication of the 2002Annual report and financial statementsand the value of awards provided therein were estimated based on share prices of 1,169p and A$32.52. The actual share prices on 28 February 2003 when the awards vested were 1,268.5p and A$33.35 and the above 2003 figures for long term incentive plans have been adjusted accordingly. Further details are given in the Remuneration report on page 67.
Emoluments included in the table above have been translated from local currency at the average rate for the year with the exception of bonus payments, which, together with amounts payable under long term incentive plans for 2003, have been translated at the year end rate.
More detailed information concerning directors’ remuneration, shareholdings and options is shown in the Remuneration report, including Tables 1 to 6, on pages 65 to 69.
37 AUDITORS’ REMUNERATION | | | | | | | | | | | 2003 | | 2002 | | US$m | US$m |
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|
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| | Group Auditors’ remuneration | | | | | Audit services | | | | | Statutory audit | 5.2 | | 4.1 | | Audit-related regulatory reporting | 0.5 | | 0.5 | | Further assurance services | 0.1 | | – | | Tax services (d) | 2.5 | | 2.3 | | Other Services | | | | | Financial information technology | 0.1 | | – | | Internal audit (e) | 0.1 | | 0.3 | | Other services not covered above | 1.6 | | 1.5 | |
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| | | 10.1 | | 8.7 | | Remuneration payable to other accounting firms | | | | | Statutory audit | 0.4 | | 0.3 | | Tax services | 2.5 | | 0.8 | | Internal audit | 2.3 | | 1.0 | | Other services | 6.9 | | 3.7 | |
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| | | 12.1 | | 5.8 | |
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| | | 22.2 | | 14.5 | |
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(a) | The audit fees payable to PricewaterhouseCoopers, the Group Auditors, are reviewed by theAudit committee. The committee sets the policy for regulating the award of non audit work to the auditors and reviews the nature and extent of such work, and the amount of the related fees, to ensure that independence is maintained. The fees disclosed above consolidate all payments made to PricewaterhouseCoopers by the companies and their subsidiaries. | (b) | Amounts payable to PricewaterhouseCoopers for non audit work for the Group’s UK companies were US$1.3 million (2002: US$0.9 million) and for the Group’s Australian companies were US$2.3 million (2002: US$1.7 million). | (c) | ‘Remuneration payable to other accounting firms’ does not include fees for similar services payable to other suppliers of consultancy services. | (d) | Group Auditors’ remuneration for tax services in 2003 comprise US$1.4 million in respect of compliance services and US$1.1 million in respect of advisory services. | (e) | Internal audit fees payable to Group Auditors in 2003 relate to projects which were committed in 2002. |
| | Rio Tinto 2003 Annual report and financial statements | 121 |
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Notes to the 2003 financial statements continuedGLOSSARY
38RELATED PARTY TRANSACTIONS
Information about material related party transactions of the Rio Tinto Group is set out below:
Subsidiary companies:
Details of investments in principal subsidiary companies are disclosed in note 31.
Joint ventures and associates:
Information relating to joint ventures and associates can be found in the following notes:
Note 4 – Exceptional items
Note 5 – Net interest payable and similar charges
Note 6 – Amortisation of discount
Note 7 – Taxation charge for the year
Note 12 – Property, plant and equipment
Note 13 – Fixed asset investments
Note 14 – Net debt of joint ventures and associates
Note 16 – Accounts receivable and prepayments
Note 19 – Accounts payable and accruals
Note 25 – Share premium and reserves
Note 26 – Product analysis
Note 27 – Geographical analysis
Note 30 – Average number of employees
Note 32 – Principal joint venture interests
Note 33 – Principal associates
Note 35 – Purchases and sales of subsidiaries, joint arrangements, joint ventures and associates
Information relating to joint arrangements can be found in note 34 – Principal joint arrangements.
Pension funds:
Information relating to pension fund arrangements is disclosed in note 41.
Directors:
Details of directors’ remuneration are set out in note 36 and in the Remuneration report on pages 60 to 69.
Leighton Holdings Limited (Leighton):
In 2001, John Morschel became a director and, subsequently, the chairman of Leighton, Australia’s largest project development and contracting group. A number of Rio Tinto companies in Australia and Indonesia have, in the ordinary course of their businesses, awarded commercial contracts to subsidiaries of Leighton. The board does not consider the value of these contracts to be material to the business of either Leighton or the Rio Tinto Group. On 22 December 2003, Leighton announced that Mr Morschel would be resigning from the board of Leighton.
Mr Morschel is expected to resign by the end of March 2004.
39 EXCHANGE RATES IN US$ | | | | | | | | | | | | | | | | | | The principal exchange rates used in the preparation of the 2003 financial statements are: | | | | | | | | | | Annual average | | Year end | | 2003 | | 2002 | 2003 | | 2002 |
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| | Sterling | 1.63 | | 1.50 | | 1.78 | | 1.60 | | Australian dollar | 0.65 | | 0.54 | | 0.75 | | 0.57 | | Canadian dollar | 0.71 | | 0.64 | | 0.77 | | 0.63 | | South African rand | 0.13 | | 0.09 | | 0.15 | | 0.12 | |
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(a) | The Australian dollar exchange rates, given above, are based on the Hedge Settlement Rate set by the Australian Financial Markets Association. | | |
122 | Rio Tinto 2003 Annual report and financial statements |
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40 | BOUGAINVILLE COPPER LIMITED (‘BCL’) |
The Panguna mine remains shut down. Access to the mine site has not been possible and an accurate assessment of the condition of the assets cannot be determined. Considerable funding would be required to recommence operations to the level which applied at the time of the mine’s closure in 1989 and these funding requirements cannot be forecast accurately. The directors do not have access to reliable, verifiable or objective information on BCL and the directors have therefore decided to exclude BCL information from the financial statements. BCL reported a net profit of US$4 million for the financial year (2002: profit of US$2 million). This is based upon actual transactions for the financial year. The aggregate amount of capital and reserves reported by BCL as at 31 December 2003 was US$97 million (2002: US$76 million). The Group owns 214,887,966 shares in BCL, representing 53.6 per cent of the issued share capital. The investment of US$195 million was fully provided against in 1991. At 31 December 2003, the market value of the shareholding in BCL was US$39 million.
41 | POST RETIREMENT BENEFITS | | | a) | SSAP 24 accounting and disclosure | Pensions
The Group operates a number of pension plans around the world. Whilst some of these plans are defined contribution, the majority are of the funded defined benefit type, with assets held in separate trustee administered funds. Valuations of these plans are produced and updated annually to 31 December by independent qualified actuaries. Further details regarding the plans are provided in the FRS 17 disclosures in section (b) of this note. |
| | | | | | | | | | | | UK | | Australia | | US | | Canada | | Other (e) | |
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| | Summary of independent actuarial reviews | | | | | | | | | | | At 31 December 2003 | | | | | | | | | | | | | | | | | | | | | | Assumptions | | | | | | | | | | | Rate of return on investments (a) | 6.9% | | 6.4% | | 6.7% | | 6.5% | | 9.2% | | Rate of earnings growth, where appropriate (b) | 4.8% | | 4.0% | | 4.0% | | 4.0% | | 6.5% | | Rate of increase in pensions | 2.8% | | 2.5% | | – | | – | | 4.5% | | | | | | | | | | | | | Results | | | | | | | | | | | Smoothed market value of assets ($m) (c) | 1,506 | | 962 | | 573 | | 673 | | 194 | | Percentage of coverage of liabilities by assets (d) | 124% | | 100% | | 81% | | 80% | | 91% | | Amount of deficit for individual plans with net deficits ($m) | 13 | | 7 | | 145 | | 174 | | 19 | | | | | | | | | | | | | At 31 December 2002 | | | | | | | | | | | | | | | | | | | | | | Assumptions | | | | | | | | | | | Rate of return on investments (a) | 6.5% | | 6.5% | | 6.7% | | 6.5% | | 11.8% | | Rate of earnings growth, where appropriate (b) | 4.8% | | 4.0% | | 3.3% | | 3.7% | | 10.5% | | Rate of increase in pensions | 2.3% | | 2.5% | | – | | – | | 7.0% | | | | | | | | | | | | | Results | | | | | | | | | | | Smoothed market value of assets ($m) (c) | 1,358 | | 600 | | 551 | | 538 | | 202 | | Percentage of coverage of liabilities by assets (d) | 129% | | 103% | | 81% | | 82% | | 141% | | Amount of deficit for individual plans with net deficits ($m) | 14 | | – | | 136 | | 134 | | – | |
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(a) | The rate of return on investments assumed for Australia is after tax. | (b) | The rate of earnings growth assumed includes a promotional salary scale where appropriate. | (c) | Assets were measured at market value smoothed over a one year period. | (d) | Asset coverage of the liability is quoted after allowing for expected increases in earnings. | (e) | The assumptions vary by location for the ‘Other’ plans. Assumptions shown are for Africa. |
Other information
A triennial actuarial valuation of the Group’s UK plan was made at 31 March 2003 using the projected unit method.
In Australia, whilst Group companies sponsor or subscribe to a number of pension plans, the Rio Tinto Staff Superannuation Fund is the only significant plan. This plan principally contains defined contribution liabilities but also has defined benefit liabilities. Valuations are made at least every three years using the projected unit method, with the latest valuation being as at 30 June 2003.
A number of defined benefit pension plans are sponsored by the US entities, typically with separate provision for salaried and hourly paid staff. Valuations are made annually at 1 January using the projected unit method.
A number of defined benefit pension plans are sponsored by entities in Canada. Valuations are updated annually using the projected unit method.
Other defined benefit plans sponsored by the Group around the world were assessed at various dates during 2001, 2002 and 2003. The above summary is based on the most recent valuation in each case, updated to the appropriate balance sheet date.
The expected average remaining service life in the major plans ranges from ten to 17 years with an overall average of 12 years.
The Group uses asset values based on market value, but smoothed over a one year period in arriving at its pension costs under SSAP 24. The main pension plans providing purely defined contribution benefits held assets, equal to their liabilities, of US$186 million as at31 December 2003. The Group’s contributions to these plans of US$9 million are charged against profits and are included in the ‘Regular cost’ shown below.
The Group also operates a number of unfunded plans, which are included within the deficit and percentage coverage statistics above, measured on a basis consistent with both SSAP 24 and FRS 17.
Rio Tinto 2003 Annual report and financial statements | 123 |
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Notes to the 2003 financial statements continued
41 | POST RETIREMENT BENEFITS CONTINUED |
Profit and loss account – effect of pension costs, pre tax and minorities
| 2003 | | 2002 | | | US$m | | US$m | |
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| | Regular cost | (102 | ) | (98 | ) | Variation cost | (90 | ) | (2 | ) | Interest on prepayment under SSAP 24 | 42 | | 46 | |
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| | Net post retirement cost | (150 | ) | (54 | ) |
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The variation cost reflects the amortisation of the excess of the pension asset carried in the balance sheet at the beginning of the year over the surplus/(deficit) in the relevant plans calculated on a SSAP 24 valuation basis. The increase in the variation cost in 2003 reflects the reduced surpluses/(increased deficits) of the plans at 1 January 2003 compared to 1 January 2002.
Balance sheet – effect of pension assets and liabilities, pre tax and minorities
| 2003 | | 2002 | | | US$m | | US$m | |
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| | Prepayment under SSAP 24 | 620 | | 634 | | Provisions | (77 | ) | (44 | ) |
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| | Net post retirement asset | 543 | | 590 | |
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Post retirement healthcare
Certain subsidiaries of the Group, mainly in the US, provide health and life insurance benefits to retired employees and in some cases their beneficiaries and covered dependants. Eligibility for cover is dependent upon certain age and service criteria. These arrangements are unfunded.
On 30 September 2003, the unfunded accumulated post retirement benefit obligation and annual cost of accrual of benefits were determined by independent actuaries using the projected unit method. The main financial assumptions were: discount rate 6.1 per cent (at30 September 2002: 6.5 per cent), Medical Trend Rate 11.2 per cent reducing to 4.7 per cent by the year 2011 (at 30 September 2002: initially 8.0 per cent reducing to 5.0 per cent by the year 2009), claims cost based on individual company experience. The assumptions were consistent with those adopted for determining pension costs. At 30 September 2003, which is the measurement date, the unfunded accumulated post retirement benefits obligation (excluding associates and joint ventures) was US$563 million (at 30 September 2002: US$437 million).
Profit and loss account – effect of post retirement healthcare costs, pre tax and minorities
| 2003 | | 2002 | | | US$m | | US$m | |
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| | Regular cost | (9 | ) | (8 | ) | Amortisation | 4 | | 6 | | Interest | (29 | ) | (23 | ) |
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| | Net post retirement cost | (34 | ) | (25 | ) |
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| | | | | | | Balance sheet – effect of post retirement healthcare liabilities, pre tax and minorities | | | | | | 2003 | | 2002 | | | US$m | | US$m | |
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| | Provisions | (498 | ) | (466 | ) |
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| | 124 | Rio Tinto 2003 Annual report and financial statements |
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41 | POST RETIREMENT BENEFITS CONTINUED | | | b) | FRS 17 Transitional disclosures | FRS 17 – ‘Retirement Benefits’, which deals with accounting for post retirement benefits, has not been adopted, but the additional disclosures which are required are shown below. The standard requires pension deficits, and surpluses to the extent that they are considered recoverable, to be recognised in full. Annual service cost and net financial income on the assets and liabilities of the plans are recognised through earnings. Other fluctuations in the value of the surpluses/deficits are recognised in the Statement of Total Recognised Gains and Losses (‘STRGL’).
Details of post retirement benefit plan assets and liabilities at 31 December 2003, 2002 and 2001, valued on a projected unit basis in accordance with FRS 17, are set out below: |
| | | | | | | | | | | | UK | | Australia | | US | | Canada | | Other | | | | | | | | | | | (mainly | | | | | | | | | | | Africa) | |
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| | Main assumptions for FRS 17 purposes | | | | | | | | | | | At 31 December 2003 | | | | | | | | | | | Rate of increase in salaries | 4.8% | | 4.0% | | 4.0% | | 4.0% | | 6.5% | | Rate of increase in pensions | 2.8% | | 2.5% | | – | | – | | 4.5% | | Discount rate | 5.4% | | 6.0% | | 5.9% | | 6.1% | | 9.0% | | Inflation | 2.8% | | 2.5% | | 2.5% | | 2.3% | | 4.5% | | | | | | | | | | | | | At 31 December 2002 | | | | | | | | | | | Rate of increase in salaries | 4.8% | | 4.0% | | 3.2% | | 3.7% | | 10.5% | | Rate of increase in pensions | 2.3% | | 2.5% | | – | | – | | 7.0% | | Discount rate | 5.6% | | 6.2% | | 6.2% | | 6.5% | | 11.5% | | Inflation | 2.3% | | 2.5% | | 2.2% | | 2.2% | | 7.0% | | | | | | | | | | | | | At 31 December 2001 | | | | | | | | | | | Rate of increase in salaries | 5.5% | | 4.0% | | 3.5% | | 4.0% | | 10.5% | | Rate of increase in pensions | 2.5% | | 2.5% | | – | | – | | 5.8% | | Discount rate | 6.0% | | 6.5% | | 7.0% | | 7.0% | | 11.5% | | Inflation | 2.5% | | 2.5% | | 2.5% | | 2.5% | | 5.8% | |
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The main financial assumptions used for the health care schemes, which are predominantly in the US, were: discount rate: 5.9 per cent (2002: 6.2 per cent, 2001: 7.0 per cent), Medical Trend Rate: 11.5 per cent reducing to 5.0 per cent by the year 2011 (2002: Medical Trend Rate: 8.0 per cent reducing to 5.0 per cent by the year 2009, 2001: Medical Trend Rate: 8.5 per cent reducing to 5.0 per cent by the year 2009), claims cost based on individual company experience.
| UK | | Australia | | US | | Canada | | Other | | | | | | | | | | | (mainly | | | | | | | | | | | Africa) | |
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| | Long term rate of return expected at 31 December 2003 | | | | | | | | | | | Equities | 7.8% | | 7.0% | | 7.5% | | 7.3% | | 9.5% | | Fixed interest bonds | 5.0% | | 5.1% | | 5.4% | | 5.2% | | 8.5% | | Index linked bonds | 5.0% | | 5.1% | | 5.4% | | 5.2% | | 8.5% | | Other | 4.6% | | 5.1% | | 5.1% | | 3.3% | | 5.6% | | | | | | | | | | | | | Long term rate of return expected at 31 December 2002 | | | | | | | | | | | Equities | 7.3% | | 7.0% | | 7.2% | | 7.2% | | 12.5% | | Fixed interest bonds | 5.0% | | 5.5% | | 5.6% | | 6.0% | | 11.0% | | Index linked bonds | 5.0% | | 5.5% | | 5.6% | | 6.0% | | 11.0% | | Other | 4.6% | | 5.9% | | 6.4% | | 5.0% | | 10.2% | | | | | | | | | | | | | Long term rate of return expected at 31 December 2001 | | | | | | | | | | | Equities | 7.5% | | 7.0% | | 7.5% | | 7.5% | | 12.5% | | Fixed interest bonds | 5.5% | | 6.0% | | 6.5% | | 6.5% | | 11.0% | | Index linked bonds | 5.5% | | 6.0% | | 6.5% | | 6.5% | | 11.0% | | Other | 5.3% | | 6.3% | | 6.8% | | 5.1% | | 9.7% | |
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| | Rio Tinto 2003 Annual report and financial statements | 125 |
Back to Contents
Notes to the 2003 financial statements continued
41 POST RETIREMENT BENEFITS CONTINUED
Scheme assets
The assets in the pension plans and the contributions made were:
| UK | | Australia | | US | | Canada | | Other | | Total | | | | | | (mainly | | | | | | Africa) | | US$m | US$m | US$m | US$m | US$m | US$m |
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| | Value at 31 December 2003 | | | | | | | | | | | | | Equities | 1,094 | | 646 | | 401 | | 451 | | 82 | | 2,674 | | Fixed interest bonds | 300 | | 229 | | 126 | | 193 | | 15 | | 863 | | Index linked bonds | 127 | | 7 | | 12 | | 44 | | – | | 190 | | Other | 54 | | 88 | | 74 | | 21 | | 97 | | 334 | |
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| | | 1,575 | | 970 | | 613 | | 709 | | 194 | | 4,061 | |
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| | Value at 31 December 2002 | | | | | | | | | | | | | Equities | 823 | | 377 | | 342 | | 271 | | 93 | | 1,906 | | Fixed interest bonds | 294 | | 160 | | 139 | | 148 | | 18 | | 759 | | Index linked bonds | 95 | | 5 | | 11 | | 32 | | – | | 143 | | Other | 60 | | 65 | | 39 | | 64 | | 190 | | 418 | |
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| | | 1,272 | | 607 | | 531 | | 515 | | 301 | | 3,226 | |
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| | Value at 31 December 2001 | | | | | | | | | | | | | Equities | 965 | | 416 | | 441 | | 375 | | 161 | | 2,358 | | Fixed interest bonds | 244 | | 132 | | 122 | | 153 | | 45 | | 696 | | Index linked bonds | 81 | | 5 | | 13 | | 36 | | – | | 135 | | Other | 66 | | 64 | | 56 | | 17 | | 30 | | 233 | |
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| | | 1,356 | | 617 | | 632 | | 581 | | 236 | | 3,422 | |
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| | Employer contributions made during 2003* | 6 | | 45 | | 4 | | 43 | | 5 | | 103 | | Employer contributions made during 2002* | – | | 10 | | 4 | | 15 | | 4 | | 33 | |
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| | * | The contributions shown include US$9 million (2002: US$13 million) for defined contribution plans. | | | | | | | |
In addition, there were contributions of US$18 million (2002: US$16 million) in respect of unfunded health care schemes in the year. Since these schemes are unfunded, contributions for future years will be equal to benefit payments and therefore cannot be predetermined.
In relation to pensions, it is currently expected that there will be no regular employer or employee contributions to the UK plan in 2004. Contributions are made to the main Australian plan according to the recommendation of the plan actuary and are primarily to a mixed defined benefit/defined contribution type arrangement (included in the above figures). In North America, contributions are agreed annually in nominal terms. Additional contributions will be paid in 2004 in the light of the position in the US and Canadian plans. Whilst contributions for 2004 are yet to be determined, the currently expected level of contributions by the Group to the plans in Australia, Canada and the US is expected to be some US$30-US$40 million higher than in 2003.
The most recent full valuation of the UK plans was at 31 March 2003. The most recent full valuation of the Australian plans was at 30 June 2003. For both the US and Canadian major plans, the most recent full valuation was at 1 January 2003.
| | 126 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents
41 POST RETIREMENT BENEFITS CONTINUED
Surpluses/(deficits) in the plans
The following amounts were measured in accordance with FRS 17:
At 31 December 2003 | UK | | Australia | | US | | Canada | | Other | | Healthcare | | Total | | | US$m | US$m | US$m | US$m | US$m | US$m | US$m |
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| | Total market value of plan assets | 1,575 | | 970 | | 613 | | 709 | | 194 | | – | | 4,061 | | Present value of plan liabilities | (1,477 | ) | (963 | ) | (768 | ) | (877 | ) | (213 | ) | (561 | ) | (4,859 | ) |
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| | Surplus/(deficit) in the plans | 98 | | 7 | | (155 | ) | (168 | ) | (19 | ) | (561 | ) | (798 | ) |
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| | Related deferred tax | | | | | | | | | | | | | 123 | | Related outside shareholders’ interest | | | | | | | | | | | | | 92 | |
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| | Net post retirement liability | | | | | | | | | | | | | (583 | ) |
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| | Surplus/(deficit) in the plans comprises: | | | | | | | | | | | | | | | Surplus | 121 | | 7 | | 12 | | 2 | | – | | – | | 142 | | Deficit | (23 | ) | – | | (167 | ) | (170 | ) | (19 | ) | (561 | ) | (940 | ) |
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| | | 98 | | 7 | | (155 | ) | (168 | ) | (19 | ) | (561 | ) | (798 | ) |
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| | | | | | | | | | | | | | | | | At 31 December 2002 | UK | | Australia | | US | | Canada | | Other | | Healthcare | | Total | | | US$m | US$m | US$m | US$m | US$m | US$m | US$m |
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| | Total market value of plan assets | 1,272 | | 607 | | 531 | | 515 | | 301 | | – | | 3,226 | | Present value of plan liabilities | (1,178 | ) | (594 | ) | (721 | ) | (670 | ) | (312 | ) | (417 | ) | (3,892 | ) |
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| | Surplus/(deficit) in the plans | 94 | | 13 | | (190 | ) | (155 | ) | (11 | ) | (417 | ) | (666 | ) |
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| | Related deferred tax | | | | | | | | | | | | | 113 | | Related outside shareholders’ interest | | | | | | | | | | | | | 47 | |
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| | Net post retirement liability | | | | | | | | | | | | | (506 | ) |
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| | Surplus/(deficit) in the plans comprises: | | | | | | | | | | | | | | | Surplus | 108 | | 13 | | 45 | | 2 | | – | | – | | 168 | | Deficit | (14 | ) | – | | (235 | ) | (157 | ) | (11 | ) | (417 | ) | (834 | ) |
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| | | | | | | | | | | | | | | | | | 94 | | 13 | | (190 | ) | (155 | ) | (11 | ) | (417 | ) | (666 | ) |
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If the above amounts had been recognised in the financial statements, the Group’s shareholders’ funds at 31 December would have been as follows:
| 2003 | | 2002 | | US$m | US$m |
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| | Shareholders’ funds including SSAP 24 post retirement net asset | 10,037 | | 7,462 | | Deduct: SSAP 24 post retirement net asset | 67 | | 96 | |
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| | Shareholders’ funds excluding SSAP 24 post retirement net asset | 9,970 | | 7,366 | | Add: FRS 17 post retirement net liability | (583 | ) | (506 | ) |
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| | Shareholders’ funds including FRS 17 post retirement net liability | 9,387 | | 6,860 | |
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Movements in deficit during the year
The net post retirement deficit under FRS 17 before deferred tax and outside shareholders interests would have moved as follows during 2003:
| | | | | 2003 | | 2002 | | Pension | Other | Total | Total | benefits | benefits | US$m | US$m |
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| | Net post retirement (deficit)/surplus at 1 January | (249 | ) | (417 | ) | (666 | ) | 78 | | Movement in year: | | | | | | | | | Currency translation adjustment | (21 | ) | (24 | ) | (45 | ) | 19 | | Total current service cost (employer and employee) | (140 | ) | (9 | ) | (149 | ) | (113 | ) | Past service cost | (7 | ) | – | | (7 | ) | (11 | ) | Curtailment and settlement loss (one-off costs associated with early retirements on restructuring) | – | | 3 | | 3 | | (2 | ) | Plan amendments | (10 | ) | – | | (10 | ) | – | | Other net finance (cost)/income | (2 | ) | (28 | ) | (30 | ) | 23 | | Contributions (including employee contributions) | 138 | | 18 | | 156 | | 59 | | Actuarial loss recognised in STRGL | 54 | | (104 | ) | (50 | ) | (719 | ) |
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| | Net post retirement deficit at 31 December | (237 | ) | (561 | ) | (798 | ) | (666 | ) |
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| | Rio Tinto 2003Annual report and financial statements | 127 |
Back to Contents
Notes to the 2003 financial statements continued
41POST RETIREMENT BENEFITS CONTINUED
Amounts which would have been recognised in the profit and loss account and in the STRGL under FRS 17
The following amounts would have been included within operating profit under FRS 17:
| | | | | 2003 | | 2002 | | Pension | Other | Total | Total | benefits | benefits | US$m | US$m |
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| | Employer current service cost | (110 | ) | (12 | ) | (122 | ) | (103 | ) | Past service cost | (7 | ) | – | | (7 | ) | (11 | ) | Curtailment and settlement cost | – | | 3 | | 3 | | (2 | ) |
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| | Total operating charge | (117 | ) | (9 | ) | (126 | ) | (116 | ) |
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Employer contributions of US$9 million (2002: US$13 million) for defined contribution arrangements have been included in the above operating charge.
The following amounts would have been included as other net finance (expense)/income under FRS 17:
| | | | | 2003 | | 2002 | | Pension | Other | Total | Total | benefits | benefits | US$m | US$m |
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| | Expected return on pension scheme assets | 213 | | – | | 213 | | 254 | | Interest on post retirement liabilities | (215 | ) | (28 | ) | (243 | ) | (231 | ) |
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| | Net return | (2 | ) | (28 | ) | (30 | ) | 23 | |
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If the above amounts had been recognised in the financial statements, instead of the SSAP 24 charges, the Group’s reported net earnings for 2003 would have increased by US$17 million (2002: decreased by US$15 million).
The following amounts would have been recognised within the STRGL under FRS 17:
| 2003 | | 2002 | | | US$m | | US$m | |
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| | Difference between the expected and actual return on plan assets: | | | | | Amount (US$m) | 354 | | (599 | ) | As a percentage of plan assets | 9 | % | –19 | % |
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| | Experience gains and losses on plan liabilities: | | | | | (ie variances between the actual estimate of liabilities and the subsequent outcome) | | | | | Amount (US$m) | (118 | ) | 28 | | As a percentage of the present value of the plan liabilities | –2 | % | 1 | % |
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| | Change in assumptions: | | | | | Amount (US$m) | (286 | ) | (148 | ) |
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| | Total amount recognised in STRGL: | | | | | Amount (US$m) | (50 | ) | (719 | ) | As a percentage of the present value of the plan liabilities | –1 | % | 18 | % |
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| | 128 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents
42 | PARENT COMPANY BALANCE SHEETS | | |
| | | Rio Tinto plc (a) | | Rio Tinto Limited (b) | |
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| | As at 31 December | | | 2003 | | 2002 | | 2003 | | 2002 | | | Note | | US$m | | US$m | | A$m | | A$m | |
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| | Fixed assets/non current assets | | | | | | | | | | | Investments | 43 | | 3,590 | | 4,777 | | 8,586 | | 8,159 | | Deferred taxation (d) | 43 | | – | | – | | 392 | | 18 | |
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| | | | | 3,590 | | 4,777 | | 8,978 | | 8,177 | |
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| | Current assets | | | | | | | | | | | Amounts owed by subsidiaries | | | 2,417 | | 1,410 | | 1,284 | | 2,568 | | Accounts receivable and prepayments | | | 133 | | 127 | | – | | – | | Deferred taxation (d) | 43 | | – | | – | | – | | 5 | | Cash at bank and in hand | | | 2 | | 2 | | – | | – | |
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| | | | | 2,552 | | 1,539 | | 1,284 | | 2,573 | |
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| | Creditors due within one year | | | | | | | | | | | Amounts owed to subsidiaries | | | (755 | ) | (313 | ) | (287 | ) | (38 | ) | Accounts payable and accruals | | | (4 | ) | – | | (356 | ) | (12 | ) | Dividends payable | | | (367 | ) | (329 | ) | – | | (259 | ) |
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| | | | | (1,126 | ) | (642 | ) | (643 | ) | (309 | ) |
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| | Net current assets | | | 1,426 | | 897 | | 641 | | 2,264 | |
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| | Total assets less current liabilities | | | 5,016 | | 5,674 | | 9,619 | | 10,441 | |
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| | Creditors due after one year | | | | | | | | | | | Amounts owed to Group companies (c) | | | – | | – | | (4,806 | ) | (6,932 | ) | Provisions, including deferred taxation (d) | 43 | | (46 | ) | (44 | ) | (978 | ) | (1 | ) |
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| | Net assets | | | 4,970 | | 5,630 | | 3,835 | | 3,508 | |
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| | Capital and reserves | | | | | | | | | | | Called up share capital | 43 | | 155 | | 154 | | 1,711 | | 1,703 | | Share premium account | 43 | | 1,629 | | 1,610 | | – | | – | | Other reserves | 43 | | 211 | | 211 | | 536 | | 536 | | Profit and loss account | 43 | | 2,975 | | 3,655 | | 1,588 | | 1,269 | |
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| | Shareholders’ funds | | | 4,970 | | 5,630 | | 3,835 | | 3,508 | |
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(a) | Prepared under UK GAAP. | (b) | Prepared under Australian GAAP. In relation to Rio Tinto Limited, the only significant measurement difference between Australian and UK GAAP is that of proposed dividends, which is described further on page 85. | (c) | The Group companies to which amounts are owed include subsidiaries of Rio Tinto Limited and a subsidiary of Rio Tinto plc. | (d) | On the basis that it is anticipated that Rio Tinto Limited will become the head entity of a tax group under the Australian tax consolidation regime, with effect from 1 January 2003, Rio Tinto Limited has recognised additional assets and liabilities in respect of current and deferred taxation previously attributable to subsidiaries. The transfer of these balances has given rise to corresponding changes in intragroup liabilities and assets. |
The accounts on pages 82 to 134 were approved by the directors on 20 February 2004 and signed on their behalf by:
| | | | | | | | | | Paul Skinner
Chairman | | Leigh Clifford
Chief executive | | Guy Elliott
Finance director | | | | | |
Rio Tinto 2003 Annual report and financial statements | 129 |
Back to Contents
Notes to the 2003 financial statements continued
43 | OTHER PARENT COMPANY DISCLOSURES | | |
| Rio Tinto plc (a) | | Rio Tinto Limited (b) | |
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| | | 2003 | | 2002 | | 2003 | | 2002 | | | US$m | | US$m | | A$m | | A$m | |
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| | Fixed asset investments | | | | | | | | | Shares in Group companies and, for Rio Tinto Limited, other investments: | | | | | | | | | At 1 January | 2,235 | | 2,235 | | 2,586 | | 2,528 | | Additions | – | | – | | 126 | | 58 | |
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| | At 31 December | 2,235 | | 2,235 | | 2,712 | | 2,586 | |
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| | Loans to Group companies: | | | | | | | | | At 1 January | 2,542 | | 2,767 | | 5,573 | | 6,274 | | (Repayments)/advances | (1,187 | ) | (225 | ) | 301 | | (701 | ) |
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| | At 31 December | 1,355 | | 2,542 | | 5,874 | | 5,573 | |
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| | Total | 3,590 | | 4,777 | | 8,586 | | 8,159 | |
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| | Deferred taxation (liability)/asset on a full provision basis | | | | | | | | | At 1 January | (44 | ) | (36 | ) | 23 | | 26 | | Charged to profit and loss account | (2 | ) | (8 | ) | (17 | ) | (3 | ) | Share of disputed tax paid (j) | – | | – | | 73 | | – | | Recognition of subsidiary deferred tax balances due to tax consolidation (d) | – | | – | | (664 | ) | – | |
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| | At 31 December (relating to timing differences) | (46 | ) | (44 | ) | (585 | ) | 23 | |
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| | Share capital account | | | | | | | | | At 1 January | 154 | | 154 | | 1,703 | | 1,693 | | Issue of shares | 1 | | – | | 8 | | 10 | |
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| | At 31 December | 155 | | 154 | | 1,711 | | 1,703 | |
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| | Share premium account | | | | | | | | | At 1 January | 1,610 | | 1,600 | | | | | | Premium on issues of ordinary shares | 19 | | 10 | | | | | |
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| | At 31 December | 1,629 | | 1,610 | | | | | |
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| | Other reserves | | | | | | | | | At 1 January and 31 December | 211 | | 211 | | 536 | | 536 | |
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| | Profit and loss account | | | | | | | | | At 1 January | 3,655 | | 4,252 | | 1,269 | | 793 | | Retained (loss)/profit for year | (680 | ) | (597 | ) | 319 | | 476 | |
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| | At 31 December | 2,975 | | 3,655 | | 1,588 | | 1,269 | |
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| | Contingent liabilities | | | | | | | | | Bank and other performance guarantees | 5,300 | | 4,545 | | 5,527 | | 5,033 | |
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(a) | Prepared under UK GAAP. | (b) | Prepared under Australian GAAP (see note (b) on page 129). | (c) | Profit after tax for the year dealt with in the profit and loss account of the Rio Tinto plc parent company amounted to US$3 million (2002: US$42 million). As permitted by section 230 of the United Kingdom Companies Act 1985, no profit and loss account for the Rio Tinto plc parent company is shown. | (d) | See note (d) on page 129. | (e) | Pursuant to the DLC merger both Rio Tinto plc and Rio Tinto Limited issued deed poll guarantees by which each guaranteed contractual obligations incurred by the other or guaranteed by the other. These guarantees are excluded from the figures above. | (f) | Bank and other performance guarantees relate principally to the obligations of subsidiary companies. | (g) | The Group has a US$3 billion European Medium Term Note programme. Amounts utilised by subsidiary companies under this programme are guaranteed by the parent companies and were US$1.6 billion at the year end. | (h) | Auditor’s remuneration for the audit of Rio Tinto plc was US$0.8 million (2002: US$0.6 million). | (i) | In relation to Rio Tinto Limited, the only significant measurement difference between Australian and UK GAAP is that of proposed dividends, which is described further on page 85. | (j) | Note 29 provides information regarding tax assessments issued to Group companies. |
| | 130 | Rio Tinto 2003 Annual report and financial statements | | |
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44 | RIO TINTO LIMITED PROFIT AND LOSS ACCOUNT | | |
| Rio Tinto Limited (a) | |
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| | | 2003 | | 2002 | | | A$m | | A$m | |
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| | Dividend income | 593 | | 1,270 | | (Increase)/decrease in provision against carrying value of investments | 177 | | (42 | ) | Other operating costs | (42 | ) | (45 | ) |
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| | Operating profit | 728 | | 1,183 | | Interest receivable and similar charges | 126 | | 173 | | Interest payable and similar charges | (38 | ) | (63 | ) |
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| | Profit on ordinary activities before taxation | 816 | | 1,293 | | Taxation | (14 | ) | (20 | ) |
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| | Retained profit for the financial year | 802 | | 1,273 | |
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(a) | Prepared under Australian GAAP (see note (b) on page 129). |
| | 45 | RIO TINTO LIMITED CASH FLOW STATEMENT | | |
| Rio Tinto Limited (a) | |
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| | | 2003 | | 2002 | | | A$m | | A$m | |
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| | Operating profit | 728 | | 1,183 | | Provisions | (177 | ) | 42 | |
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| | Cash flow from operating activities | 551 | | 1,225 | | Interest received | 125 | | 172 | | Interest paid | (59 | ) | (62 | ) |
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| | Returns on investment and servicing of finance | 66 | | 110 | | Taxation | (80 | ) | 2 | | Funding of related parties repaid/(advanced) | 2,266 | | (26 | ) | Funding of other entities repaid | 15 | | 6 | |
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| | Capital expenditure and financial investment | 2,281 | | (20 | ) | Purchase of investments | (17 | ) | (103 | ) | Sale of investments | – | | 4 | |
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| | Acquisitions less disposals | (17 | ) | (99 | ) | Equity dividends paid to Rio Tinto Limited shareholders | (742 | ) | (917 | ) | Cash inflow before management of liquid resources and financing | 2,059 | | 301 | | Ordinary shares in Rio Tinto Limited issued for cash | 7 | | 10 | | Loans (repaid) less received | (2,066 | ) | (311 | ) |
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| | Management of liquid resources and financing | (2,059 | ) | (301 | ) |
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| | Increase in cash | – | | – | |
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(a) | Prepared under Australian GAAP (see note (b) on page 129). | | |
Rio Tinto 2003 Annual report and financial statements | 131 |
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Financial information by business unit
| | | Gross turnover (a) | | EBITDA (b) | | Net earnings (c) | |
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| | | Rio Tinto Interest | | 2003 | | 2002 | | 2003 | | 2002 | | 2003 | | 2002 | | | % | | US$m | | US$m | | US$ | | US$m | | US$m | | US$m | |
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| | Iron Ore | | | | | | | | | | | | | | | Hamersley (inc. HIsmelt®) | 100.0 | | 1,329 | | 1,117 | | 711 | | 676 | | 424 | | 401 | | Robe River | 53.0 | | 374 | | 240 | | 213 | | 160 | | 68 | | 54 | | Iron Ore Company of Canada | 58.7 | | 442 | | 400 | | 47 | | 25 | | 7 | | (3 | ) |
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| | | | | 2,145 | | 1,757 | | 971 | | 861 | | 499 | | 452 | |
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| | Energy | | | | | | | | | | | | | | | Kennecott Energy | 100.0 | | 955 | | 949 | | 236 | | 267 | | 88 | | 90 | | Rio Tinto Coal Australia | 100.0 | | 433 | | 417 | | 157 | | 233 | | 70 | | 134 | | Kaltim Prima Coal | (d) | | 142 | | 216 | | 74 | | 79 | | 31 | | 26 | | Coal & Allied | 75.7 | | 597 | | 623 | | 52 | | 207 | | (24 | ) | 68 | | Rössing | 68.6 | | 86 | | 112 | | (33 | ) | 50 | | (19 | ) | 23 | | Energy Resources of Australia | 68.4 | | 131 | | 113 | | 58 | | 50 | | 11 | | 12 | |
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| | | | | 2,344 | | 2,430 | | 544 | | 886 | | 157 | | 353 | |
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| | Industrial Minerals | | | 1,801 | | 1,847 | | 465 | | 717 | | 154 | | 286 | |
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| | Aluminium | (e) | | 1,936 | | 1,662 | | 488 | | 510 | | 200 | | 256 | |
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| | Copper | | | | | | | | | | | | | | | Kennecott Utah Copper | 100.0 | | 722 | | 755 | | 230 | | 236 | | 88 | | 86 | | Escondida | 30.0 | | 502 | | 283 | | 284 | | 121 | | 122 | | 32 | | Freeport | 13.1 | | 344 | | 306 | | 169 | | 139 | | 23 | | 19 | | Freeport joint venture | 40.0 | | 397 | | 349 | | 225 | | 215 | | 104 | | 113 | | Palabora | 49.2 | | 206 | | 201 | | 20 | | 53 | | 1 | | 12 | | Kennecott Minerals | 100.0 | | 239 | | 205 | | 122 | | 93 | | 60 | | 38 | | Rio Tinto Brasil | (f) | | 139 | | 115 | | 48 | | 40 | | 48 | | 16 | | Other Copper | (d) | | 176 | | 254 | | 51 | | 100 | | (6 | ) | 25 | |
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| | | | | 2,725 | | 2,468 | | 1,149 | | 997 | | 440 | | 341 | |
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| | Diamonds | | | | | | | | | | | | | | | Argyle | 100.0 | | 434 | | 372 | | 198 | | 175 | | 72 | | 63 | | Diavik | 60.0 | | 122 | | – | | 106 | | – | | 41 | | – | |
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| | | | | 556 | | 372 | | 304 | | 175 | | 113 | | 63 | |
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| | | | | | | | | | | | | | | | | Other operations | | | 184 | | 208 | | 77 | | 81 | | 21 | | 25 | | | | | | | | | | | | | | | | |
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| | Product group total | | | 11,691 | | 10,744 | | 3,998 | | 4,227 | | 1,584 | | 1,776 | |
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| | Other items | | | 64 | | 84 | | (233 | ) | (137 | ) | (45 | ) | (42 | ) | Exploration and evaluation | | | | | | | (127 | ) | (130 | ) | (98 | ) | (109 | ) | Net interest | | | | | | | | | | | (59 | ) | (95 | ) |
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| | Adjusted earnings | | | | | | | | | | | 1,382 | | 1,530 | | Exceptional items | | | | | | | 126 | | (116 | ) | 126 | | (879 | ) |
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| | Total | | | 11,755 | | 10,828 | | 3,764 | | 3,844 | | 1,508 | | 651 | |
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| | Depreciation & amortisation in subsidiaries | | | | | | | (1,006 | ) | (954 | ) | | | | | Asset write-downs relating to subsidiaries & joint ventures | | | | | | | – | | (955 | ) | | | | | Depreciation & amortisation in joint ventures and associates | | | | | | | (366 | ) | (333 | ) | | | | |
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| | Profit on ordinary activities before interest and tax | | | | | | | 2,392 | | 1,602 | | | | | |
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(a) | Gross turnover includes 100 per cent of subsidiaries’ turnover and the Group’s share of the turnover of joint ventures and associates. | (b) | EBITDA of subsidiaries, joint ventures and associates represents profit before: tax, net interest payable, depreciation and amortisation. | (c) | Net earnings represent after tax earnings attributable to the Rio Tinto Group. Earnings of subsidiaries are stated before interest charges but after the amortisation of the discount related to provisions. Earnings attributable to joint ventures and associates include interest charges. | (d) | During 2003, Rio Tinto sold its interests in Kaltim Prima Coal, Alumbrera and Peak. | (e) | Includes Rio Tinto’s interest in Anglesey Aluminium (51 per cent) and Comalco (100 per cent). | (f) | Includes Morro do Ouro in which Rio Tinto’s interest is 51 per cent and Fortaleza in which Rio Tinto’s interest was 99.9 per cent at 31 December 2003. | (g) | Business units have been classified above according to the Group’s management structure. Generally, this structure has regard to the primary product of each business unit but there are exceptions. For example, the Copper group includes certain gold operations. This summary differs, therefore, from the Product analysis in which the contributions of individual business units are attributed to several products as appropriate. | (h) | The product group previously known as ‘Diamonds & Gold’ has been redesignated the ‘Diamonds’ group, with effect from 1 January 2003. Kennecott Minerals and Rio Tinto Brasil are now included in the ‘Copper’ group. Kelian, Lihir, and Rio Tinto Zimbabwe are included in ‘Other operations’. In addition Anglesey Aluminium has been transferred from ‘Copper’ to ‘Aluminium’. |
| | 132 | Rio Tinto 2003Annual report and financial statements |
Back to Contents
| Capital expenditure (j) | | Depreciation & | | Operating assets (l) | | Employees (m) | | | | | | | amortisation (k) | | | | | | | | | |
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| | | 2003 | | 2002 | | 2003 | | 2002 | | 2003 | | 2002 | | 2003 | | 2002 | | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | Number | | Number | |
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| | Iron Ore | | | | | | | | | | | | | | | | | Hamersley (inc. HIsmelt®) | 298 | | 79 | | 110 | | 94 | | 1,543 | | 923 | | 2,169 | | 2,006 | | Robe River | 75 | | 81 | | 74 | | 50 | | 1,852 | | 1,409 | | 478 | | 496 | | Iron Ore Company of Canada | 37 | | 39 | | 29 | | 35 | | 489 | | 416 | | 1,884 | | 1,936 | |
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| | | 410 | | 199 | | 213 | | 179 | | 3,884 | | 2,748 | | 4,531 | | 4,438 | |
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| | Energy | | | | | | | | | | | | | | | | | Kennecott Energy | 168 | | 152 | | 105 | | 128 | | 561 | | 486 | | 1,776 | | 1,710 | | Rio Tinto Coal Australia | 92 | | 126 | | 52 | | 37 | | 649 | | 406 | | 755 | | 679 | | Kaltim Prima Coal | 2 | | 5 | | 16 | | 21 | | – | | 46 | | 2,108 | | 2,760 | | Coal & Allied | 34 | | 58 | | 91 | | 69 | | 787 | | 626 | | 1,338 | | 1,375 | | Rössing | 4 | | 5 | | 7 | | 5 | | 46 | | 48 | | 810 | | 786 | | Energy Resources of Australia | 5 | | 4 | | 30 | | 23 | | 178 | | 140 | | 238 | | 262 | |
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| | | 305 | | 350 | | 301 | | 283 | | 2,221 | | 1,752 | | 7,025 | | 7,572 | |
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| | Industrial Minerals | 139 | | 133 | | 172 | | 158 | | 2,038 | | 2,063 | | 6,581 | | 6,723 | |
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| | Aluminium | 436 | | 269 | | 169 | | 137 | | 3,258 | | 2,365 | | 4,223 | | 3,929 | |
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| | Copper | | | | | | | | | | | | | | | | | Kennecott Utah Copper | 83 | | 97 | | 92 | | 129 | | 1,277 | | 1,378 | | 1,406 | | 1,596 | | Escondida | 45 | | 117 | | 79 | | 52 | | 492 | | 449 | | 722 | | 704 | | Freeport | 33 | | 23 | | 54 | | 50 | | 144 | | 128 | | 1,165 | | 1,445 | | Freeport joint venture | 60 | | 55 | | 43 | | 40 | | 417 | | 412 | | | | | | Palabora | 66 | | 64 | | 17 | | 13 | | 426 | | 287 | | 2,043 | | 2,176 | | Kennecott Minerals | 9 | | 21 | | 42 | | 43 | | 136 | | 155 | | 672 | | 763 | | Rio Tinto Brasil | 19 | | 14 | | (18 | ) | 11 | | 138 | | 91 | | 1,393 | | 1,320 | | Other Copper | 63 | | 60 | | 52 | | 73 | | 335 | | 443 | | 931 | | 1,266 | |
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| | | 378 | | 451 | | 361 | | 411 | | 3,365 | | 3,343 | | 8,332 | | 9,270 | |
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| | Diamonds | | | | | | | | | | | | | | | | | Argyle | 22 | | 31 | | 76 | | 76 | | 600 | | 488 | | 750 | | 751 | | Diavik | 78 | | 206 | | 34 | | – | | 674 | | 484 | | 298 | | 250 | |
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| | | 100 | | 237 | | 110 | | 76 | | 1,274 | | 972 | | 1,048 | | 1,001 | |
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| | Other operations | 4 | | 6 | | 37 | | 36 | | 98 | | 114 | | 2,228 | | 2,789 | | | | | | | | | | | | | | | | | | |
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| | Product group total | 1,772 | | 1,645 | | 1,363 | | 1,280 | | 16,138 | | 13,357 | | 33,968 | | 35,722 | |
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| | Other items | 17 | | 13 | | 9 | | 7 | | (455 | ) | (148 | ) | 2,048 | | 1,451 | | Less: Joint ventures and associates (j) (k) | (181 | ) | (241 | ) | (366 | ) | (333 | ) | | | | | | | | |
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| | Total | 1,608 | | 1,417 | | 1,006 | | 954 | | 15,683 | | 13,209 | | 36,016 | | 37,173 | |
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| | Less: net debt | | | | | | | | | (5,646 | ) | (5,747 | ) | | | | |
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| | Net assets | | | | | | | | | 10,037 | | 7,462 | | | | | |
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(i)
| From 1 January 2003 the way in which post retirement costs are attributed to business units, and consequently product groups, has been revised. The regular cost component of post retirement costs is included in business unit earnings and the balance of post retirement cost is recognised centrally in other items. The analyses of 2002 Net Earnings, EBITDA and Operating assets have been restated to reflect this allocation. There is no impact on Net earnings or Operating assets for the Group. | (j)
| 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 joint ventures and associates. Amounts relating to joint ventures and associates not specifically funded by Rio Tinto are deducted before arriving at total capital expenditure for the Group. | (k)
| Depreciation figures include 100 per cent of subsidiaries’ depreciation and amortisation of goodwill and include Rio Tinto’s share of the depreciation and goodwill amortisation of joint ventures and associates. Amounts relating to joint ventures and associates are deducted before arriving at the total depreciation charge. | (l)
| 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 (ie net of such companies’ debt). For joint ventures and associates, Rio Tinto’s net investment is shown. For joint ventures and associates shown above, Rio Tinto’s shares of operating assets, defined as for subsidiaries, are as follows: Escondida US$905 million (2002: US$913 million), Freeport joint venture US$417 million (2002: US$412 million), Freeport associate US$380 million (2002: US$533 million). | (m)
| Employee numbers, which represent the average for the year, include 100 per cent of employees of subsidiary companies. Employee numbers for joint arrangements, joint ventures and associates are proportional to the Group’s equity interest. Part time employees are included on a full time equivalent basis and people employed by contractors are not included. Temporary employees are included in employee numbers. Figures for 2002 have been restated. |
| | Rio Tinto 2003 Annual report and financial statements | 133 |
Back to Contents
Australian Corporations Act – summary of ASIC class order relief
Pursuant to section 340 of the Corporations Act 2001 (Corporations Act), the Australian Securities and Investments Commission issued an order dated 21 July 2003 that granted relief to Rio Tinto Limited from certain requirements of the Corporations Act in relation to the Company’s financial statements. The order essentially continues the relief that has applied to Rio Tinto Limited since the formation of the Group’s dual listed companies structure in 1995. The order applies to Rio Tinto Limited’s financial reporting obligations for financial years and half-years ending between 30 June 2003 and 31 December 2004 (inclusive).
In essence, the order allows Rio Tinto Limited to prepare, and to treat as the principal financial statements for it and its controlled entities, combined financial statements of Rio Tinto Limited and Rio Tinto plc and their respective controlled entities as if the Group constituted a single economic entity and the combined financial statements were consolidated financial statements. In addition, those combined financial statements are to be prepared: | – | on the basis of ‘merger’, rather than ‘acquisition’, accounting under UK GAAP (ie on the basis that Rio Tinto Limited was not acquired by, and is not controlled by, Rio Tinto plc and that carrying amounts, rather than fair values, of assets and liabilities at the time of formation of the Group’s dual listed companies structure were used to measure those assets and liabilities at formation); | – | in accordance with the principles and requirements of UK GAAP, rather than Australian GAAP (except for one limited instance in the case of any concise report), and in accordance with United Kingdom financial reporting obligations generally; | – | with United States dollars as the reporting currency (although translations to Australian dollars and United Kingdom pounds may be included, and translations to Australian dollars are required for a summary statement of financial position for the Group); and | – | with a reconciliation of information from UK GAAP to Australian GAAP (see page 85). |
The combined financial statements must also be audited in accordance with relevant United Kingdom requirements. Rio Tinto Limited must also prepare a directors’report which satisfies the content requirements of the Corporations Act (applied on the basis that the consolidated entity for those purposes is the Group). Rio Tinto Limited is also required to comply generally with the lodgement and distribution requirements of the Corporations Act (including timing requirements) in relation to the combined financial statements (including any concise report), the Auditor’s report and the Directors’report.
Rio Tinto Limited is not required to prepare consolidated financial statements for it and its controlled entities. Rio Tinto Limited is required to prepare and lodge parent entity financial statements for itself in respect of each relevant financial year, in accordance with the principles and requirements of Australian GAAP and with Australian dollars as the reporting currency, and to have those statements audited. The statements are not required to be laid before the Company’s annual general meeting or distributed to shareholders as a matter of course.
However, Rio Tinto Limited must: | – | include in the combined financial statements for the Group, as a note, summary parent entity financial statements for Rio Tinto Limited (ie summary statements of financial position, financial performance and cash flows), prepared in accordance with Australian GAAP and with Australian dollars as the reporting currency; and | – | make available the full parent entity financial statement free of charge to shareholders on request, and also include a copy of them on the Company’s website. |
The parent entity financial statements are available for download from the Rio Tinto website at www.riotinto.com. Shareholders may also request a copy free of charge by contacting the Rio Tinto Limited company secretary.
Directors’ Declaration
The financial statements and notes have been prepared in accordance with applicable United Kingdom law and accounting standards and other relevant financial reporting requirements and in accordance with applicable Australian law.
The financial statements and notes give a true and fair view of the state of affairs of the Rio Tinto Group, Rio Tinto plc and Rio Tinto Limited at31 December 2003 and of the profit and cash flows of the Group for the year then ended.
In the directors’ opinion: | – | The financial statements and notes are in accordance with the United Kingdom Companies Act 1985 and the Australian Corporations Act 2001 as amended by the Australian Securities and Investments Commission order dated 21 July 2003. | – | There are reasonable grounds to believe each of the Rio Tinto Group, Rio Tinto plc and Rio Tinto Limited has adequate financial resources to continue in operational existence for the foreseeable future and to pay its debts as and when they become due and and payable. |
By order of the board
| | | Paul Skinner | Leigh Clifford | Guy Elliott | Chairman | Chief executive | Finance director | 20 February 2004 | 20 February 2004 | 20 February 2004 |
| | 134 | Rio Tinto 2003Annual report and financial statements |
Back to Contents
Independent auditors' report
To the Board of Directors and Shareholders of Rio Tinto plc and Rio Tinto Limited
We have audited the accompanying consolidated balance sheets of the Rio Tinto Group as of 31 December 2003 and 2002, and the related consolidated profit and loss statements, cash flow statements and statements of total recognised gains and losses for the years ended 31 December 2003 and 31 December 2002. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Rio Tinto Group at 31 December 2003 and 2002, and the results of its operations and its cash flows for the years ended 31 December 2003 and 31 December 2002, in conformity with accounting principles generally accepted in the United Kingdom.
/s/ PricewaterhouseCoopers LLP | /s/ PricewaterhouseCoopers | PricewaterhouseCoopers LLP | PricewaterhouseCoopers | Chartered Accountants and Registered Auditors | Chartered Accountants | London, United Kingdom | Perth, Australia | 20 February 2004 | 20 February 2004 |
| | Rio Tinto 2003 Annual report and financial statements | 135 |
Back to Contents
Summary financial data in Australian dollars, sterling and US dollars
2003 | | 2002 | | 2003 | | 2002 | | | 2003 | | 2002 | | A$m | A$m | £m | £m | US$m | US$m |
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| | 18,143 | | 19,945 | | 7,198 | | 7,219 | | Gross turnover (including share of | 11,755 | | 10,828 | | | | | | | | | | joint ventures and associates) | | | | | | | | | | | | | | | | | | 3,232 | | 2,415 | | 1,282 | | 874 | | Profit on ordinary activities before taxation | 2,094 | | 1,311 | | | | | | | | | | | | | | | 2,133 | | 2,818 | | 846 | | 1,020 | | Adjusted earnings(a) | 1,382 | | 1,530 | | | | | | | | | | | | | | | 2,327 | | 1,199 | | 923 | | 434 | | Profit for the financial period (net earnings) | 1,508 | | 651 | | | | | | | | | | | | | | | 169.0 | c | 87.1 | c | 67.1 | p | 31.5 | p | Earnings per ordinary share | 109.5 | c | 47.3 | c | 154.8 | c | 204.7 | c | 61.4 | p | 74.1 | p | Adjusted earnings per ordinary share (a) | 100.3 | c | 111.2 | c | | | | | | | | | | | | | | | | | | | | | | Dividends per share to Rio Tinto shareholders | | | | | | | | | 37.13 | p | 37.47 | p | –Rio Tinto plc | 64.0 | c | 60.0 | c | 89.70 | c | 105.93 | c | | | | | –Rio Tinto Limited | 64.0 | c | 60.0 | c |
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| | 5,380 | | 6,896 | | 2,135 | | 2,496 | | Total cash flow from operations | 3,486 | | 3,743 | | | | | | | | | | | | | | | (2,582 | ) | (3,444 | ) | (1,024 | ) | (1,246 | ) | Capital expenditure and financial investment | (1,673 | ) | (1,870 | ) |
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| | (7,540 | ) | (10,144 | ) | (3,170 | ) | (3,586 | ) | Net debt | (5,646 | ) | (5,747 | ) | | | | | | | | | | | | | | 13,404 | | 13,169 | | 5,636 | | 4,656 | | Equity shareholders’funds | 10,037 | | 7,462 | |
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(a) | Adjusted earnings exclude profit on disposal of interests in subsidiary, joint venture and associate of US$126 million, and for 2002 excluded exceptional charges of US$879 million. | (b) | The financial data above have been extracted from the primary financial statements set out on pages 82 to 84. The Australian dollar and sterling amounts are based on the US dollar amounts, retranslated at average or closing rates as appropriate, except for the dividends, which are the actual amounts payable. For further information on these exchange rates, please see page 122. |
| | 136 | Rio Tinto 2003Annual report and financial statements |
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Supplementary information for United States investors
RECONCILIATION WITH US GAAP | 2003 | | 2002 | | US$m | US$m |
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| | Net earnings under UK GAAP | 1,508 | | 651 | | Increase/(decrease) before tax in respect of: | | | | | Amortisation of goodwill – subsidiaries and joint arrangements | 76 | | 90 | | Amortisation of intangibles – subsidiaries and joint arrangements | (40 | ) | (59 | ) | Amortisation of intangibles – equity accounted companies | (7 | ) | (9 | ) | Exchange differences included in earnings under US GAAP | 1,019 | | 240 | | Mark to market of certain derivative contracts | 287 | | 157 | | Adjustments to asset carrying values | (32 | ) | (89 | ) | Pensions/post retirement benefits | 59 | | 1 | | Exploration and evaluation | (24 | ) | (17 | ) | Share options | (21 | ) | (17 | ) | Effect of historical average commodity prices in ore reserve determination | (82 | ) | – | | Start up costs | (31 | ) | (8 | ) | Other | (125 | ) | (73 | ) | Tax effect of above adjustments | (396 | ) | (114 | ) | Other tax adjustments | (5 | ) | (13 | ) | Outside shareholders’ interests in the above adjustments | (31 | ) | (159 | ) |
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| | Income before cumulative effect of change in accounting principle | 2,155 | | 581 | | Cumulative effect of change in accounting principle for close down and restoration costs | (178 | ) | – | |
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| | | | | | | Net income under US GAAP | 1,977 | | 581 | |
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| | | | | | | Basic earnings per ordinary share under US GAAP | | | | | Before cumulative effect of change in accounting principle | 156.4 | c | 42.2 | c | After cumulative effect of change in accounting principle | 143.5 | c | 42.2 | c |
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| | Diluted earnings per ordinary share under US GAAP | | | | | Before cumulative effect of change in accounting principle | 156.2 | c | 42.1 | c | After cumulative effect of change in accounting principle | 143.3 | c | 42.1 | c |
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| | Shareholders’ funds under UK GAAP | 10,037 | | 7,462 | | Increase/(decrease) before tax in respect of: | | | | | Goodwill – subsidiaries and joint arrangements | 1,198 | | 1,065 | | Goodwill – equity accounted companies | 352 | | 352 | | Intangibles – subsidiaries and joint arrangements | 240 | | 271 | | Intangibles – equity accounted companies | 42 | | 49 | | Mark to market of derivative contracts | 381 | | (54 | ) | Adjustments to asset carrying values | 505 | | 553 | | Pensions/post retirement benefits | (469 | ) | (472 | ) | Exploration and evaluation | (180 | ) | (124 | ) | Share options | (60 | ) | (38 | ) | Effect of historical average commodity prices in ore reserve determination | (82 | ) | – | | Higher cost of sales resulting from acquisition accounting | (64 | ) | (49 | ) | Provision for close down and restoration costs | 53 | | 287 | | Start up costs | (156 | ) | (110 | ) | Proposed dividends | 469 | | 430 | | Other | (111 | ) | (18 | ) | Tax effect of above adjustments | (102 | ) | (60 | ) | Deferred tax on acquisitions: | | | | | Impact on mining property | 831 | | 825 | | Impact on tax provisions | (831 | ) | (825 | ) | Other tax adjustments | 69 | | 74 | | Outside shareholders’ interests in the above adjustments | (78 | ) | (101 | ) |
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| | Shareholders’ funds under US GAAP | 12,044 | | 9,517 | |
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The Group’s financial statements have been prepared in accordance with generally accepted accounting principles in the United Kingdom(‘UK GAAP’), which differ in certain respects from those in the United States (‘US GAAP’). These differences relate principally to the following items, and the effect of each of the adjustments to net earnings and shareholders’ funds that would be required under US GAAP is set out above.
| | Rio Tinto 2003 Annual report and financial statements | 137 |
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Supplementary information for United States investors continued
RECONCILIATION WITH US GAAP CONTINUED
Goodwill
For 1997 and prior years, UK GAAP permitted the write off of purchased goodwill on acquisition, directly against reserves. For acquisitions in 1998 and subsequent years, goodwill is capitalised and amortised over its expected useful life under UK GAAP. Under US GAAP, goodwill is capitalised and, until 2001, was amortised by charges against income over the period during which it was expected to be of benefit, subject to a maximum of 40 years. Goodwill previously written off directly to reserves in the UK GAAP financial statements was therefore reinstated and amortised, under US GAAP. From 1 January 2002, goodwill and indefinite lived intangible assets are no longer amortised under US GAAP but are reviewed annually for impairment under FAS 142 ‘Goodwill and Other Intangible Assets’. Goodwill amortisation of US$76 million charged against UK GAAP earnings for 2003 (2002: US$90 million) is added back in the US GAAP reconciliation.
Intangible assets under US GAAP
The implementation of FAS 141 resulted in the reclassification of US$340 million from goodwill to finite lived intangible assets at 1 January 2002. The accumulated cost relating to these intangible assets at 31 December 2003 was US$714 million and accumulated amortisation was US$432 million. The total amortisation expense was US$47 million of which US$16 million is related to the amortisation of goodwill previously written off to reserves under UK GAAP now reclassified as finite lived intangible assets under US GAAP. The remaining US$31 million relates to the amortisation of goodwill included as an asset on the UK GAAP balance sheet but now reclassified as finite lived intangible assets under US GAAP. The estimated amortisation charge relating to intangible assets for each of the next five years is US$47 million.
Exchange differences included in earnings under US GAAP
The Group finances its operations primarily in US dollars and a significant proportion of the Group’s US dollar debt is located in its Australian operations. Under UK GAAP, this debt is dealt with in the context of the currency status of the Group as a whole and exchange differences reported by the Australian operations are adjusted through reserves. US GAAP permits such exchange gains and losses to be taken to reserves only to the extent that the US dollar debt hedges US dollar assets in the Australian Group. Exchange gains of US$1,019 million pre tax (2002: US$240 million), US$623 million net of tax and minorities (2002: US$177 million net of tax and minorities), on US dollar debt that do not qualify for hedge accounting under US GAAP have therefore been recorded in US GAAP earnings.
Mark to market of derivative contracts
The Group is party to derivative contracts in respect of some of its future transactions in order to hedge its exposure to fluctuations in exchange rates against the US dollar. Under UK GAAP, these contracts are accounted for as hedges: gains and losses are deferred and subsequently recognised when the hedged transaction occurs. However, certain of the Group’s derivative contracts do not qualify for hedge accounting under FAS 133 ‘Accounting for Derivative Instruments and Hedging Activities’, principally because the hedge is not located in the entity with the relevant exposure. Unrealised pre tax gains of US$182 million (2002: US$148 million), US$115 million after tax and minorities (2002: US$104 million after tax and minorities), on such derivatives have therefore been recorded in US GAAP earnings. Realised gains of US$105 million pre tax (2002: US$9 million pre tax), US$75 million after tax and minorities (2002: US$6 million after tax and minorities), which have been capitalised under UK GAAP have also been recorded in earnings under US GAAP.
Adjustments to asset carrying values
Following the implementation of FRS 11 in 1998, impairment of fixed assets under UK GAAP is recognised and measured by reference to the discounted cash flows expected to be generated by an income generating unit. Under US GAAP, impairment is recognised only when the anticipated undiscounted cash flows are insufficient to recover the carrying value of the income generating unit. Where an asset is found to be impaired under US GAAP, the amount of such impairment is generally similar under US GAAP to that computed under UK GAAP, except where the US GAAP carrying value includes additional goodwill.
Under UK GAAP, impairment provisions may be written back in a future year if the expected recoverable amount of the asset increases. Such write backs of provisions are not permitted under US GAAP. Therefore, any credits to UK GAAP earnings resulting from such write backs are reversed in the reconciliation to US GAAP.
Pensions/post retirement benefits
Under UK GAAP, post retirement benefits are accounted for in accordance with Statement of Standard Accounting Practice 24. The expected costs under defined benefit arrangements are spread over the service lives of employees entitled to those benefits. Variations from the regular cost are spread on a straight line basis over the expected average remaining service lives of relevant current employees. Under US GAAP, the annual pension cost comprises the estimated cost of benefits accruing in the period adjusted for the amortisation of the surplus arising when FAS 87, ‘Employers’ Accounting for Pensions’, was adopted. The charge is further adjusted to reflect the cost of benefit improvements and any surpluses/deficits that emerge as a result of variances from actuarial assumptions. For US purposes, only those surpluses/deficits outside a ten per cent fluctuation ‘corridor’ are spread.
The reductions in shareholders’ funds at 31 December 2003 and 2002 also include the effect of the US GAAP requirement to make immediate provision for pension fund deficits through other comprehensive income. The provision reflects the reduction in equity values over recent years.
Mandatory implementation of FRS 17, ‘Retirement Benefits’, has been delayed until 2005 but additional disclosures are required for 2001 onwards, which are included in note 41 to the financial statements.
Exploration and evaluation
Under UK GAAP, expenditure on a project can be carried forward after it has reached a stage where there is a high degree of confidence in its viability. US GAAP does not allow expenditure to be carried forward unless the viability of the project is supported by a final feasibility study. In addition, under UK GAAP, provisions made against exploration and evaluation in prior years can be reversed when the project proceeds to development, to the extent that the relevant costs are recoverable. US GAAP does not allow such provisions to be reversed.
Share option plans
Under UK GAAP, no cost is accrued where the option scheme applies to all relevant employees and the intention is to satisfy the share options by the issuance of new shares. Under the fair value recognition provisions of FAS 123, ‘Accounting for Stock-Based Compensation’, the fair value of the options is determined using an option pricing model.
138 | Rio Tinto 2003 Annual report and financial statements |
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RECONCILIATION WITH US GAAP CONTINUED
Effect of historical average commodity prices in ore reserve determination
For UK and Australian reporting, the Group’s ore reserve estimates are determined in accordance with the JORC code and are based on forecasts of future commodity prices. During 2003, the SEC formally indicated that, for US reporting, historical price data should be used. The application of historical prices has led to reduced ore reserve quantities for US reporting purposes for certain of the Group’s operations, which results in lower earnings for US reporting, largely as a result of higher depreciation charges. Details of the differences in ore reserves used for US reporting are set out on page 147.
Higher cost of sales resulting from acquisition accounting
Under UK GAAP, the inventories of acquired companies are valued at the lower of replacement cost and net realisable value. Under US GAAP, such inventories are recognised at the time of acquisition on the basis of expected net sales proceeds. There is no effect on 2003 earnings.
Provisions for close down and restoration costs
FAS 143 ‘Accounting for Asset Retirement Obligations’ has been implemented with effect from 1 January 2003. Under this US standard, provision is made in the accounting period when the related environmental disturbance occurs, based on the net present value of estimated future costs. The costs so recognised are capitalised and depreciated over the estimated useful life of the related asset. In each subsequent year, the discount applied to the provision ‘unwinds’, resulting in a charge to the profit and loss account for the year and an increase in the present value of the provision. This accounting treatment is broadly similar to Rio Tinto’s established policy under UK GAAP. Consequently, the pre tax adjustment to the ‘Provision for close down and restoration costs’ included in the above reconciliation at 31 December 2002 has now been substantially reduced through the cumulative effect of this change in accounting principle.
Start up costs
Under US GAAP, Statement of Position 98-5, ‘Reporting on the Costs of Start up Activities’, requires that the costs of start up activities are expensed as incurred. Under UK GAAP, some of these start up costs qualify for capitalisation and are amortised over the economic lives of the relevant assets.
Proposed dividends
Under UK GAAP, ordinary dividends are recognised in the financial year in respect of which they are paid. Under US GAAP, such dividends are not recognised until they are formally declared by the board of directors or approved by the shareholders.
Other
Other adjustments include amounts relating to differences between UK and US accounting principles in respect of depreciation of mining assets, revenue recognition and unrealised holding gains and losses.
Depreciation of mining assets – Under UK GAAP, mining assets are fully depreciated over their economic lives or the remaining life of the mine if shorter. In some cases, mineral resources that do not yet have the status of reserves are taken into account in determining depreciation charges, where there is a high degree of confidence that they will be mined economically. For US GAAP, only ‘proven and probable reserves’ are taken into account in the calculation of depreciation, depletion and amortisation charges. As a result, adjustments have been made to depreciation reducing US GAAP pre tax earnings by US$59 million (2002: US$10 million).
Revenue recognition – Staff Accounting Bulletin No. 101 (‘SAB 101’) ‘Revenue Recognition in Financial Statements’ has the result that, in some cases, sales recorded as revenue under UK GAAP are deferred and are not recognised as revenue under US GAAP until a future accounting period. Occasionally, sales of goods recorded as revenue for UK GAAP purposes may be kept in store by Rio Tinto at the request of the buyer. Under US GAAP, such transactions cannot be recognised as revenue unless the goods are physically segregated from the supplier’s other inventory and certain additional criteria are met. In 2003, such timing differences resulted in a reduction in US GAAP pre tax earnings of US$17 million (2002: US$4 million increase).
Unrealised holding gains and losses – UK GAAP permits current asset investments to be valued at the lower of cost and net realisable value. Under US GAAP, FAS 115 requires that unrealised holding gains and losses on investments classified as ‘available for sale’ are reported within a separate component of shareholders’ funds and excluded from earnings until realised.
Taxation
Under UK GAAP, provision for taxes arising on remittances of earnings can only be made if the dividends have been accrued or if there is a binding agreement for the distribution of the earnings. Under US GAAP, provision must be made for tax arising on expected future remittances of past earnings.
Under UK GAAP, deferred tax is not provided in respect of upward fair value adjustments to tangible fixed assets and inventories made on acquisitions. Under US GAAP, deferred tax must be provided on all fair value adjustments to non monetary assets recorded on acquisition with a consequential increase in the amount allocated to mining properties or goodwill as appropriate.
Under UK GAAP, tax benefits associated with goodwill charged directly to reserves in 1997 and previous years, must be accumulated in the deferred tax provision. This means that the tax benefits are not included in earnings until the related goodwill is charged through the profit and loss account on disposal or closure. For US GAAP, no provision is required for such deferred tax because the goodwill that gave rise to these tax benefits was capitalised and gives rise to amortisation charges against profit.
Consolidated statement of cash flows
The consolidated statement of cash flows prepared in accordance with FRS 1 (revised) presents substantially the same information as that required under US GAAP. Under US GAAP, however, there are certain differences from UK GAAP with regard to the classification of items within the cash flow statement and with regard to the definition of cash and cash equivalents. Under US GAAP, tax paid and interest would form part of operating cash flow. Under UK GAAP, cash for the purposes of the cash flow statement is defined as cash in hand and deposits repayable on demand with any qualifying financial institution, less bank borrowings from any qualifying financial institution repayable on demand.
Deposits are repayable on demand if they can be withdrawn at any time without notice and without penalty or if a maturity or period of notice of not more than 24 hours or one working day has been agreed. Under US GAAP, cash equivalents comprise cash balances and current asset investments with an original maturity of less than three months and exclude bank borrowings repayable on demand.
Rio Tinto 2003 Annual report and financial statements | 139 |
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Supplementary information for United States investors continued
RECONCILIATION WITH US GAAP CONTINUED
Adjusted earnings
As permitted under UK GAAP, adjusted earnings and adjusted earnings per share have been presented excluding the impact of exceptional items to provide a measure that reflects the underlying performance of the Group. This is in addition to the presentation of earnings and earnings per share, which include the exceptional items. In accordance with US GAAP, earnings and earnings per share have been presented based on US GAAP earnings, without adjustment for the impact of exceptional items. Such additional measures of underlying performance are not permitted under US GAAP.
Variable Interest Entities
In January 2003, the FASB issued interpretation No. 46 ‘Consolidation of Variable Interest Entities’ (FIN 46). Under FIN 46, certain entities labelled ‘Variable Interest Entities’ (VIE), must be consolidated by the ‘primary beneficiary’ of the entity. The primary beneficiary is generally defined as the party exposed to the majority of the risks and rewards arising from the VIE. For VIE’s in which a significant variable interest is held that is not a majority interest, certain disclosures are required. Full implementation of this interpretation is required in the Group’s financial statements for the year to 31 December 2004.
The Group has a 20 per cent general partnership interest in the Colowyo limited partnership, which was acquired for US$25 million in December 1994. This joint venture may fall within the definition of a Variable Interest Entity set out in FIN 46. The Colowyo joint venture produces coal, which is sold under long term contracts. Colowyo’s total sales revenues for 2003 were US$101 million and its total assets as at31 December 2003 were US$100 million. It is included in the Group accounts on the equity accounting basis and the carrying value of the net investment at 31 December 2003 was US$27 million under US GAAP.
Colowyo has bonds in issue with outstanding capital of US$163 million at 31 December 2003. These are repayable by instalments up to 2016 with interest at rates between 9.56 per cent and 10.19 per cent per annum. The bonds are to be serviced and repaid exclusively out of the net revenues from certain specified sales contracts relating to coal supplies by Colowyo. The bondholders bear the risks of loss that might arise if the revenues are interrupted due to failure of the purchasers or force majeure. The Rio Tinto Group is responsible under a management contract in which it agreed, for the sole and exclusive benefit of the bondholders, to cause Colowyo to perform its obligations under the specified coal sales contracts.
ADDITIONAL US GAAP CASH FLOW INFORMATION
A summary of Rio Tinto’s operating, investing and financing activities classified in accordance with US GAAP is presented below:
| 2003 | | 2002 | | US$m | US$m |
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| | Net cash flow from operating activities | 2,292 | | 2,720 | | Net cash flow from investing activities | (1,268 | ) | (1,743 | ) | Net cash flow from financing activities | (954 | ) | (1,151 | ) |
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| Increase/(decrease) in cash and cash equivalents per US GAAP | 70 | | (174 | ) |
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| Decrease in cash per UK GAAP | (83 | ) | (130 | ) | Decrease/(increase) in non qualifying liquid resources for US GAAP | 120 | | (27 | ) | Increase/(decrease) in bank borrowings repayable on demand included in cash under UK GAAP | 33 | | (17 | ) |
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| Increase/(decrease) in cash and cash equivalents per US GAAP | 70 | | (174 | ) |
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| Cash per balance sheet under UK GAAP | 395 | | 325 | | Qualifying liquid resources less non qualifying deposits | (36 | ) | (45 | ) |
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| Cash and cash equivalents under US GAAP | 359 | | 280 | |
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There was an exchange gain of US$9 million (2002: loss of US$42 million) relating to US GAAP cash and cash equivalents during the year. | | | | | | | | ACCUMULATED FOREIGN CURRENCY TRANSLATION GAINS AND LOSSES RECORDED DIRECTLY IN SHAREHOLDERS’FUNDS UNDER US GAAP | | | | | | 2003 | | 2002 | | US$m | US$m |
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| | At 1 January | (1,014 | ) | (1,436 | ) | Movement in period | 1,301 | | 422 | |
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| At 31 December | 287 | | (1,014 | ) |
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| | | | | | | | 140 | Rio Tinto 2003 Annual report and financial statements |
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RECONCILIATION WITH US GAAP CONTINUED
UNREALISED HOLDING GAINS AND LOSSES
The following table shows the Group’s investments in debt and equity securities which are held as ‘available for sale’ in accordance with FAS 115:
| FAS 115 | | Unrealised | | Unrealised | | Market | | Net | | net book | holding | holding | value | unrealised | value | gains | losses | | holding | | | | | gains | US$m | US$m | US$m | US$m | US$m |
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| | At 1 January 2003 | 70 | | 5 | | (5 | ) | 70 | | – | | Change in unrealised holding gains/(losses) | – | | 14 | | (1 | ) | 13 | | 13 | | Additions and other movements | 9 | | – | | – | | 9 | | – | |
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| | At 31 December 2003 | 79 | | 19 | | (6 | ) | 92 | | 13 | |
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ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
During 2003, the following movements, before tax and minorities, took place in Other Comprehensive Income (‘OCI’) and earnings in relation to derivatives:
| Derivative | | Recorded | | Recorded | | assets less | in OCI | in retained | liabilities | | earnings | US$m | US$m | US$m |
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| | Net derivative (liabilities)/assets on balance sheet at 31 December 2002 | (54 | ) | (60 | ) | 6 | | Less: net derivative liabilities marked to market through OCI at 1 January 2003 | | | | | | | relating to contracts maturing in 2003 (a) | 9 | | 9 | | – | | Less: net derivative assets marked to market through retained earnings at | | | | | | | 1 January 2003 relating to contracts maturing in 2003 (b) | (34 | ) | – | | (34 | ) | Add: mark to market of net derivative assets designated as FAS 133 | | | | | | | cash flow hedges at 31 December 2003 (c) | 139 | | 139 | | – | | Add: mark to market of net derivative assets not designated as hedges under | | | | | | | FAS 133 at 31 December 2003 (d) | 207 | | – | | 207 | |
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| | On balance sheet at 31 December 2003 | 267 | | 88 | | 179 | |
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(a) | During 2003, net losses of US$9 million relating to derivatives designated as cash flow hedges under FAS 133 were transferred from accumulated OCI to US GAAP earnings on maturity of the contracts. | (b) | During 2003, accrued gains of US$34 million relating to derivatives that were not designated as hedges under FAS 133 were realised on maturity of the contracts. | (c) | The fair value of net derivative liabilities designated as cash flow hedges under FAS 133 reduced by US$148 million during 2003, resulting in a closing asset balance related to cash flow hedging activities of US$88 million in OCI. These cash flow hedges hedge the Group’s exposure to the US dollar in relation to future trading transactions. The Group expects to reclassify US$43 million of this amount as increases in earnings over the next 12 months as these contracts and the transactions which they hedge mature. As at 31 December 2003, the Group had US$144 million of cash flow hedge derivative assets and US$56 million of cash flow hedge derivative liabilities. The cash flow hedges extend to 2010. | (d) | Certain of the Group’s derivative contracts do not qualify for hedge accounting under FAS 133, principally because the hedge is not located in the entity with the exposure. The fair value of these net derivative assets increased by US$173 million during 2003. As at 31 December 2003, the Group had US$197 million of assets relating to derivatives which do not qualify for hedge accounting under FAS 133, and US$18 million of liabilities. | | |
DEFERRED TAX CREDIT/(CHARGE) | | | | | | 2003 | | 2002 | | US$m | US$m |
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| | The credit/(charge) for deferred taxation arises as follows: | | | | | – accelerated capital allowances | (83 | ) | 186 | | – pension prepayments | 48 | | 11 | | – provisions | (24 | ) | 6 | | – provision against AMT credits and US tax losses | 50 | | (228 | ) | – other timing differences | 34 | | 41 | |
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| | | 25 | | 16 | |
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| | Rio Tinto 2003 Annual report and financial statements | 141 |
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Supplementary information for United States investors continued
RECONCILIATION WITH US GAAP CONTINUED
FIXED ASSET INVESTMENTS
The aggregated profit and loss accounts and balance sheets of equity and gross equity accounted companies on a 100 per cent basis are set out below:
| 2003 | | 2002 | | US$m | US$m |
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| | Profit and loss account: | | | | | Sales revenue | 7,078 | | 6,622 | | Cost of sales | (4,652 | ) | (4,384 | ) |
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| | Operating profit | 2,426 | | 2,238 | | Net interest | (317 | ) | (377 | ) |
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| | Profit before tax | 2,109 | | 1,861 | | Taxation | (714 | ) | (579 | ) | Profit attributable to outside shareholders | (48 | ) | (36 | ) |
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| | Net profit on ordinary activities (100 per cent basis) | 1,347 | | 1,246 | |
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| | | | | | | Balance sheet: | | | | | Intangible fixed assets | 64 | | 194 | | Tangible fixed assets | 11,406 | | 12,086 | | Investments | 78 | | 166 | | Working capital | 775 | | 593 | | Net cash less current debt | 319 | | (835 | ) |
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| | | 12,642 | | 12,204 | | Long term debt | (5,066 | ) | (5,406 | ) | Provisions | (1,462 | ) | (1,658 | ) | Outside shareholders’ interests | (321 | ) | (290 | ) |
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| | Aggregate shareholders’ funds (100 per cent basis) | 5,793 | | 4,850 | |
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DEFERRED STRIPPING
Information about the stripping ratios of the Business Units that account for the majority of the deferred stripping balance at 31 December 2003, and year in which deferred stripping is expected to be fully amortised, is set out in the following table: | Actual stripping | | Life of mine | | ratio for year | stripping ratio |
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| | Kennecott Utah Copper (2014) | 1.86 | | 2.05 | | 1.24 | | 1.19 | | Borax (2037) | 23.00 | | 25.00 | | 16.00 | | 16.00 | | Argyle Diamonds (2007) | 6.10 | | 7.29 | | 4.10 | | 4.40 | | Freeport Joint Venture (2014) | 2.84 | | 2.35 | | 1.93 | | 1.77 | |
In addition, Escondida, Rio Tinto’s 30 per cent owned joint venture, defers stripping costs based on the ratio of waste to pounds of copper. The actual stripping ratio for 2003 was 0.1015 (2002: 0.1458). The life of mine stripping ratio for 2003 was 0.1103 (2002: 0.1094). The deferred stripping balance is expected to be fully amortised in 2039.
142 | Rio Tinto 2003 Annual report and financial statements |
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ADDITIONAL SHARE CAPITAL INFORMATION | | | Rio Tinto plc | Rio Tinto plc | | | | Rio Tinto plc | | Share Savings | Executive Share | Share Option | Plan | Option Scheme | Plan |
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| | | | | Weighted | | | | Weighted | | | | Weighted | | | | | average | | | | average | | | | average | | | | | exercise | | | | exercise | | | | exercise | | | | | price | | | | price | | | | price | | | Number | | £ | | Number | | £ | | Number | | £ | |
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| | Options outstanding at 1 January 2003 | 2,079,845 | | 8.14 | | 62,000 | | 8.49 | | 7,186,254 | | 11.35 | | Granted | 390,518 | | 11.21 | | – | | – | | 2,305,406 | | 12.63 | | Exercised | (367,866 | ) | 8.47 | | (39,000 | ) | 8.41 | | (1,009,307 | ) | 8.50 | | Cancelled | (182,067 | ) | 9.06 | | – | | – | | (797,927 | ) | 13.05 | | Expired | – | | – | | – | | – | | (21,501 | ) | 12.98 | |
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| | Options outstanding at 31 December 2003 | 1,920,430 | | 8.61 | | 23,000 | | 8.61 | | 7,662,925 | | 11.93 | |
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| | | | | | | | | | | | | | | | | | | Rio Tinto Limited | | Rio Tinto Limited | | Share Savings Plan | Share Option Plan |
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| | | | | | | Number | | Weighted average exercise price A$ | | Number | | Weighted average exercise price A$ | |
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| | Options outstanding at 1 January 2003 | | | | | 2,246,174 | | 26.59 | | 2,439,330 | | 33.42 | | Granted | | | | | 384,180 | | 27.48 | | 1,242,475 | | 33.34 | | Exercised | | | | | (12,588 | ) | 27.67 | | (58,975 | ) | 22.04 | | Cancelled | | | | | (232,313 | ) | 26.76 | | (18,197 | ) | 33.76 | | Expired | | | | | – | | – | | (2,496 | ) | 33.01 | |
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| | Options outstanding at 31 December 2003 | | | | | 2,385,453 | | 26.71 | | 3,602,137 | | 33.58 | |
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The weighted average remaining contractual lives of options outstanding at 31 December 2003 for the Rio Tinto plc Share Savings Plan, the Rio Tinto plc Share Option Plan, the Rio Tinto Limited Share Option Plan and the Rio Tinto Limited Share Savings Plan are two, seven, eight and three years respectively. The weighted average fair values of options granted during the year for the Rio Tinto plc Share Savings Plan, the Rio Tinto plc Share Option Plan, the Rio Tinto Limited Share Option Plan and the Rio Tinto Limited Share Savings Plan are £4.20, £2.68, A$6.01 and A$10.90 respectively.
ADDITIONAL SEGMENTAL INFORMATION
The following supplements segmental information provided elsewhere in this report to provide additional information required under US GAAP.
Tax charge by product group | | | | | | | | | | | | | | | | 2003 | | 2002 | | US$m | US$m |
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| | Iron Ore | | | | | | (226 | ) | (215 | ) | Energy | | | | | | (96 | ) | (197 | ) | Industrial Minerals | | | | | | (93 | ) | (200 | ) | Aluminium | | | | | | (106 | ) | (107 | ) | Copper | | | | | | (223 | ) | (126 | ) | Diamonds | | | | | | (76 | ) | (33 | ) | Other operations | | | | | | (13 | ) | (16 | ) | Tax on exploration | | | | | | 17 | | 18 | | Other items, including tax relief on asset write-downs | | | | | | 249 | | 168 | |
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| | | | | | | | (567 | ) | (708 | ) |
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| | Property, plant and equipment by location | | | | | | | | | | | | 2003 | | 2002 | | 2003 | | 2002 | | % | % | US$m | US$m |
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| | North America | | 36.2 | | 42.7 | | 5,504 | | 5,204 | | Australia and New Zealand | | 54.6 | | 48.5 | | 8,290 | | 5,912 | | South America | | 1.1 | | 0.9 | | 168 | | 112 | | Africa | | 5.6 | | 5.0 | | 851 | | 608 | | Indonesia | | 0.2 | | 0.4 | | 28 | | 50 | | Europe and other countries | | 2.3 | | 2.5 | | 355 | | 297 | |
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| | | | 100.0 | | 100.0 | | 15,196 | | 12,183 | |
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COVENANTS
Of the Rio Tinto Group’s medium and long term borrowings of US$3.8 billion, some US$0.8 billion relates to the group’s share of non recourse borrowings which are the subject of various financial and general covenants with which the respective borrowers are in compliance.
| | Rio Tinto 2003 Annual report and financial statements | 143 |
Back to Contents
Supplementary information for United States investors continued
POST RETIREMENT BENEFITS
Information in respect of the net periodic benefit cost and related obligation determined in accordance with US Statements of Financial Accounting Standards 87, 106 and 132 is given below. The measurement date used to establish year end asset values and benefit obligations was 30 September 2003. The previous measurement date, used to determine 2003 costs, was 30 September 2002.
Benefits under the major pension plans are principally determined by years of service and employee remuneration. The Group’s largest defined benefit pension plans are in the UK, Australia and the US and a description of the investment policies and strategies followed is set out below.
In the UK and the US, the investment strategy is determined by the pension plan trustee and investment committee respectively, after consulting the company. Agreed investment policies aim to ensure that the objectives are met in a prudent manner, consistent with established guidelines. The investment objectives include generating a return that exceeds consumer price and wage inflation over the long term. Ranges for the proportions to be held in each asset class have been agreed; a substantial proportion of the assets is invested in a spread of domestic and overseas equities, with a smaller proportion in fixed and variable income bonds, cash and, in the US, real estate. Risk is managed in various ways, including identifying investments considered to be unsuitable and placing limits on some types of investment. In particular, the funds are not allowed to invest directly in any Rio Tinto Group compa ny.
In Australia, the investments reflect the various defined benefit and defined contribution liabilities and are primarily in Australian and overseas equities and fixed interest stocks.
At 30 September 2003, funded pension plans held assets invested in the following proportions:
| UK | | US | | Group | | | target | | target | * | actual | |
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| | Equities | 45%-85% | | 65 | % | 65 | % | Debt securities | 15%-45% | | 30 | % | 27 | % | Real estate | – | | 5 | % | 3 | % | Other | 0%-10% | | – | | 5 | % | * plus or minus 5% | | | | | | |
The split of pension investments at 30 September 2002 is not readily available. However, a summary as at 31 December 2002 is set out in the FRS17 transitional disclosures on page 126.
The expected rate of return on pension plan assets is determined as management’s best estimate of the long term return of the major asset classes – equity, debt, real estate and other – weighted by the actual allocation of assets among the categories at the measurement date.
Pension plan funding policy is based on annual contributions at a rate that is intended to fund benefits as a level percentage of pay over the working lifetime of a plan’s participants, subject to local statutory minimum contribution requirements. Details of anticipated contributions in 2004 are set out in the FRS 17 transitional disclosures on page 126.
Assumptions used to determine the net periodic benefit cost and the end of year benefit obligation for the major pension plans varied between the limits shown below. The average rate for each assumption has been weighted by benefit obligation. The assumptions used to determine the end of year benefit obligation are also used to calculate the following year’s cost.
| 2003 cost | Year end benefit obligation |
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| Discount rate | 5.8% to 12.0% (Average: 6.7%) | 5.4% to 9.5% (Average: 5.9%) | Long term rate of return on plan assets | 6.5% to 12.0% (Average: 7.2%) | 6.3% to 11.0% (Average: 6.6%) | Increase in compensation levels | 3.3% to 11.0% (Average: 4.8%) | 3.7% to 6.5% (Average: 4.2%) |
The actuarial calculations in respect of the UK plans assume a rate of increase of pensions in payment of 2.6 per cent per annum. This assumption is consistent with the expected rates of return and salary increase assumptions in the respective valuations. Appropriate assumptions were made for plans in other countries.
Other post retirement benefits are provided to employees who meet the eligibility requirements, and their beneficiaries and dependants, through unfunded self insurance arrangements. The majority of these plans are for employees in the United States. The plans are non contributory, although some contain an element of cost sharing such as deductibles and co-insurance.
The weighted average assumptions used in determining the costs and year end benefit obligation for the major post retirement benefit plans other than pension plans were as below:
| Cost | Year end benefit obligation |
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| Discount rate
| 6.5% (2002: 6.5%) | 6.1% (2002: 6.5%) | | | | Healthcare cost trend rate | 8.0% reducing to 5.0% by | 11.2% reducing to 4.7% by | | 2009 (2002: 8.5% reducing | 2011 (2002: 8.0% reducing | | to 5.0% by 2009) | to 5.0% by 2009) |
| | 144 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents
Components of net benefit expense | | | | | | | | | | Pension benefits | | Other benefits | |
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| | | 2003 | | 2002 | | 2003 | | 2002 | | | US$m | | US$m | | US$m | | US$m | |
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| | Defined benefit plans | | | | | | | | | Service cost | (123 | ) | (97 | ) | (9 | ) | (7 | ) | Interest cost on benefit obligation | (210 | ) | (207 | ) | (28 | ) | (25 | ) | Expected return on plan assets | 252 | | 258 | | – | | – | | Net amortisation and deferral: | | | | | | | | | – transitional obligation | 10 | | 10 | | – | | – | | – recognised (losses)/gains | (6 | ) | 10 | | 5 | | 8 | | – prior service cost recognised | (23 | ) | (22 | ) | 1 | | 1 | |
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| | Total net amortisation and deferral | (19 | ) | (2 | ) | 6 | | 9 | |
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| | Net periodic benefit cost | (100 | ) | (48 | ) | (31 | ) | (23 | ) | Curtailment (charge)/credit | – | | (8 | ) | 3 | | (2 | ) |
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| | Net benefit expense | (100 | ) | (56 | ) | (28 | ) | (25 | ) |
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| | The 2003 pension cost recognised for defined contribution plans, of US$9 million (2002: US$5 million), is included in the above. | | | | | | | | | | | | | | | FUNDED STATUS OF THE GROUP’S PRINCIPAL SCHEMES | | | | | | | | | | Pension benefits | | Other benefits | |
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| | | 2003 | | 2002 | | 2003 | | 2002 | | | US$m | | US$m | | US$m | | US$m | |
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| | Benefit obligation at end of year (see below) | (4,161 | ) | (3,366 | ) | (563 | ) | (437 | ) | Fair value of plan assets | 3,835 | | 3,166 | | – | | – | |
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| | Benefit obligations in excess of plan assets | (326 | ) | (200 | ) | (563 | ) | (437 | ) | Unrecognised prior service cost | 144 | | 159 | | (2 | ) | (2 | ) | Unrecognised net loss/(gain) | 622 | | 464 | | 54 | | (40 | ) | Unrecognised transitional asset | (11 | ) | (29 | ) | – | | – | | Company contributions in fourth quarter | 29 | | 7 | | 5 | | – | |
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| | Net amount recognised at end of year | 458 | | 401 | | (506 | ) | (479 | ) |
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| | Comprising: | | | | | | | | | – benefit prepayment | 414 | | 346 | | – | | – | | – benefit provision | (409 | ) | (319 | ) | (506 | ) | (479 | ) | – intangible asset | 53 | | 53 | | – | | – | |
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| | | 58 | | 80 | | (506 | ) | (479 | ) | – amount recognised through accumulated other comprehensive income | 400 | | 321 | | – | | – | |
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| | Net amount recognised in retained earnings | 458 | | 401 | | (506 | ) | (479 | ) |
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| | | 2003 | | 2002 | | | | | | | US$m | | US$m | | | | | |
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| | Change in additional minimum liability before tax | | | | | | | | | Accrued pension benefit expense | 79 | | 221 | | | | | | Increase in intangible asset | – | | (21 | ) | | | | |
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| | Other comprehensive income before tax | 79 | | 200 | | | | | |
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| | | Pension benefits | | Other benefits | |
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| | | 2003 | | 2002 | | 2003 | | 2002 | | | US$m | | US$m | | US$m | | US$m | |
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| | Change in benefit obligation | | | | | | | | | Benefit obligation at start of year | (3,366 | ) | (2,803 | ) | (437 | ) | (362 | ) | Service cost | (112 | ) | (97 | ) | (9 | ) | (7 | ) | Interest cost | (210 | ) | (207 | ) | (28 | ) | (25 | ) | Contributions by plan participants | (26 | ) | (9 | ) | – | | – | | Actuarial losses | (553 | ) | (204 | ) | (93 | ) | (48 | ) | Benefits paid | 260 | | 195 | | 18 | | 16 | | Benefits bought out | 191 | | – | | – | | – | | Plan amendments | (7 | ) | (16 | ) | 5 | | (2 | ) | Settlement, curtailment and other gain/(loss) | 10 | | – | | 3 | | – | | Currency and other adjustments | (348 | ) | (225 | ) | (22 | ) | (9 | ) |
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| | Benefit obligation at end of year | (4,161 | ) | (3,366 | ) | (563 | ) | (437 | ) |
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| | Rio Tinto 2003 Annual report and financial statements | 145 |
Back to Contents
Supplementary information for United States investors continued
The benefit obligation shown above includes an allowance for future salary increases, where applicable; the accumulated benefit obligation does not include this allowance. The accumulated benefit obligations for pension plans at 30 September 2003 amounted to US$3,973 million. At 30 September 2002, the corresponding total of accumulated benefit obligations was US$3,025 million. For each plan, where the accumulated benefit obligation exceeds the fair value of the assets and this deficit is greater than the amount provided, an increase in the provision is charged to other comprehensive income. To the extent that the deficit relates to previous benefit improvements an intangible asset is created which reduces the charge to other comprehensive income.
FUNDED STATUS OF THE GROUP’S PRINCIPAL SCHEMES
| Pension benefits | | Other benefits | |
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| | | 2003 | | 2002 | | 2003 | | 2002 | | | US$m | | US$m | | US$m | | US$m | |
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| | Change in plan assets | | | | | | | | | Fair value of plan assets at start of year | 3,166 | | 3,188 | | – | | – | | Actual return/(loss) on plan assets | 689 | | (150 | ) | – | | – | | Contributions by plan participants | 26 | | 9 | | – | | – | | Contributions by employer | 92 | | 30 | | 18 | | 16 | | Benefits paid | (260 | ) | (195 | ) | (18 | ) | (16 | ) | Benefits bought out | (191 | ) | – | | – | | – | | Settlement, curtailment and other gain/(loss) | (19 | ) | – | | – | | – | | Currency and other adjustments | 332 | | 284 | | – | | – | |
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| | Fair value of plan assets at end of year | 3,835 | | 3,166 | | – | | – | |
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| | Sensitivity to change in healthcare trend | | | | | | | | | Changing the healthcare cost trend rates by 1% would result in the following effects: | | | | | | | | | | 1% increase | | 1% decrease | |
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| | | 2003 | | 2002 | | 2003 | | 2002 | | | US$m | | US$m | | US$m | | US$m | |
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| | (Increase)/decrease in service cost plus interest cost | (5 | ) | (5 | ) | 4 | | 4 | | (Increase)/decrease in benefit obligation at 30 September | (68 | ) | (48 | ) | 60 | | 40 | |
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Effect of Medicare Prescription Drug, Improvement and Modernisation Act of 2003
On 8 December 2003 the Medicare Prescription Drug, Improvement and Modernisation Act of 2003 was signed into law in the US. The Act introduces a prescription drug benefit (Medicare Part D) and a federal subsidy for sponsors of post retirement healthcare plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Specific guidance on the accounting impact of this Act is pending and therefore, in line with the provisions of FSP FAS 106-1 the figures disclosed in this note for post retirement healthcare do not reflect the effects of the Act on any of the US post retirement healthcare arrangements. When final guidance on accounting for the Act is issued, changes to the post retirement healthcare information disclosed in this note may be required.
146 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents
ALTERNATIVE ORE RESERVE ESTIMATES FOR US REPORTING
As a consequence of the US Securities and Exchange Commission's (SEC) requirement to use historical price data rather than assumptions of future commodity prices, which are the basis of the JORC Code reported numbers on pages 17 to 21, the reserves at certain operations have been amended for SEC reporting purposes only. Material changes are shown below.
The ore reserve figures in the following tables are as of 31 December 2003. Metric units are used throughout. The figures used to calculate Rio Tinto's share of reserves are often more precise than the rounded numbers shown in the tables, hence small differences might result if the calculations are repeated using the tabulated figures.
| Type of mine (a) | | | | | | | | | | | | | | | | | | Proved ore reserves at end 2003 | | Probable ore reserves at end 2003 | | | | SEC ore reserves 2003 compared with JORC 2003 | | Average mill recovery % | | 2003 Rio Tinto share | | | | |
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| | | | | Tonnage | | Grade | | Tonnage | | Grade | | | | Tonnage | | | | Grade | | | | | SEC | | JORC | | | | | | | | | | | | |
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| | | | Interest | | Recover- | | Recover- | | | | | | | | | | | | | SEC | | JORC | | SEC | | JORC | | | | % | | able | | able | | | | | | | | | | | | | 2003 | | 2003 | | 2003 | | 2003 | | | | | | metal | | metal | |
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| | | | | millions | | | | millions | | | | millions | | millions | | | | | | | | | | millions | | millions | | COPPER | | | of tonnes | | %Cu | | of tonnes | | %Cu | | of tonnes | | of tonnes | | %Cu | | %Cu | | | | | | of tonnes | | of tonnes | | Bingham Canyon (US) | | | | | | | | | | | | | | | | | | | | | | | | | | | – open pit | O/P | | 22.8 | | 0.62 | | 422 | | 0.57 | | 445 | | 557 | | 0.57 | | 0.51 | | 89 | | 100.0 | | 2.253 | | 2.542 | | – underground block cave | U/G | | | | | | | | | | – | | 321 | | – | | 0.70 | | 91 | | 100.0 | | – | | 2.022 | | – underground skarn ores | U/G | | | | | | | | | | – | | 13.5 | | – | | 1.89 | | 93 | | 100.0 | | – | | 0.236 | | Escondida (Chile) | | | | | | | | | | | | | | | | | | | | | | | | | | | – sulphide | O/P | | 636 | | 1.45 | | 700 | | 1.04 | | 1,337 | | 1,482 | | 1.24 | | 1.21 | | 86 | | 30.0 | | 4.214 | | 4.615 | | – low grade float | O/P | | 103 | | 0.63 | | 227 | | 0.63 | | 330 | | 565 | | 0.63 | | 0.60 | | 81 | | 30.0 | | 0.501 | | 0.827 | | – oxide | O/P | | 130 | | 0.76 | | 34.5 | | 0.60 | | 164 | | 185 | | 0.72 | | 0.69 | | 88 | | 30.0 | | 0.314 | | 0.334 | | – mixed | O/P | | | | | | 31.0 | | 1.36 | | 31.0 | | 50.0 | | 1.36 | | 1.04 | | 39 | | 30.0 | | 0.049 | | 0.061 | |
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| | Total of operations listed above | | | | | | | | | | | | | | | | | | | | | | | 7.331 | | 10.637 | |
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| | Total of all Rio Tinto copper | | | | | | | | | | | | | | | | | | | | | | | | | | | operations | | | | | | | | | | | | | | | | | | | | | | | 20.209 | | 23.514 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | millions | | grammes | | millions | | grammes | | millions | | millions | | grammes | | grammes | | | | | | millions | | millions | | GOLD | | | of tonnes | | per tonne | | of tonnes | | per tonne | | of tonnes | | of tonnes | | per tonne | | per tonne | | | | | | of ounces | | of ounces | | Bingham Canyon (US) | | | | | | | | | | | | | | | | | | | | | | | | | | | – open pit | O/P | | 22.8 | | 0.40 | | 422 | | 0.37 | | 445 | | 557 | | 0.37 | | 0.33 | | 66 | | 100.0 | | 3.494 | | 3.834 | | – underground block cave | U/G | | | | | | | | | | – | | 321 | | – | | 0.27 | | 68 | | 100.0 | | – | | 1.856 | | – underground skarn ores | U/G | | | | | | | | | | – | | 13.5 | | – | | 1.22 | | 66 | | 100.0 | | – | | 0.351 | | Greens Creek (US) | U/G | | | | | | 5.6 | | 4.02 | | 5.6 | | 6.8 | | 4.02 | | 3.95 | | 72 | | 70.3 | | 0.362 | | 0.435 | | Morro do Ouro (Brazil) | O/P | | 327 | | 0.42 | | 61.7 | | 0.38 | | 389 | | 361 | | 0.42 | | 0.42 | | 81 | | 51.0 | | 2.153 | | 1.999 | |
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| | Total of operations listed above | | | | | | | | | | | | | | | | | | | | | | 6.009 | | 8.475 | |
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| | Total of all Rio Tinto gold | | | | | | | | | | | | | | | | | | | | | | | | | | | operations | | | | | | | | | | | | | | | | | | | | | | | 31.192 | | 33.658 | |
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| | | | | millions | | | | millions | | | | millions | | millions | | | | | | | | | | millions | | millions | | LEAD | | | of tonnes | | %Pb | | of tonnes | | %Pb | | of tonnes | | of tonnes | | %Pb | | %Pb | | | | | | of tonnes | | of tonnes | | Greens Creek (US) | U/G | | | | | | 5.6 | | 4.11 | | 5.6 | | 6.8 | | 4.11 | | 4.02 | | 76 | | 70.3 | | 0.123 | | 0.146 | |
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| | Total of operations listed above | | | | | | | | | | | | | | | | | | | | | | 0.123 | | 0.146 | |
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| | Total of all Rio Tinto lead | | | | | | | | | | | | | | | | | | | | | | | | | | | operations | | | | | | | | | | | | | | | | | | | | | | | 0.533 | | 0.556 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | millions | | | | millions | | | | millions | | millions | | | | | | | | | | millions | | millions | | MOLYBDENUM | | | of tonnes | | %Mo | | of tonnes | | %Mo | | of tonnes | | of tonnes | | %Mo | | %Mo | | | | | | of tonnes | | of tonnes | | Bingham Canyon (US) | | | | | | | | | | | | | | | | | | | | | | | | | | | – open pit | O/P | | 22.8 | | 0.038 | | 422 | | 0.042 | | 445 | | 557 | | 0.041 | | 0.037 | | 55 | | 100.0 | | 0.102 | | 0.114 | | – underground block cave | U/G | | | | | | | | | | – | | 321 | | – | | 0.035 | | 48 | | 100.0 | | – | | 0.054 | |
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| | Total of operations listed above | | | | | | | | | | | | | | | | | | | | | | 0.102 | | 0.168 | |
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| | Total of all Rio Tinto | | | | | | | | | | | | | | | | | | | | | | | | | | | molybdenum operations | | | | | | | | | | | | | | | | | | | | | | | 0.102 | | 0.168 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | millions | | grammes | | millions | | grammes | | millions | | millions | | grammes | | grammes | | | | | | millions | | millions | | SILVER | | | of tonnes | | per tonne | | of tonnes | | per tonne | | of tonnes | | of tonnes | | per tonne | | per tonne | | | | | | of ounces | | of ounces | | Bingham Canyon (US) | | | | | | | | | | | | | | | | | | | | | | | | | | | – open pit | O/P | | 22.8 | | 3.49 | | 422 | | 2.95 | | 445 | | 557 | | 2.97 | | 2.72 | | 80 | | 100.0 | | 33.929 | | 38.908 | | – underground block cave | U/G | | | | | | | | | | – | | 321 | | – | | 2.69 | | 71 | | 100.0 | | – | | 19.682 | | – underground skarn ores | U/G | | | | | | | | | | – | | 13.5 | | – | | 13.4 | | 71 | | 100.0 | | – | | 4.114 | | Greens Creek (US) | U/G | | | | | | 5.6 | | 530 | | 5.6 | | 6.8 | | 530 | | 483 | | 75 | | 70.3 | | 50.152 | | 55.556 | |
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| | Total of operations listed above | | | | | | | | | | | | | | | | | | | | | | 84.081 | | 118.260 | |
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| | Total of all Rio Tinto silver | | | | | | | | | | | | | | | | | | | | | | | | | | | operations | | | | | | | | | | | | | | | | | | | | | | | 184.705 | | 218.884 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | millions | | | | millions | | | | millions | | millions | | | | | | | | | | millions | | millions | | ZINC | | | of tonnes | | %Zn | | of tonnes | | %Zn | | of tonnes | | of tonnes | | %Zn | | %Zn | | | | | | of tonnes | | of tonnes | | Greens Creek (US) | U/G | | | | | | 5.6 | | 10.6 | | 5.6 | | 6.8 | | 10.6 | | 10.7 | | 87 | | 70.3 | | 0.364 | | 0.444 | |
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| | Total of operations listed above | | | | | | | | | | | | | | | | | | | | | | 0.364 | | 0.444 | | Total of all Rio Tinto zinc | | | | | | | | | | | | | | | | | | | | | | | | | | | operations | | | | | | | | | | | | | | | | | | | | | | | 1.230 | | 1.310 | |
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| | (a) | Likely mining method: O/P = open pit; U/G = underground. |
| Rio Tinto 2003 Annual report and financial statements | 147 |
Back to Contents
Financial summary 1993 – 2003
| | | | | | | | | | | | | | | | | | | | | | | US$m | 1993 | | 1994 | | 1995 | | 1996 | | 1997 | | 1998 | | 1999 | | 2000 | | 2001 | | 2002 | | 2003 | |
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| | Consolidated turnover | 8,795 | | 7,755 | | 8,140 | | 6,901 | | 7,436 | | 7,112 | | 7,197 | | 7,875 | | 8,152 | | 8,443 | | 9,228 | |
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| | Share of equity accounted entities | 1,079 | | 961 | | 1,194 | | 1,808 | | 1,998 | | 2,109 | | 2,113 | | 2,097 | | 2,286 | | 2,385 | | 2,527 | |
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| | Gross turnover | 9,874 | | 8,716 | | 9,334 | | 8,709 | | 9,434 | | 9,221 | | 9,310 | | 9,972 | | 10,438 | | 10,828 | | 11,755 | |
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| | Adjusted PBIT (a) | 1,472 | | 1,819 | | 2,484 | | 1,887 | | 2,256 | | 2,191 | | 2,329 | | 2,912 | | 3,102 | | 2,696 | | 2,266 | |
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| | Exceptional items (b) | (340 | ) | 25 | | (215 | ) | – | | – | | (443 | ) | – | | – | | (715 | ) | (1,094 | ) | 126 | |
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| | Finance charges | (113 | ) | (81 | ) | (59 | ) | (108 | ) | (184 | ) | (240 | ) | (298 | ) | (403 | ) | (404 | ) | (291 | ) | (298 | ) |
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| | Profit before tax | 1,019 | | 1,763 | | 2,210 | | 1,779 | | 2,072 | | 1,508 | | 2,031 | | 2,509 | | 1,983 | | 1,311 | | 2,094 | |
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| | Adjusted profit before tax(a) | 1,359 | | 1,738 | | 2,425 | | 1,779 | | 2,072 | | 1,951 | | 2,031 | | 2,509 | | 2,698 | | 2,405 | | 1,968 | |
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| | Tax (excl. exceptional items) | (487 | ) | (496 | ) | (818 | ) | (566 | ) | (668 | ) | (664 | ) | (548 | ) | (819 | ) | (850 | ) | (750 | ) | (567 | ) |
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| | Tax–exceptional items (b) | 229 | | 29 | | 60 | | – | | – | | 40 | | – | | – | | 132 | | 42 | | – | |
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| | Outside shareholders’interests | | | | | | | | | | | | | | | | | | | | | | | including exceptional items (b) | (81 | ) | (109 | ) | (189 | ) | (143 | ) | (184 | ) | (184 | ) | (201 | ) | (183 | ) | (186 | ) | 48 | | (19 | ) |
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| | Profit attributable to Rio Tinto | 680 | | 1,187 | | 1,263 | | 1,070 | | 1,220 | | 700 | | 1,282 | | 1,507 | | 1,079 | | 651 | | 1,508 | |
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| | Adjusted earnings(a) | 791 | | 1,133 | | 1,418 | | 1,070 | | 1,220 | | 1,103 | | 1,282 | | 1,507 | | 1,662 | | 1,530 | | 1,382 | |
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| | Earnings per share(d) | 49.0 | c | 85.0 | c | 90.5 | c | 76.5 | c | 87.1 | c | 50.4 | c | 93.6 | c | 109.8 | c | 78.5 | c | 47.3 | c | 109.5 | c |
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| | Adjusted earnings per share(a) | 57.0 | c | 81.3 | c | 101.6 | c | 76.5 | c | 87.1 | c | 79.4 | c | 93.6 | c | 109.8 | c | 120.9 | c | 111.2 | c | 100.3 | c |
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| | Dividends per share | | | | | | | | | | | | | | | | | | | | | | |
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| | Rio Tinto shareholders (US cents) | n/a | | n/a | | n/a | | 51.00 | c | 52.00 | c | 52.00 | c | 55.00 | c | 57.50 | c | 59.00 | c | 60.00 | c | 64.00 | c |
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| | Rio Tinto plc (pence) | 20.50 | p | 27.50 | p | 31.50 | p | 31.71 | p | 31.92 | p | 31.99 | p | 34.23 | p | 38.87 | p | 41.68 | p | 37.47 | p | 37.13 | p |
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| | Rio Tinto Limited (Aus. cents) (d) | 65.12 | c | 55.81 | c | 60.47 | c | 65.05 | c | 75.94 | c | 83.52 | c | 87.11 | c | 102.44 | c | 115.27 | c | 105.93 | c | 89.70 | c |
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| | Net assets | | | | | | | | | | | | | | | | | | | | | | |
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| | Fixed assets (excl. investments) | 7,223 | | 8,551 | | 8,560 | | 9,682 | | 9,334 | | 9,589 | | 9,861 | | 13,242 | | 12,589 | | 13,255 | | 16,450 | |
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| | Investments (l) | 1,236 | | 1,332 | | 1,687 | | 2,109 | | 2,442 | | 2,183 | | 1,840 | | 1,802 | | 2,290 | | 2,881 | | 2,968 | |
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| | Other assets less liabilities | 1,404 | | 1,458 | | 1,325 | | 1,578 | | 1,440 | | 1,235 | | 1,293 | | 1,380 | | 1,896 | | 1,463 | | 1,804 | |
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| | Provisions | (2,227 | ) | (2,593 | ) | (2,657 | ) | (2,795 | ) | (2,749 | ) | (2,790 | ) | (2,887 | ) | (3,299 | ) | (3,194 | ) | (3,612 | ) | (4,536 | ) |
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| | Outside shareholders’interests | (506 | ) | (653 | ) | (695 | ) | (770 | ) | (717 | ) | (673 | ) | (715 | ) | (864 | ) | (827 | ) | (778 | ) | (1,003 | ) |
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| | Net debt | (1,339 | ) | (1,349 | ) | (1,483 | ) | (2,546 | ) | (2,839 | ) | (3,258 | ) | (2,429 | ) | (5,050 | ) | (5,711 | ) | (5,747 | ) | (5,646 | ) |
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| | Rio Tinto shareholders’funds | 5,791 | | 6,746 | | 6,737 | | 7,258 | | 6,911 | | 6,286 | | 6,963 | | 7,211 | | 7,043 | | 7,462 | | 10,037 | |
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| | Capital expenditure(e) | (693 | ) | (1,428 | ) | (1,345 | ) | (1,738 | ) | (1,638 | ) | (1,180 | ) | (771 | ) | (798 | ) | (1,405 | ) | (1,417 | ) | (1,608 | ) |
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| | Acquisitions | (1,431 | ) | (228 | ) | (532 | ) | (119 | ) | (112 | ) | (492 | ) | (326 | ) | (3,332 | ) | (958 | ) | (106 | ) | – | |
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| | Disposals | 1,951 | | 628 | | 432 | | 107 | | 393 | | 3 | | 47 | | 141 | | 299 | | 233 | | 405 | |
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| | Total cash flow from operations(f) | 2,252 | | 2,225 | | 2,735 | | 2,452 | | 2,979 | | 3,071 | | 3,015 | | 3,440 | | 3,415 | | 3,743 | | 3,486 | |
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| | Cash flow before financing(g) | 1,118 | | (23 | ) | (170 | ) | (784 | ) | (335 | ) | (37 | ) | 825 | | (2,291 | ) | (590 | ) | 29 | | 191 | |
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| | Ratios | | | | | | | | | | | | | | | | | | | | | | |
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| | Operating margin (h) | 15 | % | 21 | % | 27 | % | 22 | % | 24 | % | 24 | % | 25 | % | 29 | % | 30 | % | 25 | % | 19 | % |
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| | Net debt to total capital (i) | 18 | % | 15 | % | 17 | % | 24 | % | 27 | % | 32 | % | 24 | % | 38 | % | 42 | % | 41 | % | 34 | % |
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| | Adj. earnings: shareholders’funds (j) | 14 | % | 18 | % | 21 | % | 15 | % | 17 | % | 17 | % | 19 | % | 21 | % | 23 | % | 21 | % | 16 | % |
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| | Interest cover (k) | 17 | | 26 | | 30 | | 17 | | 15 | | 12 | | 12 | | 11 | | 11 | | 13 | | 11 | |
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(a)
| Adjusted earnings and Adjusted earnings per share exclude exceptional items of such magnitude that their exclusion is necessary in order that adjusted earnings fulfil their purpose of reflecting the underlying performance of the Group. In this statement, Adjusted profit before interest and tax (‘Adjusted PBIT’) and Adjusted profit before tax exclude the pre-tax values of such exceptional items. Adjusted PBIT includes the Group’s share of joint ventures’ and associates’ operating profit, excluding exceptional items. | (b)
| These lines contain the exceptional items referred to in (a) above and related taxation. In addition, outside interests for 2002 include a credit for US$173 million relating to exceptional items. For 1998, 2001 and 2002 exceptional items include exceptional asset write downs of US$403 million, US$583 million and US$763 million respectively, net of tax and outside shareholders’ interests. In addition, 2002 includes US$116 million for an exceptional environmental remediation charge. For 2003 exceptional items include profits on sale of operations of $126 million. For 1993 to 1995, the exceptional items comprise amounts that are required to be excluded from operating profit under FRS 3. | (c)
| Changes in accounting policy: Reported figures for 1993 – 1998 have been restated following the change in accounting policy on implementation of FRS 12 in 1999. Shareholders’ funds for 2001 and prior years have been restated following the implementation of FRS 19 in 2002. | (d)
| Earnings per share and Rio Tinto Limited dividends per share have been adjusted for the years 1993 – 1995 in respect of the 7.5 per cent bonus issue on 15 January 1996 which applied to Rio Tinto Limited shares. | (e)
| Capital expenditure comprises purchases of property, plant and equipment plus direct funding provided to joint ventures and associates for Rio Tinto’s share of their capital expenditure, less disposals of property, plant and equipment. The figures include 100 per cent of subsidiaries’ capital expenditure, but exclude that of joint ventures and associates except where directly funded by Rio Tinto. | (f)
| Total cash flow from operations comprises ‘Cash flow from operating activities’ together with ‘Dividends from joint ventures and associates’. | (g) | Cash flow before financing represents the net cash flow before management of liquid resources and financing. | (h) | Operating margin is the percentage of Adjusted PBIT to Gross turnover. | (i)
| Total capital comprises year end shareholders’ funds plus net debt and outside shareholders’ interests. | (j) | This represents Adjusted earnings expressed as a percentage of the mean of opening and closing shareholders’ funds. | (k)
| Interest cover represents the number of times by which subsidiary interest (excluding the amortisation of discount but including capitalised interest) is covered by Group operating profit (excluding exceptional items) less amortisation of discount plus dividends from joint ventures and associates. | (l) | Treasury bonds acquired in 2002 as security for the deferred consideration payable in respect of the North Jacobs Ranch acquisition have been excluded from net debt and included in investments (2003: $228 million; 2002: US$304 million). | | |
148 | Rio Tinto 2003 Annual report and financial statements |
Back to Contents
Rio Tinto share ownershipAs at 6 February 2004
RIO TINTO PLC | Number of shares | | Percentage of issued share capital | | |
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| | 1 | | BNY (Nominees) Limited | 83,265,180 | | 7.80 | | 2 | | Chase Nominees Limited | 54,818,722 | | 5.13 | | 3 | | HSBC Global Custody Nominee (UK) Limited | | | | | | | <357206> | 26,506,301 | | 2.48 | | 4 | | P rudential Client HSBC GIS Nominee (UK) | | | | | | | Limited <PAC> | 21,817,047 | | 2.04 | | 5 | | Nortrust Nominees Limited <SLEND> | 29,563,363 | | 1.92 | | 6 | | The Bank of New York (Nominees) Limited | 20,001,650 | | 1.87 | | 7 | | State Street Nominees Limited <OM01> | 19,257,002 | | 1.80 | | 8 | | Chase Nominees Limited <LEND> | 17,990,974 | | 1.68 | | 9 | | BNY (OCS) Nominees Limited | 15,096,818 | | 1.41 | | 10 | | Chase Nominees Limited <BGILIFEL> | 13,839,987 | | 1.29 | | 11 | | Nortust Nominees Limited | 13,226,673 | | 1.23 | | 12 | | BBHISL Nominees Limited <122562> | 13,000,365 | | 1.21 | | 13 | | Vidacos Nominees Limited <FGN> | 11,901,126 | | 1.11 | | 14 | | Mellon Nominees (UK) Limited <BSDTABN> | 11,373,938 | | 1.06 | | 15 | | Nutraco Nominees Limited | 11,004,862 | | 1.03 | | 16 | | Chase Nominees Limited <USRESLD> | 10,972,066 | | 1.02 | | 17 | | Stanlife Nominees Limited <STNLIFLD> | 10,728,652 | | 1.00 | | 18 | | Mellon Nominees (UK) Limited <BSDTUSD> | 10,587,803 | | 0.99 | | 19 | | Chase Nominees Limited <LENDNON> | 10,101,328 | | 0.94 | | 20 | | HSBC Global Custody Nominee (UK) Limited | | | | | | | <899877> | 9,953,391 | | 0.93 | |
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| | | | | 415,007,248 | | 38.89 | |
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RIO TINTO LIMITED | Number of shares | | Percentage of issued share capital | | |
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| 1 | | Tinto Holdings Australia Pty Limited | 187,439,520 | | 37.56 | | 2 | | JP Morgan Nominees Australia Limited | 57,318,055 | | 11.49 | | 3 | | Westpac Custodian Nominees Limited | 46,285,925 | | 9.27 | | 4 | | National Nominees Limited | 43,912,622 | | 8.80 | | 5 | | Citicorp Nominees Pty Limited | 10,521,110 | | 2.11 | | 6 | | Anz Nominees Limited | 8,865,088 | | 1.78 | | 7 | | HSBC Custody Nominees (Australia) Limited | 7,137,052 | | 1.43 | | 8 | | Queensland Investment Corporation | 6,620,543 | | 1.33 | | 9 | | AMP Life Limited | 5,416,783 | | 1.09 | | 10 | | Cogent Nominees Pty Limited | 4,347,544 | | 0.87 | | 11 | | RBC Global Services Australia Nominees Pty Limited | 4,069,687 | | 0.82 | | 12 | | RBC Global Services Australia | 2,710,975 | | 0.54 | | 13 | | Citicorp Nominees Pty Limited | 2,626,730 | | 0.53 | | 14 | | NRMA Nominees Pty Limited | 2,263,174 | | 0.45 | | 15 | | Westpac Financial Services Limited | 1,976,866 | | 0.40 | | 16 | | Citicorp Nominees Pty Limited | | | | | | | <CFS WSLE GEARED SHR FND A/C> | 1,626,538 | | 0.33 | | 17 | | Citicorp Nominees Pty Limited | | | | | | | CFT IMPUTATION FUND A/C> | 1,512,729 | | 0.30 | | 18 | | Government Superannuation Office | | | | | | | (A/C State Super Fund) | 1,498,492 | | 0.30 | | 19 | | Cogent Nominees Pty Limited | 1,468,371 | | 0.29 | | 20 | | Citicorp Nominees Pty Limited | 1,460,818 | | 0.29 | |
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| | | | 399,078,622 | | 79.96 | |
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Analysis of ordinary shareholdersAs at 6 February 2004
| | | | | Rio Tinto plc | | | | | | Rio Tinto Limited | |
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| | | No of | | % | | Shares | | % | | No of | | % | | Shares | | % | | accounts | | | | accounts | | | |
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| | 1 to 1,000 shares | 44,038 | | 65.82 | | 19,269,104 | | 1.81 | | 49,677 | | 75.71 | | 19,912,429 | | 3.99 | | 1,001 to 5,000 shares | 18,982 | | 28.37 | | 38,653,410 | | 3.62 | | 13,844 | | 21.10 | | 27,256,302 | | 5.46 | | 5,001 to 10,000 shares | 1,689 | | 2.52 | | 11,663,939 | | 1.09 | | 1,275 | | 1.94 | | 8,866,405 | | 1.78 | | 10,001 to 25,000 shares | 861 | | 1.29 | | 13,496,406 | | 1.26 | | 543 | | 0.83 | | 8,008,168 | | 1.60 | | 25,001 to 125,000 shares | 708 | | 1.06 | | 40,445,924 | | 3.79 | | 178 | | 0.27 | | 8,967,650 | | 1.80 | | 125,001 to 250,000 shares | 213 | | 0.32 | | 38,435,214 | | 3.60 | | 37 | | 0.06 | | 6,559,141 | | 1.31 | | 250,001 to 1,250,000 shares | 274 | | 0.41 | | 149,640,877 | | 14.02 | | 37 | | 0.06 | | 19,469,996 | | 3.90 | | 1,250,001 to 2,500,000 | 74 | | 0.11 | | 130,178,420 | | 12.20 | | 7 | | 0.01 | | 11,806,988 | | 2.37 | | 2,500,001 and over | 67 | | 0.10 | | 542,315,803 | | 50.81 | | 13 | | 0.02 | | 387,273,633 | | 77.60 | | ADRs | | | | | 83,265,180 | | 7.80 | | | | | | 939,100 | | 0.19 | |
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| | | 66,906 | | 100 | | 1,067,364,277 | | 100 | | 65,611 | | 100 | | 499,059,812 | | 100 | |
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| | Number of holdings less than marketable parcel of A$500 | | | | | | 1,642 | | | | | | | |
| Rio Tinto 2003 Annual report and financial statements | 149 |
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Definitions
NON MINING DEFINITIONS Throughout this document, the collective expressionsRio Tinto,,Rio Tinto GroupandGroupare used for convenience only.convenienceonly. Depending on the context in which they are used, they mean Rio Tinto plc and/or Rio Tinto Limited and/or one or more of the individual companies in which Rio Tinto plc and/or Rio Tinto Limited directly or indirectly own investments,owninvestments, all of which are separate and distinct legal entities. Unless the context indicates otherwise, the following terms have the meanings shown below: Adjusted earnings | | An additional measure of earnings reported by Rio Tinto with its UK GAAP results which excludes exceptional items of such magnitude that their exclusion is necessary to reflect the underlying performance of the Group. | ADR | | American Depositary Receipt evidencing American Depositary Shares (ADS). | | | | Australian dollars | | Australian currency. Abbreviates to A$. | | | | Australian GAAP | | Generally accepted accounting principles in Australia. | A IFRS | | International Financial Reporting Standards as adopted in Australia. | Billion | | One thousand million. | | | | Canadian dollars | | Canadian currency. Abbreviates to C$. | | | | Company/Company / Companies | | Means, as the context so requires, Rio Tinto plc and/or Rio Tinto Limited. | | | Limited, as the context so requires. | DLC merger | | Refers to the dualDual listed companies merger (1995). | EU IFRS | | International Financial Reporting Standards as adopted by the European Union. | LIBORIFRS
| | London InterBank Offered Rate.International Financial Reporting Standards. | LBMA | | London Bullion Market Association. | LME | | London Metal Exchange. | | | | New Zealand dollars | | New Zealand currency. Abbreviates to NZ$ | | | . | Pounds sterling | | UK currency. Abbreviates to £, pence or p. | | | | Public shareholders | | The holders of Rio Tinto plc shares that are not companies in the Rio Tinto Limited Group and theholdersthe holders of Rio Tinto Limited shares that are not companies in the Rio Tinto plc Group. | | | | | Rand | | South African currency. Abbreviates to R. | | | | Rio Tinto Limited | | Refers to Rio Tinto Limited, and, where the context permits, its subsidiaries and associated companies. | | | | Rio Tinto Limited ADS | | An American Depositary Share representing the right to receive four Rio Tinto Limited shares. | | | | Rio Tinto Limited group | | Rio Tinto Limited and its subsidiaries and associated companies. | | | | Rio Tinto Limited shareholders | | The holders of Rio Tinto Limited shares. | | | | Rio Tinto Limited Shareholder Voting Agreement
| | The agreement, dated 21 December 1995, between Rio Tinto plc, Rio Tinto Limited, RTL ShareholderSVC | Shareholder Voting Agreement | | Shareholder SVC Limited and the Law Debenture Trust Corporation p.l.c. relating to the voting rights of theRioTintothe Rio Tinto plc Special Voting Share at meetings of shareholders of Rio Tinto plc. | Rio Tinto Limited shares | | The ordinary shares in Rio Tinto Limited. | Rio Tinto Limited/Limited / RTL DLC Dividend Share | | The DLC Dividend Share in Rio Tinto Limited. | Rio Tinto Limited /
RTL Special Voting Share | | The Special Voting Share in Rio Tinto Limited. | | | | Rio Tinto plc | | Rio Tinto plc and its subsidiaries and associated companies. | | | | Rio Tinto plc ADS | | An American Depositary Share representing the right to receive four Rio Tinto plc ordinary shares. | | | | Rio Tinto plc groupGroup | | Rio Tinto plc and its subsidiaries and associated companies. | | | | Rio Tinto plc ordinary shares | | The ordinary shares of 10p each in Rio Tinto plc. | | | | Rio Tinto plc shareholders | | The holders of Rio Tinto plc shares. | | | | Rio Tinto Shareholder Voting Voting Agreement
| | The agreement, dated 21 December 1995, between Rio Tinto plc, Rio Tinto Australian HoldingsLimited,Holdings Limited, RTP Shareholder SVC Pty Limited, Rio Tinto Limited and the Law Debenture TrustCorporationTrust Corporation p.l.c. relating to the voting rights of the Rio Tinto Limited shares held by the Rio Tinto plcgroupplc group and the Rio Tinto Limited Special Voting Share at meetings of Rio Tinto Limited shareholders. | | | | Rio Tinto plc shares | | Rio Tinto plc ordinary shares. |
150 | Rio Tinto 2003 plc / RTPAnnual report and financial statements | |
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Rio Tinto plc/
RTP Special Voting
| | The Special Voting Share of 10p in Rio Tinto plc. |
Rio Tinto 2006Form 20-F | 153 |
Back to Contents Special Voting Share | | | Share/Share / shares | | Rio Tinto Limited shares or Rio Tinto plc ordinary shares, as the context requires. | | | | Sharing Agreement | | The agreement, dated 21 December 1995, as amended between Rio Tinto Limited and Rio Tinto plcrelatingplc relating to the regulation of the relationship between Rio Tinto Limited and Rio Tinto plc following theDLCthe DLC merger. | | | | UK GAAP | | Generally accepted accounting principles in the UK. | Underlying earnings | | An additional measure of earnings reported by Rio Tinto with its EU IFRS results to provide greater understanding of the underlying business performance of its operations. This measure is explained in greater detail in the financial statements. | US dollars | | United States currency. Abbreviates to dollars, $ or US$ and US cents toor USc. | | | | US GAAP | | Generally accepted accounting principles in the United States. | | | |
MINING AND TECHNICAL DEFINITIONS MINING AND TECHNICAL DEFINITIONS | | | | Alumina | | Aluminium oxide. It is extracted from bauxite in a chemical refining process and is subsequently theprincipalthe principal raw material in the electro-chemical process by which aluminium is produced. | | | | Anode and cathode copper | | At the final stage of the smelting of copper concentrates, the copper is cast into specially shapedslabsshaped slabs called anodes for subsequent refining to produce refined cathode copper. | | | | Bauxite | | Mainly hydrated aluminium oxides (AL(Al2O3.2H2O). Principal ore of alumina, the raw material from whichaluminium is made. | | | | Beneficiated bauxite | | Bauxite ore that has been treated to remove waste material to improve its physical or chemical characteristics. | | | | Bioleaching | | The deliberate use of bacteria to speed the chemical release of metals from ores. | | | | Block caving | | An underground bulk mining method. It involves undercutting the orebody to induce ore fracture andcollapseand collapse by gravity. The broken ore is recovered through draw points below. | | | | Borates | | A generic term for mineral compounds which contain boron and oxygen. | | | | Cathode copper | | Refined copper produced by electrolytic refining of impure copper or by electrowinning. | | | electro-winning. | Classification | | Separating crushed and ground ore into portions of different size particles. | Coking coal | | By virtue of its carbonisation properties, it is used in the manufacture of coke, which is used in the steel making process. Also known as metallurgical coal. | Concentrate | | The product of a physical concentration process, such as flotation or gravity concentration, whichinvolveswhich involves separating ore minerals from unwanted waste rock. Concentrates require subsequentprocessingsubsequent processing (such as smelting or leaching) to break down or dissolve the ore minerals and obtain thedesiredthe desired elements, usually metals. | | | | Cutoff grade | | The lowest grade of mineralised material considered economic to process. It is used in the calculationofcalculation of the quantity of ore present in a given deposit. | | | | Doré | | A precious metal alloy which is produced by smelting. Doré is an intermediate product which issubsequentlyis subsequently refined to produce pure gold and silver. | | | | DWT | | Dead weight tons is the combined weight in long tons (2,240 pounds weight) of cargo, fuel and freshwaterfresh water that a ship can carry. | | | | Flotation | | A method of separating finely ground minerals using a froth created in water by specific reagents. IntheIn the flotation process certain mineral particles are induced to float by becoming attached to bubbles offrothof froth whereas others, usually unwanted, sink. | | | | FOB | | Free on board. | | | | Grade | | The proportion of metal or mineral present in ore, or any other host material, expressed in thisdocumentthis document as per cent, gramsgrammes per tonne or ounces per ton. | | | | Head grade | | The average grade of ore delivered to the mill. | | | | Ilmenite | | Mineral composed of iron, titanium and oxygen. | | | | Metallurgical coal | | Also referred to as coking coal. By virtue of its carbonisation properties, it is used in the manufactureofmanufacture of coke, which is used in the steel making process. |
| Rio Tinto 2003 Annual report and financial statements | 151 |
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Definitions continued | | | | | | | | Also known as coking coal. | Mineral resource | | Material of intrinsic economic interest occurring in such form and quantity that there are reasonableprospects for eventual economic extraction. | | | | Ore | | A rock from which a metal(s) or mineral(s) can be economicallyeconomic ally and legally extracted. | | | | Ore milled | | The quantity of ore processed. | | | | Ore hoisted | | The quantity of ore which is removed from an underground mine for processing. | | | | Ore reserve | | That part of a mineral deposit which could be economically and legally extracted or produced at thetime of the reserve determination. | | | | | Pressure oxidation | | A method of treating sulphide ores. In the case of refractory gold ores, the object is to oxidise thesulphidesthe sulphides to sulphates and hence liberate the gold for subsequent cyanide leaching. The techniqueinvolvestechnique involves reaction of the ore with sulphuric acid under pressure in the presence of oxygen gas. | | | |
Rio Tinto 2006 Form 20-F | 154 |
Back to Contents Probable ore reserves | | Reserves for which quantity and grade and/or quality are computed from information similar to thatusedthat used for provedproven reserves, but the sites for inspection, sampling and measurement are farther apart orareor are otherwise less adequately spaced. The degree of assurance, although lower than that for provedreserves,proven reserves, is high enough to assume continuity between points of observation. | | | | ProvedProven ore reserves | | Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workingsorworkings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sitesforsites for inspection, sampling and measurement are spaced so closely and the geologic character is so welldefinedwell defined that size, shape, depth and mineral content of reserves are well established. | | | | Rock mined | | The quantity of ore and waste rock excavated from the mine. In this document, the term is onlyappliedonly applied to surface mining operations. | | | | Rutile | | A mineral composed of titanium and oxygen (TiO2). | | | | Steam coal | | Also referred to as steaming coal, thermal coal or energy coal. It is used as a fuel source in electricalpowerelectrical power generation, cement manufacture and various industrial applications. | | | | | Stripping ratio | | The tonnes of waste material which must be removed to allow the mining of one tonne of ore. | | | | Solvent extraction and electrowinning (SX-EW) | | Processes for extracting metal from an ore and producing pure metal. First the metal is leached intosolution;into solution; the resulting solution is then purified in the solvent extraction process; the solution is thentreatedthen treated in an electro-chemical process (electrowinning)(electro-winning) to recover cathode copper. | | | | TailingTailings | | The rock wastes which are rejected from a concentrating process after the recoverable valuablemineralsvaluable minerals have been extracted. | | | | Titanium dioxide feedstock | | A feedstock rich in titanium dioxide, produced, in Rio Tinto’s case, by smelting ores containingtitaniumcontaining titanium minerals. | | | | Zircon | | Zirconium mineral (ZrSiO4). | | | | NotesCONVERSION OF WEIGHTS AND MEASURES | • | Ore reserve estimates in this document have been adjusted for mining losses and dilution during extraction. | | | | | • | Metal grades have not been adjusted for mill recoveries, but mill recoveries are presented in the tableof reserves and are taken into consideration in the calculation of Rio Tinto’s share of recoverablemetal. | | | | | • | Unless stated to the contrary, reserves of industrial minerals and coal are stated in terms ofrecoverable quantities of saleable material, after processing or beneficiation losses. | | | | | • | Reserve and resource terminology used in this document complies in general with the requirements ofthe Australian Stock Exchange and the London Stock Exchange. |
152 | Rio Tinto 2003 Annual report and financial statements | |
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Conversion of weights | 1 troy ounce = 31.1 grams | and measures | | 1 kilogram = 32.15 troy ounces | | | 1 kilogram = 2.2046 pounds | | | 1 metric tonne = 1,000 kilograms | | | 1 metric tonne = 2,204.6 pounds | | | 1 metric tonne = 1.1023 short tons | | | 1 short ton = 2,000 pounds | | | 1 long ton = 2,240 pounds | | | 1 gram per metric tonne = 0.02917 troy ounces per short ton | | | 1 gram per metric tonne = 0.03215 troy ounces per metric tonne | | | 1 kilometre = 0.6214 miles |
Exchange ratesEXCHANGE RATES
The following tables show,table shows, for the periods and dates indicated, certain information regarding the exchange rates for the pound sterling and the Australian dollar, based on the Noon Buying Rates for pounds sterling and Australian dollars expressed in US dollars per £1.00 and per A$1.00. Pounds sterling | | | | | | | | | Australian dollars | | | | | | | | | | Year ended 31 December* | Period | | Average | | High | | Low | | Year ended 31 December* | | Period | | Average | | High | | Low | | | end | rate | | | | end | rate | | |
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| | 2004 (through 6 February) | 1.84 | | 1.82 | | 1.85 | | 1.78 | | 2004 (through 6 February) | | 0.769 | | 0.769 | | 0.780 | | 0.751 | | 2003 | 1.78 | | 1.63 | | 1.79 | | 1.55 | | 2003 | | 0.749 | | 0.648 | | 0.752 | | 0.562 | | 2002 | 1.61 | | 1.50 | | 1.61 | | 1.41 | | 2002 | | 0.563 | | 0.544 | | 0.575 | | 0.506 | | 2001 | 1.45 | | 1.44 | | 1.50 | | 1.37 | | 2001 | | 0.512 | | 0.517 | | 0.571 | | 0.483 | | 2000 | 1.49 | | 1.52 | | 1.65 | | 1.40 | | 2000 | | 0.556 | | 0.579 | | 0.672 | | 0.511 | | 1999 | 1.62 | | 1.62 | | 1.67 | | 1.55 | | 1999 | | 0.656 | | 0.645 | | 0.668 | | 0.610 | | 1998 | 1.66 | | 1.66 | | 1.72 | | 1.61 | | 1998 | | 0.612 | | 0.629 | | 0.687 | | 0.555 | | 1997 | 1.64 | | 1.64 | | 1.70 | | 1.58 | | 1997 | | 0.652 | | 0.744 | | 0.798 | | 0.649 | |
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Pounds sterling | | | | | | | | | | Australian dollars | | | | | | | | | | Year ended 31 December | | Period | | Average | | High | | Low | | Year ended 31 December | | Period | | Average | | High | | Low | | | | end | | rate | | | | | | | | end | | rate | | | | | |
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| | 2006 | | 1.96 | | 1.84 | | 1.98 | | 1.72 | | 2006 | | 0.788 | | 0.753 | | 0.791 | | 0.706 | | 2005 | | 1.73 | | 1.82 | | 1.93 | | 1.71 | | 2005 | | 0.734 | | 0.763 | | 0.799 | | 0.727 | | 2004 | | 1.93 | | 1.83 | | 1.95 | | 1.76 | | 2004 | | 0.783 | | 0.737 | | 0.798 | | 0.686 | | 2003 | | 1.78 | | 1.63 | | 1.79 | | 1.55 | | 2003 | | 0.749 | | 0.648 | | 0.752 | | 0.562 | | 2002 | | 1.61 | | 1.50 | | 1.41 | | 1.61 | | 2002 | | 0.563 | | 0.544 | | 0.575 | | 0.506 | |
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| | | | | | | | | | | | | | | | | | | | | | Note | The Noon Buying Rate on such dates differed slightly from the rates used in the preparation of Rio Tinto’s financial statements as of such date. No representation is made that pound sterling and Australian dollar amounts have been, could have been or could be converted into dollars at the Noon Buying Rate on such dates or at any other dates. |
Note
* The Noon Buying Rate on such dates differed slightly from the rates used in the preparation of Rio Tinto’s consolidated financial statements as of such date.
No representation is made that pound sterling and Australian dollar amounts have been, could have been or could be converted into dollars at the Noon Buying Rate on such dates or at any other dates.
| Rio Tinto 2003 2006 Annual report and financial statementsForm 20-F | 153155 |
Back to Contents2006 Financial statements
Financial calendarCONTENTS
Publications
The following publications may be obtained from Rio Tinto:
2003 Annual report and financial statements
2003 Annual review
2003 Social and environment review highlights
The way we work – Rio Tinto’s statement of business practice
Review magazine – Rio Tinto’s quarterly magazine for shareholders
The 2003 Databook and the 2003 Social and environment review are available on the Rio Tinto website.
Copies of the 2003 annual reports for the following listed Rio Tinto Group companies are also available on request:
Bougainville Copper Limited
Coal & Allied Industries Limited
Energy Resources of Australia Limited
Palabora Mining Company Limited
Rio Tinto Zimbabwe Limited
Rio Tinto on the web
Information about Rio Tinto is available on our website www.riotinto.com
Many of Rio Tinto’s publications may be downloaded in their entirety from this site and access gained to Group company and other websites.
General enquiries
If you require general information about the Group please contact the External Affairs department. For all other enquiries please contact the relevant company secretary or Computershare.
154 | Rio Tinto 2003 Annual report and financial statements | |
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Useful addresses
Shareholders | Low cost share dealing service & | Please contact the respective registrar if you | Individual Savings Account (ISA) | have any queries about your shareholding. | (for Rio Tinto plc shareholders only) | | | Rio Tinto plc | Stocktrade | Computershare Investor Services PLC | P O Box 1076 | P O Box 82 | 10 George Street | The Pavilions | Edinburgh EH2 2PZ | Bridgwater Road | | Bristol BS99 7NH | Low cost share dealing service | | Telephone: +44 (0) 131 240 0101 | Telephone: +44 (0) 870 702 0000 | UK residents only: 0845 840 1532 | Facsimile: +44 (0) 870 703 6119 | Website: www.stocktrade.co.uk | UK residents only, | | Freephone: 0800 435021 | Individual Savings Account (ISA) | Website: www.computershare.com | Telephone: +44 (0) 131 240 0623 | | Website: www.stocktrade.co.uk | Rio Tinto Limited | | Computershare Investor Services Pty. Limited | Registered offices | GPO Box 2975 | Rio Tinto plc | Melbourne | 6 St James’s Square | Victoria 3000 | London SW1Y 4LD | | Registered in England | Until 19 March 2004 | No. 719885 | Telephone: +61 (0) 3 9615 5970 | | Facsimile: +61 (0) 3 9611 5710 | Telephone: +44 (0) 20 7930 2399 | | Facsimile: +44 (0) 20 7930 3249 | After 19 March 2004 | Website: www.riotinto.com | Telephone: +61 (0) 3 9415 4030 | | Facsimile: +61 (0) 3 9473 2500 | Rio Tinto Limited | | Level 33 | The toll free number for Australian residents | 55 Collins Street | remains the same, | Melbourne, Victoria 3000 | Toll free 1 800 813 292 | ACN: 004 458 404 | Website: www.computershare.com | | | Telephone: +61 (0) 3 9283 3333 | Holders of American Depositary | Facsimile: +61 (0) 3 9283 3707 | Receipts (ADRs) | Website: www.riotinto.com | Please contact the ADR administrator if you | | have any queries about your ADRs | | | | ADR administrator | | The Bank of New York | | Depositary Receipts Division | | 620 Avenue of the Americas | | 6th Floor | | New York, NY 10011 | | | | Telephone: +1 888 269 2377 | | Website: www.bankofny.com | | | | US investor relations consultant | | Makinson Cowell (US) Limited | | One Penn Plaza | | 250 West 34th Street | | Suite 1935 | | New York, NY 10119 | | | | Telephone: +1 212 994 9044 | | Website: www.mackinson.cowell.com | |
| | | | Rio Tinto 2003 Annual report and financial statements | 155 |
Cover photography by Tony Waller.
Designed by Tor Pettersen & Partners.
Printed in England by St Ives Westerham Press to ISO 14001 environmental standards.
The paper is manufactured to ISO 14001 environmental standards using fibres from
sustainable sources and pulps which are totally chlorine free.
Printed in Australia by PMP Print.
© Rio Tinto plc and Rio Tinto Limited.
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REPORT OF THE INDEPENDENT ACCOUNTANTS
To the members of Rio Tinto plc and Rio Tinto Limited
We have audited the financial statements of the Rio Tinto Group ("the Group") and of the Rio Tinto plc and Rio Tinto Limited parts of the Group (see "Accounting Presentation" on page A-7) set out on pages A-2 to A-75, which are expressed in US dollars. These consolidated financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audits. As detailed in the statement of accounting policies, the Group changed its accounting policy for deferred tax in 2002 following the adoption of Financial Reporting Standard 19 'Deferred Tax' under generally accepted accounting principles in the United Kingdom.
We conducted our audits in accordance with Auditing Standards generally accepted in the United Kingdom and Auditing Standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements set out on pages A-2 to A-75 present fairly, in all material respects, the financial position of the Rio Tinto Group and of the Rio Tinto plc and Rio Tinto Limited parts of the Group at 31 December 2003 and 2002 and their results of operations and cash flows of each of the three years in the period ended 31 December 2003, in conformity with accounting principles generally accepted in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain significant respects from those generally accepted in the United States of America. The application of the latter would have affected the determination of consolidated net income for each of the three years in the period ended 31 December 2003 and the determination of consolidated shareholders' funds at 31 December 2003, 2002 and 2001 to the extent summarised in Note 42 to the consolidated financial statements.
/s/ PricewaterhouseCoopers LLP | /s/ PricewaterhouseCoopers | PricewaterhouseCoopers LLP | PricewaterhouseCoopers | Chartered Accountants and Registered Auditors | Chartered Accountants | London, England | Perth, Australia | 20 February 2004 | 20 February 2004 | In respect of the members of Rio Tinto plc | In respect of the members of Rio Tinto Limited |
A-1
Back to Contents RIO TINTO PLC - RIO TINTO LIMITEDGroup income statement
PROFIT AND LOSS ACCOUNTS FOR THE YEARS ENDEDYears ended 31 DECEMBERDecember
| | | Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | | 2001 | 2003 | | 2002 | | 2001 | 2003 | | 2002 | | 2001 |
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| Note | | | US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | | | Gross turnover (including share of joint | | | | | | | | | | | | | | | | | | | | | ventures and associates) | 7,809 | | 7,213 | | 6,934 | | 5,956 | | 5,458 | | 5,296 | | 11,755 | | 10,828 | | 10,438 | | | | Share of joint ventures' turnover | (1,128 | ) | (859 | ) | (855 | ) | (692 | ) | (803 | ) | (757 | ) | (1,820 | ) | (1,662 | ) | (1,612 | ) | | | Share of associates' turnover | (2,649 | ) | (2,425 | ) | (2,356 | ) | (68 | ) | (141 | ) | (110 | ) | (707 | ) | (723 | ) | (674 | ) | | | |
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| | | | Consolidated turnover | 4,032 | | 3,929 | | 3,723 | | 5,196 | | 4,514 | | 4,429 | | 9,228 | | 8,443 | | 8,152 | | 2 | | Net operating costs | (3,664 | ) | (3,948 | ) | (3,586 | ) | (4,068 | ) | (3,659 | ) | (3,004 | ) | (7,732 | ) | (7,612 | ) | (6,590 | ) | | | |
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| | | | Group operating profit | 368 | | (19 | ) | 137 | | 1,128 | | 855 | | 1,425 | | 1,496 | | 831 | | 1,562 | | | | Share of operating profit of : | | | | | | | | | | | | | | | | | | | | | Joint ventures | 419 | | 258 | | 268 | | 117 | | 274 | | 286 | | 536 | | 532 | | 554 | | | | Associates | 678 | | 671 | | 794 | | 20 | | 51 | | 34 | | 234 | | 239 | | 217 | | | | Profit on disposal of interests in subsidiary, joint | | | | | | | | | | | | | | | | | | | | | ventures and associate | 47 | | - | | 54 | | 126 | | - | | - | | 126 | | - | | 54 | | | | |
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| | | | Profit on ordinary activities before interest | 1,512 | | 910 | | 1,253 | | 1,391 | | 1,180 | | 1,745 | | 2,392 | | 1,602 | | 2,387 | | 5 | | Net interest payable | (138 | ) | (156 | ) | (225 | ) | (100 | ) | (124 | ) | (190 | ) | (206 | ) | (237 | ) | (347 | ) | 6 | | Amortisation of discount | (69 | ) | (39 | ) | (45 | ) | (36 | ) | (23 | ) | (19 | ) | (92 | ) | (54 | ) | (57 | ) | | | |
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| | | | Profit on ordinary activities before taxation | 1,305 | | 715 | | 983 | | 1,255 | | 1,033 | | 1,536 | | 2,094 | | 1,311 | | 1,983 | | 7 | | Taxation | (341 | ) | (442 | ) | (378 | ) | (360 | ) | (423 | ) | (522 | ) | (567 | ) | (708 | ) | (718 | ) | | | |
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| | | | Profit on ordinary activities after taxation | 964 | | 273 | | 605 | | 895 | | 610 | | 1,014 | | 1,527 | | 603 | | 1,265 | | | | Attributable to outside shareholders | (8 | ) | (78 | ) | (114 | ) | (11 | ) | 126 | | (72 | ) | (19 | ) | 48 | | (186 | ) | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | Profit for the financial year (net earnings) | 956 | | 195 | | 491 | | 884 | | 736 | | 942 | | 1,508 | | 651 | | 1,079 | | | | | | | | | | | | | | | | | | | | | | | 4 | | Exceptional items | | | | | | | | | | | | | | | | | | | | | Profit on disposal of interests in subsidiary, joint venture and associate | 47 | | - | | - | | 126 | | - | | - | | 126 | | - | | - | | | | Asset write downs | - | | (639 | ) | (671 | ) | - | | (433 | ) | (71 | ) | - | | (978 | ) | (715 | ) | | | Environmental remediation charge | - | | (116 | ) | - | | - | | - | | - | | - | | (116 | ) | - | | | | Taxation | - | | 9 | | 120 | | - | | 42 | | 19 | | - | | 42 | | 132 | | | | Attributable to outside equity shareholders | - | | 7 | | - | | - | | 166 | | - | | - | | 173 | | - | | | | |
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| | | | | 47 | | (739 | ) | (551 | ) | 126 | | (225 | ) | (52 | ) | 126 | | (879 | ) | (583 | ) | | | Adjusted Earnings | 909 | | 934 | | 1,042 | | 758 | | 961 | | 994 | | 1,382 | | 1,530 | | 1,662 | | | | | | | | | | | | | | | | | | | | | | | 8 | | Dividends to shareholders | (683 | ) | (639 | ) | (628 | ) | (320 | ) | (299 | ) | (294 | ) | (882 | ) | (826 | ) | (812 | ) | | | |
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| | | | Retained profit/(loss) for the financial year | 273 | | (444 | ) | (137 | ) | 564 | | 437 | | 648 | | 626 | | (175 | ) | 267 | | | | |
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| | 9 | | Earnings per ordinary share (US cents) | 89.7c | | 18.3c | | 46.1 | c | 177.2c | | 147.6c | | 189.0 | c | 109.5 | c | 47.3 | c | 78.5 | c | 9 | | Adjusted earnings per ordinary share (US cents) | 85.3c | | 87.7c | | 97.9 | c | 151.9c | | 192.7c | | 199.4 | c | 100.3 | c | 111.2 | c | 120.9 | c | | | Dividends per share | | | | | | | | | | | | | | | | | | | 8 | | –– Rio Tinto plc (pence) | 37.13 | p | 37.47 | p | 41.68 | p | | | | | | | 37.13 | p | 37.47 | p | 41.68 | p | 8 | | –– Rio Tinto Limited (Australian cents) | | | | | | | 89.70 | c | 105.93 | c | 115.27 | c | 89.70 | c | 105.93 | c | 115.27 | c | | | | | | | | | | | | | | | | | | | | | |
(a) | Diluted earnings per share figures for the Rio Tinto Group are 0.2 US cents (2002: 0.1 US cents, 2001: 0.2 US cents) lower than the earnings per share figures above. | (b) | The results for all years relate wholly to continuing operations. | (c) | The profit for each year is stated after the exceptional items set out in the box above. 'Adjusted earnings' excludes these items. See note 4 for further details. |
| | 2006 | | 2005 | | 2004 | | | | US$m | | US$m | | US$m | |
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| | Consolidated sales revenue | | 22,465 | | 19,033 | | 12,954 | | Net operating costs (excluding impairment reversals less charges) | 3 | (13,892 | ) | (12,436 | ) | (10,249 | ) | Impairment reversals less charges | 5 | 396 | | 3 | | (558 | ) | Profits less losses on disposal of interests in businesses | 39 | 5 | | 322 | | 1,180 | |
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| | Operating profit | | 8,974 | | 6,922 | | 3,327 | | Share of profit after tax of equity accounted units | 6 | 1,378 | | 776 | | 523 | |
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| | Profit before finance items and taxation | | 10,352 | | 7,698 | | 3,850 | | | | | | | | | | Finance items | | | | | | | | Exchange gains/(losses) on external net debt and intragroup balances | 23 | 46 | | (128 | ) | 204 | | Gains/(losses) on currency and interest rate derivatives not qualifying for hedge accounting | | 35 | | (51 | ) | 16 | | Interest receivable and similar income | 7 | 106 | | 82 | | 28 | | Interest payable and similar charges | 7 | (160 | ) | (173 | ) | (148 | ) | Amortisation of discount related to provisions | | (139 | ) | (116 | ) | (87 | ) |
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| | | | (112 | ) | (386 | ) | 13 | |
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| | Profit before taxation | | 10,240 | | 7,312 | | 3,863 | | | | | | | | | | Taxation | 8 | (2,373 | ) | (1,814 | ) | (619 | ) |
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| | Profit for the year | | 7,867 | | 5,498 | | 3,244 | |
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| | – attributable to outside equity shareholders | | 429 | | 283 | | (53 | ) | – attributable to equity shareholders of Rio Tinto (Net earnings) | | 7,438 | | 5,215 | | 3,297 | |
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| | Basic earnings per ordinary share | 9 | 557.8 | c | 382.3 | c | 239.1 | c | Diluted earnings per ordinary share | 9 | 555.6 | c | 381.1 | c | 238.7 | c | | | | | | | | | Dividends paid during the year (US$m) | | 2,573 | | 1,141 | | 910 | | Dividends per share: paid during the year | | | | | | | | –ordinary dividend | 10 | 81.5 | c | 83.5 | c | 66.0 | c | – special dividend | 10 | 110.0 | c | — | | — | | Dividends per share: declared in the announcement of the results for the year | | | | | | | | – ordinary dividend | 10 | 64.0 | c | 41.5 | c | 45.0 | c | – special dividend | 10 | — | | 110.0 | c | — | |
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The separate financial statements for Rio Tinto plc and 100 per cent of Rio Tinto Limited shown above are prepared on the basis of the legal ownership of the various operations within each part of the Group. The distinction between the legal and economic interests represented by Rio Tinto plc and Rio Tinto Limited shareholdings is explained on page A-7. The amounts attributable to the economic interests of Rio Tinto plc shareholders and shareholders of Rio Tinto Limited other than Rio Tinto plc are as follows:
| Rio Tinto plc | | Rio Tinto Limited shareholders | | | | | | | | shareholders | other than Rio Tinto plc | Rio Tinto Group |
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| US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | Economic interests in profit for the financial year | 1,167 | | 504 | | 835 | | 341 | | 147 | | 244 | | 1,508 | | 651 | | 1,079 | | Average percentage of Rio Tinto Limited held by | | | | | | | | | | | | | | | | | | | shareholders other than Rio Tinto plc | | | | | | | 62.4 | % | 62.4 | % | 62.4 | % | | | | | | |
The notes on pages A-7 to A-75A-68 form part of these accounts. Material variations from accounting principles generally accepted in the United States are set out on pages A-59 to A-75.A-69 A-86. A-2
Back to Contents RIO TINTO PLC - RIO TINTO LIMITEDGroup cash flow statement
CONDENSED INCOME STATEMENTS FOR THE YEARS ENDEDYears ended 31 DECEMBER (US GAAP format)December
Note | | | Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | | 2001 | 2003 | | 2002 | | 2001 | 2003 | | 2002 | | 2001 |
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| US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | | | Revenues | 4,032 | | 3,929 | | 3,723 | | 5,196 | | 4,514 | | 4,429 | | 9,228 | | 8,443 | | 8,152 | | | | Operating costs and expenses | | | | | | | | | | | | | | | | | | | | | Costs and expenses applicable to revenues (exclusive of depreciation and amortisation shown separately below) | (2,400 | ) | (2,162 | ) | (1,961 | ) | (2,750 | ) | (2,175 | ) | (2,019 | ) | (5,150 | ) | (4,337 | ) | (3,980 | ) | | | Depreciation of fixed assets and amortisation of goodwill | (385 | ) | (423 | ) | (453 | ) | (621 | ) | (531 | ) | (476 | ) | (1,006 | ) | (954 | ) | (929 | ) | | | Fixed asset write downs | - | | (529 | ) | (644 | ) | - | | (433 | ) | (71 | ) | - | | (962 | ) | (715 | ) | | | Environmental remediation costs | - | | (116 | ) | - | | - | | - | | - | | - | | (116 | ) | - | | | | Selling, general and administrative expenses | (460 | ) | (380 | ) | (305 | ) | (357 | ) | (276 | ) | (212 | ) | (817 | ) | (656 | ) | (517 | ) | | | Royalties | (220 | ) | (204 | ) | (183 | ) | (219 | ) | (186 | ) | (174 | ) | (439 | ) | (390 | ) | (357 | ) | | | Exploration, research & development | (107 | ) | (111 | ) | (115 | ) | (43 | ) | (44 | ) | (54 | ) | (150 | ) | (155 | ) | (169 | ) | | | Bad and doubtful debts | (28 | ) | (2 | ) | - | | (3 | ) | (13 | ) | 7 | | (31 | ) | (15 | ) | 7 | | | | Foreign currency exchange gain/(loss) | (40 | ) | (28 | ) | 62 | | (83 | ) | (13 | ) | (4 | ) | (123 | ) | (41 | ) | 58 | | | | Other operating income/(expense) | (24 | ) | 7 | | 13 | | 8 | | 12 | | (1 | ) | (16 | ) | 14 | | 12 | | | | |
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| | | | | (3,664 | ) | (3,948 | ) | (3,586 | ) | (4,068 | ) | (3,659 | ) | (3,004 | ) | (7,732 | ) | (7,612 | ) | (6,590 | ) | | | Non operating income/(expenses) | | | | | | | | | | | | | | | | | | | | | Gain on sale of fixed asset investments | - | | - | | 54 | | 126 | | - | | - | | 126 | | - | | 54 | | | | Interest expense & amortisation of discount on | | | | | | | | | | | | | | | | | | | | | provisions | (97 | ) | (82 | ) | (122 | ) | (131 | ) | (131 | ) | (189 | ) | (228 | ) | (213 | ) | (311 | ) | | | |
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| | | | Income before income tax, minority | | | | | | | | | | | | | | | | | | | | | interest and equity income | 271 | | (101 | ) | 69 | | 1,123 | | 724 | | 1,236 | | 1,394 | | 618 | | 1,305 | | | | Income Tax Expense | (7 | ) | (142 | ) | (49 | ) | (318 | ) | (341 | ) | (424 | ) | (325 | ) | (483 | ) | (473 | ) | | | Minority interest in income of consolidated | | | | | | | | | | | | | | | | | | | | | subsidiaries | (8 | ) | (78 | ) | (114 | ) | (11 | ) | 126 | | (72 | ) | (19 | ) | 48 | | (186 | ) | | | Equity income of unconsolidated joint | | | | | | | | | | | | | | | | | | | | | ventures and affiliates | 700 | | 516 | | 585 | | 90 | | 227 | | 202 | | 458 | | 468 | | 433 | | | | |
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| | | | Net income | 956 | | 195 | | 491 | | 884 | | 736 | | 942 | | 1,508 | | 651 | | 1,079 | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | Earnings per ordinary share (US cents) | 89.7c | | 18.3c | | 46.1 | c | 177.2c | | 147.6c | | 189.0 | c | 109.5 | c | 47.3 | c | 78.5 | c |
(a) | Diluted earnings per ordinary share figures for the Rio Tinto Group are 0.2 US cents (2002: 0.1 US cents, 2001: 0.2 US cents) lower than the earnings per share figures above. | (b) | These Condensed Income Statements are in the format prescribed by the SEC as referred to in note 4 on page A-13. |
| | 2006 | | 2005 | | 2004 | | | | US$m | | US$m | | US$m | |
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| | Cash flow from consolidated operations | | 9,196 | | 7,431 | | 3,787 | | Dividends from equity accounted units | | 1,727 | | 600 | | 478 | |
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| | Cash flow from operations | | 10,923 | | 8,031 | | 4,265 | | Net interest paid | | (128 | ) | (128 | ) | (151 | ) | Dividends paid to outside shareholders | | (193 | ) | (169 | ) | (56 | ) | Tax paid | | (2,799 | ) | (1,017 | ) | (865 | ) |
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| | Cash flow from operating activities | | 7,803 | | 6,717 | | 3,193 | | | | | | | | | | Cash used in investing activities | | | | | | | | (Acquisitions) / disposals of subsidiaries, joint ventures and associates | 39 | (279 | ) | 321 | | 1,507 | | Purchase of property, plant and equipment and intangible assets | | (3,992 | ) | (2,590 | ) | (2,259 | ) | Sales of other financial assets | | 293 | | 133 | | 261 | | Purchases of other financial assets | | (167 | ) | (231 | ) | (30 | ) | Other investing cash flows | | 56 | | 110 | | 127 | |
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| | Cash used in investing activities | | (4,089 | ) | (2,257 | ) | (394 | ) | | | | | | | | | Cash flow before financing activities | | 3,714 | | 4,460 | | 2,799 | | | | | | | | | | Cash flow from financing activities | | | | | | | | Equity dividends paid to Rio Tinto shareholders | | (2,573 | ) | (1,141 | ) | (906 | ) | Own shares purchased from Rio Tinto shareholders | | (2,370 | ) | (877 | ) | — | | Proceeds from issue of ordinary shares in Rio Tinto | | 31 | | 100 | | 26 | | Proceeds from issue of new borrowings | | 483 | | 388 | | 206 | | Repayment of borrowings | | (1,102 | ) | (893 | ) | (2,061 | ) | Other financing cash flows | | 142 | | 12 | | 30 | |
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| | Cash used in financing activities | | (5,389 | ) | (2,411 | ) | (2,705 | ) |
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| | Effects of exchange rates on cash and cash equivalents | | 30 | | (8 | ) | (9 | ) |
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| | Net (decrease)/increase in cash and cash equivalents | | (1,645 | ) | 2,041 | | 85 | |
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| | Opening cash and cash equivalents | | 2,367 | | 326 | | 241 | |
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| | Closing cash and cash equivalents | 20 | 722 | | 2,367 | | 326 | |
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| | | | | | | | | | Cash flow from consolidated operations | | | | | | | | Profit for the year | | 7,867 | | 5,498 | | 3,244 | | Adjustments for: | | | | | | | | Taxation | | 2,373 | | 1,814 | | 619 | | Finance items | | 112 | | 386 | | (13 | ) | Share of profit after tax of equity accounted units | | (1,378 | ) | (776 | ) | (523 | ) | Profit on disposal of interests in businesses (including investments) | | (5 | ) | (322 | ) | (1,180 | ) | Depreciation and amortisation | | 1,469 | | 1,334 | | 1,171 | | Impairment (reversals) less charges | 5 | (396 | ) | (3 | ) | 558 | | Provisions | 26 | 60 | | 202 | | 192 | | Utilisation of provisions | 26 | (271 | ) | (261 | ) | (220 | ) | Change in inventories | | (454 | ) | (249 | ) | (217 | ) | Change in trade and other receivables | | (394 | ) | (530 | ) | (97 | ) | Change in trade and other payables | | 116 | | 303 | | 237 | | Other items | | 97 | | 35 | | 16 | |
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| | | | 9,196 | | 7,431 | | 3,787 | |
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The notes on pages A-7 to A-75A-68 form part of these accounts. Material variations from accounting principles generally accepted in the United States are set out on pages A-59 to A-75.A-69 A-86. A-2(a)
Back to Contents
RIO TINTO PLC - RIO TINTO LIMITED
CASH FLOW STATEMENTS FOR THE YEARS ENDED 31 DECEMBER
Note | | | Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | | 2001 | 2003 | | 2002 | | 2001 | 2003 | | 2002 | | 2001 |
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| US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | | | Cash flow from operating activities (see below) | 975 | | 1,380 | | 1,034 | | 1,913 | | 1,754 | | 1,733 | | 2,888 | | 3,134 | | 2,767 | | | | Dividends from joint ventures | 338 | | 228 | | 288 | | 132 | | 285 | | 255 | | 470 | | 513 | | 543 | | | | Dividends from associates | 397 | | 368 | | 210 | | 8 | | 4 | | 4 | | 128 | | 96 | | 105 | | | | |
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| | | | Total cash flow from operations | 1,710 | | 1,976 | | 1,532 | | 2,053 | | 2,043 | | 1,992 | | 3,486 | | 3,743 | | 3,415 | | | | Interest received | 48 | | 46 | | 51 | | 13 | | 52 | | 13 | | 30 | | 80 | | 64 | | | | Interest paid | (121 | ) | (109 | ) | (140 | ) | (141 | ) | (173 | ) | (195 | ) | (231 | ) | (264 | ) | (335 | ) | | | Dividends paid to outside shareholders | (47 | ) | (78 | ) | (66 | ) | (29 | ) | (39 | ) | (13 | ) | (76 | ) | (117 | ) | (79 | ) | | | |
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| | | | Returns on investment and servicing of finance | (120 | ) | (141 | ) | (155 | ) | (157 | ) | (160 | ) | (195 | ) | (277 | ) | (301 | ) | (350 | ) | | | Taxation | (182 | ) | (240 | ) | (172 | ) | (735 | ) | (482 | ) | (443 | ) | (917 | ) | (722 | ) | (615 | ) | | | Purchase of property, plant and equipment | (559 | ) | (667 | ) | (601 | ) | (974 | ) | (629 | ) | (750 | ) | (1,533 | ) | (1,296 | ) | (1,351 | ) | | | Funding of Group share of joint ventures' and | | | | | | | | | | | | | | | | | | | | | associates' capital expenditure | (13 | ) | (28 | ) | (72 | ) | (81 | ) | (109 | ) | (7 | ) | (94 | ) | (137 | ) | (79 | ) | | | Other funding of joint ventures and associates | (18 | ) | (7 | ) | 7 | | - | | 1 | | 6 | | (18 | ) | (6 | ) | 13 | | 11 | | Exploration and evaluation expenditure | (88 | ) | (89 | ) | (96 | ) | (42 | ) | (35 | ) | (36 | ) | (130 | ) | (124 | ) | (132 | ) | | | Sale of property, plant and equipment | 9 | | 3 | | 1 | | 10 | | 13 | | 24 | | 19 | | 16 | | 25 | | | | Purchases less sales of other investments | 67 | | (330 | ) | (54 | ) | 16 | | 7 | | - | | 83 | | (323 | ) | (54 | ) | | | Funding to Rio Tinto Limited | 5 | | (87 | ) | (399 | ) | - | | - | | - | | - | | - | | - | | | | Purchase of redeemable preference shares | | | | | | | | | | | | | | | | | | | | | in Rio Tinto Limited subsidiaries by Rio Tinto | | | | | | | | | | | | | | | | | | | | | plc subsidiaries | (500 | ) | - | | - | | - | | - | | - | | - | | - | | - | | | | |
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| | | | Capital expenditure and financial investment | (1,097 | ) | (1,205 | ) | (1,214 | ) | (1,071 | ) | (752 | ) | (763 | ) | (1,673 | ) | (1,870 | ) | (1,578 | ) | 35 | | Purchase of subsidiaries, joint arrangements, | | | | | | | | | | | | | | | | | | | | | joint ventures and associates | - | | (1 | ) | (221 | ) | - | | (105 | ) | (744 | ) | - | | (106 | ) | (958 | ) | 35 | | Sale of subsidiaries, joint arrangements, joint | | | | | | | | | | | | | | | | | | | | | ventures and associates | - | | 3 | | 96 | | 405 | | 230 | | 203 | | 405 | | 233 | | 299 | | | | Purchases/sales of subsidiaries between | | | | | | | | | | | | | | | | | | | | | Rio Tinto Limited and Rio Tinto plc | 1 | | (13 | ) | - | | (1 | ) | 13 | | - | | - | | - | | - | | | | Receipt of share buy back proceeds from Rio | | | | | | | | | | | | | | | | | | | | | Tinto Limited | 1,208 | | 115 | | 120 | | - | | - | | - | | - | | - | | - | | | | |
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| | | | Disposals less acquisitions | 1,209 | | 104 | | (5 | ) | 404 | | 138 | | (541 | ) | 405 | | 127 | | (659 | ) | | | Equity dividends paid - Rio Tinto plc and | | | | | | | | | | | | | | | | | | | | | Rio Tinto Limited shareholders | (645 | ) | (729 | ) | (621 | ) | (465 | ) | (495 | ) | (291 | ) | (833 | ) | (948 | ) | (803 | ) | | | Cash (outflow)/inflow before management | | | | | | | | | | | | | | | | | | | | | of liquid resources and financing | 875 | | (235 | ) | (635 | ) | 29 | | 292 | | (241 | ) | 191 | | 29 | | (590 | ) | 23 | | Net cash (outflow)/inflow from management | | | | | | | | | | | | | | | | | | | | | of liquid resources | (110 | ) | 142 | | (12 | ) | 5 | | 71 | | (6 | ) | (105 | ) | 213 | | (18 | ) | | | Ordinary shares in Rio Tinto issued for cash | 20 | | 10 | | 13 | | 5 | | 5 | | 1 | | 25 | | 15 | | 7 | | | | Ordinary shares in subsidiaries issued | | | | | | | | | | | | | | | | | | | | | to outside shareholders | - | | - | | - | | 8 | | 22 | | - | | 8 | | 22 | | - | | 23 | | Loans (repaid) less received | (794 | ) | 67 | | 640 | | 592 | | (476 | ) | 1 | | (202 | ) | (409 | ) | 641 | | | | Payment of share buy back proceeds to Rio Tinto plc | - | | - | | - | | (1,208 | ) | (115 | ) | (120 | ) | - | | - | | - | | | | Loans received/repaid from Rio Tinto plc | - | | - | | - | | (5 | ) | 87 | | 399 | | - | | - | | - | | | | Purchase of redeemable preference shares | | | | | | | | | | | | | | | | | | | | | in Rio Tinto Limited subsidiaries by Rio Tinto | | | | | | | | | | | | | | | | | | | | | plc subsidiaries | - | | - | | - | | 500 | | - | | - | | - | | - | | - | | | | |
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| | | | Management of liquid resources and | | | | | | | | | | | | | | | | | | | | | financing | (884 | ) | 219 | | 641 | | (103 | ) | (406 | ) | 275 | | (274 | ) | (159 | ) | 630 | | | | |
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| | 23 | | (Decrease)/increase in cash per UK GAAP | (9 | ) | (16 | ) | 6 | | (74 | ) | (114 | ) | 34 | | (83 | ) | (130 | ) | 40 | | | | |
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| | | | Cash flow from operating activities | | | | | | | | | | | | | | | | | | | | | Group operating profit | 368 | | (19 | ) | 137 | | 1,128 | | 855 | | 1,425 | | 1,496 | | 831 | | 1,562 | | | | Exceptional charges (all non cash items) | - | | 645 | | 644 | | - | | 433 | | 71 | | - | | 1,078 | | 715 | | | | |
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| | | | | 368 | | 626 | | 781 | | 1,128 | | 1,288 | | 1,496 | | 1,496 | | 1,909 | | 2,277 | | 2 | | Depreciation and amortisation | 385 | | 423 | | 453 | | 621 | | 531 | | 476 | | 1,006 | | 954 | | 929 | | 11 | | Exploration & evaluation charged against profit | 90 | | 94 | | 97 | | 37 | | 36 | | 33 | | 127 | | 130 | | 130 | | 20 | | Provisions | 60 | | 33 | | 45 | | 94 | | 25 | | 55 | | 154 | | 58 | | 100 | | 20 | | Utilisation of provisions | (62 | ) | (35 | ) | (54 | ) | (97 | ) | (83 | ) | (94 | ) | (159 | ) | (118 | ) | (148 | ) | | | Change in inventories | (85 | ) | 42 | | (97 | ) | 42 | | 43 | | (130 | ) | (43 | ) | 85 | | (227 | ) | | | Change in accounts receivable & prepayments | (52 | ) | 113 | | (8 | ) | (58 | ) | 23 | | (73 | ) | 154 | | 158 | | (126 | ) | | | Change in accounts payable and accruals | 180 | | 81 | | (42 | ) | 150 | | (116 | ) | (51 | ) | 66 | | (57 | ) | (48 | ) | | | Other items | 91 | | 3 | | (141 | ) | (4 | ) | 7 | | 21 | | 87 | | 15 | | (120 | ) | | | |
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| | | | Cash flow from operating activities | 975 | | 1,380 | | 1,034 | | 1,913 | | 1,754 | | 1,733 | | 2,888 | | 3,134 | | 2,767 | | | | |
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The notes on pages A-7 to A-75 form part of these accounts. Material variations from accounting principles generally
accepted in the United States are set out on pages A-59 to A-75.
A-3
Back to Contents RIO TINTO PLC - RIO TINTO LIMITEDGroup balance sheet
BALANCE SHEETS ATAt 31 DECEMBERDecember
| | | Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | | | part of Rio Tinto Group | | part of Rio Tinto Group | | Rio Tinto Group | | | | |
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| | | | | 2003 | | 2002 | | 2003 | | 2002 | | 2003 | | 2002 | | Note | | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | |
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| | | | Intangible fixed assets | | | | | | | | | | | | | 10 | | Goodwill | 253 | | 272 | | 932 | | 743 | | 1,185 | | 1,015 | | 11 | | Exploration and evaluation | 2 | | 5 | | 67 | | 52 | | 69 | | 57 | | | | |
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| | | | | 255 | | 277 | | 999 | | 795 | | 1,254 | | 1,072 | | | | Tangible fixed assets | | | | | | | | | | | | | 12 | | Property, plant and equipment | 6,095 | | 5,563 | | 9,095 | | 6,614 | | 15,196 | | 12,183 | | | | Investments | | | | | | | | | | | | | 13 | | Share of gross assets of joint ventures | 1,845 | | 1,757 | | 1,388 | | 1,352 | | 3,233 | | 3,109 | | 13 | | Share of gross liabilities of joint ventures | (731 | ) | (715 | ) | (279 | ) | (473 | ) | (1,010 | ) | (1,188 | ) | | | |
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| | | | | 1,114 | | 1,042 | | 1,109 | | 879 | | 2,223 | | 1,921 | | 13 | | Investments in associates/other investments | 2,680 | | 1,493 | | 62 | | 193 | | 517 | | 656 | | | | |
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| | | | Total investments | 3,794 | | 2,535 | | 1,171 | | 1,072 | | 2,740 | | 2,577 | | | | |
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| | | | Total fixed assets | 10,144 | | 8,375 | | 11,265 | | 8,481 | | 19,190 | | 15,832 | | | | |
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| | | | Current assets | | | | | | | | | | | | | 15 | | Inventories | 968 | | 814 | | 815 | | 688 | | 1,783 | | 1,502 | | | | Accounts receivable and prepayments | | | | | | | | | | | | | 16 | | Falling due within one year | 1,554 | | 1,335 | | 1,070 | | 957 | | 1,674 | | 1,598 | | 16 | | Falling due after more than one year | 555 | | 1,602 | | 254 | | 105 | | 809 | | 641 | | | | |
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| | | | Total accounts receivable | 2,109 | | 2,937 | | 1,324 | | 1,062 | | 2,483 | | 2,239 | | 17 | | Investments | 230 | | 306 | | - | | - | | 230 | | 306 | | 17 | | Cash | 257 | | 174 | | 138 | | 151 | | 395 | | 325 | | | | |
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| | | | Total current assets | 3,564 | | 4,231 | | 2,277 | | 1,901 | | 4,891 | | 4,372 | | | | |
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| | | | Current liabilities | | | | | | | | | | | | | 18 | | Short term borrowings | (542 | ) | (1,359 | ) | (1,652 | ) | (2,007 | ) | (2,194 | ) | (3,366 | ) | 19 | | Accounts payable and accruals | (1,325 | ) | (1,189 | ) | (1,854 | ) | (1,556 | ) | (2,140 | ) | (1,974 | ) | | | |
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| | | | Total current liabilities | (1,867 | ) | (2,548 | ) | (3,506 | ) | (3,563 | ) | (4,334 | ) | (5,340 | ) | | | |
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| | | | Net current assets/(liabilities) | 1,697 | | 1,683 | | (1,229 | ) | (1,662 | ) | 557 | | (968 | ) | | | |
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| | | | Total assets less current liabilities | 11,841 | | 10,058 | | 10,036 | | 6,819 | | 19,747 | | 14,864 | | | | Liabilities due after one year | | | | | | | | | | | | | 22 | | Medium and long term borrowings | (1,559 | ) | (1,442 | ) | (2,290 | ) | (1,266 | ) | (3,849 | ) | (2,708 | ) | 19 | | Accounts payable and accruals | (156 | ) | (235 | ) | (166 | ) | (1,135 | ) | (322 | ) | (304 | ) | 20 | | Provisions for liabilities and charges | (2,543 | ) | (2,261 | ) | (1,993 | ) | (1,351 | ) | (4,536 | ) | (3,612 | ) | | | Outside shareholders' interests | (240 | ) | (221 | ) | (1,263 | ) | (557 | ) | (1,003 | ) | (778 | ) | | | |
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| | | | Net Assets | 7,343 | | 5,899 | | 4,324 | | 2,510 | | 10,037 | | 7,462 | | | | |
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| | | | | | | | | | | | | | | | | | | Capital and reserves | | | | | | | | | | | | | | | Share capital | | | | | | | | | | | | | 24 | | - Rio Tinto plc | 155 | | 154 | | - | | - | | 155 | | 154 | | 24 | | - Rio Tinto Limited (excl. Rio Tinto plc interest) | - | | - | | 1,280 | | 964 | | 1,085 | | 816 | | 25 | | Share premium account | 1,629 | | 1,610 | | - | | - | | 1,629 | | 1,610 | | 25 | | Other reserves | 261 | | 249 | | 117 | | 86 | | 334 | | 303 | | 25 | | Profit and loss account | 5,298 | | 3,886 | | 2,927 | | 1,460 | | 6,834 | | 4,579 | | | | |
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| | | | Equity shareholders' funds | 7,343 | | 5,899 | | 4,324 | | 2,510 | | 10,037 | | 7,462 | | | | |
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| | 2006 | | 2005 | | | | US$m | | US$m | |
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| | Non-current assets | | | | | | Goodwill | 11 | 841 | | 1,020 | | Intangible assets | 12 | 384 | | 220 | | Property, plant and equipment | 13 | 22,207 | | 17,620 | | Investments in equity accounted units | 14 | 2,235 | | 1,829 | | Loans to equity accounted units | | 136 | | 159 | | Inventories | 16 | 99 | | 141 | | Trade and other receivables | 17 | 983 | | 703 | | Deferred tax assets | 18 | 225 | | 55 | | Tax recoverable | | 135 | | 122 | | Other financial assets | 19 | 374 | | 453 | |
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| | | | 27,619 | | 22,322 | | Current assets | | | | | | Inventories | 16 | 2,540 | | 2,048 | | Trade and other receivables | 17 | 2,938 | | 2,488 | | Loans to equity accounted units | | 15 | | — | | Tax recoverable | | 79 | | 30 | | Other financial assets | 19 | 567 | | 536 | | Cash and cash equivalents | 20 | 736 | | 2,379 | |
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| | | | 6,875 | | 7,481 | | Current liabilities | | | | | | Bank overdrafts repayable on demand | 20 | (14 | ) | (12 | ) | Borrowings | 21 | (1,490 | ) | (1,190 | ) | Trade and other payables | 24 | (2,693 | ) | (2,190 | ) | Other financial liabilities | 25 | (193 | ) | (86 | ) | Tax payable | | (1,024 | ) | (987 | ) | Provisions | 26 | (366 | ) | (321 | ) |
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| | | | (5,780 | ) | (4,786 | ) |
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| | Net current assets | | 1,095 | | 2,695 | |
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| | Non-current liabilities | | | | | | Borrowings | 21 | (2,007 | ) | (2,783 | ) | Trade and other payables | 24 | (362 | ) | (269 | ) | Other financial liabilities | 25 | (233 | ) | (113 | ) | Tax payable | | (86 | ) | (51 | ) | Deferred tax liabilities | 18 | (2,339 | ) | (2,197 | ) | Provisions | 26 | (4,302 | ) | (3,865 | ) |
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| | | | (9,329 | ) | (9,278 | ) |
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| | Net assets | | 19,385 | | 15,739 | |
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| | Capital and reserves | | | | | | Share capital | | | | | | – Rio Tinto plc | 27 | 172 | | 172 | | – Rio Tinto Limited (excl. Rio Tinto plc interest) | 28 | 1,099 | | 1,019 | | Share premium account | 29 | 1,919 | | 1,888 | | Other reserves | 29 | 641 | | (24 | ) | Retained earnings | 29 | 14,401 | | 11,893 | |
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| | Equity attributable to Rio Tinto shareholders | 29 | 18,232 | | 14,948 | | Attributable to outside equity shareholders | 29 | 1,153 | | 791 | |
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| | Total equity | | 19,385 | | 15,739 | |
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The separate financial statements for Rio Tinto plc and 100 per cent of Rio Tinto Limited shown above are prepared on the basis of the legal ownership of the various operations within each part of the Group. The distinction between the legal and economic interests represented by Rio Tinto plc and Rio Tinto Limited shareholdings is explained on page A-7. The amounts of the consolidated shareholders' funds attributable to the economic interests of Rio Tinto plc shareholders and the shareholders of Rio Tinto Limited other than Rio Tinto plc are as follows:
| Rio Tinto plc | | Rio Tinto Limited shareholders | | | | | | | shareholders | | other than Rio Tinto plc | | Rio Tinto Group | | |
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| | | 2003 | | 2002 | | 2003 | | 2002 | | 2003 | | 2002 | | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | Economic interests in consolidated shareholders' funds | 7,767 | | 5,774 | | 2,270 | | 1,688 | | 10,037 | | 7,462 | | Closing percentage of Rio Tinto Limited held by | | | | | | | | | | | | | shareholders other than Rio Tinto plc | | | | | 62.4 | % | 62.4 | % | | | | |
The notes on pages A-7 to A-75A-68 form part of these accounts. Material variations from accounting principles generally accepted in the United States are set out on pages A-59 to A-75.A-69 A-86. A-4
Back to Contents RIO TINTO PLC - RIO TINTO LIMITEDGroup statement of recognised income and expense (SORIE)
| Attributable | | Outside | | Year to 31 | | | to | | Interests | | December | | | shareholders | | | | 2006 | | | of Rio Tinto | | | | Total | | | US$m | | US$m | | US$m | |
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| | Currency translation adjustment | 820 | | 42 | | 862 | | Cash flow hedge fair value (losses) | (178 | ) | (200 | ) | (378 | ) | Gains on available for sale securities | 14 | | 5 | | 19 | | Cash flow hedge losses transferred to the income statement | 63 | | 74 | | 137 | | Gains on available for sale securities transferred to the income statement | (4 | ) | — | | (4 | ) | Currency translation transferred to the income statement on disposals | 4 | | — | | 4 | | Actuarial gains on post retirement benefit plans | 338 | | 35 | | 373 | | Net tax recognised directly in equity | 19 | | 83 | | 102 | |
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| | Net income recognised directly in equity | 1,076 | | 39 | | 1,115 | | | | | | | | | Profit after tax for the year | 7,438 | | 429 | | 7,867 | |
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| | Total recognised income for the year | 8,514 | | 468 | | 8,982 | |
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| Attributable | | Outside | | Year to 31 | | | to | | Interests | | December | | | shareholders | | | | 2005 | | | of Rio Tinto | | | | Total | | | US$m | | US$m | | US$m | |
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| | Currency translation adjustment | (401 | ) | (44 | ) | (445 | ) | Cash flow hedge fair value (losses) | (116 | ) | (26 | ) | (142 | ) | Gains on available for sale securities | 32 | | 5 | | 37 | | Cash flow hedge losses transferred to the income statement | — | | 1 | | 1 | | Gains on available for sale securities transferred to the income statement | (88 | ) | — | | (88 | ) | Actuarial gains/(losses) on post retirement benefit plans | 179 | | (1 | ) | 178 | | Net tax recognised directly in equity | 56 | | 1 | | 57 | |
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| | Net expense recognised directly in equity | (338 | ) | (64 | ) | (402 | ) | | | | | | | | Profit after tax for the year | 5,215 | | 283 | | 5,498 | |
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| | Total recognised income for the year | 4,877 | | 219 | | 5,096 | |
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| Attributable | | Outside | | Year to 31 | | | to | | Interests | | December | | | shareholders | | | | 2004 | | | of Rio Tinto | | | | Total | | | US$m | | US$m | | US$m | |
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| | Currency translation adjustment | 365 | | 45 | | 410 | | Actuarial losses on post retirement benefit plans | (180 | ) | (23 | ) | (203 | ) | Net tax recognised directly in equity | 50 | | (2 | ) | 48 | |
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| | Net income recognised directly in equity | 235 | | 20 | | 255 | | | | | | | | | Profit / (loss) after tax for the year | 3,297 | | (53 | ) | 3,244 | |
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| | Total recognised income / (loss) for the year | 3,532 | | (33 | ) | 3,499 | |
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RECONCILIATION WITH AUSTRALIAN GAAP AT 31 DECEMBER 2003Reconciliation with Australian IFRS
| Rio Tinto Group | | |
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| | | US$m | | US$m | | Adjusted earnings reported under UK GAAP | 1,382 | | 1,530 | | Exceptional items | 126 | | (879 | ) | |
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| | Net earnings under UK GAAP | 1,508 | | 651 | | Increase/(decrease) net of tax in respect of: | | | | | Goodwill amortisation | (164 | ) | (167 | ) | Adjustment to asset carrying values | - | | (19 | ) | Taxation | (5 | ) | (13 | ) | Other | 7 | | 3 | | |
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| | Net earnings attributable to members under Australian GAAP | 1,346 | | 455 | | |
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| | Earnings per ordinary share under Australian GAAP | 97.7 | c | 33.1 | c | |
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Diluted earnings per share under Australian GAAP are 0.2 US cents (2002: 0.1 US cents) less than the above earnings per share figures.
Net earnings under United Kingdom generally accepted accounting principles ('UK GAAP') include exceptional gains of US$126 million. In 2002 there was an exceptional charge, for asset write downs and environmental remediation, of US$879 million. The concepts of Adjusted earnings and exceptional items do not exist under Australian generally accepted accounting principles ('Australian GAAP').
| Rio Tinto Group | | |
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| | | US$m | | US$m | | Shareholders' funds under UK GAAP | 10,037 | | 7,462 | | Increase/(decrease) net of tax in respect of: | | | | | Goodwill | 872 | | 1,044 | | Taxation | 69 | | 74 | | Dividend | 469 | | - | | Other | (24 | ) | (23 | ) | |
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| | Shareholders' funds under Australian GAAP | 11,423 | | 8,557 | | |
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The Group’s financial statements have been prepared in accordance with UK GAAP,IFRS as adopted by the European Union ('EU IFRS') which differs in certain respects from Australianthe version of IFRS that is applicable in Australia ('Australian IFRS').
Prior to 1 January 2004, the Group's financial statements were prepared in accordance with UK GAAP. These differences relate principally to the following items, and the effect of each of the adjustments to net earnings and shareholders’ funds that would be required under Australian GAAP is set out above. Goodwill
For 1997 and prior years, UK GAAP permitted the write off of purchasedUnder EU IFRS, goodwill on acquisitions prior to 1998, which was eliminated directly against reserves. Under Australian GAAP, goodwill is capitalised and amortised by charges against income overequity in the period during which it is expected to be of benefit, subject to a maximum of 20 years. Goodwill previously written off directly to reserves in theGroup's UK GAAP financial statements, has not been reinstated and amortisedreinstated. This was permitted under the rules governing the transition to EU IFRS set out in IFRS 1. The equivalent Australian Standard, AASB 1, does not provide for the purposenetting of goodwill against equity. As a consequence, shareholders' funds under Australian IFRS include the reconciliation statements.residue of such goodwill, which amounted to US$740 million at 31 December 2006 (US$743 million at 31 December 2005).
For acquisitions in 1998 and subsequent years, goodwill is capitalised under UK GAAP,Save for the exception described above, the Group's financial statements drawn up in accordance with Financial Reporting Standard 10 (FRS 10). AdjustmentsEU IFRS are required forconsistent with the requirements of Australian GAAP purposes where such capitalised goodwill is amortised over periods exceeding 20 yearsIFRS.
The notes on pages A-7 to A-68 form part of these accounts. Material variations from accounting principles generally accepted in the UK GAAP accounts.United States are set out on pages A-69 A-86. Taxation
Under UK GAAP, provision for the taxes arising on remittances of earnings can only be made if the dividends have been accrued or if there is a binding agreement for the distribution of the earnings. Under Australian GAAP, provision must be made for tax arising on expected future remittances of past earnings.
Under UK GAAP, tax benefits associated with goodwill charged directly to reserves, in 1997 and previous years, must be accumulated in the deferred tax provision. This means that the tax benefits are not included in earnings until the related goodwill is charged through the profit and loss account on disposal or closure. For Australian GAAP, no provision is required for such deferred tax because the goodwill that gave rise to these tax benefits was capitalised and gives rise to amortisation charges against profit.
Proposed dividends
Under UK GAAP, ordinary dividends are recognised in the financial year in respect of which they are paid. Under Australian GAAP, with effect from 1 January 2003, such dividends are not recognised until they are declared, determined or publicly recommended by the Board of directors. Prior to 1 January 2003, Australian GAAP was consistent with UK GAAP.
A-5
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEARS ENDED 31 DECEMBEROutline of dual listed companies structure and basis of financial statements
| Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | | | part of Rio Tinto Group | | part of Rio Tinto Group | | Rio Tinto Group | | |
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| | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | Profit for the financial year | | | | | | | | | | | | | | | | | | | Subsidiaries | 256 | | (321 | ) | (94 | ) | 794 | | 509 | | 740 | | 1,050 | | 183 | | 646 | | Joint ventures | 284 | | 159 | | 157 | | 76 | | 180 | | 187 | | 360 | | 339 | | 344 | | Associates | 416 | | 357 | | 428 | | 14 | | 47 | | 15 | | 98 | | 129 | | 89 | | |
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| | | 956 | | 195 | | 491 | | 884 | | 736 | | 942 | | 1,508 | | 651 | | 1,079 | | Adjustment on currency translation | | | | | | | | | | | | | | | | | | | Subsidiaries | 553 | | 198 | | (205 | ) | 1,353 | | 374 | | (223 | ) | 1,864 | | 560 | | (423 | ) | Joint ventures | - | | 3 | | (3 | ) | 53 | | 11 | | (19 | ) | 53 | | 13 | | (22 | ) | Associates | 495 | | 137 | | (91 | ) | 3 | | 1 | | 1 | | 7 | | 6 | | (4 | ) | |
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| | | 1,048 | | 338 | | (299 | ) | 1,409 | | 386 | | (241 | ) | 1,924 | | 579 | | (449 | ) | Total recognised gains and losses | | | | | | | | | | | | | | | | | | | relating to the financial year | | | | | | | | | | | | | | | | | | | Subsidiaries | 809 | | (123 | ) | (299 | ) | 2,147 | | 883 | | 517 | | 2,914 | | 743 | | 223 | | Joint ventures | 284 | | 162 | | 154 | | 129 | | 191 | | 168 | | 413 | | 352 | | 322 | | Associates | 911 | | 494 | | 337 | | 17 | | 48 | | 16 | | 105 | | 135 | | 85 | | |
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| | | 2,004 | | 533 | | 192 | | 2,293 | | 1,122 | | 701 | | 3,432 | | 1,230 | | 630 | | |
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| | Prior year adjustment | | | | | | | | | | | | | | | | | | | Subsidiaries | | | (149 | ) | | | | | 6 | | | | | | (143 | ) | | | Associates | | | 12 | | | | | | - | | | | | | 10 | | | | | | |
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| | | | Total gains and losses recognised in | | | | | | | | | | | | | | | | | | | 2002 | | | | | | | | | | | | | | | | | | | Subsidiaries | | | (272 | ) | | | | | 889 | | | | | | 600 | | | | Joint ventures | | | 162 | | | | | | 191 | | | | | | 352 | | | | Associates | | | 506 | | | | | | 48 | | | | | | 145 | | | | | | |
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RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR YEARS ENDED 31 DECEMBER
| Rio Tinto plc - | | Rio Tinto Limited - | | | | | part of Rio Tinto Group | | part of Rio Tinto Group | | Rio Tinto Group | | |
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| | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | Profit for the financial year | 956 | | 195 | | 491 | | 884 | | 736 | | 942 | | 1,508 | | 651 | | 1,079 | | Dividends | (683 | ) | (639 | ) | (628 | ) | (320 | ) | (299 | ) | (294 | ) | (882 | ) | (826 | ) | (812 | ) | |
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| | | 273 | | (444 | ) | (137 | ) | 564 | | 437 | | 648 | | 626 | | (175 | ) | 267 | | | | | | | | | | | | | | | | | | | | | Adjustment on currency translation | 1,048 | | 338 | | (299 | ) | 1,409 | | 386 | | (241 | ) | 1,924 | | 579 | | (449 | ) | Shares issued by Rio Tinto plc and Rio Tinto | | | | | | | | | | | | | | | | | | | Limited (c) | 21 | | 12 | | 13 | | 5 | | 5 | | 1 | | 25 | | 15 | | 14 | | Dividend on DLC share from Rio Tinto Limited | 102 | | 91 | | - | | (164 | ) | (146 | ) | - | | - | | - | | - | | |
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| | | 1,444 | | (3 | ) | (423 | ) | 1,814 | | 682 | | 408 | | 2,575 | | 419 | | (168 | ) | Opening shareholders' funds, as restated (b) | 5,899 | | 5,902 | | 6,325 | | 2,510 | | 1,828 | | 1,420 | | 7,462 | | 7,043 | | 7,211 | | |
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| | Closing shareholders' funds | 7,343 | | 5,899 | | 5,902 | | 4,324 | | 2,510 | | 1,828 | | 10,037 | | 7,462 | | 7,043 | | |
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(a) | A reconciliation of each individual reserve within shareholders' funds is shown in note 25. | (b) | Shareholders' funds at 1 January 2002 were originally US$7,176 million, before deducting the prior year adjustment of US$133 million arising on implementation of FRS 19 (see note 1(a)). | (c) | The carrying value of Rio Tinto plc's investment in Rio Tinto Limited increased by US$1 million in 2003 (2002: US$2 million) as a result of the Rio Tinto Limited share issues during the year. Rio Tinto plc's share of the proceeds received exceeded the dilution of its interest resulting from the share issues. |
The notes on pages A-7 to A-75 form part of these accounts. Material variations from accounting principles generally
accepted in the United States are set out on pages A-59 to A-75.
A-6
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RIO TINTO PLC - RIO TINTO LIMITED
OUTLINE OF DUAL LISTED COMPANIES STRUCTURE
AND BASIS OF FINANCIAL STATEMENTS
The Rio Tinto Group
Set out on pages A-2 to A-75These are the financial statements of the Rio Tinto Group (the 'Group'), formed through the dual listed companies ('DLC'merger of economic interests ('merger') merger of Rio Tinto plc and Rio Tinto Limited, that created a single economic enterprise, together with separate financial statements for the Rio Tinto plc and Rio Tinto Limited parts of the Group. The financial statements of the Group have been presented by both Rio Tinto plc and Rio Tinto Limited as their consolidated accounts in accordance with both United Kingdom and Australian legislation and regulations. Product and geographical analyses of the Group's Operating assets, Turnover, Profit before tax and Net earnings are shown in notes 26 and 27 respectively.
Merger terms
On 21 December 1995, Rio Tinto plc and Rio Tinto Limited, which are listed respectively on Stock Exchanges in the United Kingdom and Australia, entered into a dual listed companies ('DLC') merger. This was effected by contractual arrangements between the Companies and amendments to Rio Tinto plc's Memorandum and Articles of Association and Rio Tinto Limited's Constitution.
As a result, Rio Tinto plc and Rio Tinto Limited and their respective groups operate together as a single economic enterprise, with neither assuming a dominant role. In particular, the arrangements:
-Merger terms On 21 December 1995, Rio Tinto plc and Rio Tinto Limited, which are listed respectively on Stock Exchanges in the United Kingdom and Australia, entered into a dual listed companies ('DLC') merger. This was effected by contractual arrangements between the companies and amendments to Rio Tinto plc's Memorandum and Articles of Association and Rio Tinto Limited's constitution. | As a result, Rio Tinto plc and Rio Tinto Limited and their respective groups operate together as a single economic enterprise, with neither assuming a dominant role. In particular, the arrangements: | – | confer upon the shareholders of Rio Tinto plc and Rio Tinto Limited a common economic interest in both groups; | -– | provide for common boards of directors and a unified management structure; | -– | provide for equalised dividends and capital distributions; and | -– | provide for the shareholders of Rio Tinto plc and Rio Tinto Limited to take key decisions, including the election of directors, through an electoral procedure in which the public shareholders of the two Companiescompanies effectively vote on a joint basis. | The merger involved no change in the legal ownership of any assets of Rio Tinto plc or Rio Tinto Limited, nor any change in the ownership of any existing shares or securities of Rio Tinto plc or Rio Tinto Limited, nor the issue of any shares, securities or payment by way of consideration, save for the issue by each company of one special voting share to a trustee company which provides the joint electoral procedure for public shareholders. During 2002, each of the parent companies issued a DLC Dividend Share to facilitate the efficient management of funds within the DLC structure. |
Accounting standards The financial statements have been drawn up in accordance with International Financial Reporting Standards as adopted by the European Union ('EU IFRS'). The merger involved no change in the legal ownership of any assetseconomic interests of Rio Tinto plc or Rio Tinto Limited, nor any change in the ownership of any existing shares or securities of Rio Tinto plc or Rio Tinto Limited, nor the issue of any shares, securities or payment by way of consideration, save for the issue by each company of one special voting share to a trustee company which provides the joint electoral procedure for public shareholders. During 2002, each of the parent Companies issued a DLC Dividend Share to facilitate the efficient management of funds within the DLC structure. Accounting presentation
Under United Kingdom generally accepted accounting principles, the DLC merger is a business combination that has been accounted for as a merger under FRS 6 on the basis that it has created a single economic enterprise for operating and financial reporting purposes.
For the purposes of its filings in the United States under the requirements of the Securities and Exchange Commission, the primary financial statements of the Rio Tinto plc and Rio Tinto Limited parts ofwas accounted for as a merger under UK GAAP. As permitted under the rules governing the transition to EU IFRS, which are set out in IFRS 1, the Group are their separate consolidated financial statements prepared ondid not restate business combinations that occurred before the basistransition date of 1 January 2004. As a result, the legal ownership of the various operations within each part of the Group. Accordingly, the consolidated financial statements for Rio Tinto Limited consolidate Rio Tinto Limited with the Group undertakings under it's legal ownership; and the consolidated financial statements for Rio Tinto plc consolidate Rio Tinto plc with the Group undertakings under it's legal ownership; Rio Tinto Limited is included on an equity basis that reflects Rio Tinto plc's average 37.6 per cent (2002: 37.6 per cent) ownership of Rio Tinto Limited during the year.
The DLC merger between Rio Tinto plc and Rio Tinto Limited has the effect that their shareholders have substantially the sameof economic interests as if they held shares in a single enterprise which owned all of the assets of both companies. The Directors therefore consider that the combined financial statements of the Rio Tinto Group provide the most meaningful financial representation of the state of affairs, profit and cash flows.
The financial statements are presented in US dollars as most Group revenues are denominated in US dollars, as are many of the Group's costs. In explaining key features and trends of Group financial performance, the US dollar provides a more consistent view which should correspond more closelydescribed above continues to underlying business performance.
A-7
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RIO TINTO PLC - RIO TINTO LIMITED
OUTLINE OF DUAL LISTED COMPANIES STRUCTURE
AND BASIS OF FINANCIAL STATEMENTS (continued)
Australian Corporations Act
The financial statements are drawn up in accordance with an order, under section 340 of the Australian Corporations Act 2001, issued by the Australian Securities and Investments Commission ('ASIC') on 21 July 2003. The main provisions of the order are that the financial statements are:
- | to be made out in accordance with United Kingdom requirements applicable to consolidated accounts; | - | to be expressed in United States dollars, but may also be expressed in United Kingdom and Australian currencies; and | - | to include a reconciliation from United Kingdom GAAP to Australian GAAP (see page A-5). |
For futher details of the ASIC class order relief see page 134 of the 2003 Annual report and financial statements.
United Kingdom Companies Act
In order to present a true and fair view of the Rio Tinto Group, in accordance with FRS 6, the principles of merger accounting have been adopted. This represents a departure from the provision of the United Kingdom Companies Act 1985 ('the Companies Act 1985'), which sets out the conditionsbe accounted for merger accounting based on the assumption thatas a merger is effected through the issue of equity shares.under EU IFRS.
The main consequence of adopting merger rather than acquisition accounting is that the balance sheet of the merged Groupgroup includes the assets and liabilities of Rio Tinto plc and Rio Tinto Limited at their carrying values prior to the merger, subject to adjustments to achieve uniformity of accounting policies, rather than at their fair values at the date of the merger.
In For accounting purposes Rio Tinto plc and Rio Tinto Limited are viewed as a single public parent company (with their respective public shareholders being the particular circumstances ofshareholders in that single company). As a result the merger, the effect of applying acquisition accounting cannot reasonably be quantified.
In order that the financial statements should present a true and fair view, it is necessary to differ from the presentational requirements of the Companies Act 1985 by including amounts attributable to both Rio Tinto plc and Rio Tinto Limited public shareholders are included in the capital and reserves shown inamounts attributed to equity shareholders on the balance sheet, income statement and statement of recognised income and expense.
Australian Corporations Act The financial statements are drawn up in accordance with an order, under section 340 of the Australian Corporations Act 2001, issued by the Australian Securities and Investments Commission ('ASIC') on 27 January 2006 (as amended on 22 December 2006). The main provisions of the order are that the financial statements are: | – | to be made out in accordance with IFRS as adopted by the European Union ('EU IFRS'); and | – | to include a reconciliation from EU IFRS to the Australian equivalents of IFRS (see page A-5). | For further details of the ASIC Class Order relief see page A-87. |
Elimination of Separate financial statements In previous years, the profitForm 20-F filed with the United States Securities and Exchange Commission ('SEC'), contained separate consolidated financial statements for the financial year. The Companies Act 1985 would require presentation of the capital and reserves and profit for the year attributable to Rio Tinto Limited public shareholders (set out on pages A-2 and A-4) as a minority interest in the financial statements of the Rio Tinto Group. This presentation would not give a true and fair view of the effect of the Sharing Agreement under which the position of all public shareholders is as nearly as possible the same as if they held shares in a single company. A-8
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RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS
1Principal accounting policies
(a) Basis of preparation - FRS 19 - 'Deferred Tax' was adopted in 2002. Prior to the adoption of FRS 19, Rio Tinto provided for deferred tax where, in the opinion of the directors, it was probable that a timing difference would reverse within the foreseeable future. Under FRS 19, full provision is made for deferred taxation on all timing differences that have arisen but not reversed at the balance sheet date, except in limited circumstances.
The balance sheet at 31 December 2001 was restated following the implementation of FRS 19, which reduced shareholders' funds by US$133 million. The effect of the restatement is shown in the Statement of Total Recognised Gains and Losses on page A-6. The restatement also included an increase in deferred tax provisions of US$57 million, an increase in the investment in associates of US$10 million and a reduction of US$86 million in property, plant and equipment. The application of FRS 19 did not impact significantly on net earnings for either 2002 or 2001. Accordingly, prior year earnings were not restated.
The Group's accounting policies comply with applicable UK accounting standards and are consistent with last year. As explained in the section headed Outline of dual listed companies' structure and basis of financial statements, the accounting policies depart from the requirements of the UK Companies Act in order to provide a true and fair view of the merger between Rio Tinto plc and Rio Tinto Limited.
(b)Basis of consolidation - The financial statements of the Rio Tinto Group consist of the consolidation of the accounts of Rio Tinto plc and Rio Tinto Limited parts of the Group. These were presented on the basis of the legal ownership of the various operations within each part of the Group. The separate financial statements for Rio Tinto Limited included, on a consolidated basis, the Group undertakings under its legal ownership, and their respective subsidiarythose for Rio Tinto plc included, on a consolidated basis, the Group undertakings ('subsidiaries').under its legal ownership. This presentation of financial information filed with the SEC was on the assumption that the formation of the Group through the dual listed companies (DLC) arrangements was not a business combination. The financial statements filed with the SEC also included supplemental financial information that combined the consolidated financial statements of the Rio Tinto plc partand Rio Tinto Limited parts of the Group consistto present the Rio Tinto Group, with no adjustment for fair values. This combined financial information for the Rio Tinto Group was consistent with the financial statements that were used for the purposes of satisfying the Group's reporting obligations in the United Kingdom and Australia. The combined financial statements for the Rio Tinto Group viewed the formation of the consolidation ofDLC as a business combination and accounted for the accounts oftransaction as a merger in accordance with UK Financial Reporting Standard No. 6 Acquisitions and Mergers ('FRS 6'). Applying FRS 6, Rio Tinto plc and Rio Tinto Limited were combined and presented as one economic entity with no adjustment for fair values. As permitted under the transitional arrangements set out in IFRS 1 'First time adoption of International Financial Reporting Standards', which sets out the rules for first time adoption of IFRS, the Group did not apply the concepts of IFRS 3 'Business Combinations' for business combinations prior to the first time application of IFRS. Accordingly, the Group is following the same method of accounting for the DLC in its subsidiaries. Within these financial statements under IFRS as was historically followed under UK GAAP: the Group is presented as one economic entity at historical cost. Subsequent to the formation of the Group, the accounting model used in filings with the SEC for the presentation of financial statements of companies that form DLCs has changed. The formation of a new DLC is now viewed as a business combination. The Group now believes that it is preferable to treat the formation of the DLC as a business combination, and as a result, that the accounting and reporting of financial statements prepared in accordance with IFRS to the SEC will be consistent with the accounting and reporting in the United Kingdom and Australia. Accordingly, the Group has revised the presentation of its financial statements included in Form 20-F to account for the formation of the DLC as a business combination. As a consequence, separate financial statements for Rio Tinto plc equity accounts for its 37.6 per cent interest inand Rio Tinto Limited. TheLimited will no longer be presented. Instead, the financial statements ofwill deal with the Rio Tinto Limited part ofGroup as one combined economic entity. This new presentation is applied retrospectively for all periods presented. The IFRS information presented on this new basis in the Group consist of20-F is the consolidation ofsame as the accounts ofcombined supplemental information for the Rio Tinto Limited and its subsidiaries.Group that was previously disclosed.
The Financial statements are prepared on the historical cost basis. The Group's shares of the assets, liabilities, earnings and reserves of associated undertakings ('associates') and joint ventures are included in the Group financial statements using the equity and gross equity accounting methods respectively. The Group consolidates its own share of the assets, liabilities, income and expenditure of joint arrangements that are not entities.
(c)A-6Turnover - Turnover comprises sales to third parties at invoiced amounts, with most sales being priced ex works, free on board (fob) or cost, insurance and freight (cif). A large proportion of Group production is sold under medium to long term contracts and is included in sales when deliveries are made. Gross turnover shown in the profit and loss account includes the Group's share of the turnover of joint ventures and associates. By product revenues are included in turnover.
(d) Shipping and handling costs - All shipping and handling costs incurred by the Group are recognised as operating costs. Amounts billed to customers in respect of shipping and handling, where the Group is responsible for the carriage, insurance and freight, are classified as revenue. If, however, the Group is acting solely as an agent, amounts billed to customers are credited to operating costs.
(e)Currency translation - Transactions in foreign currencies are translated at the exchange rate ruling at the date of transaction or, where foreign currency forward contracts have been arranged, at contractual rates. Monetary assets and liabilities denominated in foreign currencies are retranslated at year end exchange rates, or at a contractual rate if applicable.
On consolidation, profit and loss account items are translated into US dollars at average rates of exchange. Balance sheet items are translated into US dollars at year end exchange rates. Certain non-United States resident companies, whose functional currency is the US dollar, account in that currency.
The Group finances its operations primarily in US dollars and a significant proportion of the Group's US dollar debt is located in subsidiaries having functional currencies other than the US dollar. Exchange gains and losses relating to US dollar debt impact on the profit and loss accounts of such subsidiaries. However, such exchange gains and losses are excluded from the Group's profit and loss account on consolidation, with a corresponding adjustment to reserves. This means that financing in US dollars impacts in a consistent manner on the Group's consolidated accounts irrespective of the functional currency of the particular subsidiary where the debt is located. Exchange differences on the translation of the net operating assets of companies with functional currencies other than the US dollar, less offsetting exchange differences on net debt in currencies other than the US dollar financing those net assets, are dealt with through reserves.
All other exchange differences are charged or credited to the profit and loss account in the year in which they arise, except as set out below in note (p) relating to derivative contracts.
A-9
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTSNotes to the 2006 financial statements
1 | PRINCIPAL ACCOUNTING POLICIES |
1PrincipalThe basis of preparation and accounting policies (continued)
(f)Goodwill and intangible assets - Goodwill representsused in preparing the difference betweenfinancial statements for the cost of acquisition and the fair value of the identifiable net assets acquired. Goodwill and intangible assets arising on acquisitions afteryear ended 31 December 19972006 are capitalisedset out below. The financial statements are prepared in accordance with FRS 10. These assets are amortised over their useful economic lives, which may exceed 20 years. Amortisation is charged on a straight line or units of production basis as appropriate. In 1997 and previous years, goodwill was eliminated against reserves in the year of acquisition as a matter of accounting policy. Such goodwill was not reinstated on implementation of FRS 10; but on sale or closure of a business, any related goodwill eliminated against reserves is charged in the profit and loss account.
(g)Exploration and evaluation - During the initial stage of a project, full provision is made in respect of the costs thereof by charge against profits for the year. Expenditure on a project after it has reached a stage at which there is a high degree of confidence in its viability is carried forward and transferred to tangible fixed assets if the project proceeds. If a project does not prove viable, all irrecoverable costs associated with the project are written off. If an undeveloped project is sold, any gain or loss is included in operating profit, such transactions being a normal part of the Group's activities. Where expenditure is carried forward in respect of a project which may not proceed to commercial development for some time, provision is made against the possibility of non-development by charge against profits over a period of up to seven years. When it is decided to proceed with development, any provisions made in previous years are reversed to the extent that the relevant costs are recoverable.
(h)Tangible fixed assets - The cost of a tangible fixed asset comprises its purchase price and any costs directly attributable to bringing it into working condition for its intended use. Costs associated with a start up period are capitalised where the asset is available for use but incapable of operating at normal levels without a commissioning period. Net interest before tax payable on borrowings related to construction or development projects is capitalised until the point when substantially all the activities that are necessary to make the asset ready for the use are complete. Once a mining project has been established as commercially viable, expenditure other than that on buildings, plant and equipment is capitalised under mining properties and leases together with any amount transferred from exploration and evaluation. Such expenditure is amortised against profits, applying the same principles as for other tangible fixed assets.
(i)Deferred Stripping costs - Stripping (i.e. overburden and other waste removal) costs incurred in the development of a mine, before production commences, are capitalised as part of the investment in the construction of the mine and subsequently amortised, generally over the ore production during the life of the operation.
Rio Tinto defers stripping costs incurred during the production stage of its operations for those operations where this is the most appropriate basis for matching revenue and costs, and the effect is material.
The stripping ratio is generally calculated by dividing the tonnage of waste minedInternational Financial Reporting Standards adopted by the tonnage of ore mined duringEU ('EU IFRS'). These standards are subject to Interpretations issued from time to time by the relevant period. The costs to be deferred (or accrued) are those relating to the excess (or shortfall) of the current period stripping ratio compared with that for the life of the mine. The life of mine stripping ratio is based on the proven and probable reserves of the operation.
In some operations, there are distinct periods of new development during the production stage of the mine. These may, for example, relate to a separate ore body or discrete section of the ore body. The new development will be characterised by a major departure from the life of mine stripping ratio. Excess stripping costs during such periods are deferred and subsequently amortised pro-rata, generally to the tonnage of ore mined in the remaining life of the operation.
In operations that experience material fluctuations in the stripping ratio on a year by year basis over the life of the mine, deferred stripping costs are subsequently charged against reported profits to the extent that, in subsequent periods, the stripping ratio falls short of the life of mine stripping ratio.
(j)Depreciation and carrying values of fixed assets - Depreciation of tangible fixed assets is calculated on a straight line or units of production basis, as appropriate. Assets are fully depreciated over their economic lives, or over the remaining life of the mine if shorter. Depreciation rates for the principal assets of the Group vary from two and a half per cent to ten per cent per annum.International Financial Reporting Interpretations Committee (‘IFRIC’).
Basis of preparation | The financial statements for the year ended 31 December 2006 have been prepared on the basis of all IFRSs and Interpretations adopted by the European Union that are mandatory for periods ending 31 December 2006 and in accordance with applicable United Kingdom law, applicable Australian law as amended by the Australian Securities and Investments Commission Orde dated 27 January 2006 (as amended on 22 December 2006) and Article 4 of the European Union IAS regulation. The 2004 comparative financial information has also been prepared on this basis, with the exception of certain standards, details of which are given below, for which comparative information has not been restated. | As permitted by the rules for first-time adoption of IFRS, which are set out in IFRS 1, the Group elected to adopt IAS 32, IAS 39 and IFRS 5 with effect from 1 January 2005, with no restatement of comparative information for 2004. Accounting policy notes b), e) and i) explain the treatment of non-current assets held for sale prior to and after adopting IFRS 5. Accounting policy note p) explains the basis of accounting for financial instruments pre and post 1 January 2005. | The EU IFRS financial information has been drawn up on the basis of accounting policies consistent with those applied in the financial statements for the year to 31 December 2005, except for the following: | – | the adoption of IFRIC 4 'Determining whether an arrangement contains a lease'. | – | a change to the Group's policy on accounting for exploration and evaluation expenditure. Previously, the Group capitalised exploration and evaluation expenditure on acquisition of a beneficial interest or option in mineral rights together with subsequent expenditure. Full provision was made for impairment unless there was a high degree of confidence in the project's viability as a consequence of which it was considered probable that future economic benefits would flow to the Group. If, as a result of developments in subsequent periods, the expenditure was considered to be recoverable, such provisions were reversed. Under the Group's revised policy, exploration and evaluation expenditure is not capitalised until the point is reached at which there is a high degree of confidence in the project's viability and it is considered probable that future economic benefits will flow to the Group. | – | a change to the Group's presentation of the marking to market of provisionally priced sales contracts. This is now recorded as an adjustment to sales revenue having previously been shown as an adjustment to net operating costs. | The effect of the above adjustments is not material to Group earnings or to shareholders' funds in the current or prior periods. Therefore, prior period information has not been restated. | Certain prior year information has been reclassified to conform with the current year presentation. Exploration and evaluation costs charged against income were previously included in 'Cash used in investing activities' but are now included within 'Cash flow from operating activities'. As a result, exploration and evaluation costs expensed of US$226 million and US$187 million have been reclassified in the comparative figures for 2005 and 2004 respectively, within the Cash flow statement. | The Group has not applied the following pronouncements, the last three of which have not been endorsed by the EU: | | IFRS 7 Financial Instruments: Disclosures - mandatory for year 2007 | | Amendment to IAS 1 Presentation of Financial Statements Capital Disclosures - mandatory for year 2007 | | IFRIC 8 Scope of IFRS 2 (share based payments) - mandatory for year 2007 | | IFRIC 11 (IFRS 2) Group and Treasury share transactions - mandatory for year 2008 | | IFRIC D12-D14 - Service concession arrangements - mandatory for year 2008 | | IFRS 8 Operating Segments - mandatory for year 2009 | The Group is evaluating the impact of the above pronouncements but they are not expected to be material to the Group's earnings or to shareholders' funds |
| Judgements in applying accounting policies and key sources of estimation uncertainty Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management's best knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policies and/or the Notes to the financial statements, and the key areas are summarised below. Areas of judgement that have the most significant effect on the amounts recognised in the financial statements are: | – | Merger accounting for the 1995 merger of the economic interests of Rio Tinto plc and Rio Tinto Limited into the dual listedcompanies ('DLC') structure (page A-6). | – | Determination of ore reserve estimates - note 1(j) | – | Deferral of stripping costs - note 1(h) | – | Recognition of deferred tax on mineral rights recognised in acquisitions - note 1(m) | – | Capitalisation of exploration and evaluation costs - note 1(f) | – | Identification of functional currencies - note 1(d) | – | The definition of Underlying earnings - note 2 | – | The election to adopt IAS 32, IAS 39 and IFRS 5 from 1 January 2005 without restatement of comparatives as noted above | | |
Tangible and intangible fixed assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. In addition, goodwill is reviewed for impairment at the end of the first complete financial year after the relevant acquisition and, where the goodwill is being amortised over a period exceeding 20 years, annually thereafter. When a review for impairment is conducted, the recoverable amount is assessed by reference to the net present value of expected future cash flows of the relevant income generating unit, or disposal value if higher. The discount rate applied is based upon the Group's weighted average cost of capital with appropriate adjustment for the risks associated with the relevant unit. Estimates of future net cash flows are based on ore reserves and mineral resources for which there is a high degree of confidence of economic extraction.
(k) Determination of ore reserves - A-7Rio Tinto estimates its ore reserves and mineral resources based on information compiled by Competent Persons (as defined in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves of September 1999 (the JORC code)). Reserves and, for certain mines, resources determined in this way are used in the calculation of depreciation, amortisation, impairment and close down and restoration costs.
A-10
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS
1Principal accounting policies (continued)
(l)Provisions for close down and restoration and for environmental clean up costs - Both for close down and restoration and for environmental clean up costs, provision is made in the accounting period when the related environmental disturbance occurs, based on the net present value of estimated future costs.
The amortisation or 'unwinding' of the discount applied in establishing the net present value of provisions is chargedNotes to the profit and loss account in each accounting period. The amortisation of the discount is shown as a financing cost rather than as an operating cost.
For close down and restoration costs, which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas, movements in provisions other than the amortisation of the discount, such as those resulting from changes in the cost estimates, lives of operations or discount rates, are capitalised and depreciated over future production.
(m)2006 financial statementsInventories - Inventories are valued at the lower of cost and net realisable value. Cost for raw materials and stores is purchase price and for partly processed and saleable products is generally the cost of production, including the appropriate proportion of depreciation and overheads. Inventories are valued on a first in, first out ('FIFO') basis.
(n)Deferred tax - Full provision is made for deferred taxation on all timing differences that have arisen but not reversed at the balance sheet date, except in limited circumstances. The main exceptions are as follows: - Tax payable on the future remittance of the past earnings of subsidiaries, associates and joint ventures is provided only to the extent that dividends have been accrued or there is a binding agreement to distribute such past earnings.
-1 | Deferred tax is not recognised on revaluations of non-monetary assets arising on acquisitions unless there is a binding agreement to sell the asset and the gain or loss expected to arise from the disposal has been recognised.PRINCIPAL ACCOUNTING POLICIES CONTINUED | | | Key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are: | – | Estimation of close down and restoration costs and the timing of expenditure - note 1(k) and note 26 | – | Review of asset carrying values and impairment charges and reversals note 1(e) and (i), note 5 and note 11 | – | Estimation of environmental clean up costs and the timing of expenditure - note 1(k) and note 26 | – | Recoverability of potential deferred tax assets - note 1 (m) and note 18(d) | – | Estimation of liabilities for post retirement costs - note 46 | – | Contingent liabilities regarding claims from the Australian Tax Office relating to 1997 - note 33 | | | (a) | Accounting convention | | The financial information included in the financial statements for the year ended 31 December 2006, and for the related comparative periods, has been prepared under the historical cost convention as modified by the revaluation of certain derivative contracts and financial assets and liabilities as set out in the notes below. | | | (b) | Basis of consolidation | | The financial statements consist of the consolidation of the accounts of Rio Tinto plc and Rio Tinto Limited (together 'the Companies' and their respective subsidiaries (together 'the Group'). | | | | Subsidiaries: Subsidiaries are entities over which the Companies have the power to govern the financial and operating policies in order to obtain benefits from their activities. Control is presumed to exist where the Companies own more than one half of the voting rights (which does not always equate to percentage ownership) unless in exceptional circumstances it can be demonstrated that ownership does not constitute control. Control does not exist where joint venture partners hold veto rights over significant operating and financial decisions. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Companies and their subsidiaries after eliminating intercompany balances and transactions. For partly owned subsidiaries the net assets and net earnings attributable to outside shareholders are presented as 'Amounts attributable to outside equity shareholders' in the consolidated balance sheet and consolidated income statement. | | | | Associates: An associate is an entity, that is neither a subsidiary nor a joint venture, over whose operating and financial policies the Group exercises significant influence. Significant influence is presumed to exist where the Group has between 20 per cent and 50 per cent of the voting rights, but can also arise where the Group holds less than 20 per cent if it has the power to be actively involved and influential in policy decisions affecting the entity. The Group's share of the net assets, post tax results and reserves of associates are included in the financial statements using the equity accounting method. This involves recording the investment initially at cost to the Group, which therefore includes any goodwill on acquisition, and then, in subsequent periods, adjusting the carrying amount of the investment to reflect the Group's share of the associate's results less any impairment of goodwill and any other changes to the associate's net assets such as dividends. | | | | Joint ventures: A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control such that significant operating and financial decisions require the unanimous consent of the parties sharing control. The Group has two types of joint ventures | | | | Jointly controlled entities ('JCEs'): A JCE is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has a long term interest. JCEs are accounted for using the equity accounting method. In addition, the carrying value will include any long term debt interests which in substance form part of the Group's net investment. | | | | Jointly controlled assets ('JCAs'): A JCA is a joint venture in which the venturers have joint control over the assets contributed to or acquired for the purposes of the joint venture. JCAs do not involve the establishment of a corporation, partnership or other entity. This includes situations where the participants derive benefit from the joint activity through a share of the production, rather than by receiving a share of the results of trading. The Group's proportionate interest in the assets, liabilities, revenues, expenses and cash flows of JCAs are incorporated into the Group's financial statements under the appropriate headings. In some situations, joint control exists even though the Group has an ownership interest of more than 50 per cent because of the veto rights held by join venture partners. | | | | The Group uses the term 'Equity accounted units' to refer to associates and jointly controlled entities collectively. | | | | Where necessary, adjustments are made to the results of subsidiaries, joint ventures and associates to bring their accounting policies into line with those used by the Group. | | | | The results of businesses acquired during the year are brought into the consolidated financial statements from the date at which control, joint control or significant influence commences and taken out of the financial statements from the date at which control joint control or significant influence ceases. | | | | From 1 January 2005, Individual non-current assets or 'disposal groups' (i.e. groups of assets and liabilities) to be disposed of, by sale or otherwise in a single transaction, are classified as 'held for sale' if the following criteria are met: |
| | | | – | the carrying amount will be recovered principally through a sale transaction rather than through continuing use, and | | – | the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for such sales, and | | – | the sale is highly probable. | | | |
Back to Contents Notes to the 2006 financial statements 1 | PRINCIPAL ACCOUNTING POLICIES CONTINUED | | | (b) | Basis of consolidation (continued) | | Disposal groups held for sale are carried at the lower of their carrying amount and fair value less costs to sell and are presented separately on the face of the balance sheet with the related assets and liabilities being presented as a single asset and a single liability respectively. Comparative balance sheet information is not restated | | | | For a disposal group held for sale which continues to be carried at its carrying amount, the profit on disposal, calculated as net sales proceeds less the carrying amount, is recognised in the income statement in the period during which completion of the sale takes place. Where the fair value less costs to sell of a disposal group is lower than the carrying amount, the resulting charge is recognised in the income statement in the period during which the disposal group is classified as held for sale. On classification as held for sale, the assets are no longer depreciated. | | | | If the disposal group or groups represent a separate major line of business or geographical area of operations, and are part of a single co-ordinated plan of disposal or are subsidiaries acquired exclusively with a view to resale, they are classified as discontinued operations. The net results attributable to such discontinued operations are shown separately and comparative figures in the income and cash flow statements are restated. | | | | Prior to 1 January 2005, the results of businesses sold during the year were included in the consolidated financial statements for the period up to the date of disposal. Gains or losses on disposal were calculated as the difference between the sale proceeds (net of expenses) and the net assets attributable to the interest which had been sold. | | | (c) | Sales revenue | | Sales revenue comprises sales to third parties at invoiced amounts, with most sales being priced ex works, free on board (f.o.b.) or cost, insurance and freight (c.i.f.). Amounts billed to customers in respect of shipping and handling are classed as sales revenue where the Group is responsible for carriage, insurance and freight. All shipping and handling costs incurred by the Group are recognised as operating costs. If the Group is acting solely as an agent, amounts billed to customers are offset against the relevant costs. | | | | Sales revenue excludes any applicable sales taxes. Mining royalties are presented as an operating cost or, where they are in substance a profit based tax, within taxes. Gross sales revenue shown in the income statement includes the Group's share of the sales revenue of equity accounted units. To avoid duplication, this excludes sales by jointly controlled entities to third parties of products purchased from the Group and excludes charges by jointly controlled entities to the Group. By-product revenues are included in sales revenue. | | | | A large proportion of Group production is sold under medium to long term contracts, but sales revenue is only recognised on individual sales when persuasive evidence exists that all of the following criteria are met: |
| – | the significant risks and rewards of ownership of the product have been transferred to the buyer; | | – | neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold, has been retained; | | – | the amount of revenue can be measured reliably; | | – | it is probable that the economic benefits associated with the sale will flow to the Group; and | | – | the costs incurred or to be incurred in respect of the sale can be measured reliably. | | | | These conditions are generally satisfied when title passes to the customer. In most instances sales revenue is recognised when the product is delivered to the destination specified by the customer, which is typically the vessel on which it will be shipped, the destination port or the customer's premises. | | | | Sales revenue is commonly subject to adjustment based on an inspection of the product by the customer. In such cases, sales revenue is initially recognised on a provisional basis using the Group's best estimate of contained metal, and adjusted subsequently. | | | | Certain products are 'provisionally priced', i.e. the selling price is subject to final adjustment at the end of a period normally ranging from 30 to 180 days after delivery to the customer, based on the market price at the relevant quotation point stipulated in the contract. Revenue on provisionally priced sales is recognised based on estimates of the fair value of the consideration receivable based on forward market prices. At each reporting date provisionally priced metal is marked to market based on the forward selling price for the quotational period stipulated in the contract. For this purpose, the selling price can be measured reliably for those products, such as copper, for which there exists an active and freely traded commodity market such as the London Metals Exchange and the value of product sold by the Group is directly linked to the form in which it is traded on that market. | | | | The marking to market of provisionally priced sales contracts is recorded as an adjustment to sales revenue. | | |
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Back to Contents Notes to the 2006 financial statements 1 | PRINCIPAL ACCOUNTING POLICIES CONTINUED | | | | (d) | Currency translation | | The functional currency for each entity in the Group, and for jointly controlled entities and associates, is the currency of the primary economic environment in which it operates. For most entities, this is the currency of the country in which it operates. Transactions denominated in other currencies are converted to the functional currency at the exchange rate ruling at the date of the transaction unless hedge accounting applies. Monetary assets and liabilities denominated in foreign currencies are retranslated at year end exchange rates. | | | | | The US dollar is the currency in which the Group's Financial statements are presented, as it most reliably reflects the global business performance of the Group as a whole. | | | | | On consolidation, income statement items are translated into US dollars at average rates of exchange. Balance sheet items are translated into US dollars at year end exchange rates. Exchange differences on the translation of the net assets of entities with functional currencies other than the US dollar, and any offsetting exchange differences on net debt hedging those net assets, are recognised directly in the foreign currency translation reserve. | | | | | Exchange gains and losses which arise on balances between Group entities are taken to the foreign currency translation reserve where the intra group balance is, in substance, part of the Group's net investment in the entity. | | | | | The balance of the foreign currency translation reserve relating to an operation that is disposed of is transferred to the income statement at the time of the disposal. | | | | | The Group finances its operations primarily in US dollars but a substantial part of the Group's US dollar debt is located in subsidiaries having functional currencies other than the US dollar. Except as noted above, exchange gains and losses relating to such US dollar debt are charged or credited to the Group's income statement in the year in which they arise. This means that the impact of financing in US dollars on the Group's income statement is dependent on the functional currency of the particular subsidiary where the debt is located. | | | | | Except as noted above, or in note (p) below relating to derivative contracts, all exchange differences are charged or credited to the income statement in the year in which they arise. | | | | (e) | Goodwill and intangible assets (excluding exploration and evaluation expenditure) | | Goodwill represents the difference between the cost of acquisition and the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill on acquisition of subsidiaries is separately disclosed and goodwill on acquisitions of associates and JCEs is included within investments in equity accounted units. | | | | | In 1997 and previous years, goodwill was eliminated against reserves in the year of acquisition as a matter of accounting policy, as was then permitted under UK GAAP. Such goodwill was not reinstated under subsequent UK accounting standards or on transition to IFRS. | | | | | Goodwill is not amortised; rather it is tested annually for impairment. Goodwill is allocated to the cash generating unit or group of cash generating units expected to benefit from the related business combination for the purposes of impairment testing. Goodwill impairments cannot be reversed. | | | | | Finite life intangible assets are recorded at cost and are amortised over their useful economic lives on a straight line or units of production basis, as appropriate. From 1 January 2005, finite life intangible assets held for sale, or included within a disposal group held for sale, are not amortised. In accordance with the accounting requirements for disposal groups, intangible assets held for sale are carried at the lower of their pre-existing carrying amount and fair value less costs to sell, and are presented separately on the face of the balance sheet. Internally generated intangible assets and computer software acquired are amortised over 2 to 5 years. Other intangible assets are amortised over 2 to 20 years. Intangible assets which are not yet ready for use are reviewed annually for impairment. | | | | (f) | Exploration and evaluation | | Exploration and evaluation expenditure comprises costs which are directly attributable to: | | – | researching and analysing existing exploration data | | – | conducting geological studies, exploratory drilling and sampling | | – | examining and testing extraction and treatment methods; and/or | | – | compiling pre-feasibility and feasibility studies. | | | | | Exploration and evaluation expenditure also includes costs incurred in acquiring mineral rights, the entry premiums paid to gain access to areas of interest and amounts payable to third parties to acquire interests in existing projects. | | | | | Capitalisation of exploration and evaluation expenditure commences when there is a high degree of confidence in the project's viability and hence it is probable that future economic benefits will flow to the Group. | | | | | Capitalised exploration and evaluation expenditure is reviewed for impairment at each balance sheet date. In the case of undeveloped properties, there may be only inferred resources to form a basis for the impairment review. The carrying values of these assets are reviewed twice per annum by management and the results of these reviews are reported to the Audit Committee. The review is based on a status report regarding the Group's intentions for development of the undeveloped property. In some cases, the undeveloped properties are regarded as successors to ore bodies currently in production. It is intended that these will be developed and go into production when the current source of ore is exhausted. | | | | | Subsequent recovery of the resulting carrying value depends on successful development of the area of interest or sale of the project. If a project does not prove viable, all irrecoverable costs associated with the project and any related impairment provisions are written off. |
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Back to Contents Notes to the 2006 financial statements 1 | PRINCIPAL ACCOUNTING POLICIES CONTINUED | | | (g) | Property, plant and equipment | | The cost of property, plant and equipment comprises its purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the estimated close down and restoration costs associated with the asset. Once a mining project has been established as commercially viable expenditure other than that on land, buildings, plant and equipment is capitalised under 'Mining properties and leases' together with any amount transferred from 'Exploration and evaluation'. | | | | | In open pit mining operations, it is necessary to remove overburden and other barren waste materials to access ore from which minerals can economically be extracted. The process of mining overburden and waste materials is referred to as stripping. During the development of a mine (or pit), before production commences, stripping costs are capitalised as part of the investment in construction of the mine (or pit). | | | | | Costs associated with commissioning new assets, in the period before they are capable of operating in the manner intended by management, are capitalised. Development costs incurred after the commencement of production are capitalised to the extent they are expected to give rise to a future economic benefit. Interest on borrowings related to construction or development projects is capitalised until the point when substantially all the activities that are necessary to make the asset ready for its intended use are complete. | | | | (h) | Deferred stripping | | As noted above, stripping costs incurred in the development of a mine (or pit) before production commences are capitalised as part of the cost of constructing the mine (or pit) and subsequently amortised over the life of the mine (or pit) on a units of production basis. | | | | | Where a mine operates several open pits that are regarded as separate operations for the purpose of mine planning, stripping costs are accounted for separately by reference to the ore from each separate pit. If, however, the pits are highly integrated for the purpose of mine planning, the second and subsequent pits are regarded as extensions of the first pit in accounting for stripping costs. In such cases, the initial stripping (i.e. overburden and other waste removal) of the second and subsequent pits is considered to be production phase stripping relating to the combined operation. | | | | | The Group defers stripping costs incurred subsequently, during the production stage of its operations, for those operations where this is the most appropriate basis for matching the costs against the related economic benefits and the effect is material. This is generally the case where there are fluctuations in stripping costs over the life of the mine (or pit), and the effect is material. The amount of stripping costs deferred is based on the ratio ('Ratio') obtained by dividing the tonnage of waste mined either by the quantity of ore mined or by the quantity of minerals contained in the ore. Stripping costs incurred in the period are deferred to the extent that the current period Ratio exceeds the life of mine (or pit) Ratio. Such deferred costs are then charged against reported profits to the extent that, in subsequent periods, the current period Ratio falls short of the life of mine (or pit) Ratio. The life of mine (or pit) Ratio is based on proved and probable reserves of the mine (or pit). | | | | | The life of mine (or pit) waste-to-ore Ratio is a function of the pit design(s), and therefore changes to that design will generally result in changes to the Ratio. Changes in other technical or economic parameters that impact on reserves will also have an impact on the life of mine (or pit) Ratio even if they do not affect the pit design(s). Changes to the life of mine (or pit) Ratio are accounted for prospectively. | | | | | In the production stage of some mines (or pits), further development of the mine (or pit) requires a phase of unusually high overburden removal activity that is similar in nature to preproduction mine development. The costs of such unusually high overburden removal activity are deferred and charged against reported profits in subsequent periods on a units of production basis. This accounting treatment is consistent with that for stripping costs incurred during the development phase of a mine (or pit), before production commences. | | | | | If the Group were to expense production stage stripping costs as incurred, there would be greater volatility in the year to year results from operations and excess stripping costs would be expensed at an earlier stage of a mine's operation. | | | | | Deferred stripping costs are included in 'Mining properties and leases' within property, plant and equipment or in investments in equity accounted units, as appropriate. These form part of the total investment in the relevant cash generating unit, which is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. Amortisation of deferred stripping costs is included in operating costs or in the Group's share of the results of its equity accounted units, as appropriate. | | | | (i) | Depreciation and impairment | | Property, plant and equipment is depreciated over its useful life, or over the remaining life of the mine if shorter. The major categories of property, plant and equipment are depreciated on a units of production and/or straight-line basis as follows: | | | | | | Units of production basis | | | For mining properties and leases and certain mining equipment, the economic benefits from the asset are consumed in a pattern which is linked to the production level. Except as noted below, such assets are depreciated on a units of production basis. | | | | | | Straight line basis | | | Assets within operations for which production is not expected to fluctuate significantly from one year to another or which have a physical life shorter than the related mine are depreciated on a straight line basis as follows: | | | |
| Buildings | 10 to 40 years | | Plant and equipment | 3 to 35 years | | Land | Not depreciated |
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Back to Contents Notes to the 2006 financial statements 1 | PRINCIPAL ACCOUNTING POLICIES CONTINUED | | | | (i) | Depreciation and impairment (continued) | | Residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Changes to the estimated residual values or useful lives are accounted for prospectively. In applying the units of production method, depreciation is normally calculated using the quantity of material extracted from the mine in the period as a percentage of the total quantity of material to be extracted in current and future periods based on proved and probable reserves and, for some mines, other mineral resources. Such non reserve material may be included in depreciation calculations in limited circumstances and where there is a high degree of confidence in its economic extraction. Development costs that relate to a discrete section of an ore body and which only provide benefit over the life of those reserves, are depreciated over the estimated life of that discrete section. Development costs incurred which benefit the entire ore body are depreciated over the estimated life of the ore body. | | | | | From 1 January 2005, property, plant and equipment held for sale, or which is part of a disposal group held for sale, is not depreciated. | | | | | Property, plant and equipment and finite life intangible assets are reviewed for impairment if there is any indication that the carrying amount may not be recoverable. In addition, from 1 January 2005, an impairment loss is recognised for any excess of carrying amount over the fair value less costs to sell of a non-current asset or disposal group held for sale. | | | | | When a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of 'value in use' (being the net present value of expected future cash flows of the relevant cash generating unit) and 'fair value less costs to sell'. Where there is no binding sale agreement or active market, fair value less costs to sell is based on the best information available to reflect the amount the Group could receive for the cash generating unit in an arm's length transaction. The estimates used for impairment reviews are based on detailed mine plans and operating plans, modified as appropriate to meet the requirements of IAS 36 'Impairment of Assets'. Future cash flows are based on estimates of: | | – | the quantities of the reserves and mineral resources for which there is a high degree of confidence of economic extraction; | | – | future production levels; | | – | future commodity prices (assuming the current market prices will revert to the Group's assessment of the long term average price, generally over a period of three to five years); and | | – | future cash costs of production, capital expenditure, close down, restoration and environmental clean up. | | | | | The cash flow forecasts are based on best estimates of expected future revenues and costs. These may include net cash flows expected to be realised from extraction, processing and sale of mineral resources that do not currently qualify for inclusion in proved or probable ore reserves. Such non reserve material is included where there is a high degree of confidence in its economic extraction. This expectation is usually based on preliminary drilling and sampling of areas of mineralisation that are contiguous with existing reserves. Typically, the additional evaluation to achieve reserve status for such material has not yet been done because this would involve incurring costs earlier than is required for the efficient planning and operation of the mine. | | | | | The expected future cash flows of cash generating units reflect long term mine plans which are based on detailed research analysis and iterative modelling to optimise the level of return from investment, output and sequence of extraction. The plan takes account of all relevant characteristics of the ore body, including waste to ore ratios, ore grades, haul distances, chemical and metallurgical properties of the ore impacting on process recoveries and capacities of processing equipment that can be used. The mine plan is therefore the basis for forecasting production output in each future year and the related production costs. | | | | | Rio Tinto's cash flow forecasts are based on assessments of expected long term commodity prices, which for most commodities are derived from an analysis of the marginal costs of the producers of these commodities. These assessments often differ from current price levels and are updated periodically. | | | | | In some cases, prices applying to some part of the future sales volumes of a cash generating unit are predetermined by existing sales contracts. The effects of such contracts are taken into account in forecasting future cash flows. | | | | | Cost levels incorporated in the cash flow forecasts are based on the current long term mine plan for the cash generating unit. For impairment reviews, recent cost levels are considered, together with expected changes in costs that are compatible with the current condition of the business and which meet the requirements of IAS 36. IAS 36 includes a number of restrictions on the future cash flows that can be recognised in respect of future restructurings and improvement related capital expenditure. | | | | | The discount rate applied is based upon the Group's weighted average cost of capital with appropriate adjustment for the risks associated with the relevant cash flows, to the extent that such risks are not reflected in the forecast cash flows. | | | | | For operations with a functional currency other than the US dollar, the impairment review is undertaken in the relevant functional currency. The great majority of the Group’s sales are based on prices denominated in US dollars. To the extent that the currencies of countries in which the Group produces commodities strengthen against the US dollar without commodity price offset, cash flows and, therefore, net present values are reduced. | | | | | When calculating 'value in use', IAS 36 requires that calculations should be based on exchange rates current at the time of the assessment. | | | | | For the majority of Rio Tinto's businesses, by both number and by value, the recoverable amounts are substantially in excess of the carrying value in the balance sheet. For a minority of the businesses the carrying value is close to recoverable amount, and these are reviewed for impairment where appropriate. The effects of exchange rate and commodity price changes on the values of these units relative to their carrying values are monitored closely. |
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Back to Contents Notes to the 2006 financial statements 1 | PRINCIPAL ACCOUNTING POLICIES CONTINUED | | | | (j) | Determination of ore reserve estimates | | The Group estimates its ore reserves and mineral resources based on information compiled by Competent Persons as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December 2004 (the JORC code). Reserves, and for certain mines, other mineral resources, determined in this way are used in the calculation of depreciation, amortisation and impairment charges, the assessment of life of mine stripping ratios and for forecasting the timing of the payment of close down and restoration costs and clean up costs. | | | | | In assessing the life of a mine for accounting purposes, mineral resources are only taken into account where there is a high degree of confidence of economic extraction. | | | | | There are numerous uncertainties inherent in estimating ore reserves, and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated. | | | | (k) | Provisions for close down and restoration and for environmental clean up costs | | Close down and restoration costs include the dismantling and demolition of infrastructure and the removal of residual materials and remediation of disturbed areas. Estimated close down and restoration costs are provided for in the accounting period when the obligation arising from the related disturbance occurs, whether this occurs during the mine development or during the production phase, based on the net present value of estimated future costs. Provisions for close down and restoration costs do not include any additional obligations which are expected to arise from future disturbance. The costs are estimated on the basis of a closure plan. The cost estimates are calculated annually during the life of the operation to reflect known developments e.g. updated cost estimates and revisions to the estimated lives of operations, and are subject to formal review at regular intervals. | | | | | Close down and restoration costs are a normal consequence of mining, and the majority of close down and restoration expenditure is incurred at the end of the life of the mine. Although the ultimate cost to be incurred is uncertain, the Group's businesses estimate their respective costs based on feasibility and engineering studies using current restoration standards and techniques. | | | | | The amortisation or 'unwinding' of the discount applied in establishing the net present value of provisions is charged to the income statement in each accounting period. The amortisation of the discount is shown as a financing cost, rather than as an operating cost. | | | | | The initial closure provision together with other movements in the provisions for close down and restoration costs, including those resulting from new disturbance, updated cost estimates, changes to the estimated lives of operations and revisions to discount rates are capitalised within property, plant and equipment. These costs are then depreciated over the lives of the assets to which they relate. | | | | | Where rehabilitation is conducted systematically over the life of the operation, rather than at the time of closure, provision is made for the estimated outstanding continuous rehabilitation work at each balance sheet date and the cost is charged to the income statement. | | | | | Provision is made for the estimated present value of the costs of environmental clean up obligations outstanding at the balance sheet date. These costs are charged to the income statement. Movements in the environmental clean up provisions are presented as an operating cost, except for the unwind of the discount which is shown as a financing cost. Remediation procedures may commence soon after the time the disturbance, remediation process and estimated remediation costs become known, but can continue for many years depending on the nature of the disturbance and the remediation techniques. | | | | | As noted above, the ultimate cost of environmental remediation is uncertain and cost estimates can vary in response to many factors including changes to the relevant legal requirements, the emergence of new restoration techniques or experience at other mine sites. The expected timing of expenditure can also change, for example in response to changes in ore reserves on production rates. As a result there could be significant adjustments to the provision for close down and restoration and environmental clean up, which would affect future financial results. | | | | (l) | Inventories | | Inventories are valued at the lower of cost and net realisable value on a first in, first out ('FIFO') basis. Cost for raw materials and stores is purchase price and for partly processed and saleable products is generally the cost of production. For this purpose the costs of production include: | | – | labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore; | | – | the depreciation of mining properties and leases and of property, plant and equipment used in the extraction and processing of ore; and | | – | production overheads. | | | | | Stockpiles represent ore that has been extracted and is available for further processing. If there is significant uncertainty as to when the stockpiled ore will be processed it is expensed as incurred. Where the future processing of this ore can be predicted with confidence, e.g. because it exceeds the mine's cut off grade, it is valued at the lower of cost and net realisable value. If the ore will not be processed within the 12 months after the balance sheet date it is included within non-current assets. Work in progress inventory includes ore stockpiles and other partly processed material. Quantities are assessed primarily through surveys and assays. |
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Back to Contents Notes to the 2006 financial statements
1 | PRINCIPAL ACCOUNTING POLICIES CONTINUED | | | | (m) | Taxation | | Current tax is the tax expected to be payable on the taxable income for the year calculated using rates that have been enacted or substantively enacted by the balance sheet date. It includes adjustments for tax expected to be payable or recoverable in respect of previous periods. | | | | | Full provision is made for deferred taxation on all temporary differences existing at the balance sheet date with certain limited exceptions. Temporary differences are the difference between the carrying value of an asset or liability and its tax base. The main exceptions to this principle are as follows: | | – | tax payable on the future remittance of the past earnings of subsidiaries, associates and jointly controlled entities is provided for except where Rio Tinto is able to control the remittance of profits and it is probable that there will be no remittance in the foreseeable future; | | – | deferred tax is not provided on the initial recognition of an asset or liability in a transaction that does not affect accounting profit or taxable profit and is not a business combination, such as on the recognition of a provision for close down and restoration costs and the related asset or on the inception of finance leases. Furthermore, with the exception of the unwind of discount, deferred tax is not recognised on subsequent changes in the carrying value of such assets and liabilities, for example where they are depreciated of finance leases are repaid; and | | – | deferred tax assets are recognised only to the extent that it is more likely than not that they will be recovered. |
Provisions for deferred tax are made in respect of tax benefits related to goodwill that was charged directly to reserves on acquisitions made prior to 1998. Such provisions are released when the related goodwill is charged through the profit and loss account on disposal or closure.
Deferred tax balances are not discounted to their present value.
(o)Post retirement benefits - In accordance with SSAP 24, the expected costs of post retirement benefits under defined benefit arrangements are charged to the profit and loss account so as to spread the costs over the service lives of employees entitled to those benefits. Variations from the regular cost are spread on a straight line basis over the expected average remaining service lives of relevant current employees. Costs are assessed in accordance with the advice of qualified actuaries.
(p) Financial instruments - The Group's policy with regard to 'Treasury management and financial instruments' is set out in the Financial review on page 32 of the Annual report and financial statements. When the Group enters into derivative contracts these transactions are designed to reduce exposures related to assets and liabilities, firm commitments or anticipated transactions, and are therefore accounted for as hedges. Amounts receivable and payable in respect of interest rate swaps are recognised as an adjustment to net interest over the life of the contract. Gains or losses on foreign currency forward contracts and currency swaps relating to financial assets and liabilities are matched against the losses or gains on the hedged items, either in the profit and loss account or through reserves as appropriate. Gains and losses on financial instruments relating to firm commitments or anticipated transactions for revenue items are deferred and recognised when the hedged transaction occurs. Gains and losses on financial instruments relating to firm commitments or anticipated transactions for capital expenditure are capitalised and depreciated in line with the underlying asset. The cash flows from these contracts are classified in a manner consistent with the underlying nature of the related transaction.
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RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
| | | Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| Note | | US$m | | US$m | | US$m | US$m | | US$m | | US$m | US$m | | US$m | | US$m | | | Operating costs from continuing operations | | | | | | | | | | | | | | | | | | | | | Raw materials and consumables | 1,455 | | 1,277 | | 1,305 | | 1,520 | | 1,314 | | 1,408 | | 2,975 | | 2,591 | | 2,713 | | | | Depreciation and amortisation (a) | 385 | | 423 | | 453 | | 621 | | 531 | | 476 | | 1,006 | | 954 | | 929 | | 3 | | Employment costs | 845 | | 687 | | 626 | | 821 | | 650 | | 534 | | 1,666 | | 1,337 | | 1,160 | | | | Royalties and other mining taxes | 220 | | 204 | | 183 | | 219 | | 186 | | 174 | | 439 | | 390 | | 357 | | | | Decrease/(increase) in inventories | 4 | | 18 | | (47 | ) | 51 | | 63 | | (98 | ) | 55 | | 81 | | (145 | ) | | | Other external costs (a) | 656 | | 558 | | 438 | | 795 | | 585 | | 454 | | 1,451 | | 1,143 | | 892 | | 20 | | Provisions (a) | 60 | | 33 | | 45 | | 94 | | 25 | | 55 | | 154 | | 58 | | 100 | | 11 | | Exploration and evaluation | 90 | | 94 | | 97 | | 37 | | 36 | | 33 | | 127 | | 130 | | 130 | | | | Research and development | 17 | | 17 | | 18 | | 6 | | 8 | | 21 | | 23 | | 25 | | 39 | | | | Net exchange losses/(gains) on monetary items | 40 | | 28 | | (62 | ) | 83 | | 13 | | 4 | | 123 | | 41 | | (58 | ) | | | Costs included above qualifying for capitalisation | (68 | ) | (33 | ) | (52 | ) | (100 | ) | (80 | ) | (61 | ) | (168 | ) | (113 | ) | (113 | ) | | | Other operating income | (40 | ) | (3 | ) | (62 | ) | (79 | ) | (105 | ) | (67 | ) | (119 | ) | (103 | ) | (129 | ) | | | |
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| | | | Net operating costs before exceptional | | | | | | | | | | | | | | | | | | | | | charges | 3,664 | | 3,303 | | 2,942 | | 4,068 | | 3,226 | | 2,933 | | 7,732 | | 6,534 | | 5,875 | | | | Exceptional charges | - | | 645 | | 644 | | - | | 433 | | 71 | | - | | 1,078 | | 715 | | | | |
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| | | | | 3,664 | | 3,948 | | 3,586 | | 4,068 | | 3,659 | | 3,004 | | 7,732 | | 7,612 | | 6,590 | | | | |
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| | (a) | The above detailed analysis of costsrecovered – this is before exceptional charges. Including exceptional charges,considered having regard to the total charge for depreciationreasons why the deferred tax asset has arisen and amortisationprojected future taxable profits for the Rio Tinto Group was US$1,893 million in 2002 and US$1,630 million in 2001. The charge for provisions was US$174 million in 2002 and US$100 million in 2001; and other external costs were US$1,166 million in 2002 and US$906 million in 2001.relevant entity (or group of entities). | | The total charge for depreciation and amortisation for Rio Tinto plc was US$929 million in 2002 and US$1,097 million in 2001, the charge for provisions was US$149 million in 2002 and US$45 million in 2001 and other external costs were US$581 million in 2002 and US$438 million in 2001. | | The total charge for depreciation and amortisation for Rio Tinto Limited was US$964 million in 2002 and US$533 million in 2001 and other external costs were US$585 million in 2002 and US$468 million in 2001. | | | (b) | Information on auditor's remuneration is included in note 37. | | |
| | | Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| US$m | | US$m | | US$m | US$m | | US$m | | US$m | US$m | | US$m | | US$m | | | | | | | | | | | | | | | | | | | | | | | | Employment costs, excluding joint ventures and associates: | | | | | | | | | | | | | | | | | | | | | - Wages and salaries | 730 | | 647 | | 678 | | 785 | | 615 | | 524 | | 1,515 | | 1,262 | | 1,202 | | | | - Social security costs | 59 | | 55 | | 54 | | 13 | | 13 | | 11 | | 72 | | 68 | | 65 | | | | - Net post retirement cost/(credit) (a) | 101 | | 21 | | (79 | ) | 83 | | 58 | | 34 | | 184 | | 79 | | (45 | ) | | | |
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| | | | | 890 | | 723 | | 653 | | 881 | | 686 | | 569 | | 1,771 | | 1,409 | | 1,222 | | | | Less: charged within provisions | (45 | ) | (36 | ) | (27 | ) | (60 | ) | (36 | ) | (35 | ) | (105 | ) | (72 | ) | (62 | ) | | | |
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| | | | | 845 | | 687 | | 626 | | 821 | | 650 | | 534 | | 1,666 | | 1,337 | | 1,160 | | | | |
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| | | (a) | | The net post retirement cost/(credit) includesDeferred tax is provided in respect of fair value adjustments on acquisitions. These adjustments may relate to assets such as mining rights that, in general, are not eligible for income tax allowances. In such cases, the gradual recognition under SSAP 24 ofprovision for deferred tax is based on the deficits and surpluses in a number of the Group's defined benefit pension schemes. | (b) | | UITF Abstract 17 requires the intrinsic value of share options to be recognised as a cost. However, the Group's SAYE schemes are Inland Revenue approved schemes or equivalent non-UK schemes, and are, therefore, exempt from this requirement. None of the Group's other share option schemes involve granting new options at a discount to market value. |
A-12
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RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
| | | | Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group | |
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| | US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | | | | Effect of exceptional items on line items | | | | | | | | | | | | | | | | | | | | | | in the profit and loss account: | | | | | | | | | | | | | | | | | | | | | | Group operating profit | - | | (645 | ) | (644 | ) | - | | (433 | ) | (71 | ) | - | | (1,078 | ) | (715 | ) | | | | Share of operating profit of joint ventures | - | | (16 | ) | - | | - | | - | | - | | - | | (16 | ) | - | | | | | Share of operating profit of associates | - | | (94 | ) | (27 | ) | - | | - | | - | | - | | - | | - | | | | | Profit on disposal of subsidiary, joint | | | | | | | | | | | | | | | | | | | | | | venture and associate | 47 | | - | | - | | 126 | | - | | - | | 126 | | - | | - | | | | | Taxation | - | | - | | 113 | | - | | 42 | | 19 | | - | | 42 | | 132 | | | | | Share of taxation of associates | - | | 9 | | 7 | | - | | - | | - | | - | | - | | - | | | | | Attributable to outside shareholders (equity) | - | | 7 | | - | | - | | 166 | | - | | - | | 173 | | - | | | | | |
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| | | | | | 47 | | (739 | ) | (551 | ) | 126 | | (225 | ) | (52 | ) | 126 | | (879 | ) | (583 | ) | | | | |
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| | (a) | The exceptional items analysed above, and within the profit and loss account, are added back in arriving at adjusted earnings and adjusted earnings per share. | (b) | In 2003 the exceptional gains total US$126 million, of which US$19 million related to associates and US$107 million to joint ventures. These gains arose on sales of operations. These transactions did not give rise to a tax charge. | | The exceptional charges of US$879 million recognised in 2002 comprised provisions of US$763 million for the impairment of asset carrying values and a charge of US$116 million related to environmental remediation works at Kennecott Utah Copper ('KUC'). Of the impairment charge, US$480 million related to KUC and US$235 million related to the Iron Ore Company of Canada ('IOC'). Of the total charge, US$16 million before tax related to joint ventures and the remainder to subsidiaries. | | Most of the 2002 impairment provisions were calculated so as to ensure thatdifference between the carrying value of the relevant assets wereasset and its nil income tax base. The existence of a tax base for capital gains tax purposes is not taken into account in determining the same as the present value of the expected future cash flowsdeferred tax provision relating to those assets. The discount rates used in calculatingsuch mineral rights because it is expected that the present value of expected future cash flows were derivedcarrying amount will be recovered primarily through use and not from the Group's weighted average cost of capital, with appropriate risk adjustments. When adjusted to include inflation and grossed up at the Group's average tax rate for 2002, before exceptional items, the discount rate applied to the relevant income generating units was equivalent to 10 per cent, except for gold production for which a rate equivalent to 7 per cent was used. The impairment provision against IOC aligned the carrying value with the value negotiated between shareholders during 2002 as part of a financial restructuring exercise. | (c) | In preparing financial statements in accordance with the Companies Act and UK GAAP certain information is presented that would be viewed as ‘non-GAAP’ under regulations issued by the United States Securities and Exchange Commission (‘SEC’). The Group has described such items, provided disclosure on the effects and reasons for presentation along with a condensed income statement using the format prescribed by the SEC. The disclosure of asset write downs in 2001 and 2002, as well as the disclosure of the profit on disposal of subsidiary, joint venture and associate in 2003, as exceptional itemsmineral rights. Also, the Group is expressly permitted under FRS3. Otherwise, disclosure of these amounts as exceptional items would be prohibited withinonly entitled to a deduction for capital gains tax purposes if the Form 20-F. Management consider these asset write downs and this profitmineral rights are sold or disposal to be exceptional in nature because large items of this type do not occur regularly. Their impact on earnings may be positive in some years and negative in others. The environmental remediation charge in 2002 is similarly presented as an exceptional item under FRS3. Management consider this charge to be exceptional in nature because large items of this type do not occur regularly.Such items do not reflect the performance of the business unit to which they relate in the particular year in which they are recognised.formally relinquished. |
A-13
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RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
5 | Net interest payable and similar charges | | |
| | Rio Tinto plc - | | Rio Tinto Limited - | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | | | Interest payable on | | | | | | | | | | | | | | | | | | | | | Bank borrowings | (26 | ) | (21 | ) | (22 | ) | (30 | ) | (23 | ) | (35 | ) | (56 | ) | (44 | ) | (57 | ) | | | Other loans | (74 | ) | (95 | ) | (111 | ) | (110 | ) | (112 | ) | (184 | ) | (153 | ) | (189 | ) | (295 | ) | | | |
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| | | | | (100 | ) | (116 | ) | (133 | ) | (140 | ) | (135 | ) | (219 | ) | (209 | ) | (233 | ) | (352 | ) | | | Amounts capitalised | 12 | | 14 | | 9 | | 27 | | 8 | | 12 | | 39 | | 22 | | 21 | | | | |
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| | | | | (88 | ) | (102 | ) | (124 | ) | (113 | ) | (127 | ) | (207 | ) | (170 | ) | (211 | ) | (331 | ) | | | |
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| | | | Interest receivable and similar income from fixed | | | | | | | | | | | | | | | | | | | | | asset investments | | | | | | | | | | | | | | | | | | | | | Joint ventures | 8 | | 10 | | 14 | | - | | - | | - | | 8 | | 10 | | 14 | | | | Associates | 31 | | 18 | | - | | 5 | | 1 | | 6 | | 5 | | 1 | | 6 | | | | Other investments | 4 | | 9 | | 3 | | - | | - | | - | | 4 | | 9 | | 3 | | | | |
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| | | | | 43 | | 37 | | 17 | | 5 | | 1 | | 6 | | 17 | | 20 | | 23 | | | | Other interest receivable | 3 | | 13 | | 22 | | 11 | | 17 | | 30 | | 14 | | 30 | | 52 | | | | |
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| | | | Group net interest payable | (42 | ) | (52 | ) | (85 | ) | (97 | ) | (109 | ) | (171 | ) | (139 | ) | (161 | ) | (256 | ) | | | | | | | | | | | | | | | | | | | | | | | | Share of joint ventures' net interest payable (a) | (11 | ) | (20 | ) | (26 | ) | (2 | ) | (6 | ) | (6 | ) | (13 | ) | (26 | ) | (32 | ) | | | Share of associates' net interest payable (a) | (85 | ) | (84 | ) | (114 | ) | (1 | ) | (9 | ) | (13 | ) | (54 | ) | (50 | ) | (59 | ) | | | |
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| | | | Net interest payable | (138 | ) | (156 | ) | (225 | ) | (100 | ) | (124 | ) | (190 | ) | (206 | ) | (237 | ) | (347 | ) | 6 | | Amortisation of discount | (69 | ) | (39 | ) | (45 | ) | (36 | ) | (23 | ) | (19 | ) | (92 | ) | (54 | ) | (57 | ) | | | |
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| | | | Net interest payable and similar charges | (207 | ) | (195 | ) | (270 | ) | (136 | ) | (147 | ) | (209 | ) | (298 | ) | (291 | ) | (404 | ) | | | |
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| | | (a) | | The Group's share of net interest payable by joint venturesCurrent and associates relatesdeferred tax relating to its share ofitems recognised directly in equity are recognised in equity and not in the net debt of joint ventures and associates, which is disclosed in note 14. | (b) | | Interest of US$31 million payable from Rio Tinto Limited to Rio Tinto plc is included as 'Interest receivable from associates' for Rio Tinto plc and as 'Interest payable on other loans' for Rio Tinto Limited.income statement. | | | |
6(n) | AmortisationPost employment benefits | | For defined benefit post employment plans, the difference between the fair value of the plan assets (if any) and the present value of the plan liabilities is recognised as an asset or liability on the balance sheet. Any asset recognised is restricted, if appropriate, to the present value of any amounts the Group expects to recover by way of refunds from the plan or reductions in future contributions. Actuarial gains and losses arising in the year are taken to the Statement of recognised income and expense. For this purpose actuarial gains and losses comprise both the effects of changes in actuarial assumptions and experience adjustments arising because of differences between the previous actuarial assumptions and what has actually occurred. | | | | | Other movements in the net surplus or deficit are recognised in the income statement, including the current service cost, any past service cost and the effect of any curtailment or settlements. The interest cost less the expected return on assets is also charged to the income statement. The amount charged to the income statement in respect of these plans is included within operating costs or in the Group's share of the results of equity accounted units as appropriate. | | | | | The most significant assumptions used in accounting for pension plans are the long term rate of return on plan assets, the discount rate and the mortality assumptions. The long term rate of return on plan assets is used to calculate interest income on pension assets, which is credited to the Group's income statement. The discount rate is used to determine the net present value or future liabilities and each year the unwinding of the discount on those liabilities is charged to the Group's income statement as the interest cost. The mortality assumption is used to project the future stream of benefit payments, which is then discounted to arrive at a net present value of liabilities. | | |
| | | Rio Tinto plc - | | Rio Tinto Limited - | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | | | Subsidiaries | (63 | ) | (40 | ) | (37 | ) | (34 | ) | (22 | ) | (18 | ) | (97 | ) | (62 | ) | (55 | ) | | | Share of joint ventures | (1 | ) | (1 | ) | (1 | ) | (2 | ) | (1 | ) | (1 | ) | (3 | ) | (2 | ) | (2 | ) | | | Share of associates | (13 | ) | (8 | ) | (7 | ) | - | | - | | - | | - | | - | | - | | | | |
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| | | | | (77 | ) | (49 | ) | (45 | ) | (36 | ) | (23 | ) | (19 | ) | (100 | ) | (64 | ) | (57 | ) | | | Amounts capitalised (b) | 8 | | 10 | | - | | - | | - | | - | | 8 | | 10 | | - | | | | |
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| | | | Amortisation of discount | (69 | ) | (39 | ) | (45 | ) | (36 | ) | (23 | ) | (19 | ) | (92 | ) | (54 | ) | (57 | ) | | | |
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| The values attributed to plan liabilities are assessed in accordance with the advice of independent qualified actuaries. | | | | (a) | The amortisation of discount relates principallyGroup's contributions to provisions for close downdefined contribution pension plans are charged to the income statement in the period to which the contributions relate. | | | | (o) | Cash and restorationcash equivalents | | Cash and for environmental clean up costs as explainedcash equivalents are carried in accounting policy 1(l). It also includes the unwindbalance sheet at amortised cost. For the purposes of the discountbalance sheet, cash and cash equivalents comprise cash on non-interest bearing long term accounts payable. | (b) | Amounts capitalised relatehand, deposits held on call with banks and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to costsinsignificant risk of changes in value. For the purposes of the cash flow statement, cash and cash equivalents are net of bank overdrafts which are repayable on specific projects for which operations have not yet commenced. | (c) | Under US GAAP 'Amortisation of discount' would be accounted for as an operating cost.demand. |
A-14
Back to Contents RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 financial statements
1 | PRINCIPAL ACCOUNTING POLICIES CONTINUED |
NOTES TO FINANCIAL STATEMENTS - (continued)
(p) | Financial instruments | | The Group's policy with regard to 'Treasury management and financial instruments' is set out in Note 32. When the Group enters into derivative contracts these transactions are designed to reduce exposures related to assets and liabilities, firm commitments or anticipated transactions. | | | The Group adopted IAS 32 and IAS 39 from 1 January 2005. Adjustments were made to the opening balance sheet at 1 January 2005 for the adoption of IAS 39; these are shown separately in the Group statement of changes in equity. Comparative figures for the year ended 31 December 2004 were not restated to reflect IAS 39. | | | | | | Fair value: Where financial instruments are accounted for at fair value, this is the amount at which they could be exchanged in an arm's length transaction between informed and willing parties. Where available, market values have been used to determine fair values. In other cases, fair values have been calculated using quotations from independent financial institutions, or by discounting expected cash flows at prevailing market rates. The fair values of the Group's cash, short term borrowings and loans to jointly controlled entities and associates approximate to their carrying values, as a result of their short maturity or because they carry floating rates of interest. A further description of the accounting for each class of financial instrument is given below. | | | | | | Financial assets: From 1 January 2005, all financial assets are initially recorded at fair value. The Group has certain investments in companies that are not subsidiaries, associates or jointly controlled entities. These investments are classed as 'available for sale'. Such investments are subsequently measured at fair value with unrealised gains and losses recognised in equity until the investment is disposed of. Impairment charges and exchange gains and losses on such investments are recognised directly in the income statement. Other financial assets that the Group has the expressed intent and ability to hold to maturity together with loans and receivables are measured at amortised cost less any impairment charges. Prior to 1 January 2005, these investments were accounted for at cost less provisions for diminution in value. | | | | | | Borrowings: From 1 January 2005, borrowings and other financial liabilities are recognised initially at fair value, net of transaction costs incurred and are subsequently stated at amortised cost. Any difference between the amounts originally received (net of transaction costs) and the redemption value is recognised in the income statement over the period to maturity using the effective interest method. Prior to 1 January 2005, borrowings were stated at amortised cost. |
| | | | Derivative financial instruments and hedge accounting | | Commodity based contracts that meet the 'expected purchase, sale or usage' requirements in IAS 39 are recognised in earnings as described in note c) above. | | | | | From 1 January 2005, all derivatives are initially recognised at their fair value on the date the derivative contract is entered into and are subsequently remeasured at their fair value at each balance sheet date. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or of firm commitments (fair value hedges) or hedges of highly probable forecast transactions (cash flow hedges). | | | | | – | Fair value hedges:Changes in the fair value of derivatives that are designated and qualify as fair value hedges arerecorded in the income statement, together with any changes in the fair value of the hedged asset or liability or firmcommitment that is attributable to the hedged risk. Where derivatives are held with different counterparties to theunderlying asset or liability or firm commitment, the fair value of the derivative is shown separately in the balance sheeas there is no legal right of offset. | | | | | – | Cash flow hedges:The effective portions of changes in the fair value of derivatives that are designated and qualify ascash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediatelyin the income statement. Amounts accumulated in equity are recycled in the income statement in the periods when thehedged item will affect profit or loss (for instance, when the forecast sale that is being hedged takes place). | | | | | – | Derivatives that do not qualify for hedge accounting:Certain derivative contracts entered into by the Group in order tohedge its exposure to fluctuations in exchange rates against the US dollar are not located in the entity with the exposure.Such contracts, and any other derivative contracts that do not qualify for hedge accounting, are marked to market at thebalance sheet date. In respect of currency swaps, the gain or loss on the swap and the offsetting gain or loss on the financialasset or liability against which the swap forms an economic hedge are shown in separate lines in the income statement. Inrespect of other derivatives, the mark to market will give rise to charges or credits to the income statement in periods beforethe transaction against which the derivative is held as an economic hedge is recognised. | | | | | – | Embedded derivatives:Derivatives embedded in other financial instruments or other host contracts are treated asseparate derivatives when their risks and characteristics are not closely related to their host contracts. | | | | Prior to 1 January 2005, derivative financial instruments were accounted for as follows |
– | Amounts receivable and payable in respect of interest rate swaps were recognised as adjustments to net interest over the life of the contract. | – | Derivative contracts which had been entered into by the Group in respect of its firm commitments or anticipated transactions in order to hedge its exposure to fluctuations in exchange rates against the US dollar or to fluctuations against commodity prices and which were located in the entity with the exposure, were accounted for as hedges: gains and losses were deferred and subsequently recognised when the hedged transaction occurred. Where such contracts were not located in the entity with the exposure they were fair valued at the balance sheet date. This gave rise to charges or credits to the income statement in periods before the transaction against which the derivative was held as an economic hedge was recognised. |
| 7 Taxation charge for the year
| Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | | | part of Rio Tinto Group | | part of Rio Tinto Group | | Rio Tinto Group | | |
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| | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | UK taxation | | | | | | | | | | | | | | | | | | | Corporation tax at 30% | | | | | | | | | | | | | | | | | | | Current | 99 | | 58 | | 51 | | - | | (4 | ) | - | | 99 | | 54 | | 51 | | Deduct: relief for overseas taxes | (96 | ) | (63 | ) | (63 | ) | - | | - | | - | | (96 | ) | (63 | ) | (63 | ) | |
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| | | 3 | | (5 | ) | (12 | ) | - | | (4 | ) | - | | 3 | | (9 | ) | (12 | ) | Deferred | (7 | ) | 11 | | 48 | | - | | 1 | | - | | (7 | ) | 12 | | 48 | | |
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| | | (4 | ) | 6 | | 36 | | - | | (3 | ) | - | | (4 | ) | 3 | | 36 | | Australian taxation | | | | | | | | | | | | | | | | | | | Corporation tax at 30% | | | | | | | | | | | | | | | | | | | Current | 3 | | 3 | | - | | 297 | | 342 | | 364 | | 300 | | 345 | | 364 | | Deferred | (2 | ) | - | | - | | 11 | | 21 | | 28 | | 9 | | 21 | | 28 | | |
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| | | 1 | | 3 | | - | | 308 | | 363 | | 392 | | 309 | | 366 | | 392 | | Other countries taxation | | | | | | | | | | | | | | | | | | | Current | 20 | | 123 | | 119 | | 27 | | 40 | | 34 | | 47 | | 163 | | 153 | | Deferred | (10 | ) | 10 | | 7 | | (17 | ) | (17 | ) | 17 | | (27 | ) | (7 | ) | 24 | | |
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| | | 10 | | 133 | | 126 | | 10 | | 23 | | 51 | | 20 | | 156 | | 177 | | Joint ventures - charge for year (a) | 123 | | 78 | | 84 | | 37 | | 87 | | 92 | | 160 | | 165 | | 176 | | Associates - charge for year (including | | | | | | | | | | | | | | | | | | | share of tax relief on exceptional asset | | | | | | | | | | | | | | | | | | | write-downs for Rio Tinto plc of: (2002: US$9 | | | | | | | | | | | | | | | | | | | million) (2001: US$7 million) (a) | 211 | | 222 | | 245 | | 5 | | (5 | ) | 6 | | 82 | | 60 | | 69 | | Subsidiary companies' deferred tax | | | | | | | | | | | | | | | | | | | related to exceptional charges (e) | - | | - | | (113 | ) | - | | (42 | ) | (19 | ) | - | | (42 | ) | (132 | ) | |
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| | | 341 | | 442 | | 378 | | 360 | | 423 | | 522 | | 567 | | 708 | | 718 | | |
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| | Prima facie tax reconciliation | | | | | | | | | | | | | | | | | | | Profit on ordinary activities before taxation | 1,305 | | 715 | | 983 | | 1,255 | | 1,033 | | 1,536 | | 2,094 | | 1,311 | | 1,983 | | |
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| | Prima facie tax payable at UK and Australian | | | | | | | | | | | | | | | | | | | rate of 30% | 392 | | 215 | | 295 | | 377 | | 310 | | 461 | | 628 | | 393 | | 595 | | Impact of exceptional items | - | | 227 | | 201 | | (38 | ) | 130 | | 21 | | (38 | ) | 328 | | 214 | | Other permanent differences | | | | | | | | | | | | | | | | | | | Other tax rates applicable outside the UK and | | | | | | | | | | | | | | | | | | | Australia | 49 | | 55 | | 87 | | 14 | | 1 | | 10 | | 59 | | 56 | | 95 | | Permanently disallowed amortisation/depreciation | 22 | | 22 | | 22 | | 48 | | 44 | | 45 | | 53 | | 51 | | 52 | | Research, development and other investment | | | | | | | | | | | | | | | | | | | allowances | (5 | ) | (5 | ) | (6 | ) | - | | (4 | ) | (10 | ) | (5 | ) | (7 | ) | (13 | ) | Resource depletion allowances | (54 | ) | (58 | ) | (52 | ) | - | | - | | - | | (54 | ) | (58 | ) | (52 | ) | Other (i) | (31 | ) | 25 | | (58 | ) | (8 | ) | 1 | | 3 | | (24 | ) | 24 | | (57 | ) | |
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| | | (19 | ) | 39 | | (7 | ) | 54 | | 42 | | 48 | | 29 | | 66 | | 25 | | Other deferral of taxation | | | | | | | | | | | | | | | | | | | Capital allowances in excess of other | | | | | | | | | | | | | | | | | | | depreciation charges | (30 | ) | (82 | ) | (114 | ) | (27 | ) | (12 | ) | (24 | ) | (48 | ) | (69 | ) | (131 | ) | Other timing differences | 4 | | 19 | | 22 | | 5 | | (4 | ) | (9 | ) | 14 | | - | | 17 | | |
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| | Total timing differences related to the current year | (26 | ) | (63 | ) | (92 | ) | (22 | ) | (16 | ) | (33 | ) | (34 | ) | (69 | ) | (114 | ) | |
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| | Current taxation charge for the year | 347 | | 418 | | 397 | | 371 | | 466 | | 497 | | 585 | | 718 | | 720 | | |
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| | Deferred tax recognised on timing differences | 26 | | 63 | | (28 | ) | 22 | | (26 | ) | 12 | | 34 | | 27 | | (18 | ) | Deferred tax impact of changes in tax rates | - | | (15 | ) | - | | - | | 3 | | - | | - | | (14 | ) | - | | Other deferred tax items (j) | (32 | ) | (24 | ) | 9 | | (33 | ) | (20 | ) | 13 | | (52 | ) | (23 | ) | 16 | | |
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| | Total taxation charge for the year | 341 | | 442 | | 378 | | 360 | | 423 | | 522 | | 567 | | 708 | | 718 | | |
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A-15
Back to Contents RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 financial statements
1 | PRINCIPAL ACCOUNTING POLICIES CONTINUED |
| | (p) | Financial instruments (continued) | | – | Where contracts and financial instruments contained embedded derivatives, the derivative element was not treated as a separate derivative. | | – | Gains or losses on foreign currency forward contracts and currency swaps relating to financial assets and liabilities were matched against the losses or gains on the hedged items in the income statement. Where currency swaps were held with different counterparties to the underlying borrowing, the fair value of the swaps was shown separately in the balance sheet as there was no legal right of offset. | | | |
| (q) | Share based payments | | | The fair value of cash-settled share plans is recognised as a liability over the vesting period of the awards. Movements in that liability between accounting dates are recognised as an expense. The grant date fair value of the awards is taken to be the market value of the shares at the date of award reduced by a factor for anticipated relative Total Shareholder Return ('TSR') performance. Fair values are subsequently remeasured at each accounting date to reflect the number of awards expected to vest based on the current and anticipated TSR performance. If any awards are ultimately settled in shares, the liability is transferred direct to equity as the consideration for the equity instruments issued. | | | | The Group's equity-settled share plans are settled either by the issue of shares by the relevant parent company, by the purchase of shares on market or by the use of shares previously acquired as part of a share buyback. The fair value of the share plans is recognised as an expense over the expected vesting period with a corresponding entry to retained earnings for Rio Tinto plc plans and to other reserves for Rio Tinto Limited plans. If the cost of shares acquired to satisfy the plans exceeds the expense charged, the excess is taken to the appropriate reserve. The fair value of the share plans is determined at the date of grant, taking into account any market based vesting conditions attached to the award (e.g. Total Shareholder Return). The Group uses fair values provided by independent actuaries calculated using a lattice based option valuation model. | | | | Non market based vesting conditions (e.g. earnings per share targets) are taken into account in estimating the number of awards likely to vest. The estimate of the number of awards likely to vest is reviewed at each balance sheet date up to the vesting date, at which point the estimate is adjusted to reflect the actual awards issued. No adjustment is made after the vesting date even if the awards are forfeited or not exercised. | | | | Further information about the treatment of individual share based payment plans is provided in note 45. |
NOTES TO FINANCIAL STATEMENTS - (continued)A-16
Back to Contents Notes to the 2006 Financial statements 2 | RECONCILIATION OF NET EARNINGS TO UNDERLYING EARNINGS |
| Pre-tax | | Taxation | | Outside | | Net | | Net | | Net | | | | | | | interests | | amount | | amount | | amount | | | | | | | | | 2006 | | 2005 | | 2004 | | Exclusions from underlying earnings | | | | | | | US$m | | US$m | | US$m | |
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| | Profits less losses on disposal of interests in businesses (a) (note 39) | 5 | | (2 | ) | — | | 3 | | 311 | | 1,175 | | Impairment reversals less charges (b) | 396 | | (276 | ) | (76 | ) | 44 | | 4 | | (321 | ) | Exchange differences and derivatives: | | | | | | | | | | | | | Exchange gains/(losses) on external debt and intragroup balances (c) | 46 | | (70 | ) | 8 | | (16 | ) | (87 | ) | 159 | | – Gains/(losses) on currency and interest rate derivatives not qualifying | | | | | | | | | | | | | for hedge accounting (d), (e) | 35 | | (9 | ) | 4 | | 30 | | (40 | ) | 8 | | – Gains/(losses) on external debt and derivatives not qualifying as | | | | | | | | | | | | | hedgesinequity accounted units (c), (d), (e) | 2 | | — | | — | | 2 | | (12 | ) | 4 | | Adjustment to environmental remediation provision (f) | 37 | | — | | — | | 37 | | 84 | | — | |
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| Total excluded from underlying earnings | 521 | | (357 | ) | (64 | ) | 100 | | 260 | | 1,025 | |
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| | Net earnings | 10,240 | | (2,373 | ) | (429 | ) | 7,438 | | 5,215 | | 3,297 | |
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| | Underlying earnings | 9,719 | | (2,016 | ) | (365 | ) | 7,338 | | 4,955 | | 2,272 | |
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'Underlying earnings' is an additional measure of earnings, which is reported by Rio Tinto to provide greater understanding of the underlying business performance of its operations. Underlying earnings and Net earnings both represent 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. Additional information on these disposals is included in note 39. | (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$84 million; 2004: US$nil) relates to the obligations of Kennecott Utah Copper described in note 26 (e). It reverses part of an exceptional charge taken up in 2002, which was excluded from Adjusted earnings at that time, and is therefore excluded in arriving at Underlying earnings. Change in treatment of undeveloped properties in Underlying earnings The Group frequently sells undeveloped properties as an alternative to development, and such activities are a component of the Group's regular business activities. For this reason, the above definition of Underlying earnings has been amended in 2006 to include gains and losses on sales of undeveloped properties and impairment charges relating to these. This change in definition resulted in an increase of US$46 million in the Group's Underlying earnings for 2006 but has no impact on Underlying earnings for 2005 or 2004.A-17
Back to Contents Notes to the 2006 Financial statements | | | 2006 | | 2005 | | 2004 | | | Note | | US$m | | US$m | | US$m | |
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| | Raw materials and consumables | | | 3,207 | | 2,860 | | 2,157 | | Amortisation of intangible assets | 12 | | 27 | | 19 | | 19 | | Depreciation of property, plant & equipment | 13 | | 1,442 | | 1,315 | | 1,152 | | Amortisation of deferred stripping costs | | | 40 | | 4 | | 12 | | Employment costs | 4 | | 2,459 | | 2,162 | | 1,817 | | Repairs and maintenance | | | 1,257 | | 985 | | 886 | | Shipping costs | | | 1,149 | | 1,141 | | 724 | | Other freight costs | | | 333 | | 283 | | 160 | | (Increase) in inventories | | | (139 | ) | (79 | ) | 98 | | Royalties | | | 1,004 | | 822 | | 577 | | Amounts charged by jointly controlled entities mainly for toll processing | | | 1,196 | | 1,128 | | 980 | | Other external costs | | | 1,936 | | 1,649 | | 1,519 | | Provisions | 26 | | 60 | | 202 | | 192 | | Exploration and evaluation | 12 | | 237 | | 250 | | 190 | | Research and development | | | 15 | | 20 | | 16 | | Costs included above qualifying for capitalisation | | | (69 | ) | (83 | ) | (89 | ) | Other operating income | | | (262 | ) | (242 | ) | (161 | ) |
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| | Net operating costs (excluding impairment (reversals)/charges) | | | 13,892 | | 12,436 | | 10,249 | |
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(a) | Information on auditors' remuneration is included in note 41. |
| | | 2006 | | 2005 | | 2004 | | | Note | | US$m | | US$m | | US$m | |
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| | Employment costs | | | | | | | | | – Wages and salaries | | | 2,337 | | 2,093 | | 1,700 | | – Social security costs | | | 83 | | 84 | | 68 | | – Net post retirement cost (a) | 46 | | 189 | | 167 | | 151 | | – Share option costs (b) | 45 | | 32 | | 48 | | 40 | |
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| | | | | 2,641 | | 2,392 | | 1,959 | | Less: charged within provisions | | | (182 | ) | (230 | ) | (142 | ) |
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| | | 3 | | 2,459 | | 2,162 | | 1,817 | |
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(a) | Post retirement costs include the aggregate service and interest cost of providing post retirement benefits under defined benefit plans, net of the related expected return on plan assets. Additional detail of the amount charged to the income statement in respect of post retirement plans, and the treatment of actuarial gains and losses, is shown in note 46. | | (b) | Further details of the Groups' share options and other share based payment schemes are given in note 45. |
A-18
Back to Contents Notes to the 2006 Financial statements 5 | IMPAIRMENT REVERSALS AND CHARGES |
| Pre-tax | | Taxation | | Outside | | Net | | Net | | Net | | | | | | | interests | | amount | | amount | | amount | | | | | | | | | 2006 | | 2005 | | 2004 | | Cash generating unit | | | | | | | US$m | | US$m | | US$m | |
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| | Kennecott Utah Copper (KUC) | 614 | | (233 | ) | — | | 381 | | — | | — | | Iron Ore Company of Canada (IOC) | 298 | | (110 | ) | (77 | ) | 111 | | — | | — | | Argyle Diamonds | (317 | ) | 28 | | — | | (289 | ) | — | | — | | Tarong coal mine | (188 | ) | 36 | | — | | (152 | ) | — | | — | | Colowyo | — | | — | | — | | — | | — | | (160 | ) | Palabora | — | | — | | — | | — | | — | | (161 | ) | Other | (11 | ) | 3 | | 1 | | (7 | ) | 4 | | — | |
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| | | 396 | | (276 | ) | (76 | ) | 44 | | 4 | | (321 | ) |
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An increase in the Group’s long term copper price assumption triggered an assessment of the recoverable amount of KUC. The value in use was based on cash flows forecast in real terms and discounted at a pre-tax rate of 8%. The KUC impairment provision in 2002 was calculated using a pre-tax discount rate of 6%. An increase in the Group’s long term iron ore price assumption triggered an assessment of the recoverable amount of IOC. The value in use was based on cash flows forecast in real terms and discounted at a pre-tax rate of 8%. The IOC impairment provision in 2002 aligned the carrying value with the value negotiated between shareholders during that year as part of a financial restructuring exercise. A continuation of operating losses triggered an assessment of the recoverable amount of Tarong, one of the Group's coal mines in Australia. The value in use was based on cash flows forecast in real terms and discounted at a pre-tax rate of 8%. The carrying value of Argyle included goodwill and was therefore subject to annual impairment reviews. In the case of Argyle, impairment has occurred earlier than expected as a result of adverse changes in assumptions about future prices, capital and operating costs. The impairment provision included the elimination of the balance of Argyle's goodwill, which amounted to US$223 million. The value in use was based on cash flows forecast in real terms and discounted at a pre-tax rate of 8% which was the same as the discount rate used in the 2005 annual assessment. Against a background of adverse financial results, including limited production from the underground mine and the strengthening of the rand against the US dollar, an assessment of the recoverable amount of Palabora’s copper business was undertaken in the second half of 2004. This resulted in a provision for asset impairment of US$398 million (US$161 million after tax and outside shareholders’ interests) which aligned the balance sheet value of the assets with their recoverable amount, based on an assessment of fair value less costs to sell. In line with market practice, fair value was estimated using a discounted cash flow analysis. The price assumption for copper was based on prevailing market prices for the first two years and long term forecast prices thereafter. The Rand exchange rate was forecast principally based on an historical average. The cash flow forecasts were discounted at a pre-tax rate of nine percent. A detailed review of the mine plan and projected cash flows of the Colowyo coal business was undertaken in June 2004. This cash generating unit is part of RTEA. The review indicated that future operating and development costs would be substantially higher than previously expected. As a consequence, a provision for asset impairment of US$160 million was recognised (US$98 million of intangible assets and US$62 million of property, plant and equipment) based on an assessment of value in use. The pre-tax cash flows were estimated in real terms and discounted at five percent per annum. The major area of uncertainty affecting the write down related to the future operating and development costs of the Colowyo operation, which were estimated over the next 18 years.
6 | SHARE OF PROFIT AFTER TAX OF EQUITY ACCOUNTED UNITS |
| 2006 | | 2005 | | 2004 | | | US$m | | US$m | | US$m | |
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| | Sales revenue (a) | 2,975 | | 1,709 | | 1,576 | | Operating costs | (771 | ) | (504 | ) | (739 | ) |
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| | Profit before finance items and taxation | 2,204 | | 1,205 | | 837 | | Exchange gains/(losses) on external net debt | 3 | | (17 | ) | 4 | | Gain on currency and interest rate derivatives not qualifying for hedge accounting | — | | — | | 1 | | Net interest payable | (45 | ) | (40 | ) | (46 | ) | Amortisation of discount | (14 | ) | (11 | ) | (11 | ) |
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| | Profit before tax | 2,148 | | 1,137 | | 785 | |
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| | Taxation | (770 | ) | (361 | ) | (262 | ) |
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| | Profit after tax (Rio Tinto share) | 1,378 | | 776 | | 523 | |
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(a) | The sales revenue of equity accounted units excludes charges by jointly controlled entities to Rio Tinto Group subsidiaries. |
A-19
Back to Contents Notes to the 2006 Financial statements 7 | Taxation charge for the year INTEREST RECEIVABLE AND PAYABLE(continued) |
| | | 2006 | | 2005 | | 2004 | | | Note | | US$m | | US$m | | US$m | |
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| | Interest receivable and similar income from: | | | | | | | | | – Equity accounted units | | | 27 | | 19 | | 18 | | – Other investments | | | 69 | | 55 | | 7 | |
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| | | | | 96 | | 74 | | 25 | | Other interest receivable | | | 10 | | 8 | | 3 | |
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| | Total interest receivable | | | 106 | | 82 | | 28 | |
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| | Interest payable and similar charges | | | (220 | ) | (201 | ) | (183 | ) | Amounts capitalised | 13 | | 60 | | 28 | | 35 | |
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| | Total Interest payable | | | (160 | ) | (173 | ) | (148 | ) |
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| | | 2006 | | 2005 | | 2004 | | | | | US$m | | US$m | | US$m | |
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| | UK taxation(a) | | | | | | | | | Corporation tax at 30% | | | | | | | | | – Current | | | 86 | | 137 | | 17 | | – Deduct: relief for overseas taxes | | | (72 | ) | (134 | ) | (15 | ) | – Deferred | | | 27 | | (22 | ) | — | |
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| | | | | 41 | | (19 | ) | 2 | |
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| | Australian taxation | | | | | | | | | Corporation tax at 30% | | | | | | | | | – Current | | | 1,517 | | 1,026 | | 508 | | – Deferred | | | (97 | ) | 30 | | (37 | ) |
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| | | | | 1,420 | | 1,056 | | 471 | |
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| | Other countries taxation(a) | | | | | | | | | – Current | | | 896 | | 684 | | 169 | | – Deferred | | | 16 | | 93 | | (23 | ) |
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| | | | | 912 | | 777 | | 146 | |
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| | Total taxation charge | | | 2,373 | | 1,814 | | 619 | |
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| | – Current | | | 2,427 | | 1,713 | | 679 | | – Deferred | 18 | | (54 | ) | 101 | | (60 | ) |
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(a) | Some tax recognised by subsidiary holding companies is presented in these accounts as part of the tax charge on the profits of the joint ventures and associates to which it relates. | (b) | A benefit of US$34335 million was recognised in 2003 (2002:2006 (2005: US$20 million, 2001:million; 2004: US$4115 million) for US AMT credits and operating losses that are expected to be recovered in future years. Of this benefit US$nil (2005: US$20 million; 2004: US$5 million) is included within 'UK taxation' and US$335 million (2005: US$nil; 2004: US$10 million) within 'Other countries'. | | |
| 2006 | | 2005 | | 2004 | | | US$m | | US$m | | US$m | |
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| | Prima facie tax reconciliation | | | | | | | Profit before taxation | 10,240 | | 7,312 | | 3,863 | | Deduct: share of profit after tax of equity accounted units | (1,378 | ) | (776 | ) | (523 | ) |
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| | Parent companies' and subsidiaries' profit before tax | 8,862 | | 6,536 | | 3,340 | | Prima facie tax payable at UK and Australian rate of 30% | 2,659 | | 1,961 | | 1,002 | | Impact of items excluded in arriving at underlying earnings (e) | 201 | | (102 | ) | (309 | ) | Other permanent differences | | | | | | | Additional recognition of deferred tax assets (b) | (335 | ) | — | | — | | Utilisation of previously unrecognised deferred tax assets | (140 | ) | (83 | ) | (50 | ) | Adjustments to deferred tax liabilities following changes in tax rates (c) | (46 | ) | — | | — | | Other tax rates applicable outside the UK and Australia (d) | 242 | | 214 | | 64 | | Resource depletion and other depreciation allowances | (187 | ) | (164 | ) | (87 | ) | Research, development and other investment allowances | (21 | ) | (21 | ) | (7 | ) | Other | — | | 9 | | 6 | |
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| | Total taxation charge | 2,373 | | 1,814 | | 619 | |
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(b) | The "Additional recognition of deferred tax assets" of US$335 million reflects improved prospects for future earnings from the Group's US operations | (c) | Adjustments of prior year accruals reduced the totalThe "Adjustments to deferred tax charge for the Group byliabilities following changes in tax rates", totalling US$2846 million, (2002: US$16 million). result from a reduction in Canadian tax rates. | (d) | The 2003 tax charge was reduced by US$11 million (US$8 million excluding outside shareholder interests) asreconciliations for all years analyse US tax on a result of the proposed entry into the Australianregular tax consolidation regime with effect from 1 January 2003.basis. Previously, US taxes were analysed on an AMT basis. The presentation for 2005 and 2004 has been restated accordingly. |
A-20
Back to Contents Notes to the 2006 Financial statements 8 | TAX ON PROFIT CONTINUED | | | (e) | The deferredAn analysis of the impact on the tax relief on exceptional charges primarilyreconciliation of items excluded in arriving at Underlying earnings is given below: |
| 2006 | | 2005 | | 2004 | | | US$m | | US$m | | US$m | |
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| | Disposals of interests in businesses | — | | (86 | ) | (336 | ) | Impairment charges and reversals | 157 | | (1 | ) | 50 | | Adjustment to environmental remediation provision | (11 | ) | (26 | ) | — | | Exchange gains / losses on external debt, intragroup balances and derivatives not designated as hedges | 55 | | 11 | | (23 | ) |
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| | | 201 | | (102 | ) | (309 | ) |
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(f) | This tax reconciliation relates to ‘Other countries’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; 2004: US$262 million). | (f) |
9 | A current tax charge of US$194 million (2002: charge of US$48 million, 2001: relief of US$58 million) and a deferred tax charge of US$162 million (2002: charge of US$13 million, 2001: relief of US$11 million) were dealt withEARNINGS PER ORDINARY SHARE |
| 2006 | | 2005 | | 2004 | |
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| | Weighted average number of ordinary shares in issue (millions) (b) | 1,333.4 | | 1,364.1 | | 1,379.2 | | Effect of dilutive securities (share options) | 5.4 | | 4.4 | | 2.2 | |
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| | Diluted weighted average number of ordinary shares in issue (millions) (b) | 1,338.8 | | 1,368.5 | | 1,381.4 | |
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| | Net earnings (US$m) | 7,438 | | 5,215 | | 3,297 | | | | | | | | | Basic earnings per share attributable to ordinary shareholders of Rio Tinto (US cents) | 557.8 | | 382.3 | | 239.1 | | Diluted earnings per share attributable to ordinary shareholders of Rio Tinto (US cents) | 555.6 | | 381.1 | | 238.7 | |
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| | Underlying earnings (US$m) | 7,338 | | 4,955 | | 2,272 | | | | | | | | | Basic underlying earnings per share attiributable to ordinary shareholders of Rio Tinto (US cents) | 550.3 | | 363.2 | | 164.8 | | Diluted underlying earnings per share attributable to ordinary shareholders of Rio Tinto (US cents) | 548.1 | | 362.1 | | 164.5 | |
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(a) | Underlying earnings per share are calculated from underlying earnings, detailed information on which is given in the Statement of Total Recognised Gains and Losses ('STRGL'). These tax charges relate to exchange gains and losses which are themselves dealt with in the STRGL.note 2. | (g)(b) | The Group's effective tax rate for 2003, including exceptional items,weighted average number of shares is 27.1 per cent (2002: 54.0 per cent, 2001: 36.2 per cent). Excluding exceptional items (for whichcalculated as the tax rates were substantially different from those applying to routine transactions)average number of Rio Tinto plc shares outstanding not held as treasury shares (1,047.7 million) plus the underlying effective tax rate was 28.8 per cent (2002: 31.2 per cent, 2001: 31.5 per cent). | (h) | Tax paid during the year,average number of US$917 million, includes an amount of US$106 million relating to the disputed tax assessment from the Australian Tax Office described in note 29. The amount paid has been recorded as a receivable in these accounts because the Directors believe that the relevant tax assessments areRio Tinto Limited shares outstanding not sustainable. Tax payments also include amounts related to exchange gains on US dollar debt, which are recorded directly in the Statement of total recognised gains and losses. | (i) | 'Other' impacts on the current tax charge include the benefit of reduced Alternative Minimum Tax payable in the United States. | (j) | Other deferred tax items' include benefits from adjustment of prior year accruals (see (c) above) and from Australian tax consolidation (see (d) above)held by Rio Tinto plc (285.7 million). |
8 Dividends | | | | | | | | | | | | | | | | 2003 | | | | 2002 | | | | 2001 | | | | |
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| | | | | US$m | | | | US$m | | | | US$m | | Rio Tinto plc Ordinary Interim dividend | | | 320 | | | | 314 | | | | 213 | | Rio Tinto plc Ordinary Final dividend | | | 363 | | | | 325 | | | | 415 | | | | |
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| | | | | 683 | | | | 639 | | | | 628 | | | | |
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| | Rio Tinto Limited Ordinary Interim dividend | | | 150 | | | | 146 | | | | 100 | | Rio Tinto Limited Ordinary Final dividend | | | 170 | | | | 153 | | | | 194 | | Less dividends paid to Rio Tinto plc (e) | | | (121 | ) | | | (112 | ) | | | (110 | ) | | | |
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| | Rio Tinto Limited dividends paid to public shareholders (b) | | | 199 | | | | 187 | | | | 184 | | | | |
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| | Total dividends paid to public shareholders | | | 882 | | | | 826 | | | | 812 | | | | |
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| | | | | | | | | | | | | | | | 2003 | | 2002 | | 2001 | | 2003 | | 2002 | | 2001 | | |
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| | | Rates per share | | Number of shares | | | | | | | | | (millions) | | Rio Tinto plc Interim (pence) | 18.45 | p | 18.87 | p | 14.03 | p | 1,066.1 | | 1,065.4 | | 1,064.5 | | Rio Tinto plc Final (pence) | 18.68 | p | 18.60 | p | 27.65 | p | 1,066.7 | | 1,065.5 | | 1,064.6 | | |
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| | | | | | | | | 37.13 | p | 37.47 | p | 41.68 | p | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | Rio Tinto Limited Interim - fully franked at 30% (Australian Cents) | 45.02 | c | 54.06 | c | 39.42 | c | 499.0 | | 498.8 | | 498.3 | | Less shares held by Rio Tinto plc | | | | | | | (187.4 | ) | (187.4 | ) | (187.4 | ) | | | | | | | |
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| | Shares held by public shareholders (b) | | | | | | | 311.6 | | 311.4 | | 310.9 | | | | | | | | |
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| | Rio Tinto Limited Final - fully franked at 30% (Australian Cents) | 44.68 | c | 51.87 | c | 75.85 | c | 499.0 | | 498.8 | | 498.4 | | Less shares held by Rio Tinto plc | | | | | | | (187.4 | ) | (187.4 | ) | (187.4 | ) | |
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| | | 89.70 | c | 105.93 | c | 115.27 | c | | | | | | | |
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| | | | | | | | Shares held by public shareholders (b) | | | | | | | 311.6 | | 311.4 | | 311.0 | | | | | | | | |
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A-21
Back to Contents Notes to the 2006 Financial statements | 2006 | | 2005 | | 2004 | | | US$m | | US$m | | US$m | |
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| | Rio Tinto plc previous year Final dividend paid | 442 | | 481 | | 363 | | Rio Tinto plc previous year Special dividend paid | 1,171 | | — | | — | | Rio Tinto plc Interim dividend paid | 417 | | 412 | | 341 | | Rio Tinto Limited previous year Final dividend paid (b) | 118 | | 140 | | 106 | | Rio Tinto Limited previous year Special dividend paid (b) | 312 | | — | | — | | Rio Tinto Limited Interim dividend paid (b) | 113 | | 110 | | 100 | |
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| | Dividends paid during the year | 2,573 | | 1,143 | | 910 | |
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| 2006 | | 2005 | | 2004 | | 2006 | | 2005 | | 2004 | | | Dividends | | Dividends | | Dividends | | Number | | Number | | Number | | | per share | | per share | | per share | | of shares | | of shares | | of shares | | | | | | | | | (millions) | | (millions) | | (millions) | |
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| | Rio Tinto plc previous year Finaland Special (b) | 85.24 | p | 23.94 | p | 18.68 | p | 1,063.9 | | 1,068.0 | | 1,066.7 | | Rio Tinto plc Interim (b) | 21.42 | p | 21.75 | p | 17.54 | p | 1,042.7 | | 1,069.3 | | 1,067.5 | | Rio Tinto Limited previous year Final and Special – fully franked at 30% (b) | 200.28 | c | 58.29 | c | 44.68 | c | 285.7 | | 311.9 | | 311.6 | | Rio Tinto Limited Interim – fully franked at 30% (b) | 52.48 | c | 50.56 | c | 45.53 | c | 285.7 | | 285.4 | | 311.7 | |
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(a) | The 2003 dividends have beenpaid in 2006 are based on the following US cents per share amounts: 2005 final– 41.5 cents, 2005 special– 110 cents, 2006 interim– 40.0 cents (2005 dividends paid: 2004 final– 45.0 cents, 2005 interim– 38.5 cents; 2004 dividends paid: 2003 final– 34.0 cents, 2004 interim - 30.0 cents, final - 34.0 cents.32.0 cents). | (b) | For the Group accounts, theThe number of shares on which the Rio Tinto Limited dividends are based excludes those shares held by Rio Tinto plc, in order that the dividends shown represent those paid to public shareholders. The number of shares on which Rio Tinto plc dividends are based exclude those held as treasury shares. | (c) | In addition, the directors of Rio Tinto announced a final dividend of 64.0 cents per share on 1 February 2007. This is expected to result in payments of US$0.9 billion (Rio Tinto plc: US$0.7 billion, Rio Tinto Limited US$0.2 billion). The dividends will be paid on 13 April 2007 to Rio Tinto plc shareholders on the register at the close of business on 9 March 2007 and to Rio Tinto Limited shareholders on the register at the close of business on 14 March 2007. | (d) | The proposed Rio Tinto Limited dividends will be franked out of existing franking credits or out of franking credits arising from the payment of income tax during 2004.2007. | (d)(e) | It is expected that Rio Tinto Limited will be forming a tax consolidated group in Australia with effect from 1 January 2003. As a consequence, franking credits of the wholly owned subsidiaries are transferred to the parent entity, Rio Tinto Limited. The approximate amount of the Rio Tinto Limited consolidated tax consolidated groupgroup's retained profits and reserves that could be distributed as dividends and franked out of the existing credits, whichthat arose from net payments of income tax in respect of periods up to 31 December 20032006 (after deducting franking credits expected to be utilised on the proposed2006 final dividend)dividend declared), is US$2,0424,470 million. | (e) | In addition, Rio Tinto Limited paid a dividend of US$164 million (2002: US$146 million) to Rio Tinto plc on the DLC Dividend Share. |
A-16A-22
Back to Contents RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements
| 2006 | | 2005 | | | US$m | | US$m | |
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| | Net book value | | | | | At 1 January | 1,020 | | 1,075 | | Adjustment on currency translation | 49 | | (46 | ) | Additions | — | | 5 | | Disposals | (5 | ) | — | | Impairment charges | (223 | ) | (14 | ) |
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| | At 31 December | 841 | | 1,020 | |
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| | – cost | 1,077 | | 1,034 | | – accumulated impairment | (236 | ) | (14 | ) |
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| | At 1 January 2005 | | | | |
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| | – cost | | | 1,075 | | – accumulated impairment | | | — | |
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Impairment Tests for Goodwill Goodwill is reviewed annually for impairment. The amounts as at 31 December 2006 disclosed above include goodwil relating to Australian Iron Ore of US$394 million and goodwill of US$231 million relating to Rio Tinto Energy America (RTEA). Australian Iron Ore comprises the business units located in the Pilbara region of Western Australia that mine iron ore, namely Robe River and Hamersley Iron. The recoverable amounts of the goodwill relating to Australian Iron Ore and RTEA have been assessed by reference to value in use. The valuations are based on cash flow projections that incorporate best estimates of selling prices, ore grades, production rates, future capital expenditure and production costs over the life of each mine. In line with normal practice in the mining industry, the cash flow projections are based on long term mine plans covering the expected life of each operation. The projections therefore generally cover periods well in excess of five years. The valuations are particularly sensitive to changes in assumptions about selling prices, operating costs, exchange rates, and discount rates. Future selling prices and operating costs have been estimated in line with the policy in note 1(i). Long term average selling prices are forecast taking account of estimates of the costs of the producers in each industry sector. To the extent that future coal sales are subject to fixed price contracts, such contracted prices are used. Forecasts of operating costs are based on detailed mine plans which take account of all relevant characteristics of the ore body. Exchange rate assumptions are based on the spot rates as of the time of the annual goodwill impairment review. For the Australian dollar, an exchange rate US$0.76 was used. Discount rates represent an estimate of the rate the market would apply having regard to the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted. The Group's weighted average cost of capital is used as a start point for determining the discount rate with appropriate adjustments for the risk profile of the individual cash generating unit. Goodwill relating to Australian Iron Ore and RTEA has been reviewed applying a discount rate of 6.5% to thepost-tax cash flows expressed in real terms. NOTES TO FINANCIAL STATEMENTS - (continued)Impact of Reasonably Possible Changes in Key Assumptions Australian Iron Ore It does not appear that any reasonably possible change in the key assumptions on which Australian Iron Ore's recoverable amount is based would cause its value to fall short of its carrying amount at 31 December 2006.
9 Earnings per ordinary share | | | | | | | | | | | | | | | | | | | | Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | | | part of Rio Tinto Group | | part of Rio Tinto Group | | Rio Tinto Group | | |
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| | | 2003 | | 2002 | | 2001 | | 2003 | | 2002 | | 2001 | | 2003 | | 2002 | | 2001 | | |
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| | Average number of ordinary shares in issue | | | | | | | | | | | | | | | | | | | (million) (b) | 1,066 | | 1,065 | | 1,064 | | 499 | | 499 | | 498 | | 1,378 | | 1,377 | | 1,375 | | |
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| | Profit for the financial year (US$m) | 956 | | 195 | | 491 | | 884 | | 736 | | 942 | | 1,508 | | 651 | | 1,079 | | Exceptional items (US$m) (note 4) | (47 | ) | 739 | | 551 | | (126 | ) | 225 | | 52 | | (126 | ) | 879 | | 583 | | |
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| | Adjusted earnings (US$m) | 909 | | 934 | | 1,042 | | 758 | | 961 | | 994 | | 1,382 | | 1,530 | | 1,662 | | |
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| | Earnings per ordinary share (US cents) | 89.7 | c | 18.3 | c | 46.1 | c | 177.2 | c | 147.6 | c | 189.0 | c | 109.5 | c | 47.3 | c | 78.5 | c | |
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| | Exceptional items per ordinary share (US cents) | (4.4 | )c | 69.4 | c | 51.8 | c | (25.3 | )c | 45.1 | c | 10.4 | c | (9.2 | )c | 63.9 | c | 42.4 | c | |
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| | Adjusted earnings per ordinary share (US cents) | 85.3 | c | 87.7 | c | 97.9 | c | 151.9 | c | 192.7 | c | 199.4 | c | 100.3 | c | 111.2 | c | 120.9 | c | |
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(a) | Adjusted earnings and adjusted earnings per share exclude exceptional items of such magnitude that their exclusion is necessary in order that adjusted earnings fulfil their purpose of reflecting the underlying performance of the Group. | (b) | For the Rio Tinto Group, the daily average number of ordinary shares in issue of 1,378 million (2002: 1,377 million, 2001: 1,375 million) excludes the Rio Tinto Limited shares held by Rio Tinto plc. | (c) | Diluted earnings per share figures for the Rio Tinto Group are 0.2 US cents (2002: 0.1 US cents, 2001: 0.2 US cents) lower than the earnings per share figures above. The daily average number of ordinary shares used for the calculation is 1,379 million (2002: 1,379 million, 2001: 1,377 million) and excludes the Rio Tinto Limited shares held by Rio Tinto plc. The extra one million shares included in the calculation relate to unexercised share options. | | |
10 | Goodwill | | | | | | | | | | | Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | | part of Rio Tinto Group | | part of Rio Tinto Group | | Rio Tinto Group | | | |
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| | | | 2003 | | 2002 | | 2003 | | 2002 | | 2003 | | 2002 | | | |
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| | | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | | Cost | | | | | | | | | | | | | | At 1 January | 463 | | 465 | | 819 | | 733 | | 1,282 | | 1,198 | | | Adjustment on currency translation | (1 | ) | (2 | ) | 261 | | 78 | | 260 | | 76 | | | Additions (note 35) | 20 | | - | | - | | 8 | | 20 | | 8 | | | |
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| | | At 31 December | 482 | | 463 | | 1,080 | | 819 | | 1,562 | | 1,282 | | | |
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| | | Accumulated amortisation | | | | | | | | | | | | | | At 1 January | (191 | ) | (142 | ) | (76 | ) | (34 | ) | (267 | ) | (176 | ) | | Adjustment on currency translation | - | | 3 | | (30 | ) | (4 | ) | (30 | ) | (1 | ) | | Amortisation for the year | (34 | ) | (52 | ) | (42 | ) | (38 | ) | (76 | ) | (90 | ) | | Other movements | (4 | ) | - | | - | | - | | (4 | ) | - | | | |
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| | | At 31 December | (229 | ) | (191 | ) | (148 | ) | (76 | ) | (377 | ) | (267 | ) | | |
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| | | Net balance sheet amount | 253 | | 272 | | 932 | | 743 | | 1,185 | | 1,015 | | | |
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(a) | Goodwill is being amortised over the economic lives of the relevant business units, which involves periods ranging from four to 40 years with a weighted average of around 26 years. |
RTEA The recoverable amount of goodwill relating to RTEA is similar to its carrying value at 31 December 2006. Thus, any significant adverse change in the valuation assumptions would cause its carrying value to exceed its recoverable amount. Other Under IAS 36, goodwill is no longer amortised but is reviewed annually for impairment. The Group's business relates to the mining and processing of finite resources and it is therefore likely that impairments of certain elements of the goodwill may occur at some stage in the future as resources are depleted. For this reason, the value of the goodwill related to RTEA is likely to fall short of its carrying value in the near future. A-17A-23
Back to Contents RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements
NOTES TO FINANCIAL STATEMENTS - (continued)
11 Exploration and evaluation | | | | | | | | | | | | | | Rio Tinto plc - part of Rio Tinto Group | | Rio Tinto Limited - part of Rio Tinto Group | | Rio Tinto Group | |
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| 2003 | | 2002 | 2003 | | 2002 | 2003 | | 2002 |
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| US$m | US$m | US$m | US$m | US$m | US$m | At cost less amounts written off | | | | | | | | | | | | | At 1 January | 355 | | 338 | | 339 | | 340 | | 694 | | 678 | | Adjustment on currency translation | 1 | | (9 | ) | 118 | | 34 | | 119 | | 25 | | Expenditure in year | 88 | | 89 | | 42 | | 35 | | 130 | | 124 | | Charged against profit for the year | (48 | ) | (47 | ) | 1 | | (3 | ) | (47 | ) | (50 | ) | Disposals, transfers and other movements | (24 | ) | (16 | ) | (38 | ) | (67 | ) | (62 | ) | (83 | ) | |
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| | At 31 December | 372 | | 355 | | 462 | | 339 | | 834 | | 694 | | |
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| | | | | | | | | | | | | | | Provision | | | | | | | | | | | | | At 1 January | (350 | ) | (331 | ) | (287 | ) | (292 | ) | (637 | ) | (623 | ) | Adjustment on currency translation | - | | 9 | | (104 | ) | (31 | ) | (104 | ) | (22 | ) | Charged against profit for the year | (42 | ) | (47 | ) | (38 | ) | (33 | ) | (80 | ) | (80 | ) | Disposals, transfers and other movements | 22 | | 19 | | 34 | | 69 | | 56 | | 88 | | |
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| | At 31 December | (370 | ) | (350 | ) | (395 | ) | (287 | ) | (765 | ) | (637 | ) | |
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| | | | | | | | | | | | | | | Net balance sheet amount | 2 | | 5 | | 67 | | 52 | | 69 | | 57 | | |
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| Exploration | | Other | | | | | and | | intangible | | Total | | Year ended 31 December 2006 | evaluation (a) | | assets (a) | | US$m | |
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| | Net book value | | | | | | | At 1 January 2006 | 113 | | 107 | | 220 | | Adjustment on currency translation | 5 | | 10 | | 15 | | Expenditure during year | 72 | | 118 | | 190 | | Amortisation for the year | — | | (27 | ) | (27 | ) | Disposals, transfers and other movements | 6 | | (20 | ) | (14 | ) |
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| | At 31 December 2006 | 196 | | 188 | | 384 | |
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| | – cost | 196 | | 310 | | 506 | | – accumulated amortisation | — | | (122 | ) | (122 | ) |
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| Exploration | | Other | | | | | and | | intangible | | Total | | Year ended 31 December 2005 | evaluation | | assets | | US$m | |
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| | Net book value | | | | | | | At 1 January 2005 | 91 | | 98 | | 189 | | Adjustment on currency translation | (5 | ) | (4 | ) | (9 | ) | Expenditure during year | 38 | | 29 | | 67 | | Amortisation for the year | — | | (19 | ) | (19 | ) | Disposals, transfers and other movements | (11 | ) | 3 | | (8 | ) |
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| | At 31 December 2005 | 113 | | 107 | | 220 | |
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| | – cost | 113 | | 327 | | 440 | | – accumulated amortisation | — | | (220 | ) | (220 | ) |
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| | At 1 January 2005 | | | | | | |
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| | – cost | 91 | | 305 | | 396 | | – accumulated amortisation | — | | (207 | ) | (207 | ) |
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(a) | All of the net book value is related to intangible assets with finite lives. The totalfollowing useful lives have been determined for the classes of US$127 million (2002: US$130 million) charged against profitintangible assets: | | | Exploration and evaluation: useful life not determined until transferred to property, plant & equipment | | | Other intangible assets: 2 to 20 years | (b) | There are no intangible assets either pledged as security or held under restriction of title. | (c) | The estimated aggregate amortisation expense for each of the next five years is generally consistent with that recognised in respect of exploration and evaluation includes US$47 million (2002: US$50 million) written off cost and an increase in the provision of US$80 million (2002: US$80 million).2006. |
Exploration and evaluation expenditure The charge for the year and the net amount of intangible assets capitalised during the year are as follows: 12 Property, plant and equipment | | | | | | | | | | | | | | Mining properties and leases | | Land and buildings | | Plant and equipment | | Capital works in progress | | 2003 Total | | 2002 Total | |
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| | | | | US$m | US$m | Rio Tinto Group | | | | | | | | | | | | | Cost | | | | | | | | | | | | | At 1 January | 4,002 | | 2,867 | | 14,567 | | 1,891 | | 23,327 | | 20,777 | | Adjustment on currency translation | 947 | | 438 | | 2,480 | | 408 | | 4,273 | | 1,261 | | Capitalisation of additional closure costs (note 20) | 167 | | - | | - | | - | | 167 | | 55 | | Other additions | 124 | | 66 | | 404 | | 868 | | 1,462 | | 1,617 | | Disposals | (48 | ) | (130 | ) | (271 | ) | - | | (449 | ) | (548 | ) | Subsidiaries acquired/newly consolidated | - | | - | | 3 | | - | | 3 | | 120 | | Subsidiaries sold | (84 | ) | (10 | ) | (77 | ) | (14 | ) | (185 | ) | - | | Transfers and other movements | 284 | | 292 | | 836 | | (1,414 | ) | (2 | ) | 45 | | |
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| | At 31 December | 5,392 | | 3,523 | | 17,942 | | 1,739 | | 28,596 | | 23,327 | | |
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| | | | | | | | | | | | | | | Accumulated depreciation | | | | | | | | | | | | | At 1 January | (1,076 | ) | (1,297 | ) | (8,636 | ) | (135 | ) | (11,144 | ) | (9,265 | ) | Adjustment on currency translation | (272 | ) | (210 | ) | (1,404 | ) | - | | (1,886 | ) | (573 | ) | Depreciation for the year | (192 | ) | (110 | ) | (628 | ) | - | | (930 | ) | (864 | ) | Exceptional charges | - | | - | | - | | - | | - | | (939 | ) | Disposals | 47 | | 123 | | 249 | | - | | 419 | | 522 | | Subsidiaries acquired/newly consolidated | - | | - | | - | | - | | - | | (34 | ) | Subsidiaries sold | 67 | | 7 | | 74 | | - | | 148 | | - | | Transfers and other movements | 17 | | (53 | ) | 28 | | 1 | | (7 | ) | 9 | | |
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| | At 31 December | (1,409 | ) | (1,540 | ) | (10,317 | ) | (134 | ) | (13,400 | ) | (11,144 | ) | |
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| | Net balance sheet amount at 31 December 2003 | 3,983 | | 1,983 | | 7,625 | | 1,605 | | 15,196 | | | | |
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| | | | Net balance sheet amount at 31 December 2002 | 2,926 | | 1,570 | | 5,931 | | 1,756 | | | | 12,183 | | |
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| 2006 | | 2005 | | | US$m | | US$m | |
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| | Cash expenditure in year (net of proceeds on disposal of undeveloped properties) | 345 | | 264 | | Changes in accruals (including non-cash proceeds on disposal of undeveloped properties) | (36 | ) | 24 | | Amount capitalised during year | (72 | ) | (38 | ) |
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| | Charge for year | 237 | | 250 | |
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A-18A-24
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements
13 | 12PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment (continued) | |
| Mining | | Land | | Plant | | Capital | | | | | properties | | and | | and | | works in | | Total | | Year ended 31 December 2006 | and leases (a) | | buildings | | equipment | | progress (g) | | US$m | |
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| | Net book value | | | | | | | | | | | At 1 January 2006 | 5,224 | | 2,019 | | 8,678 | | 1,699 | | 17,620 | | Adjustment on currency translation | 261 | | 88 | | 411 | | 105 | | 865 | | Capitalisation of additional closure costs (note 26) | 619 | | — | | — | | — | | 619 | | Interest capitalised (b) | 5 | | — | | 3 | | 52 | | 60 | | Other additions | 436 | | 194 | | 986 | | 2,278 | | 3,894 | | Depreciation for the year | (392 | ) | (159 | ) | (891 | ) | — | | (1,442 | ) | Impairment reversals less charges | (166 | ) | 90 | | 752 | | (2 | ) | 674 | | Disposals | (25 | ) | (13 | ) | (50 | ) | (21 | ) | (109 | ) | Transfers and other movements (c) | 165 | | 321 | | 950 | | (1,410 | ) | 26 | |
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| | At 31 December 2006 | 6,127 | | 2,540 | | 10,839 | | 2,701 | | 22,207 | |
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| | – cost | 9,166 | | 4,454 | | 21,553 | | 2,835 | | 38,008 | | – accumulated depreciation | (3,039 | ) | (1,914 | ) | (10,714 | ) | (134 | ) | (15,801 | ) |
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| | Fixed assets held under finance leases (d) | — | | 39 | | 38 | | — | | 77 | | Other fixed assets pledged as security (e) | 35 | | — | | 1,154 | | — | | 1,189 | |
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| Mining | | Land | | Plant | | Capital | | | | | properties | | and | | and | | works in | | Total | | Year ended 31 December 2005 | and leases (a) | | buildings | | equipment | | progress (g) | | US$m | |
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| | Net book value | | | | | | | | | | | At 1 January 2005 | 5,195 | | 2,048 | | 7,854 | | 1,624 | | 16,721 | | Adjustment on currency translation | (206 | ) | (43 | ) | (306 | ) | (52 | ) | (607 | ) | Capitalisation of additional closure costs (note 26) | 346 | | — | | — | | — | | 346 | | Interest capitalised (b) | 2 | | — | | 7 | | 19 | | 28 | | Other additions | 206 | | 60 | | 577 | | 1,650 | | 2,493 | | Depreciation for the year | (406 | ) | (109 | ) | (800 | ) | — | | (1,315 | ) | Impairment charges | — | | (2 | ) | — | | — | | (2 | ) | Disposals | — | | (7 | ) | (39 | ) | — | | (46 | ) | Transfers and other movements (c) | 87 | | 72 | | 1,385 | | (1,542 | ) | 2 | |
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| | At 31 December 2005 | 5,224 | | 2,019 | | 8,678 | | 1,699 | | 17,620 | |
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| | – cost | 7,686 | | 3,824 | | 19,382 | | 1,838 | | 32,730 | | – accumulated depreciation | (2,462 | ) | (1,805 | ) | (10,704 | ) | (139 | ) | (15,110 | ) |
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| | At 1 January 2005 | | | | | | | | | | |
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| | – cost | 7,285 | | 3,809 | | 18,605 | | 1,760 | | 31,459 | | – accumulated depreciation | (2,090 | ) | (1,761 | ) | (10,751 | ) | (136 | ) | (14,738 | ) |
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| | Fixed assets held under finance leases (d) | — | | 16 | | 140 | | — | | 156 | | Other fixed assets pledged as security (e) | 44 | | — | | 804 | | — | | 848 | |
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(a) | The net balance sheet amount at 31 December 2003 includesMining properties include deferred stripping costs of US$243778 million (2002:(2005: US$198699 million) of pledged assets, in addition to assets held under the finance leases disclosed in note 22.. | (b) | Transfers and other movements includes reclassifications between categories. | (c) | Accumulated depreciation on 'Capital works in progress' at 1 January 2003 related to the exceptional charge made in 2002. | (d) | Interest is capitalised at a rate based on the Group's cost of borrowing or at the rate on project specific debt, where applicable. | (c) | 'Transfers and other movements' includes reclassifications between categories. | (d) | The finance leases under which these assets are held are disclosed in note 22. | (e) | During 2002, the Group acquired North Jacob's Ranch forExcludes assets held under finance leases. Fixed assets pledged as security represent amounts pledged as collateral against US$380 million. Payments339 million (2005: US$354 million) of US$76 million were madeloans, which are included in each of 2002 and 2003. The remainder of the consideration, US$228 million, is payable over the next three years.note 21. | (f) | At 31 December, 2003, net tangible assets per share amounted to US$6.38 (31 December 2002: US$4.64). |
| | | | | | | | | | | | | | Mining properties and leases | | Land and buildings
| | Plant and equipment | | Capital works in progress | | 2003 Total | | 2002 Total | | |
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| Rio Tinto plc - part of Rio Tinto Group | | | | | US$m | US$m | Cost | | | | | | | | | | | | | At 1 January | 1,323 | | 1,655 | | 6,470 | | 1,070 | | 10,518 | | 9,792 | | Adjustment on currency translation | 78 | | 46 | | 291 | | 128 | | 543 | | 152 | | Capitalisation of additional closure costs (note 20) | 67 | | - | | - | | - | | 67 | | 24 | | Other additions | 93 | | 48 | | 234 | | 110 | | 485 | | 964 | | Disposals | (47 | ) | (114 | ) | (160 | ) | - | | (321 | ) | (433 | ) | Subsidiaries acquired/newly consolidated | - | | - | | 3 | | - | | 3 | | - | | Transfers and other movements | 277 | | 220 | | 643 | | (1,148 | ) | (8 | ) | 19 | | |
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| | At 31 December | 1,791 | | 1,855 | | 7,481 | | 160 | | 11,287 | | 10,518 | | |
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| | | | | | | | | | | | | | | Accumulated depreciation | | | | | | | | | | | | | At 1 January | (341 | ) | (711 | ) | (3,903 | ) | - | | (4,955 | ) | (4,469 | ) | Adjustment on currency translation | (16 | ) | (15 | ) | (152 | ) | - | | (183 | ) | (21 | ) | Depreciation for the year | (47 | ) | (50 | ) | (254 | ) | - | | (351 | ) | (371 | ) | Exceptional charges | - | | - | | - | | - | | - | | (506 | ) | Disposals | 44 | | 112 | | 149 | | - | | 305 | | 422 | | Transfers and other movements | 15 | | (21 | ) | (2 | ) | - | | (8 | ) | (10 | ) | |
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| | At 31 December | (345 | ) | (685 | ) | (4,162 | ) | - | | (5,192 | ) | (4,955 | ) | |
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| | Net balance sheet amount at 31 December 2003 | 1,446 | | 1,170 | | 3,319 | | 160 | | 6,095 | | | | |
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| | | | Net balance sheet amount at 31 December 2002 | 982 | | 944 | | 2,567 | | 1,070 | | | | 5,563 | | |
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(a) | Thethe net balance sheet amount at 31 December 2003for land and buildings includes US$25 million (2002: US$24 million) of pledged assets, in addition to assets held under the finance leases disclosed in note 22.amounts as follows: |
| | | | | | | | | | | | | | Mining properties and leases | | Land and buildings | | Plant and equipment | | Capital works in progress | | 2003 Total | | 2002 Total | | |
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| Rio Tinto Limited - part of Rio Tinto Group | | | | | US$m | US$m | Cost | | | | | | | | | | | | | At 1 January | 2,679 | | 1,212 | | 8,091 | | 821 | | 12,803 | | 10,985 | | Adjustment on currency translation | 869 | | 392 | | 2,189 | | 280 | | 3,730 | | 1,109 | | Capitalisation of additional closure costs (note 20) | 100 | | - | | - | | - | | 100 | | 31 | | Other additions | 31 | | 18 | | 170 | | 758 | | 977 | | 653 | | Disposals | (1 | ) | (16 | ) | (111 | ) | - | | (128 | ) | (115 | ) | Subsidiaries acquired/newly consolidated | - | | - | | - | | - | | - | | 120 | | Subsidiaries sold | (84 | ) | (10 | ) | (77 | ) | (14 | ) | (185 | ) | (6 | ) | Transfers and other movements | 7 | | 72 | | 193 | | (266 | ) | 6 | | 26 | | |
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| | At 31 December | 3,601 | | 1,668 | | 10,455 | | 1,579 | | 17,303 | | 12,803 | | |
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| | | | | | | | | | | | | | | Accumulated depreciation | | | | | | | | | | | | | At 1 January | (735 | ) | (586 | ) | (4,733 | ) | (135 | ) | (6,189 | ) | (4,796 | ) | Adjustment on currency translation | (256 | ) | (195 | ) | (1,252 | ) | - | | (1,703 | ) | (552 | ) | Depreciation for the year | (145 | ) | (60 | ) | (374 | ) | - | | (579 | ) | (493 | ) | Exceptional charges | - | | - | | - | | - | | - | | (433 | ) | Disposals | 3 | | 11 | | 100 | | - | | 114 | | 100 | | Subsidiaries acquired/newly consolidated | - | | - | | - | | - | | - | | (34 | ) | Subsidiaries sold | 67 | | 7 | | 74 | | - | | 148 | | - | | Transfers and other movements | 2 | | (32 | ) | 30 | | 1 | | 1 | | 19 | | |
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| | At 31 December | (1,064 | ) | (855 | ) | (6,155 | ) | (134 | ) | (8,208 | ) | (6,189 | ) | |
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| | Net balance sheet amount at 31 December 2003 | 2,537 | | 813 | | 4,300 | | 1,445 | | 9,095 | | | | |
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| | | | Net balance sheet amount at 31 December 2002 | 1,944 | | 626 | | 3,358 | | 686 | | | | 6,614 | | |
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(a) | The net balance sheet amount at 31 December 2003 includes US$218 million (2002: US$174 million) of pledged assets in addition to assets held under the finance leases disclosed in note 22. |
| | 2006 | | 2005 | | | | US$m | | US$m | |
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| | | Freehold | 2,445 | | 1,889 | | | Long leasehold | 92 | | 128 | | | Short leasehold | 3 | | 2 | |
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| | | | 2,540 | | 2,019 | |
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| | (g) | Accumulated depreciation on 'Capital works in progress' at 1 January 2005 relates to an impairment charge made in 2002. | | | | |
A-19A-25
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
12 Property, plant and equipment (continued) | | | | | | | | Rio Tinto plc - part of Rio Tinto Group
| | Rio Tinto Limited - part of Rio Tinto Group | | Rio Tinto Group | |
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| US$m | US$m | US$m | The 2003 net balance sheet amounts for land and buildings include: | | | | | | | Freehold | 1,161 | | 760 | | 1,921 | | Long leasehold | 6 | | 49 | | 55 | | Short leasehold | 3 | | 4 | | 7 | | |
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| | | 1,170 | | 813 | | 1,983 | | |
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Deferred stripping | | Deferred stripping costs which are included in 'Mining properties and leases' and 'Investments in Joint Ventures and Associates' (note 13), are analysed below: | | | | | | | | | | Rio Tinto Group | |
| 2003 | | 2002 | | 2001 |
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| US$m | US$m | US$m | At 1 January | | | | | | | Subsidiaries | 326 | | 292 | | 200 | | Equity accounted operations | 198 | | 175 | | 154 | | |
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| | | 524 | | 467 | | 354 | | |
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| | Adjustment on currency translation | | | | | | | Subsidiaries | 17 | | - | | - | | Equity accounted operations | 3 | | - | | - | | |
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| | | 20 | | - | | - | | |
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| | Net deferral of stripping costs during the year | | | | | | | Subsidiaries | 77 | | 29 | | 86 | | Equity accounted operations | 32 | | 27 | | 33 | | |
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| | | 109 | | 56 | | 119 | | |
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| | Other | | | | | | | Subsidiaries | 21 | | 5 | | 6 | | Equity accounted operations | (3 | ) | (4 | ) | (12 | ) | |
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| | | 18 | | 1 | | (6 | ) | |
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| | Deferred stripping balance carried forward at 31 December | | | | | | | Subsidiaries | 441 | | 326 | | 292 | | Equity accounted operations | 230 | | 198 | | 175 | | |
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| | | 671 | | 524 | | 467 | | |
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| Rio Tinto plc - part of Rio Tinto Group | | Rio Tinto Limited - part of Rio Tinto Group | |
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| 2003 | | 2002 | | 2001 | 2003 | | 2002 | | 2001 |
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| US$m | US$m | US$m | US$m | US$m | US$m | At 1 January | | | | | | | | | | | | | Subsidiaries | 260 | | 242 | | 175 | | 66 | | 50 | | 25 | | Equity accounted operations | 218 | | 191 | | 162 | | 8 | | 4 | | 2 | | |
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| | | 478 | | 433 | | 337 | | 74 | | 54 | | 27 | | |
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| | Adjustment on currency translation | | | | | | | | | | | | | Subsidiaries | 2 | | - | | - | | 15 | | - | | - | | Equity accounted operations | 7 | | - | | - | | 3 | | - | | - | | |
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| | | 9 | | - | | - | | 18 | | - | | - | | |
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| | Net deferral of stripping costs during the year | | | | | | | | | | | | | Subsidiaries | 66 | | 13 | | 61 | | 11 | | 16 | | 25 | | Equity accounted operations | 29 | | 31 | | 41 | | 12 | | 4 | | 2 | | |
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| | | 95 | | 44 | | 102 | | 23 | | 20 | | 27 | | |
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| | Other | | | | | | | | | | | | | Subsidiaries | 27 | | 5 | | 6 | | (6 | ) | - | | - | | Equity accounted operations | (3 | ) | (4 | ) | (12 | ) | (3 | ) | - | | - | | |
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| | | 24 | | 1 | | (6 | ) | (9 | ) | - | | - | | |
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| | Deferred stripping balance carried forward at | | | | | | | | | | | | | 31 December | | | | | | | | | | | | | Subsidiaries | 355 | | 260 | | 242 | | 86 | | 66 | | 50 | | Equity accounted operations | 251 | | 218 | | 191 | | 20 | | 8 | | 4 | | |
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| | | 606 | | 478 | | 433 | | 106 | | 74 | | 54 | | |
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A-20
BackNotes to Contents
RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
13 | Fixed asset investments | | |
| Investments in joint ventures | | Loans to joint ventures | | Investments in associates/ other | | Loans to associates | | 2003 Total | | 2002 Total | | |
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| | | | | | | | | | | US$m | | US$m | | Rio Tinto Group | | | | | | | | | | | | | At 1 January | 1,744 | | 177 | | 580 | | 76 | | 2,577 | | 2,290 | | Adjustment on currency translation | 255 | | 5 | | 23 | | - | | 283 | | 83 | | Group’s share of earnings net of distributions (excl.exceptional charges) | 15 | | - | | (3 | ) | - | | 12 | | 21 | | Exceptional charges | - | | - | | - | | - | | - | | (39 | ) | Additions (excluding acquisitions) | 122 | | - | | 13 | | - | | 135 | | 184 | | Acquisitions (note 35) | - | | - | | - | | - | | - | | 8 | | Disposals and repayments of advances | (78 | ) | (10 | ) | (93 | ) | (73 | ) | (254 | ) | (17 | ) | Transfers and other movements | (7 | ) | - | | (5 | ) | (1 | ) | (13 | ) | 47 | | |
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| | At 31 December | 2,051 | | 172 | | 515 | | 2 | | 2,740 | | 2,577 | | |
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| Investments in joint ventures | | Loans to joint ventures | | Investments in associates/ other | | Loans to associates | | 2003 Total | | 2002 Total | | |
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| | | | | | | | | | | US$m | | US$m | | Rio Tinto plc - part of Rio Tinto Group | | | | | | | | | | | | | At 1 January | 881 | | 161 | | 1,407 | | 86 | | 2,535 | | 2,282 | | Adjustment on currency translation | - | | - | | 546 | | - | | 546 | | 153 | | Group’s share of earnings net of distributions (excl. exceptional charges) | 52 | | - | | 141 | | - | | 193 | | 209 | | Exceptional charges | - | | - | | - | | - | | - | | (124 | ) | Additions (excluding acquisitions) | 33 | | - | | 807 | | 12 | | 852 | | 69 | | Acquisitions (note 35) | - | | - | | - | | - | | - | | 11 | | Disposals and repayments of advances | - | | (10 | ) | (308 | ) | - | | (318 | ) | (59 | ) | Transfers and other movements | (3 | ) | - | | (4 | ) | (7 | ) | (14 | ) | (6 | ) | |
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| | At 31 December | 963 | | 151 | | 2,589 | | 91 | | 3,794 | | 2,535 | | |
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| Investments in joint ventures | | Loans to joint ventures | | Investments in associates/ other | | Loans to associates | | 2003 Total | | 2002 Total | | |
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| | | | | | | | | | | US$m | | US$m | | Rio Tinto Limited - part of Rio Tinto Group | | | | | | | | | | | | | At 1 January | 863 | | 16 | | 126 | | 67 | | 1,072 | | 824 | | Adjustment on currency translation | 255 | | 5 | | 8 | | (1 | ) | 267 | | 74 | | Group’s share of earnings net of distributions | (37 | ) | - | | 8 | | - | | (29 | ) | 5 | | Additions (excluding acquisitions) | 89 | | - | | - | | - | | 89 | | 113 | | Acquisitions (note 35) | - | | - | | - | | - | | - | | 8 | | Disposals and repayments of advances | (78 | ) | - | | (89 | ) | (66 | ) | (233 | ) | (7 | ) | Transfers and other movements | (4 | ) | - | | 9 | | - | | 5 | | 55 | | |
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| | At 31 December | 1,088 | | 21 | | 62 | | - | | 1,171 | | 1,072 | | |
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(a) | The Group’s investments in joint ventures and associates include, where appropriate, entry premiums on acquisition plus interest capitalised by the Group during the development period of the relevant mines. At 31 December 2003, this capitalised interest less accumulated amortisation amounted to US$12 million (2002: US$13 million). | (b) | In 2002, 'Transfers and other movements' included US$55 million in relation to the revision to fair values relating to assets held for resale. | (c) | The cash flow statement analyses additions to joint ventures and associates between the following:-
'Funding of Group share of joint ventures' and associates’ capital expenditure', which reports cash supplied by the Group for the formation of new operating assets whose benefits will be attributable to the Group; and
'Other funding of joint ventures and associates' which includes any financial investment in joint ventures and associates that does not have the above characteristics, and all loan repayments.
| (d) | Investments in and loans to associates by the Rio Tinto plc part of the Group include amounts relating to Rio Tinto Limited which are eliminated in arriving at the Rio Tinto Group figures. | (e) | Further details of investments in joint ventures and associates are set out on page A-22 and in notes 14, 32 and 33. | | A-21 |
Back to Contents
RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
13 | Fixed asset investments (continued) | | |
| Rio Tinto plc - | | Rio Tinto Limited - | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | 2003 | | 2002 | 2003 | | 2002 |
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| US$m | US$m | US$m | US$m | US$m | US$m | Joint Ventures | | | | | | | Rio Tinto's share of assets | | | | | | | | | | | | | Fixed assets | 1,573 | | 1,640 | | 1,195 | | 1,118 | | 2,768 | | 2,758 | | Current assets | 272 | | 117 | | 193 | | 234 | | 465 | | 351 | | |
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| | | 1,845 | | 1,757 | | 1,388 | | 1,352 | | 3,233 | | 3,109 | | Rio Tinto's share of third party liabilities | | | | | | | | | | | | | Liabilities due within one year | (200 | ) | (124 | ) | (112 | ) | (171 | ) | (312 | ) | (295 | ) | Liabilities due after more than one year (including provisions) | (531 | ) | (591 | ) | (167 | ) | (302 | ) | (698 | ) | (893 | ) | |
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| | | (731 | ) | (715 | ) | (279 | ) | (473 | ) | (1,010 | ) | (1,188 | ) | | | | | | | | | | | | | | Rio Tinto's share of net assets | 1,114 | | 1,042 | | 1,109 | | 879 | | 2,223 | | 1,921 | | |
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(a) | The Group's share of joint venture liabilities set out above excludes US $172 million (2002: US$177 million) due to the Group. These excluded liabilities correspond with the loans to joint ventures that are presented earlier in this note as an asset of the Group. Including these loans, the Group's share of the total liabilities of joint ventures was US$1,182 million (2002: US$1,365 million). | (b) | Of the US$ 698 million of liabilities due after more than one year, US$436 million relates to long term debt, which matures as follows: US$ 120 million between one to two years; US$92 million between two to three years; US$97 million between three to four years; US$111 million between four to five years and US$16 million after five years. | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Rio Tinto plc - | | Rio Tinto Limited - | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | 2003 | | 2002 | 2003 | | 2002 |
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| US$m | US$m | US$m | US$m | US$m | US$m | Associates | | | | | | | | Rio Tinto's share of assets | | | | | | | | | | | | | Fixed assets | 5,132 | | 4,352 | | 182 | | 349 | | 1,083 | | 1,512 | | Current assets/(liabilities) | 1,197 | | 944 | | (15 | ) | 66 | | 327 | | 297 | | |
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| | | 6,329 | | 5,296 | | 167 | | 415 | | 1,410 | | 1,809 | | Rio Tinto's share of third party liabilities | | | | | | | | | | | | | Liabilities due within one year | (1,423 | ) | (1,607 | ) | (20 | ) | (78 | ) | (214 | ) | (345 | ) | Liabilities due after more than one year (including provisions) | (2,300 | ) | (1,961 | ) | (104 | ) | (162 | ) | (733 | ) | (789 | ) | |
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| | | (3,723 | ) | (3,568 | ) | (124 | ) | (240 | ) | (947 | ) | (1,134 | ) | Non equity capital and outside shareholders' interests | (515 | ) | (314 | ) | - | | - | | (42 | ) | (105 | ) | |
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| | Rio Tinto's share of net assets | 2,091 | | 1,414 | | 43 | | 175 | | 421 | | 570 | | |
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(a) | The Group's share of associate liabilities set out above excludes US$2 million (2002: US$76 million) due to the Group. These excluded liabilities correspond with the loans to associates that are presented earlier in this note as an asset of the Group. Including these loans, the Group's share of the total liabilities of associates was US$949 million (2002: US$ 1,210 million). | (b) | Of the US$ 733 million of liabilities due after more than one year, US$563 million relates to long term debt, which matures as follows: US$44 million between one to two years; US$233 million between two to three years; US$38 million between three to four years; US$32 million between four to five years and US$216 million after 5 years. | | |
| | Rio Tinto plc - | | Rio Tinto Limited - | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | 2003 | | 2002 | 2003 | | 2002 |
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| US$m | US$m | US$m | US$m | US$m | US$m | Investments in and loans to associates/other | | | | | | | | | | | | | Investments in and loans to associates | 2,091 | | 1,414 | | 43 | | 175 | | 421 | | 570 | | Other investments | 589 | | 79 | | 19 | | 18 | | 96 | | 86 | | |
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| | | 2,680 | | 1,493 | | 62 | | 193 | | 517 | | 656 | | |
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(a) | Other investments include listed investments with a market value of US$92 million (2002: US$70 million). The Group owns 20.3 per cent of the Labrador Iron Ore Royalty Income Fund which itself owns 15.1 per cent of Iron Ore Company of Canada Inc. This investment is not equity accounted because the Group has no involvement in its management. | (b) | Further information on the net debt of joint ventures and associates is shown in note 14. | | | A-22 |
Back to Contents
RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)the 2006 Financial statements
14 | Net debt of joint ventures and associatesINVESTMENTS IN EQUITY ACCOUNTED UNITS |
| 2006 | | 2005 | | Summary balance sheet (Rio Tinto share) | US$m | | US$m | |
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| | Rio Tinto's share of assets | | | | | Non-current assets | 3,654 | | 3,248 | | Current assets | 1,029 | | 929 | |
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| | | 4,683 | | 4,177 | |
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| | Rio Tinto's share of liabilities | | | | | Current liabilities | (763 | ) | (706 | ) | Non-current liabilities and provisions | (1,685 | ) | (1,642 | ) |
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| | | (2,448 | ) | (2,348 | ) |
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| | Rio Tinto's share of net assets | 2,235 | | 1,829 | |
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(a) | Further details of investments in jointly controlled entities and associates are set out in notes 36 and 37. | (b) | At 31 December 2006, the quoted value of associates having shares listed on recognised stock exchanges was US$368 million (2005: no such associates). |
| | | Rio Tinto | | | | Rio Tinto | | Rio Tinto | share of | Rio Tinto | share of | interest | net debt | interest | net debt | 2003 | 2003 | 2002 | 2002 |
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| % | US$m | % | US$m | Joint ventures | | | | | | | | | Minera Escondida Limitada | 30.0 | | 414 | | 30.0 | | 464 | | PT Kaltim Prima Coal | - | | - | | 50.0 | | 79 | | Leichhardt | 44.7 | | 31 | | 44.7 | | 40 | | Colowyo | 20.0 | | 32 | | 20.0 | | 35 | | Warkworth | 42.1 | | 34 | | 42.1 | | 26 | | | | | | | | | | | Associates | | | | | | | | | Freeport-McMoRan Copper & Gold Inc. | 13.1 | | 236 | | 16.5 | | 405 | | Minera Alumbrera Limited | - | | - | | 25.0 | | 47 | | Tisand (Pty) Limited | 50.0 | | 121 | | 50.0 | | 62 | | Port Waratah Coal Services | 27.6 | | 114 | | 27.6 | | 103 | | Sociedade Mineira de Neves-Corvo SA (Somincor) | 49.0 | | 37 | | 49.0 | | 28 | | | | | | | | | | | Other | | | (15 | ) | | | 20 | | | | |
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| | | | | 1,004 | | | | 1,309 | | | | |
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15 | NET DEBT OF EQUITY ACCOUNTED UNITS (EXCLUDING AMOUNTS DUE TO RIO TINTO) |
| | | Rio Tinto | | | | Rio Tinto | | | Rio Tinto | | share of | | Rio Tinto | | share of | | | percentage | | net debt | | percentage | | net debt | | | 2006 | | 2006 | | 2005 | | 2005 | | | % | | US$m | | % | | US$m | |
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| | Jointly controlled entities | | | | | | | | | Minera Escondida Limitada | 30.0 | | 300 | | 30.0 | | 260 | | Queensland Alumina Limited (QAL) | 38.6 | | 44 | | 38.6 | | 106 | | Associates | | | | | | | | | Tisand (Pty) Limited | 49.0 | | 100 | | 49.0 | | 119 | | Port Waratah Coal Services | 27.6 | | 122 | | 27.6 | | 91 | | Other equity accounted units | | | (107 | ) | | | (40 | ) |
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| | | | | 459 | | | | 536 | |
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(a) | In accordance with FRS 9,IAS 28 and IAS 31, the Group includes its net investment in joint ventures and associatesequity accounted units in its consolidated balance sheet. This investment is shown net of the Group's share of the net debt of joint ventures and associates due to third parties,such units, which is set out above. | (b) | Some of the debt of joint ventures and associatesequity accounted units is subject to financial and general covenants. | (c) | The Group has a partnership interest in the Colowyo Coal Company and has undertaken, via a subsidiary company which entered into a management agreement, to cause the partnership to perform its obligations under certain coal supply contracts. The debt of US$163 million owed by the Colowyo Coal Company is to be serviced and repaid out of the proceeds of these contracts. | (d) | The Group holds 44.7 per cent of the equity of the Leichhardt joint venture, which has a 31.4 per cent interest in the Blair Athol joint venture. Leichhardt has US$85 million of shareholders' funds and US$70 million of debt finance. | (e) | The debt of joint ventures and associates is without recourse to the Rio Tinto Group except that Rio Tinto plc has guaranteed US$6 million of its share of Somincor's debt. | | |
15 Inventories | | | | | | | | | | | | | | Rio Tinto plc - | Rio Tinto Limited- | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | 2003 | | 2002 | 2003 | | 2002 |
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| | US$m | US$m | US$m | US$m | US$m | US$m | Raw material and purchased components | 205 | | 179 | | 142 | | 168 | | 347 | | 347 | | Consumable stores | 124 | | 108 | | 166 | | 140 | | 290 | | 248 | | Work in progress | 219 | | 148 | | 163 | | 97 | | 382 | | 245 | | Finished goods and goods for resale | 420 | | 379 | | 344 | | 283 | | 764 | | 662 | | |
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| | | 968 | | 814 | | 815 | | 688 | | 1,783 | | 1,502 | | |
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| | Comprising: | | | | | | | | | | | | | Inventories expected to be sold or used within 12 months | 968 | | 814 | | 778 | | 649 | | 1,746 | | 1,463 | | Inventories expected to be neither sold nor used within 12 months | - | | - | | 37 | | 39 | | 37 | | 39 | | |
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| | | 968 | | 814 | | 815 | | 688 | | 1,783 | | 1,502 | | |
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(a) | As reported in the cashflow statement, the increase in inventories during 2003 was US$43 million excluding the effect of exchange rates on translation into US dollars. | | | A-23 |
A-26
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements
16 | Accounts receivable and prepaymentsINVENTORIES | | |
| Rio Tinto plc - | | Rio Tinto Limited - | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | 2003 | | 2002 | 2003 | | 2002 |
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| | US$m | US$m | US$m | US$m | US$m | US$m | Falling due within one year | | | | | | | | | | | | | Trade debtors | 569 | | 589 | | 740 | | 603 | | 1,309 | | 1,192 | | Provision for doubtful debts | (33 | ) | (6 | ) | (10 | ) | (10 | ) | (43 | ) | (16 | ) | Bills receivable | 3 | | 6 | | 10 | | 11 | | 13 | | 17 | | Amounts owed by joint ventures | - | | - | | - | | 5 | | - | | 5 | | Amounts owed by associates | 811 | | 577 | | 1 | | 7 | | 4 | | 17 | | Other debtors | 99 | | 66 | | 268 | | 242 | | 225 | | 181 | | Current tax recoverable | 93 | | 43 | | 9 | | 9 | | 102 | | 52 | | Pension prepayments | - | | 36 | | 5 | | 47 | | 5 | | 83 | | Other prepayments | 12 | | 24 | | 47 | | 43 | | 59 | | 67 | | |
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| | | 1,554 | | 1,335 | | 1,070 | | 957 | | 1,674 | | 1,598 | | |
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| | Falling due after more than one year | | | | | | | | | | | | | Pension prepayments | 530 | | 521 | | 85 | | 30 | | 615 | | 551 | | Other debtors | 1 | | 8 | | 35 | | 28 | | 36 | | 36 | | Current tax recoverable | - | | 5 | | 130 | | 5 | | 130 | | 10 | | Deferred tax assets | 22 | | 2 | | (5 | ) | 42 | | 17 | | 44 | | Bills receivable | 2 | | - | | 4 | | - | | 6 | | - | | Other prepayments | - | | - | | 5 | | - | | 5 | | - | | Amounts due from Rio Tinto Limited | - | | 1,066 | | - | | - | | - | | - | | |
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| | | 555 | | 1,602 | | 254 | | 105 | | 809 | | 641 | | |
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| 2006 | | 2005 | | | US$m | | US$m | |
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| | Raw materials and purchased components | 448 | | 277 | | Consumable stores | 581 | | 428 | | Work in progress | 459 | | 553 | | Finished goods and goods for resale | 1,151 | | 931 | |
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| | | 2,639 | | 2,189 | |
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| | Comprising: | | | | | Expected to be used within one year | 2,540 | | 2,048 | | Expected to be used after more than one year | 99 | | 141 | |
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| | | 2,639 | | 2,189 | |
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(a) | Amounts owed to Rio Tinto plc by associates includes US$563 million (2002: US$441 million) relating to a loan to Rio Tinto Limited and US$245 million (2002: US$1,192 million) relating to other balances between the two parts of the Group. In addition, a loan of US$89 million (2002: US$77 million) to Rio Tinto Limited is included within investments in associates (note 13). | (b) | Other debtorsNo inventories were pledged as security for Rio Tinto Limited include US$142 million (2002: US$127 million) due from Rio Tinto plc. | (c) | Movements on pension prepayments are included in Other items in the cash flow. | | liabilities at 31 December 2006 or 2005. |
17 | Current asset investments, cash and liquid resourcesTRADE AND OTHER RECEIVABLES | | |
| Rio Tinto plc - | | Rio Tinto Limited - | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | 2003 | | 2002 | 2003 | | 2002 |
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| US$m | US$m | US$m | US$m | US$m | US$m | Liquid resources | | | | | | | | | | | | | Time deposits | 147 | | 32 | | 59 | | 53 | | 206 | | 85 | | Other | 2 | | 2 | | - | | - | | 2 | | 2 | | |
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| | Total liquid resources | 149 | | 34 | | 59 | | 53 | | 208 | | 87 | | Deduct: investments qualifying as cash | (147 | ) | (32 | ) | (59 | ) | (53 | ) | (206 | ) | (85 | ) | |
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| | | 2 | | 2 | | - | | - | | 2 | | 2 | | Other current asset investments | | | | | | | | | | | | | US Treasury bonds (a) | 228 | | 304 | | - | | - | | 228 | | 304 | | |
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| | Investments per balance sheet (unlisted) | 230 | | 306 | | - | | - | | 230 | | 306 | | |
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| | Cash | | | | | | | | | | | | | Cash as defined in FRS1 Revised ('FRS1 cash') | 36 | | 70 | | 5 | | 9 | | 41 | | 79 | | Investments qualifying as cash | 147 | | 32 | | 59 | | 53 | | 206 | | 85 | | Add back Bank borrowings repayable on demand included in FRS 1 cash | 74 | | 72 | | 74 | | 89 | | 148 | | 161 | | |
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| | Cash per balance sheet | 257 | | 174 | | 138 | | 151 | | 395 | | 325 | | |
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| Non-current | | Current | | Non-current | | Current | | | 2006 | | 2006 | | 2005 | | 2005 | | | US$m | | US$m | | US$m | | US$m | |
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| | Trade debtors | 56 | | 2,133 | | 4 | | 1,730 | | Amounts due from equity accounted units | — | | 156 | | 1 | | 95 | | Other debtors | 35 | | 479 | | 21 | | 546 | | Pension surpluses (note 46) | 329 | | 31 | | 167 | | 33 | | Prepayment of tolling charges to jointly controlled entities (a) | 492 | | — | | 434 | | — | | Other prepayments and accrued income | 91 | | 145 | | 79 | | 108 | | Provision for doubtful debts | (20 | ) | (6 | ) | (3 | ) | (24 | ) |
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| | | 983 | | 2,938 | | 703 | | 2,488 | |
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(a) | Current asset investments of Rio Tinto plcAluminium has made certain prepayments to jointly controlled entities for toll processing of bauxite and Rio Tintoalumina. These prepayments will be charged to Group include US$228 million relating to US treasury bonds that are not regardedoperating costs as liquid assets because they are held as security for the deferred consideration on certain assets acquired during 2002.processing takes place. | (b) | InformationThere is no material element of trade and other receivables that is interest bearing. |
A-27
Back to Contents Notes to the 2006 Financial statements | 2006 | | 2005 | | | US$m | | US$m | |
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| | At 1 January | 2,142 | | 2,107 | | Adjustment on currency translation | 97 | | (69 | ) | (Credited)/charged to the income statement | (54 | ) | 101 | | Credited to SORIE (a) | (94 | ) | (60 | ) | Other movements (b) | 23 | | 63 | |
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| | At 31 December | 2,114 | | 2,142 | |
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| | Comprising: | | | | | – deferred tax liabilities (c) | 2,339 | | 2,197 | | – deferred tax (assets) (c) | (225 | ) | (55 | ) |
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Deferred tax balances for which there is a right of offset within the same jurisdiction are presented net on the face of thebalance sheet as permitted by IAS12. The closing deferred tax liabilities and assets, prior to this offsetting of balances, areshown below. | UK | | Australian | | Other | | 2006 | | 2005 | | | tax | | tax | | countries' | | Total | | Total | | | | | | | tax | | US$m | | US$m | |
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| | Deferred tax liabilities arising from: | | | | | | | | | | | Accelerated capital allowances | 2 | | 1,422 | | 1,757 | | 3,181 | | 2,096 | | Post retirement benefits | 83 | | 9 | | 2 | | 94 | | 48 | | Unremitted earnings | — | | — | | 226 | | 226 | | 219 | | Other temporary differences | 3 | | 118 | | — | | 121 | | 388 | |
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| | | 88 | | 1,549 | | 1,985 | | 3,622 | | 2,751 | |
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| | Deferred tax assets arising from: | | | | | | | | | | | Capital allowances | — | | — | | (100 | ) | (100 | ) | (51 | ) | Provisions | (37 | ) | (147 | ) | (551 | ) | (735 | ) | (288 | ) | Post retirement benefits | (18 | ) | (2 | ) | (265 | ) | (285 | ) | (118 | ) | Tax losses | — | | — | | (301 | ) | (301 | ) | (50 | ) | Other temporary differences | — | | — | | (87 | ) | (87 | ) | (102 | ) |
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| | | (55 | ) | (149 | ) | (1,304 | ) | (1,508 | ) | (609 | ) |
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| | (Credited)/charged to the income statement | | | | | | | | | | | Accelerated capital allowances | — | | (63 | ) | 343 | | 280 | | 191 | | Provisions | (1 | ) | 9 | | (13 | ) | (5 | ) | (78 | ) | Post retirement benefits | 2 | | (1 | ) | 15 | | 16 | | 3 | | Tax losses | 33 | | 3 | | (316 | ) | (280 | ) | — | | Tax on unremitted earnings | — | | (2 | ) | — | | (2 | ) | (1 | ) | Other temporary differences | (7 | ) | (43 | ) | (13 | ) | (63 | ) | (14 | ) |
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| | | 27 | | (97 | ) | 16 | | (54 | ) | 101 | |
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(a) | The amounts credited directly to the SORIE relate to the provisions for tax on exchange differences on intra-group loans qualifying for reporting as part of the net investment in subsidiaries, on cash flow hedges and on actuarial gains and losses on pension schemes and post retirement healthcare plans. | (b) | 'Other movements' include deferred tax recognised by subsidiary holding companies that is presented in these accounts as part of the tax charge on the profits of the equity accounted unit to which it relates. | (c) | The deferred tax liability of US$2,339 million (2005: US$2,197 million) includes US$1,764 million (2005: US$1,678 million) due in more than one year. The deferred tax asset of US$225 million (2005: US$55 million) includes US$139 million (2005 US$18 million) receivable in more than one year. | (d) | US$763 million (2005: US$1,399 million) of potential deferred tax assets have not been recognised as an asset in these accounts. There is no time limit for the recovery of these potential assets, the majority of which relate to capital losses, recovery of which depends on realisation of capital gains in future years. | (e) | Deferred tax is not recognised on the unremitted earnings of overseas subsidiaries and jointly controlled entities where the Group is able to control the timing of the remittance and it is probable that there will be no remittance in the foreseeable future. If these earnings were remitted, tax of US$1,711 million (2005: US$1,099 million) would be payable. | (f) | There is a limited time period for the recovery of US$nil (2005:US$5 million) of tax losses which have been recognised as deferred tax assets in the accounts. |
A-28
Back to Contents Notes to the 2006 Financial statements | Non-current | | Current | | Non-current | | Current | | | 2006 | | 2006 | | 2005 | | 2005 | | | US$m | | US$m | | US$m | | US$m | |
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| | Currency and commodity contracts: hedges | 42 | | 36 | | 46 | | 28 | | Derivatives and embedded derivatives not related to net | | | | | | | | | debt: non-hedge (a) | — | | 122 | | — | | 138 | | Derivatives related to net debt | 3 | | 352 | | 254 | | 62 | | US Treasury bonds | 20 | | — | | 19 | | 90 | | Equity shares and quoted funds | 125 | | 51 | | 42 | | 30 | | Other investments, including loans | 184 | | — | | 92 | | 183 | | Other liquid resources (non-cash equivalent) | — | | 6 | | — | | 5 | |
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| | | 374 | | 567 | | 453 | | 536 | |
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(a) | Non-hedge derivatives and embedded derivatives include amounts of US$82 million (2005: US$95 million) which mature beyond one year. | (b) | Detailed information relating to the interest and maturity profile of other financial assets is given in note 32. |
20 | CASH AND CASH EQUIVALENTS |
| 2006 | | 2005 | | | US$m | | US$m | |
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| | Cash at bank and in hand | 555 | | 348 | | Short term bank deposits | 181 | | 2,031 | |
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| | | 736 | | 2,379 | |
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| | Bank overdrafts repayable on demand (unsecured) | (14 | ) | (12 | ) |
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| | Balance per Group cash flow statement | 722 | | 2,367 | |
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(a) | Cash and cash equivalents include US$55 million (2005: US$50 million) for which there are restrictions on remittances. | (b) | Additional information on cash and cash equivalents under US GAAP is given in note 4248 Reconciliation to US Accounting Principles. |
A-24A-29
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements
1821 | Short term borrowingsBORROWINGS | | |
| Rio Tinto plc - | Rio Tinto Limited - | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | 2003 | | 2002 | 2003 | | 2002 |
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| US$m | US$m | US$m | US$m | US$m | US$m | Secured | | | | | | | | | | | | | Bank loans repayable within 12 months | 36 | | 2 | | 16 | | 14 | | 52 | | 16 | | Other loans repayable within 12 months | 21 | | 20 | | 38 | | 70 | | 59 | | 90 | | |
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| | | 57 | | 22 | | 54 | | 84 | | 111 | | 106 | | Unsecured | | | | | | | | | | | | | Bank borrowings repayable on demand | 74 | | 72 | | 74 | | 89 | | 148 | | 161 | | Bank loans repayable within 12 months | 91 | | - | | - | | 62 | | 91 | | 62 | | Other loans repayable within 12 months | 44 | | 566 | | 113 | | 722 | | 157 | | 1,288 | | Commercial paper | 276 | | 699 | | 1,411 | | 1,050 | | 1,687 | | 1,749 | | |
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| | | 485 | | 1,337 | | 1,598 | | 1,923 | | 2,083 | | 3,260 | | |
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| | Total short term borrowings per balance sheet | 542 | | 1,359 | | 1,652 | | 2,007 | | 2,194 | | 3,366 | | |
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| | | Non-current | | Current | | Non-current | | Current | | | | | 2006 | | 2006 | | 2005 | | 2005 | | | Note | | US$m | | US$m | | US$m | | US$m | |
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| | Borrowings at 31 December | | | | | | | | | | | Bank loans | | | 157 | | 156 | | 162 | | 148 | | Other loans | | | | | | | | | | | Finance leases | 22 | | 96 | | 25 | | 93 | | 19 | | Rio Tinto Finance (USA) Limited Bonds 5.75% 2006 | | | — | | — | | — | | 502 | | Rio Tinto Finance (USA) Limited Bonds 2.625% 2008 | | | 586 | | — | | 581 | | — | | Rio Tinto Finance (USA) Limited Bonds 7.125% 2013 | | | 100 | | — | | 100 | | — | | Colowyo Coal Company L.P. Bonds 9.56% 2011 | | | 40 | | 7 | | 47 | | 5 | | Colowyo Coal Company L.P. Bonds 10.19% 2016 | | | 100 | | — | | 100 | | — | | European Medium Term Notes (a) | | | 430 | | 1,195 | | 1,179 | | 424 | | Other secured loans | | | 241 | | 7 | | 233 | | 2 | | Other unsecured loans | | | 257 | | 100 | | 288 | | 90 | |
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| | Total borrowings | | | 2,007 | | 1,490 | | 2,783 | | 1,190 | |
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(a) | In accordance with FRS 4, all commercial paper is classified as short term borrowings althoughThe Group has a US$1,100 million outstanding3 billion European Medium Term Note programme for the issuance of debt, of which approximately US$1.6 billion was drawn down at 31 December 2003 is backed by medium term facilities (2002: commercial paper2006. | (b) | Certain fixed rate borrowings shown above are swapped to floating rates. Details of US$1,749 million was backed by medium term facilities). Under USinterest rate and Australian GAAP,currency swaps and of available standby credit are shown in note 32. | (c) | Of the Group's US$1,100 million would be grouped within non-current3.5 billion borrowings, atsome US$0.7 billion relates to non-recourse borrowings that are the subject of various financial and general covenants with which the respective borrowers are in compliance as of 31 December 2003. 2006. |
22 | CAPITALISED FINANCE LEASES |
| 2006 | | 2005 | | | US$m | | US$m | |
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| | Present value of minimum lease payments | | | | | Total minimum lease payments | 141 | | 118 | | Effect of discounting | (20 | ) | (6 | ) |
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| | | 121 | | 112 | |
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| | Maturity of capitalised finance leases | | | | | Due within one year | 25 | | 19 | | Between 1 year and 5 years | 52 | | 54 | | More than 5 years | 44 | | 39 | |
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| | | 121 | | 112 | |
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| 2006 | | 2005 | | | Net debt | | Net debt | | | US$m | | US$m | |
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| | Analysis of changes in consolidated net debt | | | | | Opening balance | (1,313 | ) | (3,819 | ) | Adjustment on currency translation | (56 | ) | 96 | | Exchange gains recognised in the income statement | 38 | | 13 | | Gains/(losses) on derivatives related to net debt | 44 | | (85 | ) | Cash flows excluding exchange movements | (1,146 | ) | 2,546 | | Other movements | (4 | ) | (64 | ) |
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| | Closing balance | (2,437 | ) | (1,313 | ) |
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A-30
Back to Contents Notes to the 2006 Financial statements 23 | CONSOLIDATED NET DEBT CONTINUED |
| 2006 | | 2005 | | | Net debt | | Net debt | | | US$m | | US$m | |
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| | Reconciliation to balance sheet categories | | | | | Borrowings (note 21) | (3,497 | ) | (3,973 | ) | Bank overdrafts repayable on demand (note 20) | (14 | ) | (12 | ) | Cash and cash equivalents (note 20) | 736 | | 2,379 | | Other liquid resources (note 19) | 6 | | 5 | | Derivatives related to net debt (note 32) | 332 | | 288 | |
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| | Balances per above | (2,437 | ) | (1,313 | ) |
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| 2006 | | 2005 | | | US$m | | US$m | |
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| | Exchange gains/(losses) on external net debt and intragroup balances | | | | | Exchange gains on external net debt | 38 | | 13 | | Exchange (losses) on intragroup balances | (5 | ) | (145 | ) | Exchange gain on settlement of dividend | 13 | | 4 | |
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| | Credited/(charged) to income statement | 46 | | (128 | ) |
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(a) | Further details of available facilities areinformation relating to the currency and interest rate exposures arising from net debt and related derivatives is given in note 28. | | 32 on Financial Instruments. |
1924 | Accounts payable and accrualsTRADE AND OTHER PAYABLES | | |
| Rio Tinto plc - | Rio Tinto Limited - | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | 2003 | | 2002 | 2003 | | 2002 |
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| US$m | US$m | US$m | US$m | US$m | US$m | Due within one year | | | | | | | | | | | | | Trade creditors | 365 | | 258 | | 372 | | 326 | | 737 | | 584 | | Amounts owed to joint ventures | 3 | | - | | 6 | | - | | 9 | | - | | Amounts owed to associates (c) | 185 | | 149 | | 1 | | 1 | | 44 | | 23 | | Other creditors (a), (b) | 141 | | 151 | | 918 | | 638 | | 226 | | 202 | | Tax on profits | 40 | | 63 | | 210 | | 308 | | 250 | | 371 | | Employee entitlements | 83 | | 88 | | 42 | | 33 | | 125 | | 121 | | Royalties and mining taxes | 82 | | 83 | | 51 | | 47 | | 133 | | 130 | | Accruals and deferred income | 59 | | 68 | | 64 | | 41 | | 123 | | 109 | | Dividends payable to outside shareholders of | | | | | | | | | | | | | subsidiaries | - | | - | | 1 | | 4 | | 1 | | 4 | | Dividends payable to Rio Tinto plc and Rio Tinto | | | | | | | | | | | | | Limited shareholders | 367 | | 329 | | 189 | | 158 | | 492 | | 430 | | |
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| | | 1,325 | | 1,189 | | 1,854 | | 1,556 | | 2,140 | | 1,974 | | |
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| | Due in more than one year | | | | | | | | | | | | | Other creditors (a), (b) | 143 | | 229 | | 51 | | 1,113 | | 194 | | 276 | | Accruals and deferred income | - | | 6 | | 29 | | 22 | | 29 | | 28 | | Tax on profits | 13 | | - | | 86 | | - | | 99 | | - | | |
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| | | 156 | | 235 | | 166 | | 1,135 | | 322 | | 304 | | |
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| Non-current | | Current | | Non-current | | Current | | | 2006 | | 2006 | | 2005 | | 2005 | | | US$m | | US$m | | US$m | | US$m | |
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| | Trade creditors | — | | 1,291 | | — | | 1,055 | | Amounts owed to equity accounted units | — | | 143 | | — | | 199 | | Other creditors (a) | 190 | | 212 | | 123 | | 281 | | Employee entitlements | — | | 187 | | — | | 167 | | Royalties and mining taxes | — | | 264 | | — | | 218 | | Accruals and deferred income | 107 | | 595 | | 106 | | 268 | | Government grants deferred | 65 | | 1 | | 40 | | 2 | |
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| | | 362 | | 2,693 | | 269 | | 2,190 | |
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(a) | Other creditors for the Rio Tinto Group'Other creditors' include deferred consideration of US$219179 million (2002:(2005: US$287179 million) relating to certain assets acquired during 2002.acquired. The deferred consideration is included at its net present value. The amortisation of the discount applied in establishing the net present value is treated as a finance cost. All of the deferred consideration relates to Rio Tinto plc. Other creditors for Rio Tinto Limited includes US$652 million (2002: US$518 million)other accounts payable and accruals are non-interest bearing. |
25 | OTHER FINANCIAL LIABILITIES |
| Non-current | | Current | | Non-current | | Current | | | 2006 | | 2006 | | 2005 | | 2005 | | | US$m | | US$m | | US$m | | US$m | |
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| | Forward commodity contracts: hedges | 214 | | 162 | | 93 | | 57 | | Derivatives related to net debt | 19 | | 4 | | 20 | | 8 | | Other derivatives and embedded derivatives: non-hedge | — | | 27 | | — | | 21 | |
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| | | 233 | | 193 | | 113 | | 86 | |
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(a) | Detailed information relating to loans from Rio Tinto plc. | (b) | Other creditors for Rio Tinto Limited include US$833 million (2002: US$587 million) due to Rio Tinto plc. Dividends payable by Rio Tinto Limited include US$64 million (2002: US$57 million) due to Rio Tinto plc. In 2002 US$1,066 million of Rio Tinto Limited's creditors dueother financial liabilities is given in more than one year represented amounts owed to Rio Tinto plc for shares bought back during 2000. | (c) | For Rio Tinto plc US$142 million (2002: US$127 million) of amounts owed to associates relate to balances with Rio Tinto Limited.note 32. |
A-25A-31
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements
2026 | Provisions for liabilities and chargesPROVISIONS (NOT INCLUDING TAXATION) | | |
| Post | | Other | | Close down & | | | | | | | | retirement | employee | restoration/ | | 2003 | 2002 | health care | entitlements | environmental | Other | Total | Total |
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| Rio Tinto Group | | | | | US$m | US$m | At 1 January | 466 | | 240 | | 1,662 | | 194 | | 2,562 | | 2,279 | | Adjustment on currency translation | 20 | | 56 | | 219 | | 40 | | 335 | | 100 | | Capitalisation of additional closure costs (note 12) | - | | - | | 167 | | - | | 167 | | 55 | | Charged to profit for the year | 34 | | 71 | | 18 | | 31 | | 154 | | 58 | | Exceptional charge | - | | - | | - | | - | | - | | 116 | | Amortisation of discount related to provisions | - | | - | | 89 | | - | | 89 | | 52 | | Utilised in year: | | | | | | | | | | | | | provisions set up on acquisition of businesses | - | | - | | - | | (4 | ) | (4 | ) | (6 | ) | other provisions | (22 | ) | (44 | ) | (48 | ) | (41 | ) | (155 | ) | (112 | ) | Subsidiaries acquired (note 35) | - | | - | | - | | - | | - | | 5 | | Subsidiaries sold | - | | (1 | ) | (5 | ) | (1 | ) | (7 | ) | - | | Transfers and other movements | - | | 15 | | (10 | ) | (8 | ) | (3 | ) | 15 | | |
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| | | 498 | | 337 | | 2,092 | | 211 | | 3,138 | | 2,562 | | |
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| | | | | | Provision for deferred taxation (note 21) | | | | | | | | | 1,398 | | 1,050 | | | | | | | | | | |
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| | Provisions for liabilities and charges per balance sheet | | | | | | | | | 4,536 | | 3,612 | | | | | | | | | | |
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| Post | | Other | | Close down & | | | | | | | | retirement | employee | restoration/ | | 2003 | 2002 | health care | entitlements | environmental | Other | Total | Total |
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| Rio Tinto plc - part of Rio Tinto Group | | | | | US$m | US$m | At 1 January | 425 | | 64 | | 1,084 | | 48 | | 1,621 | | 1,432 | | Adjustment on currency translation | 10 | | 6 | | 42 | | 1 | | 59 | | 12 | | Capitalisation of additional closure costs (note 12) | | | | | 67 | | | | 67 | | 24 | | Charged/(released) to profit for the year | 29 | | 16 | | 1 | | 14 | | 60 | | 33 | | Exceptional charges | - | | - | | - | | - | | - | | 116 | | Amortisation of discount related to provisions | - | | - | | 55 | | - | | 55 | | 30 | | Utilised in year: | | | | | | | | | | | | | provisions set up on acquisition of businesses | - | | - | | - | | - | | - | | (1 | ) | other provisions | (20 | ) | (5 | ) | (25 | ) | (12 | ) | (62 | ) | (34 | ) | Transfers and other movements | - | | 3 | | (9 | ) | 9 | | 3 | | 9 | | |
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| | | 444 | | 84 | | 1,215 | | 60 | | 1,803 | | 1,621 | | |
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| | | | | | Provision for deferred taxation (note 21) | | | | | | | | | 740 | | 640 | | | | | | | | | | |
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| | Provisions for liabilities and charges per balance sheet | | | | | | | | | 2,543 | | 2,261 | | | | | | | | | | |
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| Post | | Other | | Close down & | | | | | | | | retirement | employee | restoration/ | | 2003 | 2002 | health care | entitlements | environmental | Other | Total | Total |
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| Rio Tinto Limited - part of Rio Tinto Group | | | | | US$m | US$m | At 1 January | 41 | | 176 | | 578 | | 146 | | 941 | | 847 | | Adjustment on currency translation | 10 | | 50 | | 177 | | 39 | | 276 | | 88 | | Capitalisation of additional closure costs (note 12) | - | | - | | 100 | | - | | 100 | | 31 | | Charged/(released) to profit for the year | 5 | | 55 | | 17 | | 17 | | 94 | | 25 | | Amortisation of discount related to provisions | - | | - | | 34 | | - | | 34 | | 22 | | Utilised in year: | | | | | | | | | | | | | provisions set up on acquisition of businesses | - | | - | | - | | (4 | ) | (4 | ) | (5 | ) | other provisions | (2 | ) | (39 | ) | (23 | ) | (29 | ) | (93 | ) | (78 | ) | Subsidiaries acquired | - | | - | | - | | - | | - | | 5 | | Subsidiaries sold | - | | (1 | ) | (5 | ) | (1 | ) | (7 | ) | - | | Transfers and other movements | - | | 12 | | (1 | ) | (17 | ) | (6 | ) | 6 | | |
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| | | 54 | | 253 | | 877 | | 151 | | 1,335 | | 941 | | |
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| | | | | | Provision for deferred taxation (note 21) | | | | | | | | | 658 | | 410 | | | | | | | | | | |
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| | Provision for liabilities and charges per balance sheet | | | | | | | | | 1,993 | | 1,351 | | | | | | | | | | |
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A-26
Back to Contents
RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - - (continued)
| Pensions | | Other | | Close down | | Other | | 2006 | | 2005 | | | and post | | employee | | & | | | | Total | | Total | | | retirement | | entitlements | | restoration/ | | | | | | | | | healthcare | | | | environmental | | | | US$m | | US$m | |
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| | At 1 January | 996 | | 328 | | 2,693 | | 169 | | 4,186 | | 3,943 | | Adjustment on currency translation | 1 | | 21 | | 82 | | 9 | | 113 | | (86 | ) | Amounts capitalised | — | | — | | 619 | | — | | 619 | | 346 | | Charged to profit: | | | | | | | | | | | | | – new provisions | — | | 17 | | — | | 8 | | 25 | | 72 | | – increases to existing provisions | 97 | | 86 | | 92 | | 2 | | 277 | | 223 | | – unused amounts reversed | — | | (33 | ) | (193 | ) | (16 | ) | (242 | ) | (93 | ) | Amortisation of discount | — | | — | | 137 | | — | | 137 | | 111 | | Utilised in year | (79 | ) | (69 | ) | (67 | ) | (56 | ) | (271 | ) | (261 | ) | Actuarial (gains) recognised in equity | (245 | ) | — | | — | | — | | (245 | ) | (55 | ) | Transfers and other movements | — | | 43 | | (4 | ) | 30 | | 69 | | (14 | ) |
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| | At 31 December | 770 | | 393 | | 3,359 | | 146 | | 4,668 | | 4,186 | |
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| | Balance sheet analysis: | | | | | | | | | | | | | Current | | | | | | | | | 366 | | 321 | | Non-current | | | | | | | | | 4,302 | | 3,865 | |
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| | Total | | | | | | | | | 4,668 | | 4,186 | |
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20 | Provisions for liabilities and charges (continued) | | | (a) | The main assumptions used to determine the provision for pensions and post retirement healthcare and other information, including the expected level of future funding payments in respect of those arrangements, are disclosedgiven in note 40. The current provision is expected to be utilised over the next 15 to 20 years.46. | (b) | The provision for other employee entitlements includes pension entitlements of US$77 million and a provision for long service leave of US$86 million (2005: US$122 million), based on the relevant entitlements in certain Group operations. Some US$116 million of the total provision for employee entitlements for the Rio Tinto Group, US$18 million for Rio Tinto plc, US$61 million for Rio Tinto Limited, is expected to be utilised within the next year. | (c) | The Group's policy on close down and restoration costs is showndescribed in note 1(l)1(k). Close down and restoration costs are a normal consequence of mining, and the majority of close down and restoration expenditure is incurred at the end of a mine's life.the relevant operation. Remaining lives of mines and infrastructure range from two1 to over 50 years with an average, weighted by closure provision, of around 20 years.14 years (2005: 16 years). Although the ultimate cost to be incurred is uncertain, subsidiary companies have estimatedthe Group's businesses estimate their respective costs based on feasibility and engineering studies using current restoration standards and techniques. Provisions of US$2,0923,359 million (2005: US$2,693 million) for close down and restoration costs and other environmental clean up obligations include estimates of the effect of future inflation and have been adjusted to reflect risk. | | These estimates have been discounted to their present value at sixapproximately 5 per cent (2005: 5.5 per cent) per annum, being an estimate of the risk free pre taxpre-tax cost of borrowing. Excluding the effects of future inflation, andbut before discounting, this provision is equivalent to some US$3.0 billion.4.7 billion (2005: US$4.0 billion). | (d) | Some US$12650 million of environmental clean up expenditure is expected to take place within the next five years. The remainder includes amounts for the operation and maintenance of remediation facilities in later years. The provision for environmental clean up expenditure includes the issue described in (e) below. | (e) | In 1995, Kennecott Utah Copper ('KUC') agreed with the US Environmental Protection Agency ('EPA') and the State of Utah to complete certain source control projects and perform specific environmental studies regarding contamination of ground water in the vicinity of the Bingham Canyon mine. A remedial investigation and feasibility study on the South Zone ground water contamination, completed in March 1998, identified a range of alternative measures to address this issue. Additional studies were conducted to refine the workable alternatives. A remedial design document was completed in 2002. A joint proposal and related agreements were updated and provided to the Trustee in the third quarter of 2003. Some modifications of the original plan may be necessary in response to comments from the public. It is anticipated that formal agreement with the State of Utah Natural Resource Damage Trustee, the State of Utah and the Jordan Valley Water Conservancy District will be completewere approved in the first quarter of 2004. KUC also anticipates entering into a formal agreement with the EPA in 2004, for2007, on the remedial actionaction. | | The provision was reduced by US$37 million during 2006 (2005: US$84 million) following a reassessment of the expected cost of remediation and the expected timing of the expenditure to reflect recent experience. The ultimate cost of remediation remains uncertain, being dependent on the ground water, including the acidic portionresponsiveness of the contamination.contamination to pumping and acid neutralisation. | (f) | Other provisions deal with a variety of issues and include US$3922 million (2005: US$33 million) relating to the remaining provision for the market valuation of the hedge books held by companies acquired in 2000 and 2001, which will be utilised over the next eight years (see note 28), and US$44 million relating to paymentsamounts received from employees for accommodation at some sites which are refundable in certain circumstances. | (g) | Provisions for close down, restoration and environmental obligations increased by US$279 million (2005: US$207 million) as a result of a reduction in the discount rate. Of this amount, US$221 million (2005: US$172 million) is included in 'Amounts capitalised'. |
A-27A-32
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements
2127 | Deferred taxationSHARE CAPITAL - RIO TINTO PLC | | |
| | | | | | | | | | | | | Rio Tinto plc - | Rio Tinto Limited - | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | 2003 | | 2002 | 2003 | | 2002 |
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| US$m | US$m | US$m | US$m | US$m | US$m | At 1 January (as restated) | 638 | | 573 | | 368 | | 342 | | 1,006 | | 915 | | Adjustment on currency translation | 52 | | 46 | | 145 | | 33 | | 197 | | 79 | | Reported in the STRGL (b) | - | | 1 | | 162 | | 12 | | 162 | | 13 | | Subsidiaries acquired/sold | - | | (1 | ) | 6 | | 1 | | 6 | | - | | (Released)/charged to profit for the year | (19 | ) | 21 | | (6 | ) | (37 | ) | (25 | ) | (16 | ) | Other movements (a) | 47 | | (2 | ) | (12 | ) | 17 | | 35 | | 15 | | |
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| | | 718 | | 638 | | 663 | | 368 | | 1,381 | | 1,006 | | |
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| | Included in provisions for liabilities and charges | 740 | | 640 | | 658 | | 410 | | 1,398 | | 1,050 | | Included in accounts receivable | (22 | ) | (2 | ) | 5 | | (42 | ) | (17 | ) | (44 | ) | |
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| | | 718 | | 638 | | 663 | | 368 | | 1,381 | | 1,006 | | |
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| 2006 | | 2005 | | 2006 | | 2005 | | | Number (m) | | Number (m) | | US$m | | US$m | |
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| | Issued and fully paid up share capital | | | | | | | | | At 1 January | 1,071.02 | | 1,068.02 | | 172 | | 172 | | Ordinary shares issued (a) | 1.27 | | 3.00 | | — | | — | | Own shares purchased (b) | (0.80 | ) | — | | — | | — | | Special voting share of 10p (d) | 1 only | | 1 only | | — | | — | | DLC dividend share of 10p (d) | 1 only | | 1 only | | — | | — | |
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| | At 31 December | 1,071.49 | | 1,071.02 | | 172 | | 172 | |
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| | – shares repurchased and held in treasury (b) | 47.82 | | 2.60 | | — | | — | | – shares held by public | 1,023.67 | | 1,068.42 | | — | | — | |
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| | Unissued share capital | | | | | | | | | Ordinary shares of 10p each | 349.74 | | 350.21 | | 51 | | 51 | | Equalisation share of 10p (d) | 1 only | | 1 only | | — | | — | |
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| | Total authorised share capital | 1,421.23 | | 1,421.23 | | 223 | | 223 | |
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(a) | 'Other movements' include deferred tax recognised by subsidiary holding companies that is presented in these accounts as part of the tax charge on the profits of the joint ventures and associates to which it relates. | (b) | The amounts reported in the Statement of Total Recognised Gains and Losses relate to the provisions for tax relief on exchange differences on net debt recorded directly in reserves. |
| | | | | Other | | | | | | Rio Tinto Group | UK | Australian | countries' | 2003 | 2002 | tax | tax | tax | Total | Total | Provided in the accounts |
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| | | | | US$m | US$m | Deferred tax assets | 12 | | 311 | | 1,046 | | 1,369 | | 1,491 | | Deferred tax liabilities | (134 | ) | (988 | ) | (1,628 | ) | (2,750 | ) | (2,497 | ) | |
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| | Balance as shown above | (122 | ) | (677 | ) | (582 | ) | (1,381 | ) | (1,006 | ) | |
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| | Comprising: | | | | | | | | | | | Accelerated capital allowances | (6 | ) | (630 | ) | (938 | ) | (1,574 | ) | (1,439 | ) | Other timing differences | (130 | ) | (66 | ) | 107 | | (89 | ) | 225 | | Tax losses | 14 | | 19 | | 249 | | 282 | | 208 | | |
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| | Balance as shown above | (122 | ) | (677 | ) | (582 | ) | (1,381 | ) | (1,006 | ) | |
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| | | | | | | | | | | | | Rio Tinto plc - part of Rio Tinto Group | | | | | Other | | | | | | UK | Australian | countries' | 2003 | 2002 | tax | tax | tax | Total | Total | Provided in the accounts |
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| | | | | US$m | US$m | Deferred tax assets | 12 | | 3 | | 871 | | 886 | | 1,107 | | Deferred tax liabilities | (134 | ) | - | | (1,470 | ) | (1,604 | ) | (1,745 | ) | |
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| | Balance as shown above | (122 | ) | 3 | | (599 | ) | (718 | ) | (638 | ) | |
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| | Comprising: | | | | | | | | | | | Accelerated capital allowances | (6 | ) | 3 | | (890 | ) | (893 | ) | (917 | ) | Other timing differences | (130 | ) | - | | 72 | | (58 | ) | 89 | | Tax losses | 14 | | - | | 219 | | 233 | | 190 | | |
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| | Balance as shown above | (122 | ) | 3 | | (599 | ) | (718 | ) | (638 | ) | |
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| | | | | | | | | | | | | Rio Tinto Limited - part of Rio Tinto Group | | | | | Other | | | | | | UK | Australian | countries' | 2003 | 2002 | tax | tax | tax | Total | Total | Provided in the accounts |
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| | | | | US$m | US$m | Deferred tax assets | - | | 308 | | 175 | | 483 | | 384 | | Deferred tax liabilities | - | | (988 | ) | (158 | ) | (1,146 | ) | (752 | ) | |
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| | Balance as shown above | - | | (680 | ) | 17 | | (663 | ) | (368 | ) | |
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| | Comprising: | | | | | | | | | | | Accelerated capital allowances | - | | (633 | ) | (48 | ) | (681 | ) | (522 | ) | Other timing differences | - | | (66 | ) | 35 | | (31 | ) | 136 | | Tax losses | - | | 19 | | 30 | | 49 | | 18 | | |
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| | Balance as shown above | - | | (680 | ) | 17 | | (663 | ) | (368 | ) | |
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(c) | US$380 million (2002: US$430 million) of potential deferred tax assets have not been recognised as an asset in these accounts. There is no time limit for the recovery of these potential assets. This total includes US$306 million (2002: US$366 million) of US Alternative Minimum Tax credits and US tax losses for which recovery is dependent on the level of taxable profits in the US tax group and US$74 million (2002: US$64 million) of tax losses arising in countries other than the US. | (d) | There is a limited time period for the recovery of US$26 million (2002: US$20 million) of tax losses which have been recognised as deferred tax assets in the accounts. |
A-28
Back to Contents
RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
22 | Medium and long term borrowings | | |
| Rio Tinto plc - | | Rio Tinto Limited - | | | | | | part of Rio Tinto Group | part of Rio Tinto Group | Rio Tinto Group |
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| 2003 | | 2002 | 2003 | | 2002 | 2003 | | 2002 |
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| US$m | US$m | US$m | US$m | US$m | US$m | At 1 January | 2,729 | | 2,629 | | 3,184 | | 3,623 | | 5,913 | | 6,252 | | Adjustment on currency translation | 92 | | 33 | | 92 | | 37 | | 184 | | 70 | | Loans drawn down | 602 | | 1,012 | | 1,215 | | 560 | | 1,817 | | 1,572 | | Loan repayments | (1,396 | ) | (945 | ) | (623 | ) | (1,036 | ) | (2,019 | ) | (1,981 | ) | |
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| | At 31 December | 2,027 | | 2,729 | | 3,868 | | 3,184 | | 5,895 | | 5,913 | | Deduct: short term | (468 | ) | (1,287 | ) | (1,578 | ) | (1,918 | ) | (2,046 | ) | (3,205 | ) | |
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| | Medium and long term borrowings | 1,559 | | 1,442 | | 2,290 | | 1,266 | | 3,849 | | 2,708 | | |
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| | Borrowings at 31 December | | | | | | | | | | | | | Commercial paper (b) | 276 | | 699 | | 1,411 | | 1,050 | | 1,687 | | 1,749 | | Bank loans | | | | | | | | | | | | | Secured | 41 | | 8 | | 109 | | 254 | | 150 | | 262 | | Unsecured | 173 | | 82 | | 262 | | 121 | | 435 | | 203 | | |
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| | | 214 | | 90 | | 371 | | 375 | | 585 | | 465 | | Other loans | | | | | | | | | | | | | Secured | | | | | | | | | | | | | Loans | 12 | | 22 | | 35 | | 68 | | 47 | | 90 | | Finance leases | 99 | | 103 | | 20 | | 16 | | 119 | | 119 | | Unsecured | | | | | | | | | | | | | Rio Tinto Canada Inc 6% guaranteed bonds 2003 | - | | 300 | | - | | - | | - | | 300 | | Rio Tinto Finance (USA) Limited Bonds 5.75% 2006 | - | | - | | 500 | | 500 | | 500 | | 500 | | Rio Tinto Finance (USA) Limited Bonds 2.625% 2008 | - | | - | | 600 | | - | | 600 | | - | | Rio Tinto Finance (USA) Limited Bonds 6.5% 2003 | - | | - | | - | | 200 | | - | | 200 | | Rio Tinto Finance (USA) Limited Bonds 7.125% 2013 | - | | - | | 100 | | 100 | | 100 | | 100 | | Eurobond 2007 (c) | 781 | | 716 | | - | | - | | 781 | | 716 | | European Medium Term Notes (c) | 456 | | 640 | | 381 | | 477 | | 837 | | 1,117 | | North Finance (Bermuda) Limited 7% 2005 | - | | - | | 200 | | 200 | | 200 | | 200 | | Other unsecured loans | 189 | | 159 | | 250 | | 198 | | 439 | | 357 | | |
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| | | 1,537 | | 1,940 | | 2,086 | | 1,759 | | 3,623 | | 3,699 | | |
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| | Total | 2,027 | | 2,729 | | 3,868 | | 3,184 | | 5,895 | | 5,913 | | |
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(a) | The majority of the fixed rate borrowings shown above are swapped to floating rates. Details of interest rate and currency swaps and of available standby credit facilities are shown in note 28. | (b) | In accordance with FRS 4, all commercial paper is classified as short term borrowings although US$1,100 million outstanding at 31 December 2003 is backed by medium term facilities (2002: US$1,749 million). Under US and Australian GAAP, the US$1,100 million would be grouped within non current borrowings at 31 December 2003. Further details of available facilities are given in note 28. | (c) | The Group has a US$3 billion European programme for the issuance of short to medium term debt of which US$1.6 billion was drawn down at 31 December 2003. | (d) | Intragroup borrowings between the Rio Tinto plc and Rio Tinto Limited parts of the Group are included in accounts payable. | (e) | Rio Tinto Finance (USA) Limited is a 100 per cent owned finance subsidiary of Rio Tinto Limited. Rio Tinto Limited and Rio Tinto plc have fully and unconditionally guaranteed the securities issued by Rio Tinto Finance (USA) Limited. |
A-29
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RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
23 Net debt | | | | | | | | | | | | | | | | | | | | | | Analysis of changes in consolidated net debt:
Rio Tinto Group | FRS 1 | | | | Liquid | | 2003 | | 2002 | | cash (a) | | Borrowings | | resources (a) | | Net debt | | Net debt | |
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| | US$m | | US$m | | US$m | | US$m | | US$m | | | | | | | | | | | | | At 1 January | 79 | | (5,913 | ) | 87 | | (5,747 | ) | (5,711 | ) | Adjustment on currency translation | 45 | | (184 | ) | 16 | | (123 | ) | (102 | ) | Per cash flow statement | (83 | ) | 202 | | 105 | | 224 | | 66 | | |
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| | At 31 December | 41 | | (5,895 | ) | 208 | | (5,646 | ) | (5,747 | ) | |
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| | | | | | | | | | | | | | | | | | | | | | | | | FRS 1 | | | | Liquid | | 2003 | | 2002 | | | cash (a) | | Borrowings | | resources (a) | | Net debt | | Net debt | | Rio Tinto plc - part of Rio Tinto Group |
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| | US$m | | US$m | | US$m | | US$m | | US$m | | | | | | | | | | | | | At 1 January | 70 | | (2,729 | ) | 34 | | (2,625 | ) | (2,311 | ) | Adjustment on currency translation | (25 | ) | (92 | ) | 5 | | (112 | ) | (89 | ) | Per cash flow statement | (9 | ) | 794 | | 110 | | 895 | | (225 | ) | |
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| | At 31 December | 36 | | (2,027 | ) | 149 | | (1,842 | ) | (2,625 | ) | |
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| | | | | | | | | | | | | | | | | | | | | | | | | FRS 1 | | | | Liquid | | 2003 | | 2002 | | | cash (a) | | Borrowings | | resources (a) | | Net debt | | Net debt | | Rio Tinto Limited - part of Rio Tinto Group |
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| | US$m | | US$m | | US$m | | US$m | | US$m | | | | | | | | | | | | | At 1 January | 9 | | (3,184 | ) | 53 | | (3,122 | ) | (3,400 | ) | Adjustment on currency translation | 70 | | (92 | ) | 11 | | (11 | ) | (13 | ) | Per cash flow statement | (74 | ) | (592 | ) | (5 | ) | (671 | ) | 291 | | |
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| | At 31 December | 5 | | (3,868 | ) | 59 | | (3,804 | ) | (3,122 | ) | |
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(a) | A reconciliation of these figures to their respective balance sheet categories is shown in note 17. | | |
| Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | part of Rio Tinto Group | | part of Rio Tinto Group | | Rio Tinto Group | | |
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| | | 2003 | | 2002 | | 2003 | | 2002 | | 2003 | | 2002 | | |
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| | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | Reconciliation of cash flow to movement in net debt | | | | | | | | | | | | | Decrease in cash per cash flow | (9 | ) | (16 | ) | (74 | ) | (114 | ) | (83 | ) | (130 | ) | Decrease/(increase) in borrowings | 794 | | (67 | ) | (592 | ) | 476 | | 202 | | 409 | | Increase/(decrease) in liquid resources | 110 | | (142 | ) | (5 | ) | (71 | ) | 105 | | (213 | ) | |
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| | Decrease/(Increase) in net debt | 895 | | (225 | ) | (671 | ) | 291 | | 224 | | 66 | | |
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| | | | | | | | | | | | | | | Net cash flow from movement in liquid resources comprises: | | | | | | | | | | | | | Increase/(Decrease) in time deposits | 110 | | (195 | ) | 3 | | (9 | ) | 113 | | (204 | ) | (Decrease) in certificates of deposit | - | | (2 | ) | - | | (5 | ) | - | | (7 | ) | Increase/(Decrease) in other liquid investments | - | | 55 | | (8 | ) | (57 | ) | (8 | ) | (2 | ) | |
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| | Net cash outflow/(inflow) | 110 | | (142 | ) | (5 | ) | (71 | ) | 105 | | (213 | ) | |
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(a) | US$228 million of US Treasury bonds included within current asset investments for Rio Tinto plc and the Rio Tinto Group are excluded from liquid resources. These investments were purchased to be held as security for the deferred consideration on certain assets acquired during 2002, which is payable over the next three years. |
A-30
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RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
24 Share capital - Rio Tinto plc | | | | | | | | | | | | | | | | | | | 2003 | | 2002 | | 2003 | | 2002 | | |
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| | | Number(m) | | Number(m) | | US$m | | US$m | | Share capital account | | | | | | | | | At 1 January | 1,065.48 | | 1,064.59 | | 154 | | 154 | | Ordinary shares issued | 1.19 | | 0.89 | | 1 | | - | | |
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| | At 31 December | 1,066.67 | | 1,065.48 | | 155 | | 154 | | |
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| | | | | | | | | | | | | | | | | | | | Issued and fully paid share capital | | | | | | | | | Special voting share of 10p (d) | 1 only | | 1 only | | - | | - | | DLC dividend share (d) | 1 only | | 1 only | | - | | - | | Ordinary shares of 10p each (equity) | 1,066.67 | | 1,065.48 | | 155 | | 154 | | | | | | |
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| | Total issued share capital | | | | | 155 | | 154 | | | | | | |
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| | | | | | | | | | | | | | | | | | | | Unissued share capital | | | | | | | | | Ordinary shares of 10p each | 353.36 | | 354.55 | | 51 | | 52 | | Equalisation share of 10p (d) | 1 only | | 1 only | | - | | - | | |
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| | Total authorised share capital | 1,420.03 | | 1,420.03 | | 206 | | 206 | | |
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| | | | | | | | | | | Options outstanding | | | | | | | | | Options outstanding at 1 January | 9.34 | | 7.93 | | | | | | - granted | 2.70 | | 2.61 | | | | | | - exercised | (1.43 | ) | (0.89 | ) | | | | | - cancelled | (1.00 | ) | (0.31 | ) | | | | | |
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| | | | | | Options outstanding at 31 December (b) | 9.61 | | 9.34 | | | | | | |
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(a) | 1,192,7021,265,570 Ordinary shares were issued, and 1,117,021 Ordinary shares reissued from treasury during the year resulting from the exercise of options under Rio Tinto plc employee share option schemes at contracted prices between 521p808.8p and 1,061p (2002: 887,4881,925p (2005: 3,000,155 shares issued at prices between 476.99p809p and 1,061.0p)1,459p). | (b) | At 31 December 2003, options over the following number of Ordinary shares were outstanding:
-23,000 under the Rio Tinto plc Executive Share Option Scheme 1985 at a price of 861.0p and exercisable up to April 2004 (31 December 2002: 62,000 shares at prices between 689.0p and 861.0p).
-7,662,925 under the Rio Tinto Share Option Plan 1998 at prices between 808.8p and 1458.6p (31 December 2002: 7,186,254 shares at prices between 808.8p and 1458.6p). The exercise of share options is subject to the satisfaction of a graduated performance condition set by the Remuneration committee at various dates up to March 2013.
-1,920,430 under the Rio Tinto plc Share Savings Plan at prices between 521.0p and 1,150.0p and exercisable at various dates up to June 2009 (31 December 2002: 2,079,845 shares at prices between 521.0p and 1,061.0p). | (c) | At the 20032006 annual general meeting, the shareholders resolved to renewrenewed the general authority for the companyCompany to buy back up to 10 per cent of its Ordinary shares of 10p each for a further period of 1812 months. Rio Tinto is seeking renewal of this approval at its annual general meeting in 2007. During the year to 31 December 2003 no2006, 46,340,000 shares were bought back.back and held in treasury (2005: 2,600,000) at an average buy back price of £27.27 per share (2005: £22.47), and 800,000 (2005: nil) shares were bought back at an average buy back price of £27.36 (2005: nil) and cancelled. The total consideration paid was US$2,394 million (2005: US$103 million). | (c) | The aggregate consideration received for shares issued during 2006 was US$31 million (2005: US$66 million ). The aggregate consideration received for treasury shares reissued was US$24 million (2005: nil). | (d) | The 'Special Voting Share' was issued to facilitate the joint voting by shareholders of Rio Tinto plc and Rio Tinto Limited on Joint Decisions, following the DLC merger. Directors have the ability to issue an equalisation share if that is required under the terms of the DLC Merger Sharing Agreement. The 'DLC Dividend Share' was issued to facilitate the efficient management of funds within the DLC structure. | (e) | The aggregate consideration received for shares issued during 2003 was US$20 million (2002: US$10 million). | | Further information onInformation relating to share options and other share based incentive schemes is given in note 42 'Reconciliation to US Accounting Principles'.45 on share based payments. |
A-31A-33
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements
24 Share capital - Rio Tinto Limited (100 per cent) | | | | | | | | | | | | | | | | | | | 2003 | | 2002 | | 2003 | | 2002 | | |
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| | | Number(m) | | Number(m) | | US$m | | US$m | | Share capital account | | | | | | | | | At 1 January | 498.82 | | 498.46 | | 964 | | 865 | | Adjustment on currency translation | - | | - | | 311 | | 94 | | Share issues | 0.24 | | 0.36 | | 5 | | 5 | | |
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| | At 31 December | 499.06 | | 498.82 | | 1,280 | | 964 | | |
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| | | | | | | | | | | Options outstanding | | | | | | | | | Options outstanding at 1 January | 4.69 | | 3.08 | | | | | | - granted | 1.63 | | 2.25 | | | | | | - exercised | (0.07 | ) | (0.21 | ) | | | | | - cancelled | (0.25 | ) | (0.43 | ) | | | | | |
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| | | | | | Options outstanding at 31 December (d) | 6.00 | | 4.69 | | | | | | |
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28 | SHARE CAPITAL - RIO TINTO LIMITED |
| 2006 | | 2005 | | 2006 | | 2005 | | | Number (m) | | Number (m) | | US$m | | US$m | |
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| | Share capital account | | | | | | | | | At 1 January | 285.75 | | 311.90 | | 1,019 | | 1,133 | | Adjustment on currency translation | | | | | 80 | | (65 | ) | Own shares purchased (a) | — | | (27.29 | ) | — | | (83 | ) | Share issues (b) | — | | 1.14 | | — | | 34 | |
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| | At 31 December | 285.75 | | 285.75 | | 1,099 | | 1,019 | |
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| | Share capital held by Rio Tinto plc | 171.07 | | 171.07 | | | | | |
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| | Total share capital (c) | 456.82 | | 456.82 | | | | | |
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(a) | 240,466 (2002: 359,821) shares were issued during the year, of which 71,563 (2002: 210,658) resulted from the exercise of options underIn May 2006, shareholders authorised Rio Tinto Limited employee share option schemes at prices between A$20.37 and A$27.86 (2002: A$20.14 and A$39.30) and 168,903 (2002: 149,163) fromto buy back ordinary shares during the vesting of shares under variousfollowing 12 months whether on market or via off-market buy back tenders, but only to the extent that such purchases would not exceed 28.5 million Rio Tinto Mining Companies Comparative Plan | (b) | Limited shares during that 12 month period. Rio Tinto Limited is also authorised by shareholder approvals obtained in 2003 to buy back up to all the Rio Tinto Limited shares held by Tinto Holdings Australia Pty Limited (a wholly owned subsidiary of Rio Tinto plc) plus, on-market, up to ten percent of the publicly held capital in any 12 month period.. Rio Tinto Limited is seeking a renewal of these approvals at its annual general meeting in 2004.2007. | | No shares were bought back during the years to 31 December 2006. During the year to 31 December 2003, no2005, 27,294,139 shares were bought back (2002: nil).via an off-market buy back tender at a buy back price of A$36.70 per share. The total consideration paid was US$774 million. Rio Tinto Limited also bought back 16,367,000 of its shares held by the above subsidiary of Rio Tinto plc at the same buy back price per share. | (b) | No new shares were issued during 2006. The aggregate consideration received for shares issued during 2005 was US$34 million. | (c) | Total share capital in issue at 31 December 20032006 was 499.1456.82 million shares plus one special voting share and one DLC Dividend Sharedividend share (31 December 2002: 498.82005: 456.82 million shares plus one Special Voting Share)special voting share and one DLC dividend share . The 'Special Voting Share' was issued to facilitate the joint voting by shareholders of Rio Tinto plcLimited and Rio Tinto Limitedplc on joint decisionsJoint Decisions following the DLC merger. Directors have the ability to issue an Equalisation Shareequalisation share if that is required under the terms of the DLC Merger Sharing Agreement. The DLC Dividend Share'DLC dividend share' was issued to facilitate the efficient management of funds within the DLC structure. | (d) | AtShare options exercised during the year to 31 December 2003, options over2006 under various Rio Tinto Limited employee share option schemes were satisfied by the following numberon-market purchase of Rio Tinto Limited shares by a third party on the Group's behalf. During the year to 31 December 2005, 1,138,006 shares were outstanding:
- 3,602,137issued, of which 1,130,211 resulted from the exercise of share options under share option schemes at contracted prices between A$20.37 and A$39.87 , and 7,795 from the vesting of shares under the Rio Tinto Share Option Plan at prices between A$20.14 and A$39.87 (31 December 2002: 2,439,330 shares at prices between A$20.14 and A$39.87) . These share options are exercisable at various dates up to March 2013, subject to the satisfaction of a graduated performance condition set by the Remuneration committee.
- 2,385,453 shares under the Rio Tinto Limited Share Savings Plan at prices between A$25.57 and A$27.86 (31 December 2002: 2,246,174 shares at a price between A$27.57 and A$27.86). These share options are exercisable at various dates up to June 2009.Mining Companies Comparative Plan. | (e) | The aggregate consideration received for shares issued during 2003 was US$5 million (2002: US$5 million).Information relating to share options and other share based incentive schemes is given in note 45 on share based payments. |
A-32
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RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
25 Share premium and reserves | | | | | | | | | | | | | | Rio Tinto plc - | | Rio Tinto Limited - | | | | | | | part of Rio Tinto Group | | part of Rio Tinto Group | | Rio Tinto Group | | |
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| | | 2003 | | 2002 | | 2003 | | 2002 | | 2003 | | 2002 | | |
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| | | US$m | | US$m | | US$m | | US$m | | US$m | | US$m | | Share premium account | | | | | | | | | | | | | At 1 January | 1,610 | | 1,600 | | - | | - | | 1,610 | | 1,600 | | Premium on issues of ordinary shares | 19 | | 10 | | - | | - | | 19 | | 10 | | |
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| | At 31 December | 1,629 | | 1,610 | | - | | - | | 1,629 | | 1,610 | | |
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| | | | | | | | | | | | | | | Parent and subsidiary companies' profit and loss account | | | | | | | | | | | | | At 1 January | 2,800 | | 3,060 | | 1,156 | | 600 | | 3,968 | | 3,676 | | Adjustment on currency translation (b) | 553 | | 199 | | 1,009 | | 270 | | 1,569 | | 472 | | Retained (loss)/profit for the year | 80 | | (552 | ) | 593 | | 432 | | 614 | | (180 | ) | Transfers and other movements (c) | 96 | | 93 | | (42 | ) | (146 | ) | 115 | | - | | |
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| | At 31 December | 3,529 | | 2,800 | | 2,716 | | 1,156 | | 6,266 | | 3,968 | | |
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| | | | | | | | | | | | | | | Joint ventures' profit and loss account | | | | | | | | | | | | | At 1 January | 267 | | 264 | | 237 | | 266 | | 504 | | 531 | | Adjustment on currency translation (b) | - | | 3 | | 55 | | 11 | | 53 | | 13 | | Retained (loss)/profit for the year | 52 | | - | | (37 | ) | (40 | ) | 15 | | (40 | ) | Transfers and other movements (c) | 16 | | - | | (62 | ) | - | | (46 | ) | - | | |
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| | At 31 December | 335 | | 267 | | 193 | | 237 | | 526 | | 504 | | |
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| | | | | | | | | | | | | | | Associates' profit and loss account | | | | | | | | | | | | | At 1 January | 819 | | 577 | | 67 | | 21 | | 107 | | 56 | | Adjustment on currency translation (b) | 483 | | 134 | | 3 | | 1 | | 7 | | 6 | | Retained (loss)/profit for the year | 141 | | 108 | | 8 | | 45 | | (3 | ) | 45 | | Transfers and other movements (c) | (9 | ) | - | | (60 | ) | - | | (69 | ) | - | | |
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| | At 31 December | 1,434 | | 819 | | 18 | | 67 | | 42 | | 107 | | |
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| | Total profit and loss account | 5,298 | | 3,886 | | 2,927 | | 1,460 | | 6,834 | | 4,579 | | |
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| | Other reserves | | | | | | | | | | | | | At 1 January | 249 | | 247 | | 86 | | 76 | | 303 | | 294 | | Adjustment on currency translation | 12 | | 2 | | 31 | | 10 | | 31 | | 9 | | |
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| | At 31 December | 261 | | 249 | | 117 | | 86 | | 334 | | 303 | | |
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| | Total reserves | | | | | | | | | | | | | - Parent and subsidiary companies | 3,731 | | 3,002 | | 2,835 | | 1,242 | | 6,585 | | 4,256 | | - Joint ventures | 335 | | 267 | | 191 | | 237 | | 526 | | 504 | | - Associated companies | 1,493 | | 866 | | 18 | | 67 | | 57 | | 122 | | |
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| | | 5,559 | | 4,135 | | 3,044 | | 1,546 | | 7,168 | | 4,882 | | |
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(a) | A substantial portion of Group reserves are in overseas companies. If these reserves were distributed, there would be a liability to withholding taxes and to corporate tax in the UK and Australia. This would, however, be reduced by double taxation relief. Provision is made in these accounts for such additional tax only to the extent that dividends have been accrued or there is a binding agreement to distribute such past earnings. | (b) | Adjustments on currency translation include net of tax exchange gains on net debt of US$715 million (2002: gains of US$211 million), Rio Tinto plc gains of US$299 million (2002: gains of US$55 million) and Rio Tinto Limited gains of US$667 million (2002: gains of US$250 million). | (c) | 'Transfers and other movements' for Rio Tinto plc in 2003 include US$102 million (2002: US$91 million) relating to a dividend on the DLC dividend share received from Rio Tinto Limited and US$1 million (2002: US$2 million) relating to Rio Tinto Limited share issues (page A-6 note (c)). Other 'Transfers and other movements' in 2003 primarily relate to the disposal of a subsidiary, joint venture and associate. In 2001 certain tax liabilities arising from profits of joint ventures were reclassified as direct liabilities of subsidiary companies. The reclassification of these liabilities was included in 'Transfers and other movements'. | (d) | At 31 December 2003, cumulative goodwill written off directly to reserves for the Rio Tinto Group amounted to US$3,142 million (2002: US$3,087 million), Rio Tinto plc US$2,740 million (2002: US$2,897 million) and Rio Tinto Limited US$402 million (2002: US$304 million). |
A-33
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RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)
26 | Product analysis - Rio Tinto Group | | |
| 2003 | | 2002 | | 2003 | | 2002 | |
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| % | % | US$m | US$m | Operating assets (a), (b) | | | | | Diamonds | 8.0 | | 7.1 | | 1,261 | | 968 | | Copper, gold and by-products | 18.2 | | 23.0 | | 2,877 | | 3,109 | | Iron ore | 25.0 | | 20.7 | | 3,951 | | 2,803 | | Coal | 14.1 | | 13.9 | | 2,234 | | 1,879 | | Aluminium | 20.6 | | 17.5 | | 3,261 | | 2,365 | | Industrial minerals | 12.9 | | 15.5 | | 2,044 | | 2,100 | | Other products | 1.2 | | 2.3 | | 181 | | 320 | | |
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| | Total | 100.0 | | 100.0 | | 15,809 | | 13,544 | | |
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| | | | | | Unallocated items | | | | | (126 | ) | (335 | ) | Less: net debt | | | | | (5,646 | ) | (5,747 | ) | | | | | |
| |
| | Net assets | | | | | 10,037 | | 7,462 | | | | | | |
| |
| |
| | | | | | | | | | | | | 2003 | 2002 | 2001 | 2003 | 2002 | 2001 |
|
|
|
|
|
| % | % | % | US$m | US$m | US$m | Gross turnover | | | | | | | Copper | 12.7 | | 12.4 | | 12.2 | | 1,495 | | 1,348 | | 1,277 | | Gold (all sources) | 9.1 | | 9.7 | | 9.5 | | 1,068 | | 1,046 | | 988 | | Iron ore | 18.4 | | 16.4 | | 16.3 | | 2,165 | | 1,772 | | 1,704 | | Coal | 18.1 | | 20.3 | | 20.1 | | 2,125 | | 2,203 | | 2,102 | | Aluminium | 15.7 | | 15.4 | | 16.4 | | 1,847 | | 1,663 | | 1,714 | | Industrial minerals | 15.7 | | 17.5 | | 17.5 | | 1,849 | | 1,898 | | 1,825 | | Diamonds | 4.7 | | 3.4 | | 2.7 | | 556 | | 372 | | 278 | | Other products | 5.6 | | 4.9 | | 5.3 | | 650 | | 526 | | 550 | | |
| |
| |
| |
| |
| |
| | Total | 100.0 | | 100.0 | | 100.0 | | 11,755 | | 10,828 | | 10,438 | | |
| |
| |
| |
| |
| |
| | Profit before tax (a) | | | | | | | | | | | | | Copper, gold and by-products | 27.3 | | 19.0 | | 15.1 | | 680 | | 536 | | 474 | | Iron ore | 30.1 | | 24.2 | | 24.3 | | 748 | | 680 | | 761 | | Coal | 10.2 | | 18.5 | | 17.9 | | 255 | | 520 | | 560 | | Aluminium | 11.5 | | 13.0 | | 16.0 | | 287 | | 365 | | 500 | | Industrial minerals | 11.5 | | 19.9 | | 20.8 | | 286 | | 559 | | 651 | | Diamonds | 7.5 | | 3.4 | | 2.8 | | 187 | | 96 | | 89 | | Other products | 1.9 | | 2.0 | | 3.1 | | 46 | | 58 | | 96 | | |
| |
| |
| |
| |
| |
| | | 100.0 | | 100.0 | | 100.0 | | 2,489 | | 2,814 | | 3,131 | | |
| |
| |
| | | | | | | | Exploration and evaluation | | | | | | | (127 | ) | (130 | ) | (130 | ) | Net interest (d) | | | | | | | (139 | ) | (161 | ) | (256 | ) | Other items | | | | | | | (255 | ) | (118 | ) | (47 | ) | | | | | | | |
| |
| |
| | | | | | | | | 1,968 | | 2,405 | | 2,698 | | Exceptional items (e) | | | | | | | 126 | | (1,094 | ) | (715 | ) | | | | | | | |
| |
| |
| | Total | | | | | | | 2,094 | | 1,311 | | 1,983 | | | | | | | | |
| |
| |
| | Net earnings (a) | | | | | | | | | | | | | Copper, gold and by-products | 27.1 | | 20.8 | | 15.6 | | 429 | | 369 | | 298 | | Iron ore | 31.6 | | 25.6 | | 26.4 | | 500 | | 455 | | 504 | | Coal | 10.3 | | 17.9 | | 18.1 | | 163 | | 318 | | 345 | | Aluminium | 11.9 | | 14.5 | | 17.3 | | 189 | | 257 | | 330 | | Industrial minerals | 10.0 | | 16.4 | | 17.4 | | 159 | | 292 | | 332 | | Diamonds | 7.0 | | 3.5 | | 3.1 | | 111 | | 63 | | 58 | | Other products | 2.1 | | 1.3 | | 2.1 | | 33 | | 22 | | 39 | | |
| |
| |
| |
| |
| |
| | | 100.0 | | 100.0 | | 100.0 | | 1,584 | | 1,776 | | 1,906 | | |
| |
| |
| | | | | | | | Exploration and evaluation | | | | | | | (98 | ) | (109 | ) | (104 | ) | Net interest (d) | | | | | | | (59 | ) | (95 | ) | (167 | ) | Other items | | | | | | | (45 | ) | (42 | ) | 27 | | | | | | | | |
| |
| |
| | | | | | | | | 1,382 | | 1,530 | | 1,662 | | Exceptional items (e) | | | | | | | 126 | | (879 | ) | (583 | ) | | | | | | | |
| |
| |
| | Total | | | | | | | 1,508 | | 651 | | 1,079 | | | | | | | | |
| |
| |
| | | | | | | | | | | | | | | Note references above are explained on page A-35. | | | | | | | | | | | | |
A-34
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements
2629 | Product analysis - Rio Tinto Group (continued)CHANGES IN EQUITY, SHARE PREMIUM AND RESERVES | | |
| Attributable | | Outside | | Total | | | to | | Interests | | Year ended | | | shareholders | | | | 31 December | | | of Rio Tinto | | | | 2006 | | Summary statement of changes in equity | US$m | | US$m | | US$m | |
|
|
|
|
|
| | Opening balance | 14,948 | | 791 | | 15,739 | | | | | | | | | Total recognised income for the year | 8,514 | | 468 | | 8,982 | | Dividends (note 10) | (2,573 | ) | (193 | ) | (2,766 | ) | Own shares purchased from Rio Tinto shareholders: | | | | | | | – Under capital management programme (a) | (2,658 | ) | — | | (2,658 | ) | – To satisfy share options | (49 | ) | — | | (49 | ) | Ordinary shares issued | 31 | | — | | 31 | | Subsidiary company share issue | — | | 69 | | 69 | | Employee share options charged to the income statement | 23 | | — | | 23 | | Other movements | (4 | ) | 18 | | 14 | |
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|
| | Closing balance | 18,232 | | 1,153 | | 19,385 | |
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| | | | | | | | |
| Attributable | | Outside | | Total | | | to | | Interests | | Year ended | | | shareholders | | | | 31 December | | | of Rio Tinto | | | | 2005 | | Summary statement of changes in equity | US$m | | US$m | | US$m | |
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|
| | Opening balance | 11,967 | | 733 | | 12,700 | | | | | | | | | Total recognised income for the year | 4,877 | | 219 | | 5,096 | | Dividends (note 10) | (1,143 | ) | (169 | ) | (1,312 | ) | Own shares purchased from Rio Tinto shareholders: | | | | | | | – Under capital management programme | (877 | ) | — | | (877 | ) | Ordinary shares issued | 100 | | — | | 100 | | Subsidiary company share issue | — | | 4 | | 4 | | Employee share options charged to the income statement | 24 | | — | | 24 | | Other movements | — | | 4 | | 4 | |
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| | Closing balance | 14,948 | | 791 | | 15,739 | |
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| |
Notes | (a) | In 2003,Shares bought back include US$288 million in respect of a commitment entered into before the wayfinancial year end to purchase from a bank, Rio Tinto plc shares that the bank could buy in which post reirement costs are attributed to Business Units, and consequently product groups, has been revised. The regular cost component of retirement costs is included in business unit earnings and the balance of post retirement costs is recognised centrally in 'other items'. The analyses of 2002 Operating assets, Profit before tax and Net earnings have been restated to reflect this allocation. There was no impact on Operating assets, Profit before tax or Net earnings formarket during the Group. The analyses of 2001 Profit before tax and Net earnings have not been restated. | (b) | Operating assets of subsidiaries comprise net assets before deducting net debt, less outside shareholders' interests which are calculated by referenceperiod up to the net assetspreliminary announcement of the relevant companies (i.e. net of such companies' debt). For joint ventures and associates, Rio Tinto's net investmentGroup's results, when the Group is shown. | (c) | The above analyses include the Rio Tinto share of the results of joint ventures and associates including interest. | (d) | The amortisation of discount is included in the applicable product category. All other financing costs of subsidiaries are shown as 'net interest'. | (e) | Of the exceptional charges in 2002, US$596 million before and after tax relatesunable to Kennecott Utah Copper ('KUC') which is included in the copper, gold and by-products segment and US$443 million before tax (US$235 million net of tax and minorities) relates to the Iron Ore Company of Canada ('IOC') which is included in the iron ore segment. In 2001, US$644 million before tax and US$531 million after tax related to KUC. Exceptional charges are shown separately in the above analyses of Profit before tax and Net earnings.purchase its own shares. |
The Group figures on page A-34 include the following amounts for joint ventures:
| | | 2003 | | 2002 | |
|
| US$m | US$m | Net investment | | | | | | | Copper, gold and by-products | | | 1,072 | | 1,027 | | Coal | | | 1,080 | | 828 | | Other | | | 71 | | 66 | | | | |
| |
| | Total | | | 2,223 | | 1,921 | | | | |
| |
| | | | | | | | | | 2003 | | 2002 | | 2001 | |
|
|
| US$m | US$m | US$m | Gross turnover | | | | Copper | 625 | | 419 | | 369 | | Gold | 283 | | 236 | | 247 | | Coal | 836 | | 956 | | 912 | | Other | 76 | | 51 | | 84 | | |
| |
| |
| | Total | 1,820 | | 1,662 | | 1,612 | | |
| |
| |
| | Profit before tax | | | | | | | Copper, gold and by-products | 378 | | 232 | | 220 | | Coal | 139 | | 285 | | 297 | | Other | 3 | | 3 | | 3 | | Exceptional charges | - | | (16 | ) | - | | |
| |
| |
| | Total | 520 | | 504 | | 520 | | |
| |
| |
| | Net earnings | | | | | | | Copper, gold and by-products | 256 | | 155 | | 141 | | Coal | 102 | | 198 | | 201 | | Other | 2 | | 2 | | 2 | | Exceptional charges | - | | (16 | ) | - | | |
| |
| |
| | | 360 | | 339 | | 344 | | |
| |
| |
| | The Group figures on page A-34 include the following amounts for associates: | | | | | | | | | | 2003 | | 2002 | |
|
| US$m | US$m | Net investment | | | Copper, gold and by-products | | | 362 | | 505 | | Other | | | 59 | | 65 | | | | |
| |
| | Total | | | 421 | | 570 | | | | |
| |
| | | | | | | | | | 2003 | | 2002 | | 2001 | |
|
|
| US$m | US$m | US$m | Gross turnover | | | | Copper | 185 | | 259 | | 267 | | Gold | 411 | | 355 | | 333 | | Other | 111 | | 109 | | 74 | | |
| |
| |
| | Total | 707 | | 723 | | 674 | | |
| |
| |
| | Profit before tax | | | | | | | Copper, gold and by-products | 147 | | 130 | | 97 | | Other | 33 | | 59 | | 61 | | |
| |
| |
| | Total | 180 | | 189 | | 158 | | |
| |
| |
| | Net earnings | | | | | | | Copper, gold and by-products | 77 | | 93 | | 51 | | Other | 21 | | 36 | | 38 | | |
| |
| |
| | Total | 98 | | 129 | | 89 | | |
| |
| |
| |
A-35
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements
2729 | Geographical analysis - Rio Tinto Group | | By country of locationCHANGES IN EQUITY, SHARE PREMIUM AND RESERVES CONTINUED | | |
| 2003 | | 2002 | | 2003 | | 2002 | |
|
|
|
| % | % | US$m | US$m | Operating assets | | | | | | | | | North America | 30.7 | | 36.5 | | 4,846 | | 4,949 | | Australia and New Zealand | 55.7 | | 47.6 | | 8,799 | | 6,446 | | South America | 4.1 | | 5.2 | | 652 | | 703 | | Africa | 3.6 | | 3.5 | | 577 | | 477 | | Indonesia | 3.5 | | 4.4 | | 554 | | 599 | | Europe and other countries | 2.4 | | 2.8 | | 381 | | 370 | | |
| |
| |
| |
| | Total | 100.0 | | 100.0 | | 15,809 | | 13,544 | | |
| |
| | | | | | Unallocated items | | | | | (126 | ) | (335 | ) | Less: net debt | | | | | (5,646 | ) | (5,747 | ) | | | | | |
| |
| | Net assets | | | | | 10,037 | | 7,462 | | | | | | |
| |
| | | | | | | | | | |
| 2003 | | 2002 | | 2001 | | 2003 | | 2002 | | 2001 | |
|
|
|
|
|
| % | % | % | US$m | US$m | US$m | Gross turnover by country of origin | | | | | | | North America | 30.3 | | 31.2 | | 30.1 | | 3,567 | | 3,377 | | 3,143 | | Australia and New Zealand | 43.8 | | 41.6 | | 42.0 | | 5,152 | | 4,500 | | 4,386 | | South America | 5.8 | | 4.8 | | 5.0 | | 682 | | 525 | | 524 | | Africa | 5.6 | | 7.2 | | 8.2 | | 662 | | 783 | | 857 | | Indonesia | 8.8 | | 9.6 | | 9.1 | | 1,037 | | 1,039 | | 951 | | Europe and other countries | 5.7 | | 5.6 | | 5.6 | | 655 | | 604 | | 577 | | |
| |
| |
| |
| |
| |
| | Total | 100.0 | | 100.0 | | 100.0 | | 11,755 | | 10,828 | | 10,438 | | |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | | |
| 2003 | | 2002 | | 2001 | | 2003 | | 2002 | | 2001 | |
|
|
|
|
|
| % | % | % | US$m | US$m | US$m | Profit before tax | | | | | | | North America | 18.9 | | 17.1 | | 15.2 | | 399 | | 439 | | 449 | | Australia and New Zealand | 53.7 | | 57.1 | | 56.4 | | 1,131 | | 1,464 | | 1,666 | | South America | 11.1 | | 3.4 | | 2.9 | | 234 | | 86 | | 85 | | Africa | 3.1 | | 11.8 | | 14.2 | | 65 | | 303 | | 420 | | Indonesia | 16.5 | | 12.2 | | 8.6 | | 348 | | 312 | | 254 | | Europe and other countries | (3.3 | ) | (1.6 | ) | 2.7 | | (70 | ) | (38 | ) | 80 | | |
| |
| |
| |
| |
| |
| | | 100.0 | | 100.0 | | 100.0 | | 2,107 | | 2,566 | | 2,954 | | |
| |
| |
| | | | | | | | Net interest (c) | | | | | | | (139 | ) | (161 | ) | (256 | ) | | | | | | | |
| |
| |
| | | | | | | | | 1,968 | | 2,405 | | 2,698 | | Exceptional items (d) | | | | | | | 126 | | (1,094 | ) | (715 | ) | | | | | | | |
| |
| |
| | Total | | | | | | | 2,094 | | 1,311 | | 1,983 | | | | | | | | |
| |
| |
| | | | | | | | | | | | | | |
| 2003 | | 2002 | | 2001 | | 2003 | | 2002 | | 2001 | |
|
|
|
|
|
| % | % | % | US$m | US$m | US$m | Net earnings | | | | | | | North America | 25.2 | | 20.1 | | 19.6 | | 363 | | 326 | | 359 | | Australia and New Zealand | 52.3 | | 57.8 | | 57.5 | | 754 | | 939 | | 1,052 | | South America | 10.8 | | 4.0 | | 3.1 | | 156 | | 65 | | 56 | | Africa | 0.8 | | 7.1 | | 7.8 | | 12 | | 115 | | 143 | | Indonesia | 12.6 | | 11.4 | | 7.0 | | 181 | | 185 | | 128 | | Europe and other countries | (1.7 | ) | (0.4 | ) | 5.0 | | (25 | ) | (5 | ) | 91 | | |
| |
| |
| |
| |
| |
| | | 100.0 | | 100.0 | | 100.0 | | 1,441 | | 1,625 | | 1,829 | | |
| |
| |
| | | | | | | | Net interest (c) | | | | | | | (59 | ) | (95 | ) | (167 | ) | | | | | | | |
| |
| |
| | | | | | | | | 1,382 | | 1,530 | | 1,662 | | Exceptional items (d) | | | | | | | 126 | | (879 | ) | (583 | ) | | | | | | | |
| |
| |
| | Total | | | | | | | 1,508 | | 651 | | 1,079 | | | | | | | | |
| |
| |
| | | | | | | | | | | | | | | Note references above are explained on page A-37. | | | | | | | | | | | | |
| 2006 | | 2005 | | | Total | | Total | | | US$m | | US$m | |
|
|
|
| | Share premium account | | | | | At 1 January | 1,888 | | 1,822 | | Premium on issues of ordinary shares | 31 | | 66 | |
|
|
|
| | At 31 December | 1,919 | | 1,888 | |
|
|
|
| | Retained earnings | | | | | At 1 January | 11,893 | | 8,388 | | Parent and subsidiaries' profit for the year (a) | 7,440 | | 4,853 | | Equity accounted units' retained profit for the year | (2 | ) | 362 | | Actuarial gains | 338 | | 179 | | Dividends | (2,573 | ) | (1,143 | ) | Own shares purchased from Rio Tinto shareholders under capital management programme | (2,658 | ) | (794 | ) | Employee share options charged to income statement | 12 | | 13 | | Tax recognised directly in SORIE | (45 | ) | 35 | | Other movements | (4 | ) | — | |
|
|
|
| | At 31 December | 14,401 | | 11,893 | | | | | | | Hedging reserves(b) | | | | | At 1 January | (77 | ) | 29 | | Parent and subsidiaries' net cash flow hedge fair value losses | (178 | ) | (122 | ) | Equity accounted units' cash flow hedge fair value gains | — | | 6 | | Parent and subsidiaries' net cash flow hedge losses/(gains) transferred to the income statement | 63 | | (18 | ) | Equity accounted units' cash flow hedge losses transferred to the income statement | — | | 18 | | Tax on the above | 59 | | 10 | |
|
|
|
| | At 31 December | (133 | ) | (77 | ) | | | | | | Available for sale revaluation reserves(c) | | | | | At 1 January | 20 | | 70 | | Gains on available for sale securities | 14 | | 32 | | (Gains) on available for sale securities transferred to the income statement | (4 | ) | (88 | ) | Tax on the above | 1 | | 6 | |
|
|
|
| | At 31 December | 31 | | 20 | | | | | | | Other reserves(d) | | | | | At 1 January | 42 | | 31 | | Own shares purchased from Rio Tinto shareholders to satisfy share options | (49 | ) | — | | Employee share options: value of services | 11 | | 11 | | Tax on the above | 4 | | — | |
|
|
|
| | At 31 December | 8 | | 42 | | | | | | | Foreign currency translation reserve(e) | | | | | At 1 January | (9 | ) | 322 | | Currency translation adjustments | 748 | | (411 | ) | Exchange (losses)/gains | (8 | ) | 75 | | Currency translation reclassified on disposal | 4 | | — | | Tax on exchange adjustments | — | | 5 | |
|
|
|
| | At 31 December | 735 | | (9 | ) |
|
|
|
| | Total other reserves per balance sheet | 641 | | (24 | ) |
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| |
(a) | Retained profit and movements in reserves of subsidiaries include those arising from the Group's share of proportionally consolidated units. | (b) | The hedging reserve records gains or losses on cash flow hedges that are recognised initially in equity, as described in note 1(p). | (c) | The available for sale revaluation reserves record fair value gains or losses relating to available for sale securities, as described in note 1(p). | (d) | Other reserves record the cumulative amount recognised in respect of options granted but not exercised to acquire shares in Rio Tinto Limited less, where applicable, the cost of shares purchased to satisfy share options exercised. The estimated effect of unexercised options to acquire shares in Rio Tinto plc are recorded in retained earnings. | (e) | Exchange differences arising on the translation of the Group's net investment in foreign controlled companies are taken to the foreign currency translation reserve, as described in note 1(d). Amounts are recognised in the income statement when the investment is disposed of. |
A-36
Back to Contents RIO TINTO PLC - RIO TINTO LIMITED
NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements
2730 | Geographical analysis - Rio Tinto Group (continued)PRIMARY SEGMENTAL ANALYSIS (BY PRODUCT GROUP) | | |
| 2006 | | 2005 | | 2004 | | 2006 | | 2005 | | 2004 | | | % | | % | | % | | US$m | | US$m | | US$m | |
|
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|
| | Sales revenue | | | | | | | | | | | | | Iron ore | 30.9 | | 28.9 | | 23.2 | | 6,938 | | 5,497 | | 3,009 | | Energy | 18.1 | | 19.4 | | 21.8 | | 4,070 | | 3,693 | | 2,826 | | Industrial minerals | 11.1 | | 12.5 | | 15.8 | | 2,501 | | 2,374 | | 2,052 | | Aluminium | 15.5 | | 14.4 | | 18.2 | | 3,493 | | 2,744 | | 2,356 | | Copper | 19.6 | | 18.0 | | 13.6 | | 4,396 | | 3,433 | | 1,756 | | Diamonds | 3.7 | | 5.7 | | 5.7 | | 838 | | 1,076 | | 744 | | Other | 1.1 | | 1.1 | | 1.7 | | 229 | | 216 | | 211 | |
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|
| | Consolidated sales revenue | 100.0 | | 100.0 | | 100.0 | | 22,465 | | 19,033 | | 12,954 | |
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| | | | | | | | | | | | | |
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| | Consolidated profit before finance items and taxation | | | | | | | | | | | | Iron ore | 43.2 | | 41.5 | | 26.7 | | 3,875 | | 2,872 | | 887 | | Energy (c) | 9.0 | | 15.4 | | 13.7 | | 807 | | 1,067 | | 455 | | Industrial minerals (c) | 4.1 | | 5.2 | | 10.9 | | 371 | | 362 | | 362 | | Aluminium | 11.9 | | 7.3 | | 15.6 | | 1,069 | | 502 | | 520 | | Copper (c),(d) | 37.5 | | 28.2 | | 31.2 | | 3,367 | | 1,954 | | 1,037 | | Diamonds | (0.2 | ) | 6.6 | | 9.3 | | (15 | ) | 459 | | 311 | | Exploration and evaluation | (2.1 | ) | (2.7 | ) | (3.5 | ) | (188 | ) | (193 | ) | (114 | ) | Other | (3.4 | ) | (1.5 | ) | (3.9 | ) | (312 | ) | (101 | ) | (131 | ) |
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|
|
| | Operating profit (segment result) | 100.0 | | 100.0 | | 100.0 | | 8,974 | | 6,922 | | 3,327 | |
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| | | | | | | | | | | | | | | Share of profit after tax of equity accounted units | | | | | | | | | | | | | Copper | | | | | | | 1,271 | | 660 | | 495 | | Other | | | | | | | 107 | | 116 | | 28 | |
|
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|
|
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|
|
|
|
|
|
| | Profit before finance items and taxation | | | | | | | 10,352 | | 7,698 | | 3,850 | |
|
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| | | | | | | | | | | |
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| | Depreciation and amortisation (excluding share of equity accounted units) | | | | | | | | | | Iron ore (c) | 26.3 | | 23.6 | | 16.8 | | 387 | | 315 | | 289 | | Energy (c) | 20.1 | | 20.9 | | 24.6 | | 295 | | 279 | | 423 | | Industrial minerals (c) | 11.7 | | 11.9 | | 9.4 | | 172 | | 159 | | 162 | | Aluminium | 9.7 | | 9.1 | | 4.9 | | 143 | | 121 | | 85 | | Copper (c) | 20.1 | | 18.8 | | 35.1 | | 295 | | 251 | | 603 | | Diamonds (c) | 9.9 | | 12.2 | | 6.3 | | 145 | | 163 | | 108 | | Exploration and evaluation | 0.2 | | 0.2 | | 0.1 | | 3 | | 3 | | 2 | | Other | 2.0 | | 3.3 | | 2.8 | | 29 | | 43 | | 47 | |
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|
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|
|
| | Product group total | 100.0 | | 100.0 | | 100.0 | | 1,469 | | 1,334 | | 1,719 | |
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Notes | (a) | Operating assetsThe product groups shown above reflect the Group's management structure and are the Group's primary segments in accordance with IAS14. The analysis deals with: the sales revenue, profit before finance costs and taxation, and depreciation and amortisation, for subsidiary companies and proportionally consolidated units. The amounts presented for each product group exclude equity accounted units, but include the amounts attributable to outside equity shareholders. The classification is consistent with the financial information by business unit data included on pages A-67 and A-68. However, that information includes the results 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 joint venturesequity accounted units and associates, Rio Tinto's net investment is shown.presents different financial measures. | (b) | The above analyses includeAs detailed below, the Rio Tinto shareanalysis of the results of joint venturesprofit before finance costs and associates including interest. | (c) | The amortisation of discount is included in the applicable geographical area. All other financing costs of subsidiaries are shown as ‘net interest’. | (d) | The exceptional items in 2003 relate totaxation includes the profit on disposal of interests in a subsidiary, joint venturebusinesses (including investments) and associate. Of the 2002 exceptional impairment (reversals)/charges, US$596 million before tax relates to Kennecott Utah Copper ('KUC') and US$443 million before tax re the Iron Ore Company of Canada ('IOC'), both of which are included in 'North America'. The impact of 2002 exceptional charges on net earnings was US$596 million for KUC and US$235 million for IOC. Of the 2001 exceptional charges, US$644 million before tax and US$531 million after tax related to KUC. Exceptional charges are shown separately in the above analyses of profit before tax and netexcluded from Underlying earnings. | (c) | The above analysis of depreciation and amortisation includes the following impairment reversals and charges. |
The Group figures shown on page A-36 include the following amounts for joint ventures:
| 2003 | | 2002 | |
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| US$m | US$m | Net investment by origin | | | Australia and New Zealand | 1,108 | | 834 | | South America | 552 | | 498 | | Indonesia | 523 | | 567 | | Other | 40 | | 22 | | |
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| | Total | 2,223 | | 1,921 | | |
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| 2003 | | 2002 | | 2001 | |
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| US$m | US$m | US$m | Gross turnover by origin | | | | Australia and New Zealand | 550 | | 587 | | 545 | | South America | 502 | | 283 | | 289 | | Indonesia | 539 | | 565 | | 528 | | Other | 229 | | 227 | | 250 | | |
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| | Total | 1,820 | | 1,662 | | 1,612 | | |
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| | Profit before tax by origin | | | | | | | Australia and New Zealand | 57 | | 214 | | 207 | | South America | 183 | | 49 | | 64 | | Indonesia | 241 | | 231 | | 228 | | Other | 39 | | 26 | | 21 | | Exceptional items | - | | (16 | ) | - | | |
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| | Total | 520 | | 504 | | 520 | | |
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| | Net earnings by origin | | | | | | | Australia and New Zealand | 46 | | 151 | | 145 | | South America | 122 | | 32 | | 41 | | Indonesia | 155 | | 149 | | 142 | | Other | 37 | | 23 | | 16 | | Exceptional items | - | | (16 | ) | - | | |
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| | Total | 360 | | 339 | | 344 | | |
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| | | | | | | | | | 2006 | | 2005 | | 2004 | | | | Total | | Total | | Total | | | | US$m | | US$m | | US$m | | |
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| | | Impairment reversals less charges by product group | | | | | | | | Iron Ore | 298 | | — | | — | | | Energy | (188 | ) | (13 | ) | (160 | ) | | Industrial Minerals | (7 | ) | 16 | | — | | | Copper | 610 | | — | | (398 | ) | | Diamonds | (317 | ) | — | | — | | |
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| | | | 396 | | 3 | | (558 | ) | |
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(d) | For the year ended 31 December 2006, the operating profit of the Copper group included the benefit of an exceptional reduction in environmental provisions of US$37 million (2005: US$84 million; 2004: US$nil). |
A-37
Back to Contents RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements
NOTES TO FINANCIAL STATEMENTS - (continued)
27 Geographical analysis - Rio Tinto Group (continued)
The Group figures shown on page A-36 include the following amounts for associates:
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