SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 20-F

(Mark One)

(Mark One)
Registration statement pursuant to Section 12 (b)12(b) or 12(g) of the Securities Exchange Act of 1934
 or
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the financial year ended: 31 December 20032006
 or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from: __________ to __________________________ to________________
  
or
Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of event requiring this shell company report ________________

Commission file number: 1-10533Commission file number: 0-20122
  
Rio Tinto plcRio Tinto Limited
ABN 96 004 458 404
(Exact name of Registrant as specified in its charter)(Exact name of Registrant as specified in its charter)
  
England and WalesVictoria, Australia
(Jurisdiction of incorporation or organisation)(Jurisdiction of incorporation or organisation)
  
6 St James’s SquareLevel 33, 55120 Collins Street
London, SW1Y 4LD, EnglandUnited KingdomMelbourne, Victoria 3001,3000, Australia
(Address of principal executive offices)(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each className of each exchange on which registeredName of each exchange
on which registered		Name of each exchangeTitle of each class
on which registeredon which registered
American Depositary Shares*New York
Stock Exchange		 None
Ordinary Shares of 10p each**New York
Stock Exchange		  
*Evidenced by American Depository Receipts. Each American Depository Share Represents four Rio Tinto plc Ordinary Shares of 10p each.
**Not for trading, but only in connection with the listing of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Title of each classTitle of each class
NoneAmerican Depositary Shares***
Ordinary Shares
*** Evidenced by American Depository Receipts. Each American Depository Share represents four Rio Tinto Limited Ordinary Shares.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
None

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Title of each class  Number  Number  Title of each class  Number Number Title of each class
Ordinary Shares of 10p each  1,066,674,301  499,058,420  Shares  1,071,488,203 456,815,943 Shares
DLC Dividend Share of 10p  1  1  DLC Dividend Share  1 1 DLC Dividend Share
Special Voting Share of 10p  1  1  Special Voting Share  1 1 Special Voting Share

Indicate by check mark if the registrants are well-seasoned issuers, as defined in rule 405 of the Securities Act.

Yes No

If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

YesNo

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the Registrantsregistrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:

Yes No

Yes           No Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer Accelerated filer Non-accelerated filer

Indicate by check mark which financial statement item the Registrantsregistrants have elected to follow:

Item 17            Item 18

Item 17Item 18

EXPLANATORY NOTE

The Rio Tinto Group is a leading international mining group, combining Rio Tinto plc and Rio Tinto Limited in a dual listed companies (‘DLC’) merger which was designed to place the shareholders of both Companies in substantially thesame position as if they held shares in a single enterprise owning all of the assets of both Companies.
In previous years, the Form 20-F filed with the United States Securities and Exchange Commission (SEC), containedseparate consolidated financial statements for the Rio Tinto plc and Rio Tinto Limited parts of the Group. These werepresented 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 legalownership, 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 ofthe Group through the dual listed companies (DLC) arrangements was not a business combination. The financialstatements 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, withno 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. Thecombined financial statements for the Rio Tinto Group viewed the formation of the DLC as a business combination andaccounted for the transaction as a merger in accordance with UK Financial Reporting Standard No. 6Acquisitions and Mergers(FRS 6). Applying FRS 6, Rio Tinto plc and Rio Tinto Limited were combined and presented as one economicentity 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 ofIFRS 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 presentationof 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 would be preferable to treat the formation of the DLC as abusiness combination, with the 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 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 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 $1,519 million above those under EU IFRS; and US GAAP net earnings for 2006 are $62 million below those under EU IFRS. Furtherinformation on the impact of purchase accounting under US GAAP is shown in note 48 to the 2006 financial statementson pages A-71 to A-72.
Rio Tinto plc and Rio Tinto Limited established separate ADR programmes prior to their DLC merger and had maintained both but following a review it was concluded that the Rio Tinto Limited ADR programme should be terminated with effect from 10 April 2006 and a notice of termination was mailed to ADR holders. The Rio Tinto plc ADR programme was not affected by this termination.

 

Rio Tinto 2006 Form 20-F1

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EXPLANATORY NOTE

TABLE OF CONTENTS
The Rio Tinto Group is a leading international mining group, combining Rio Tinto plc and Rio Tinto Limited in a dual listed companies (‘DLC’) merger that has created a single economic enterprise, nevertheless both companies remain separate legal entities with separate share listings and registrars, and with separate ADR programmes.
     Rio Tinto plc and Rio Tinto Limited prepare annual reports and financial statements for the combined group that are presented to their shareholders as their consolidated accounts in accordance with both United Kingdom and Australian legislation and regulations. The current such document is the 2003 Annual report and financial statements and is referred to in this annual report on Form 20-F as the “2003 Annual report”. They also prepare combined annual reports on Form 20-F that are filed with the SEC in accordance with United States legislation and regulations.
The following have been filed as part of this annual report on Form 20-F:
•The 2003 Annual report, as modified for purposes of filing with this annual report on Form 20-F. Data included on pages 22 to 24 of the 2003 Annual report relating to mineral resources in compliance with the requirements of the Australian Stock Exchange has been intentionally omitted from this annual report on Form 20-F because it conflicts with the requirements of SEC Industry Guide 7. Also included on pages 81 to 133 of the 2003 Annual report are the financial statements of the Rio Tinto Group formed through the DLC merger. These financial statements have been prepared in accordance with UK GAAP that recognises the DLC merger as a merger of economic interests and in order to present a true and fair view of the Rio Tinto Group the principles of merger accounting have been adopted in accordance with FRS 6. The Profit and loss account and the Audit report on pages 82 and 135 respectively of the 2003 Annual report are not in accordance with the SEC rules and so replacement pages have been substituted. The replacement page 82 also includes a condensed income statement in the format prescribed by the SEC but does not change the reported state of affairs of the Rio Tinto Group or of its profit and cash flows.
•

The 2003 Annual report – Appendix. For purposes of this annual report on Form 20-F the separate consolidated financial statements of the Rio Tinto plc and Rio Tinto Limited parts of the Group, prepared on the basis of the legal ownership of the various operations within each part of the Group, have been presented in the 2003 Annual report – Appendix. However, the DLC merger of Rio Tinto plc and Rio Tinto Limited has the effect of placing the shareholders of each company in substantially the same position as if they held shares in a single economic enterprise and therefore the directors consider that the combined financial statements of the Rio Tinto Group provide shareholders with the most meaningful representation of the state of affairs and of the profit and cash flows.

Only (i) the information that has been referenced in the answers to the Items of this annual report on Form 20-F, and (ii) the Exhibits, shall be deemed to be filed with the Securities and Exchange Commission for any purpose, including incorporation by reference into any documents filed by Rio Tinto plc, Rio Tinto Limited or Rio Tinto Finance (USA) Limited pursuant to the Securities Act of 1933, as amended, which purport to incorporate by reference this annual report on Form 20-F. Any information herein which is not referenced in the answers to the Items of this annual report on Form 20-F, or the Exhibits themselves, shall not be deemed to be so incorporated by reference.
     The information contained in the 2003 Annual report and the 2003 Annual report – Appendix has not materially changed since 20 February 2004, but see Item 8 for a discussion of a post balance sheet event.

Rio Tinto 2003 Form 20-F1

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TABLE OF CONTENTS

  
Page
Page
PART I
Item 1.Identity of Directors, Senior Management and Advisers3
   
Item 2.Offer Statistics and Expected Timetable3
Item 3.Key Information3
   
Item 4.Information on the Company67
Item 4 A.Unresolved Staff Comments35
Item 5.Operating and Financial Review and Prospects635
Item 6.Directors, Senior Management and Employees989
Item 7.Major Shareholders and Related Party Transactions12131
Item 8.Financial Information12133
Item 9.The Offer and Listing12134
Item 10.Additional Information13136
Item 11.Quantitative and Qualitative Disclosures about Market Risk17146
Item 12.Description of Securities other than Equity Securities17146
 
PART II
Item 13.Defaults, Dividend Arrearages and Delinquencies18147
Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds18147
Item 15.Controls and Procedures18147
Item 16A.16 A.Audit Committee Financial Expert18147
Item 16B.16 B.Code of Ethics18148
Item 16C.16 C.Principal Accountant Fees and Services18148
Item 16D.16 D.Exemptions from the Listing Standards for Audit Committees18148
Item 16E.16 E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers18148
 
PART III
Item 17.Financial Statements19149
Item 18.Financial Statements19149
Item 19.Exhibits19149

Rio Tinto 2003 Form 20-F2

Rio Tinto 2006 Form 20-F2

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RIO TINTO

PART I

Item 1.Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2.Offer Statistics and Expected Timetable
Not applicable.
Item 3.Key Information

Item 1.SELECTED FINANCIAL DATAIdentity of Directors, Senior Management and Advisers
Not applicable.     

Item 2.Offer Statistics and Expected Timetable
Not applicable.

Item 3.Key Information

Selected consolidated financial data
The following selected consolidated financial data on pages 3 to 4 has been derived from the consolidated2006 financial statements of the Rio Tinto Group presented elsewhereunder Item 18. Financial statements herein, have been restated where appropriate to accord with the current accounting policies and presentations. The selected consolidated financial data should be read in conjunction with, and qualified in their entirety by reference to, the consolidated2006 financial statements and notes thereto included elsewhere in this annual report on Form 20-F.
thereto.

     The consolidated2006 financial statements arewere prepared in accordance with UK GAAPIFRS as adopted by the European Union, which differs in certain respects from US GAAP. Details of the principal differences between UK GAAPEU IFRS and US GAAP are set out on pages 137 to 147 of the 2003 Annual report andsetout in note 42 on pages A-5948 to A-74 of the 2003 Annual report – Appendix.2006 financial statements.

RIO TINTO GROUP

Rio Tinto Group                
                 
Income Statement Data
For the years ending 31 December		  2003  2002  2001  2000  1999 
Amounts in accordance with UK GAAP                
(US$ millions)                
                 
Consolidated turnover  9,228  8,443  8,152  7,875  7,197 
Group operating profit (a)  1,496  831  1,562  2,188  1,631 
Net earnings (a)  1,508  651  1,079  1,507  1,282 
                 
Group operating profit per share (US cents)  108.6  60.3  113.6  159.4  119.1 
Earnings per share (US cents)  109.5  47.3  78.5  109.8  93.6 
Dividends per share (US cents) (b)  64.0  60.0  59.0  57.5  55.0 
Dividends per share (pence) (b)  37.13  37.47  41.68  38.87  34.23 
Dividends per share (Australian cents) (b)  89.70  105.93  115.27  102.44  87.11 
Weighted average number of shares (millions) (b)  1,378  1,377  1,375  1,373  1,370 
Income Statement Data      
For the years ending 31 December2004 2005 2006 
Amounts in accordance with EU IFRS(a)US$m US$m US$m 
 
Consolidated revenue12,954 19,033 22,465 
Group operating profit (b)3,327 6,922 8,974 
Profit for the year3,244 5,498 7,867 
       
Group operating profit per share (US cents)241.3 507.5 673.0 
Earnings per share (US cents)239.1 382.3 557.8 
Diluted earnings per share (US cents)238.7 381.1 555.6 
 
       
           
Dividends per share          
 2002 2003 2004 2005 2006 
 
US cents (c)          
– ordinary dividends68.5 60.5 66.0 83.5 81.5 
– special dividend— — — — 110.0 
UK pence (c)          
– ordinary dividends46.52 37.05 36.22 45.69 44.77 
– special dividend— — — — 61.89 
Australian cents (c)          
– ordinary dividends129.91 96.89 90.21 108.85 107.34 
– special dividend— — — — 145.42 
Weighted average number of shares (millions)1,377 1,378 1,379 1,364 1,333 
 
           
           
Amounts in accordance with US GAAP          
 2002 2003 2004 2005 2006 
 US$m US$m US$m US$m US$m 
 
Consolidated revenue (g)8,719 9,545 12,081 19,343 22,781 
Group operating profit (b) (g)657 936 1,312 6,229 7,499 
Net earnings (d)514 1,750 2,738 4,874 6,649 
           
Earnings per share (US cents)37.3 127.0 198.5 357.3 498.6 
Diluted earnings per share (US cents)37.3 126.9 198.2 356.2 496.6 
 

Diluted earnings per share figures are 0.2 US cents lower than the basic earnings per share figures shown for 2003 and 2001, and approximately 0.1 US cents lower than the basic earnings per share figures for 2002 and other years.

Amounts in accordance with US GAAP                
(US$ millions)                
                 
Consolidated turnover (c)  9,211  8,447  8,157  7,859  7,197 
Group operating profit (e) (g)  1,041  746  1,821  1,948  1,407 
Net earnings (e)  1,977  581  1,038  1,174  958 
                 
Group operating profit per share (US cents) (e) (g)  75.5  54.2  132.4  141.9  102.7 
Earnings per share (US cents) (e)  143.5  42.2  75.5  85.5  69.9 

Diluted earnings per share figures are 0.2 US cents lower than the basic earnings per share figures for 2003 and, approximately 0.1 US cents lower than the basic earnings per share figures for other years.

Balance Sheet Data
at 31 December		  2003  2002  2001  2000  1999 
Amounts in accordance with UK GAAP                
(US$ millions)                
                 
Total assets (e)  24,081  20,204  19,540  19,367  15,533 
Share capital / premium  2,869  2,580  2,486  2,535  2,784 
Shareholders' funds (net assets) (e)  10,037  7,462  7,043  7,211  6,963 
                 
Amounts in accordance with US GAAP                
(US$ millions)                
                 
Total assets  26,959  22,600  22,102  21,530  17,469 
Share capital / premium  2,869  2,580  2,486  2,535  2,784 
Shareholders' funds (net assets) (e)  12,044  9,517  9,571  9,812  9,928 

Rio Tinto 2003 Form 20-F3

Rio Tinto 2006 Form 20-F3

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Rio Tinto plc – part of Rio Tinto Group                
                 
Income Statement Data
for the years ending 31 December		  2003  2002  2001  2000  1999 
Amounts in accordance with UK GAAP                
(US$ millions)                
                 
Consolidated turnover  4,032  3,929  3,723  3,993  4,016 
Group operating profit (a)  368  (19) 137  915  779 
Net earnings (a)  956  195  491  1,064  970 
                 
Group operating profit per share (US cents)  34.5  (1.8) 12.9  86.0  73.4 
Earnings per share (US cents)  89.7  18.3  46.1  100.1  91.4 
Dividends per share (US cents) (b)  64.0  60.0  59.0  57.5  55.0 
Dividends per share (pence) (b)  37.13  37.47  41.68  38.87  34.23 
Weighted average number of shares (millions) (b)  1,066  1,065  1,064  1,063  1,061 

Diluted earnings per share figures are approximately 0.1 US cents lower than the basic earnings per share figures for all years.

Amounts in accordance with US GAAP                
(US$ millions)                
                 
Consolidated turnover (c)  4,012  3,929  3,727  3,982  4,016 
Group operating profit (e) (g)  (7) (481) 548  747  594 
Net earnings (e)  949  (206) 618  820  669 
                 
Group operating profit per share (US cents) (e) (g)  (0.7) (45.2) 51.5  70.2  56.0 
Earnings per share (US cents) (e)  89.0  (19.3) 58.1  77.1  63.1 

Diluted earnings per share figures are approximately 0.1 US cents lower than the basic earnings per share figures for all years.

Balance Sheet Data
at 31 December		  2003  2002  2001  2000  1999 
Amounts in accordance with UK GAAP                
(US$ millions)                
                 
Total assets (e)  13,708  12,606  11,921  11,948  11,390 
Share capital / premium  1,784  1,764  1,754  1,741  1,882 
Shareholders’ funds (net assets) (e)  7,343  5,899  5,902  6,325  5,558 
                 
Amounts in accordance with US GAAP                
(US$ millions)                
                 
Total assets  15,180  13,941  13,735  13,557  13,408 
Share capital / premium  1,784  1,764  1,754  1,741  1,882 
Shareholders’ funds (net assets) (e)  8,931  7,697  8,371  8,693  8,222 


Rio Tinto Limited – part of Rio Tinto Group                
                 
Income Statement Data
for the years ending 31 December		  2003  2002  2001  2000  1999 
Amounts in accordance with UK GAAP                
(US$ millions)                
                 
Consolidated turnover  5,196  4,514  4,429  3,882  3,181 
Group operating profit (a)  1,128  855  1,425  1,273  852 
Net earnings (a)  884  736  942  771  606 
                 
Group operating profit per share (US cents)  226.1  171.3  286.1  235.7  141.8 
Earnings per share (US cents)  177.2  147.6  189.0  142.8  100.8 
Dividends per share (US cents) (b)  64.0  60.0  59.0  57.5  55.0 
Dividends per share (Australian cents) (b)  89.70  105.93  115.27  102.44  87.11 
Weighted average number of shares (millions) (b)  499  499  498  540  601 

Diluted earnings per share figures are approximately 0.1 US cents lower than the basic earnings per share figures for all years.

Amounts in accordance with US GAAP                
(US$ millions)                
                 
Consolidated turnover (c)  5,199  4,518  4,430  3,873  3,181 
Group operating profit (e) (g)  1,048  1,231  1,273  1,201  813 
Net earnings (e)  1,647  1,267  671  614  562 
                 
Group operating profit per share (US cents) (e) (g)  210.0  246.7  255.6  222.4  135.3 
Earnings per share (US cents) (e)  330.1  254.0  134.6  113.9  93.5 

Diluted earnings per share figures are approximately 0.1 US cents lower than the basic earnings per share figures for all years.

Rio Tinto 2003 Form 20-F4

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Balance Sheet Data
at 31 December		  2003  2002  2001  2000  1999 
Amounts in accordance with UK GAAP                
(US$ millions)                
                 
Total assets (e)  13,542  10,382  9,977  9,542  5,743 
Share capital / premium  1,280  964  865  939  1,276 
Shareholders' funds (net assets) (e) (f)  4,324  2,510  1,828  1,420  2,669 
                 
Amounts in accordance with US GAAP                
(US$ millions)                
                 
Total assets  15,234  11,609  10,770  10,236  6,021 
Share capital / premium  1,280  964  865  939  1,276 
Shareholders' funds (net assets) (e)  4,996  2,922  1,920  1,795  3,233 
Balance Sheet Data      
at 31 December2004 2005 2006 
Amounts in accordance with EU IFRS(a)US$m US$m US$m 
 
Total assets26,308 29,803 34,494 
Share capital / premium3,127 3,079 3,190 
Total equity / Net assets12,591 15,739 19,385 
Equity attributable to Rio Tinto shareholders11,877 14,948 18,232 
 
       
       
 2002 2003 2004 2005 2006 
Amounts in accordance with US GAAPUS$m US$m US$m US$m US$m 
 
Total assets24,631 29,378 32,125 34,774 37,295 
Share capital / premium2,580 2,869 3,127 3,079 3,190 
Rio Tinto shareholders' funds (d)10,968 13,727 16,122 18,677 20,791 
 
   
Notes
(a)In 2003 Rio Tinto Group net earningsaccordance with the General Instructions for Form 20-F, Section G, audited information under UK GAAP are stated after exceptional gains totalling US$126 million which arose on the sale of certain operations by Rio Tinto Limited.
In 2002 Rio Tinto Group operating profit under UK GAAPEUIFRS is stated after charging US$962 millionpresented for asset write downs, of which US$529 million relates to Rio Tinto plc2004, 2005 and US$433 million relates to Rio Tinto Limited. In addition, group operating profit for 2002 includes US$116 million for environmental remediation charges which all relate to Rio Tinto plc. In 2002 net earnings for the Rio Tinto Group include US$763 million for asset write downs of which US$623 million relates to Rio Tinto plc and US$225 million relates to Rio Tinto Limited. In addition the Group’s net earnings for 2002 include US$116 million for environmental remediation charges which all relate to Rio Tinto plc.
In 2001 Rio Tinto Group operating profit under UK GAAP is stated after charging US$715 million for exceptional asset write downs, of which US$644 million relates to Rio Tinto plc and US$71 million relates to Rio Tinto Limited. In 2001 Rio Tinto Group net earnings under UK GAAP are after charges of US$583 million for asset write downs of which US$551 million relates to Rio Tinto plc and US$52 million relates to Rio Tinto Limited.
Under UK GAAP asset write downs and the environmental remediation charges are classified2006 only as ‘exceptional' but none of these items would be classified as ‘extraordinary’ items under US GAAP.International Financial Reporting Standards were adopted from 1 January 2004.
(b)These figures areOperating profit under EU IFRS includes the sameeffects of charges and reversals resulting from impairments and profit and loss on disposals of interests in businesses, including investments. Operating profit under both UKUS GAAP also includes the effects of charges but not reversals resulting from impairments but excludes profit and loss on disposals of interests in businesses, including investments. Both the EU IFRS  and US GAAP.GAAP operating profit amounts shown above exclude equity accounted operations.
(c)A cumulative adjustment was madeDividends presented above are those paid in 2000the year.
(d)Amounts shown are attributable to reflect the applicationequity shareholders of Staff Accounting Bulletin No. 101 (‘SAB101’) Revenue recognition in financial statements. The effect of SAB 101 is described on page A-62.Rio Tinto.
(d)(e)The results for all years relate wholly to continuing operations.
(e)(f)TotalThere are no differences between International Financial Reporting Standards (IFRS) and IFRS adopted by the European Union  (EU IFRS) that would impact the financial statements of the Rio Tinto Group for the years ended 31 December 2004, 2005 and 2006.
(g)Certain jointly controlled assets, and shareholders’ fundswhich previously were equity accounted under UK and US GAAP, have been restatedare proportionally consolidated under EUIFRS. The above US GAAP data for all2005 and 2006 also include these units on the basis of proportional consolidation. Amounts presented for consolidated revenue and operating profit in the years to reflect the implementation of FRS 19 Deferred Tax. The application of FRS 19 did not impact significantly on net earnings and, accordingly, net earnings2002 through 2004 have not been restated. 2001restated and 2000 Rio Tintocontinue to incorporate these units on the equity accounting basis. If these units had been subject to equity accounting, Group Rio Tinto plcconsolidated revenue and Rio Tinto Limited operating profit, respectively, would have been $2.0 billion and $1.0 billion lower (2005: $2.2 billion and $1.1 billion lower). However, net earnings and shareholders’ funds under US GAAPwould have been restated for prior years to reflect the implementation of FAS 123 Accounting for Stock Based Compensation in 2002.
(f)The decrease in Rio Tinto Limited shareholders’ funds in 2000 reflects the buy back of 91,000,000 shares from Rio Tinto plc in that year.
(g)Under US GAAP the impact of exchange differences on US dollar debt and the mark to market of certain derivative contracts are excluded from operating profit but are included in net earnings. 1999-2002 Group operating profit and Group operating profit per share figures under US GAAP have been restated to reflect this.

Risk factors
Risk factors have been discussed on page 7 of the 2003 Annual report.

Rio Tinto 2003 Form 20-F5

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Cautionary statement about forward looking statements
To come within the 'Safe Harbor' provisions of the United States Private Securities Litigation Reform Act of 1995, Rio Tinto is providing the following cautionary statement:
     This document contains certain forward looking statements with respect to the financial condition, results of operations and business of the Rio Tinto Group. The words “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believes”, “expects”, “may”, “should”, “will”, or similar expressions, commonly identify such forward looking statements. Examples of forward looking statements in this annual report on Form 20-F include those regarding estimated reserves, anticipated production or construction commencement dates, costs, outputs and productive lives of assets or similar factors. Forward looking statements involve known and unknown risks, uncertainties, assumptions and other factors set forth in this document that are beyond the Group’s control. For example, future reserves will be based in part on market prices that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, the impact of foreign currency exchange rates on market prices and operating costs, and activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty.
     In light of these risks, uncertainties and assumptions, actual results could be materially different from any future results expressed or implied by these forward looking statements. The Group does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward looking statements will not differ materially from actual results.

Item 4. Information on the Company
Information on the Rio Tinto Group has been set out on pages 9 to 21 and on pages 25 to 31 of the 2003 Annual report and in notes 26 and 27 on pages A-34 to A-38 in the 2003 Annual report – Appendix. The disclosures in connection with ore reserves are supplemented with alternative estimates for purposes of US reporting on page 147 of the 2003 Annual report and which has been repeated on page A-75 in the 2003 Annual report – Appendix. A description of Rio Tinto’s dual listed companies structure has been set out on pages 77 to 79 of the 2003 Annual report and its principal subsidiaries have been listed in note 31 on page 118 of the 2003 Annual report.

Item 5.Operating and Financial Review and Prospects

Individual listed company information: Rio Tinto plc and Rio Tinto Limited – parts of Rio Tinto Group
In December 1995 the shareholders of Rio Tinto plc and Rio Tinto Limited approved the terms of a dual listed companies (‘DLC’) merger that was designed to place the shareholders of both companies in substantially the same position as if they held shares in a single enterprise. UK GAAP recognises the DLC merger as a combination of economic interests and in order to present a true and fair view of the Rio Tinto Group the principles of merger accounting have been adopted in accordance with FRS 6. Accordingly, the Rio Tinto Group’s Operating and Financial Review and Prospects have been presented on a combined basis on pages 32 to 56 in the 2003 Annual report. Set out below is a separate discussion and analysis relating to each of the Rio Tinto plc and Rio Tinto Limited parts of the Rio Tinto Group.

Rio Tinto plc – part of Rio Tinto Group

2003 compared with 2002
Rio Tinto plc's net sales revenue (referred to as consolidated turnover in the financial statements) was US$4,032 million (2002: US$3,929 million). The three per cent increase in 2003 is largely due to the commencement of sales at Diavik.
     Profit on ordinary activities before interest and tax was US$1,512 million. The corresponding figure for 2002 was US$602 million lower, but suffered from exceptional charges of US$755 million. Iron and Titanium profits were lower in 2003 as a result of the weak US dollar, soft market conditions and the write down of a customer receivable. The pretax profit impact of reduced volumes at Kennecott Utah Copper was partly offset by benefits from higher copper prices. A loss at Rössing reflected lower prices and adverse exchange rates. 2003 profits also suffered from increased pension finance costs, resulting from the decrease in fund asset values. However, profits benefited in 2003 from Diavik's first year of operation; and there was an increase in operating profit contributed by joint ventures following expansion of capacity at Escondida.
     In 2003, net interest payable decreased to US$138 million (2002: US$156 million), as a result of lower net debt and the reduced interest rates. Interest rates for the majority of Rio Tinto plc's borrowings are based on 3 month LIBOR, which averaged 1.2 per cent in 2003 and 1.8 per cent in 2002.
     The effective tax rate was 26.1 per cent in 2003. The reduction from the 2002 tax rate of 61.8 per cent is largely due to the effect of exceptional items. Excluding these, the tax rate in 2003, at 27.1 per cent is lower than the 30.7 per cent for 2002 as a result of lower tax payments in the US. The 2003 exceptional gain of US$47 million attracted no tax charge. In 2002 tax relief recognised on the exceptional losses of US$755 million was US$9 million.
     Net earnings of US$956 million compare with US$195 million in 2002. The increase of US$761 million includes the effect of exceptional charges of US$739 million, in 2002, in contrast with gains of US$47 million in 2003.

Rio Tinto 2003 Form 20-F6

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     Total cash flow from operations was US$1,710 million (2002: US$1,976 million). Although 2003 operating profit was higher than in 2002, this largely resulted from the influence of exceptional non-cash charges.
     Capital expenditure and financial investment in 2003 was US$1,097 million (2002: US$1,205 million). The decrease was largely due to:unchanged
•(h)An increase in net funds advanced to Rio Tinto plc by Rio Tinto LimitedAs a result of US$adopting IAS 32, IAS 39 and IFRS 5 million (2002: decrease of US$87 million).
A reduction in the purchase of property plant and equipment following the completion of the Diavik project in January 2003.
The acquisition by a subsidiary company of Rio Tinto plc, of US$500 million of redeemable preference shares in a subsidiary company of Rio Tinto Limited.
•The purchase, in 2002, of US$304 million of US treasury bonds as security for the deferred consideration on the acquisition of the North Jacobs Ranch reserves.
The net cash inflow from acquisitions and disposals of US$1,209 million in 2003 reflects deferred payment by Rio Tinto Limited for the buy back in 2000 of some of its shares from Rio Tinto plc. Net debt fell from US$2,625 million in 2002 to US$1,842 million in 2003.
     Shareholders’ funds increased to US$7,343 million at 31 December 2003 (31 December 2002: US$5,899 million), largely due to retained profit and exchange gains.

2002 compared with 2001
Rio Tinto plc's net sales revenue (referred to as consolidated turnover in the financial statements) was US$3,929 million in 2002, six per cent higher than in 2001. The increase primarily reflected higher volumes at Utah Copper and higher average prices at Kennecott Energy. Profit on ordinary activities before interest and tax was US$910 million compared with US$1,253 million in 2001. Exceptional asset write downs reflected in this number were US$639 million in 2002 against US$671 million in 2001. US$480 million of the write downs in 2002 and US$531 million of the write downs in 2001 related to Utah Copper. 2002 exceptional asset write downs also included US$89 million relating to Rio Tinto Limited's write down of the Iron Ore Company of Canada Inc. The remainder of the write downs in 2001 related to gold producing assets. In addition, in 2002, there was an exceptional charge of US$116 million relating to environmental remediation works at Utah Copper. None of these exceptional charges would qualify as extraordinary items under US GAAP. In addition to the above exceptional items, the reduction in profit before interest and tax reflected the absence of the US$54 million gain on disposal of Norzink in 2001, adverse exchange rates, inflation and adverse changes in other corporate items including pension costs.
     Interest rates for the majority of Rio Tinto plc's borrowings are based on 3 month LIBOR, which averaged 1.8 per cent in 2002 and 3.8 per cent in 2001. Net interest payable was US$69 million lower than in 2001 as the lower interest rate more than offset the effect of increased net debt in the year.
     The effective tax rate was 30.7 per cent (2001: 30.1 per cent) before exceptional charges and 61.8 per cent (2001: 38.5 per cent) after exceptional charges. The 2001 effective tax rate before exceptional charges benefited from the US$54 million non taxable gain on the sale of Norzink.
     Net earnings of US$195 million (2001: US$491 million) were reduced in both years by the exceptional charges referred to above. Adjusted net earnings at US$934 million (2001: US$1,042 million) exclude the exceptional charges and are lower as a result of the factors noted above.
     Total cash flow from operations was US$1,976 million compared with US$1,532 million in 2001. Reductions in working capital in the period largely reversed the increases in 2001. Dividends from associates increased, reflecting a US$146 million dividend paid by Rio Tinto Limited to Rio Tinto plc on the DLC Dividend Share.
     Capital expenditure and financial investment remained around the same level as in 2001. However, 2002 includes the purchase of US$304 million of US treasury bonds held as security for the deferred consideration on the North Jacobs Ranch reserves acquired during the period, which is payable over the next four years. A net US$87 million of funds were advanced to Rio Tinto Limited companies in 2002 which compares with an advance of US$399 million in 2001.
     The net cash inflow from acquisitions and disposals of US$104 million in 2002 included the remittance of US$115 million from Rio Tinto Limited in relation to the buyback of some of its shares from Rio Tinto plc in 2000. Dividends paid to shareholders were US$108 million higher than in 2001 as a result of the change in policy for weighting of interim and final dividends announced in 2001. Net debt increased from US$2,311 million at 31 December 2001 to US$2,625 million at 31 December 2002 primarily reflecting the cash outflow before management of liquid resources and financing of US$235 million. Shareholders' funds were US$5,899 million at the end of 2002 compared with US$5,902 million at the end of 2001. Retained losses of US$444 million were offset by positive exchange rate changes, primarily on the Australian dollar, and the impact of the dividend on the DLC Dividend Share.

Rio Tinto Limited – part of Rio Tinto Group

2003 Compared with 2002
Rio Tinto Limited's net sales revenue (referred to as consolidated turnover in the financial statements) was US$5,196 million in 2003 (2002: US$4,514 million). The 15 per cent increase in 2003 is largely due to increased volumes and prices at the Iron Ore operations and increased prices and smelter output at Comalco. The disposals of Kaltim Prima Coal and Alumbrera during the year resulted in a reduction in share of joint ventures' and associates' turnover.
     In 2003 profit on ordinary activities before interest and tax was US$1,391 million (2002: US$1,180 million after exceptional asset write downs of US$433 million). The weakening of the US dollar against the Australian dollar and Canadian dollar, in which most of the Group's costs are denominated, reduced profit. However, 2003 profits benefited from exceptional gains on the disposal of a subsidiary, a joint venture and an associate, of US$126 million: whereas, 2002 profits were reduced by exceptional losses.

Rio Tinto 2003 Form 20-F7

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     In 2003, net interest payable decreased to US$100 million (2002: US$124 million), due largely to lower interest rates.
     The effective tax rate in 2003 was 28.7 per cent, which compares with 40.9 per cent in 2002. However, excluding the effect of exceptional items, the tax rate was 31.7 per cent in both years. The 2003 exceptional gain of US$126 million attracted no tax charge. In 2002 tax relief recognised on the exceptional losses of US$433 million was US$42 million.
     Profits attributable to outside interests increased in 2003, primarily because 2002 was impacted by the exceptional asset write downs at IOC.
     Net earnings increased to US$884 million (2002: US$736 million) as a result of the factors above.
     Total cash flow from operations was similar to 2002 at US$2,053 million (2002: US$ 2,043 million). The increase in cash flow from operating activities was offset by a reduction in dividends received from the coal joint ventures in 2003.
     Capital expenditure and financial investment increased as a result of continued expansion at Hamersley; and construction of the Comalco Alumina Refinery. During 2003 Rio Tinto Limited remitted US$1,208 million to Rio Tinto plc in respect of shares that were repurchased in 2000. In addition, a subsidiary of Rio Tinto Limited, issued US$500 million of redeemable preference shares to a subsidiary of Rio Tinto plc. The factors mentioned above combined to reduce cash flow and increase the level of net debt in 2003.

2002 Compared with 2001
Rio Tinto Limited's net sales revenue was US$4,514 million in 2002, 2 per cent higher than in 2001. The effect of higher volumes at Argyle and the commencement of West Angelas operations more than offset the absence of sales from the Forestry operations, which were disposed of in 2001. Profit on ordinary activities before interest and tax was US$1,180 million compared with US$1,745 million in 2001. This fall included the impact of US$433 million of exceptional asset write downs in 2002 compared with US$71 million of exceptional asset write downs in 2001. The 2002 exceptional asset write down related primarily to the Iron Ore Company of Canada Inc (IOC). The 2001 asset write down related to some of Rio Tinto Limited's gold producing assets. The exceptional asset write downs do not qualify as extraordinary items under US GAAP. The decrease in profit on ordinary activities before interest and tax also reflected the strengthening of the Australian dollar against the US dollar, which increased costs, and lower prices for iron ore and coal.
     The interest charge of US$124 million was US$66 million lower than in 2001.
     The effective tax rate was 31.7 per cent (2001: 33.7 per cent) before exceptional asset write downs and 40.9 per cent (2001: 34.0 per cent) after exceptional asset write downs. The effective rate before exceptional asset write downs in 2002 benefited from reductions in deferred tax provisions brought forward from prior years.
     There was a credit of US$126 million for amounts attributable to outside shareholders in 2002 compared to a charge in 2001 of US$72 million. Profits attributable to outside interests for 2002 are reduced by US$166 million as a result of exceptional asset write downs. Lower profits at partly owned operations reduced the amount attributable to outside interests in addition to this impact from exceptional asset write downs.
     Net earnings at US$736 million were US$206 million below 2001 which reflected the exceptional asset write downs of US$225 million after tax and minorities.
     Total cash flow from operations increased to US$2,043 million from US$1,992 million in 2001. Lower operating profits were offset by other favourable movements including a reduction in inventories as West Angelas came into production and as a result of an IOC shut down in August. Capital expenditure and financial investment remained at around the same level as 2001 as increased spending on the Comalco Alumina Refinery and Hail Creek compensated for the suspension of expenditure on IOC's Sept-Iles pellet plant and the completion of West Angelas.
     There were net disposals of US$138 million in 2002. The disposals largely related to units acquired with Peabody's Australian coal businesses in 2001. Acquisitions primarily related to an increase in the Group's interest in lines 1 and 2 at Boyne Smelters.
     Dividends paid in 2002 included a dividend of US$146 million paid to Rio Tinto plc in relation to the DLC Dividend Share.                                                                                     
     Rio Tinto Limited received loans of US$87 million from Rio Tinto plc during the year and repaid US$115 million of the consideration outstanding for 91,000,000 of its shares repurchased from Rio Tinto plc in 2000.
     Net debt decreased from US$3,400 million at 31 December 2001 to US$3,122 million at 31 December 2002 reflecting the cash flow during the period.

Adjusted earnings
UK Financial Reporting Standard 3 expressly permits presentation of an adjusted measure of earnings. As presented by Rio Tinto, this excludes the effect of exceptional items of such magnitude that their exclusion is useful in order that adjusted earnings fulfil their purpose of reflecting the Group’s underlying performance. Except where otherwise indicated, earnings contributions from business units and business segments exclude the effect of these exceptional items. Adjusted earnings is reconciled with net earnings on page 82 of the 2003 Annual report and on page A-2 of the 2003 Annual report – Appendix. Further information on exceptional items may be found in note 4 on page 91 of the 2003 Annual report and in note 4 on page A-13 of the 2003 Annual report – Appendix.

Critical accounting estimates
The Rio Tinto Group’s critical accounting estimates have been set out on pages 35 to 36 of the 2003 Annual report.

Rio Tinto 2003 Form 20-F8

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Trend information
The Group’s worldwide operations supply essential minerals and metals that help to meet global needs and contribute to improvements in living standards, so changes in the demand for its products are closely aligned with changes in global GDP. Changes in the GDP of developing countries will have a greater impact on materials such as iron ore and coal that can be used to improve infrastructure whereas changes in the GDP of developed countries will have a greater impact on industrial minerals that have many applications in consumer products. Trends in total turnover, earnings, cash flow, debt, equity, total capital are set out on pages 2 to 6 of the 2003 Annual report. Trends in the production of the Group’s minerals and metals are set out in the Operational review on pages 37 to 51 of the 2003 Annual report.

Item 6.Directors, Senior Management and Employees
Details of the Group’s directors, senior management and employees have been set out on pages 57 to 59 of the 2003 Annual report, the Remuneration report has been set out on pages 62 to 69 of the 2003 Annual report and board practices have been explained under Corporate governance on pages 70 to 72 of the 2003 Annual report. Details of post retirement benefits have been set out in note 41 on pages 123 to 128 of the 2003 Annual report and in note 40 on pages A-52 to A-56 of the 2003 Annual report- Appendix.
     Rio Tinto’s employment policies have been summarised on page 56 of the 2003 Annual report. Employee costs have been set out in note 3 on page 90 of the 2003 Annual report and in note 3 on page A-12 of the 2003 Annual report – Appendix, and analyses of the average number of employees by principal location and by business unit have been set out in note 30 on page 117 of the 2003 Annual report and in note 30 on page A-46 of the 2003 Annual report – Appendix.
     As made clear in The way we work, Rio Tinto’s statement of business practice, the Group recognises everyone’s right to choose whether or not they wish to be represented collectively.
     Details of the Group’s various arrangements for involving directors and employees in its shares are set out in the Remuneration report on pages 62 to 69 of the 2003 Annual report. The tables of the directors’ beneficial interests in shares and their awards under long term incentive plans and options, as included in the Remuneration report, have been updated to the latest practicable date and are reproduced as follows:

Table 3 – Directors’ beneficial interests in shares

   1 Jan
20032		  31 Dec
20038		  19 Mar
2004		 
 
Robert Adams3  56,599  71,764  71,818 
Sir David Clementi4  —  —  — 
Leigh Clifford  2,100  2,100  2,100 
   56,300  76,428  90,296 
Leon Davis  6,100  6,100  6,100 
   133,838  187,293  187,293 
Guy Elliott3  28,897  40,847  42,487 
Sir Richard Giordano  1,065  1,065  1,065 
Andrew Gould  —  —  — 
Oscar Groeneveld  19,010  19,010  19,010 
   6,909  23,515  31,357 
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 
 
Notes
1.Rio Tinto plc – ordinary shares of 10p each; Rio Tinto Limited – ordinary shares – stated in italics.
2.Or date of appointment if later.
3.These directors, together with other Rio Tinto plc Group employees, also had 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 19 March 2004 this trust fund contained 8,006 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 of the 2003 Annual report under the heading ‘Other share plans’.
7.The total beneficial interest of the directors in2005, the Group amounts to less than one per cent.
8.Or datechanged its method of retirement or resignation if earlier.
9.The sharesaccounting for financial instruments and non-current assets held byfor sale. In line with the directorsrelevant transitional provisions, the prior period comparatives have the same voting and other rights as the shares held by other shareholders.

Rio Tinto 2003 Form 20-F9

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Table 4 – Awards to directors under long term incentive plans

  Plan 1 Jan
2003		 Awarded Lapsed Vested1 31 Dec 20032 Awarded Lapsed 19 Mar 2004 
 
Robert Adams MCCP 2000 27,830 — 10,437 17,393 — — — — 
  MCCP 2001 27,330 — — — 27,330 — — 27,330 
  MCCP 2002 25,064 — — — 25,064 — — 25,064 
  MCCP 2003 — 26,837 — — 26,837 — — 26,837 
    
 
    80,224 26,837 10,437 17,393 79,231 — — 79,231 
    
 
Leigh Clifford5 MCCP 2000 37,609 — 14,104 23,505 — — — — 
  MCCP 2001 37,474 — — — 37,474 — — 37,474 
  MCCP 2002 34,435 — — — 34,435 — — 34,435 
  MCCP 2003 — 36,341 — — 36,341 — — 36,341 
    
 
    109,518 36,341 14,104 23,505 108,250 — — 108,250 
    
 
Guy Elliott MCCP 2000 4,307 — 1,616 2,691 — — — — 
  MCCP 2001 7,845 — — — 7,845 — — 7,845 
  MCCP 2002 16,935 — — — 16,935 — — 16,935 
  MCCP 2003 — 22,923 — — 22,923 — — 22,923 
    
 
    29,087 22,923 1,616 2,691 47,703 — — 47,703 
    
 
Oscar Groeneveld5 MCCP 2000 21,266 — 7,975 13,291 — — — — 
  MCCP 2001 20,934 — — — 20,934 — — 20,934 
  MCCP 2002 20,322 — — — 20,322 — — 20,322 
  MCCP 2003 — 21,469 — — 21,469 — — 21,469 
    
 
    62,522 21,469 7,975 13,291 62,725 — — 62,725 
    
 
Jonathan Leslie6 MCCP 2000 21,574 — 8,091 13,483 — — — — 
  MCCP 2001 21,192 — — — 21,192 — — n/a 
  MCCP 2002 19,758 — 19,758 — — — — — 
  MCCP 2003 — — — — — — — — 
    
 
    62,524 — 27,849 13,483 21,192 — — n/a 
    
 
Sir Robert Wilson MCCP 2000 50,191 — 18,822 31,369 — — — — 
  MCCP 2001 49,796 — — — 49,796 — — n/a 
  MCCP 2002 47,983 — — — 47,983 — — n/a 
  MCCP 2003 — 50,599 8,456 — 42,143 — — n/a 
    
 
    147,970 50,599 27,278 31,369 139,922 — — n/a 
    
 
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 – ordinary shares – stated in italics.
3.The shares awarded under the MCCP 2000 vested on 27 February 2004 but, as the performance cycle ended on 31 December 2003, they havenot 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 priorre-stated. See Note 1 to the publication of the 2003 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 vested on 28 February 2003 but as the performance cycles ended on 31 December 2002, they were dealt in the 2002 Annual report as if they had vested on that date. The values of the awards in the 2002 Annual report were based on share prices of 1,169p and A$32.52, being the closing share prices on 14 February 2003, the latest practicable prior to the publication of the 2002 Annual report. 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 2003 annual general meeting.
6.Following Mr Leslie’s resignation from the boards of Rio Tinto plc and Rio Tinto Limited on 31 March 2003, the Remuneration committee agreed 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 of the 2003 Annual report.
8.Or as at date of resignation or retirement if earlier.

Rio Tinto 2003 Form 20-F10

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Table 5 – Directors’ options to acquire Rio Tinto plc and Rio Tinto Limited shares

    Holding
at
1 Jan
2003		 Granted5 Exercised/
cancelled		 Holding
at
31 Dec
20037		 Weighted
average
option
price		 Options exercised / cancelled during year Holding
at
19 Mar
2004		 
Number Option
price		 Market
price		 Gain on
exercise
£’000		 
 
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         A$39.87 
                        
Leon Davis A 93,978 — — 93,978 A$23.44         A$23.44 
                        
Guy Elliott A 106,183 98,818 27,241 177,760 1,323p 8,292 820.0p 1,273p 38 1,323p 
              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         A$29.83 
  B 73,965     73,965 A$39.87         A$39.87 
                        
Jonathan Leslie 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 Wilson 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         
              
         
 
Ais where the options are in respect of shares whose market price at the end of the2006 financial year is equal to, or exceeds, the option price.
Bis where the options are in respect of shares whose market price at the end of the financial year is below the option price.
Notes
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 Plans 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 of the 2003 Annual report, 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.

Corporate governance
Rio Tinto is committed to high standards of corporate governance, for which the directors are accountable to shareholders. Rio Tinto’s statement on corporate governance, report of its Audit committee and Audit committee charter are set out on pages 70 to 73 of the 2003 Annual report. As a non US company Rio Tinto is permitted to follow home country standards in relation to corporate governance in lieu of complying with most of the provisions of Section 303A of the NYSE’s Listed Company Manual but as from 2005 it will be required to disclose significant differences, if any, between its standards of corporate governance and those followed by US companies under NYSE listing standards.

Rio Tinto 2003 Form 20-F11

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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. The Capital Group of Companies Inc. by way of a notice dated 5 February 2004 informed the Company of its interest in 65,148,434 ordinary shares representing 6.1 per cent of its shares as at 6 February 2004. Rio Tinto plc does not know of any arrangements which may result in a change in its control. As of 19 March 2004, the total amount of the voting securities owned by the directors of Rio Tinto plc as a group was 153,714 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 under Shareholder information on page 77 to 79 of the 2003 Annual report, is not directly or indirectly owned or controlled by another corporation or by any government. As of 19 March 2004, 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 187,439,520 shares, representing 37.56 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 19 March 2004 the total amount of the voting securities owned by the directors of Rio Tinto Limited as a group was 308,946 shares representing less than one per cent of the number in issue.
     Except as provided under the DLC Merger Sharing Agreement as explained on page 78 of the 2003 Annual report, the group’s major shareholders have the same voting and other rights as other shareholders.
     As at 19 March 2004 there were 253 US registered shareholders holding 150,158 shares in Rio Tinto plc, and 214 US registered shareholders holding 310,405 shares in Rio Tinto Limited.

Related party transactions
Details of the Group’s material related party transactions are set out in note 38 on page 122 of the 2003 Annual report and in note 38 on page A-51 of the 2003 Annual report – Appendix.
     As stated in the Financial review on page 32 of the 2003 Annual report the Group’s financial statements show the full extent of the Group’s financial commitments including debt and similar exposures. The Group’s share of the net debt of joint ventures and associates is also disclosed. It is not the Group’s practice to engineer financial structures as a way of avoiding disclosure.

Item 8.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 significant effect on either Company’s financial position or results of operations.

Dividends
The Group’s policy on dividend distributions is set out under Shareholder information on page 74 of the 2003 Annual report.

Post balance sheet events
On 22 March 2004 Rio Tinto announced that it had reached agreement with Freeport McMoRan Copper & Gold Inc (“FCX”) for FCX to acquire for cash all of Rio Tinto’s 23,931,100 FCX shares. The consideration per share will be based on the price used to establish the conversion price of FCX’s convertible preferred stock which will be issued to finance the buy back. Completion, which is subject to a number of conditions, will occur simultaneously with the closing of FCX’s convertible preferred stock offering. Gross proceeds are expected to amount to US$882 million.
     The sale of FCX shares does not affect the terms of Rio Tinto’s joint venture interest in production from the Grasberg mine which is managed by FCX.
     There have been no other significant post balance sheet events.

Item 9.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 pages 74 to 75 of the 2003 Annual report.
     The tables of the high and low share prices for Rio Tinto plc and Rio Tinto Limited shares for the most recent six months have been extended to include February 2004 and are reproduced as follows:

  Pence per
Rio Tinto plc
share		  US$ per
Rio Tinto plc
ADS		 
   High  Low  High  Low 
              
Aug 2003  1,407  1,270  90.30  82.30 
Sep 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 
Feb 2004  1,485  1,386  114.74  102.10 


   A$ per
Rio Tinto Limited
share		  US$ per
Rio Tinto Limited
ADS		 
   High  Low  High  Low 
              
Aug 2003  34.31  31.55  88.83  83.19 
Sep 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 
Feb 2004  36.62  35.08  115.60  106.75 

Rio Tinto 2003 Form 20-F12

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Item 10.Additional information

Memorandum and Articles of Association
Rio Tinto plc adopted new Articles of Association by Special Resolution passed on 11 April 2002 and Rio Tinto Limited amended its Constitution by Special Resolution on 18 April 2002. These resolutions dealt with the creation of a new special purpose share in each Company to be called a “DLC Dividend Share”. The objective of these shares is to provide improved internal funds management flexibility to the Rio Tinto Group by allowing dividends to be paid between the two parts of the Group. Neither of theses shares has any rights attaching to it, other than the right to dividends as declared by the boards. These resolutions also dealt with some relatively minor technical amendments.

Introduction
As explained on pages 77 to 79 of the 2003 Annual report under the terms of the dual listed companies (‘DLC’) merger the shareholders of Rio Tinto plc and of Rio Tinto Limited entered into certain contractual arrangements which are designed to place the shareholders of both Companies 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 with registered number 719885 and Rio Tinto Limited is incorporated under the name “Rio Tinto Limited” and is registered in Australia with ACN Number 004458404.
     No holder of shares, which may be held in either certificated or uncertificated form, will be required to make any additional contributions of capital.

Objects
The objects of Rio Tinto plc are set out in the fourth clause of its Memorandum of Association and the objects of Rio Tinto Limited are set out in the second clause of its Constitution. Included in these objects is the right for each Company to enter into, with one another, operate and carry into effect an Agreement known as the 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;
to amalgamate with and co-operate with or assist or subsidise any company, firm or person and to purchase or otherwise acquire or undertake all or any part of the business property or liabilities of any person, body or company 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 may further 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 the world either as principals, agents, contractors, trustees or otherwise.

Rio Tinto 2003 Form 20-F13

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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 all minerals, metals and substances;
to carry on business as proprietors of and to purchase, take on, lease or in exchange or otherwise acquire and control mineral and other properties, lands and hereditaments of any tenure, mines and other rights or options thereon;
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 garage proprietors, carriers and hauliers, bankers, storekeepers, wharfingers, cartage, storage, building and general contractors 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 of all kinds and merchants generally; and
to guarantee the payment of premiums on any sinking fund or endowment policy or policies taken out by any company having objects similar to the objects of the Company.
Directors
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 62 to 69 of the 2003 Annual report 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 were 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 retirement 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.

Rights attaching to Shares                
Under English law, dividends on shares may only be paid out of profits available for distribution, as determined in accordance 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 such interim dividends as appear to them to be justified by the financial position of the Group.
     Any Rio Tinto plc dividend unclaimed after 12 years from the date the dividend was declared, or became due for payment, will be forfeited and returned to the Company. Any Rio Tinto Limited dividend unclaimed may be invested or otherwise made use of by the board for the benefit of the Company until claimed or otherwise disposed of according to Australian law.

Rio Tinto 2003 Form 20-F14

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Voting rights                                              
Voting at any general meeting of shareholders is by a show of hands unless on a poll, being a written vote, that 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 page 78 of the 2003 Annual report. 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 one twentieth (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 been paid-up sums in the aggregate equal to not less than one tenth of the total sum paid up on all the shares conferring that 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 financial statements, the cumulative annual payment of dividends, the appointment of auditors, the increase of authorised share capital or the grant of authority to allot shares;
a special resolution, which includes resolutions amending the Company’s Memorandum and Articles of Association, disapplying statutory pre-emption rights or changing the Company’s name; and
•an extraordinary resolution, which includes resolutions modifying the rights of any class of the Company’s shares at a meeting of the holders of such class or relating to certain matters concerning the Company’s winding up.
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 on page 78 of the 2003 Annual report.
     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.

Variation of Rights
If, at any time, the share capital is divided into different classes of shares, the rights attached to any class may be varied, subject to the provisions of the relevant legislation, with the consent in writing of holders of three fourths in value of the shares of that 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 provision 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 third in nominal value of the issued shares of the class.
     The DLC Merger Sharing Agreement provides for the protection of the public shareholders of both Companies and so any variations of rights would be dealt with as ‘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, whether statutorily preferred creditors or normal 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 under Shareholder information on page 78 of the 2003 Annual report.discussion.

 

Rio Tinto 2003 Form 20-F15

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Limitations on Voting and Shareholding
There are no limitations imposed by either law or Rio Tinto plc's Memorandum or Articles of Association or Rio Tinto Limited's Constitution on the right of non-residents or foreign persons to hold or vote the ordinary shares or ADSs, other than the limitations that would generally apply to all shareholders and those that arise from the DLC merger.
     There are no restrictions under Rio Tinto plc’s Memorandum and Articles of Association or under English law that limit the right of non resident or foreign owners to hold or vote its shares. Nor are there any restrictions under Rio Tinto Limited’s constitution or under Australian law that limit the right of non residents to hold or vote its shares, other than under the Foreign Acquisitions and Takeovers Act 1975, see Shareholder information on pages 76 to 77 of the 2003 Annual report for details. A description of the change in control provisions triggered by significant share ownership is set out under Shareholder information on pages 78 to 79 of the 2003 Annual report.

Exchange controls
At present, there are no exchange controls or other restrictions that affect remittance of the Group’s dividends to US residents, but see Shareholder information on page 76 to 77 of the 2003 Annual report for controls on remittances to certain specified organisations and certain specified targets related to certain specified territories.

Taxation
This section describes the material United States federal income tax consequences of 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”). It applies to you only if you are a US holder, as defined below, and you hold the Group’s ADSs and Shares as capital assets for tax purposes. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:
•a dealer in securities;
a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings;
a tax-exempt organisation;
a life insurance company;
a person liable for alternative minimum tax;
a person that actually or constructively owns 10% or more of our voting stock;
a person that holds the Group’s ADSs and Shares as a part of a straddle or a hedging or conversion transaction; or
•a person 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, that was ratified and came in force on 31 March 2003, which may affect the tax consequences of the ownership of the Group’s ADSs and Shares. These laws are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the representations by The Bank of New York as Depositary and the assumption that each obligation in our deposit agreement relating to the ADRs and any agreement 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 and you are:
a citizen or resident of the United States;
a corporation created or organised under the laws of the United States or any of its political subdivision;
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 authorised to control all substantial decisions of the trust.
In general, and taking into account the earlier assumptions, for United States federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the shares represented by those ADSs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to United States federal income tax.
     Rio Tinto believes that it will not be treated as a passive foreign investment company (PFIC) for US federal income tax purposes. The further discussion of the tax consequences of holding the Group’s ADSs and shares by US residents under Shareholder information on page 76 of the 2003 Annual report assumes this treatment.
     With reference to the description of the holding requirement period pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003 included under US Federal income tax on page 76 of the 2003 Annual report, the IRS announced on 19 February 2004 that it will permit taxpayers to apply a proposed legislative change to this holding period requirement as if such change were already effective. This legislative "technical correction" would change the minimum required holding period, retroactive from 1 January 2003, to more than 60 days during the 121 day period beginning 60 days before the ex dividend date.
     US holders should consult their tax advisers regarding United States federal, state and local and other tax consequences of owning and disposing of the Group’s ADSs and Shares in their particular circumstances.

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 450 Fifth Street, NW, Washington, D.C. 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.

Rio Tinto 2003 Form 20-F16

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Item 11.Quantitative and Qualitative Disclosures about Market Risk
The Rio Tinto Group's policies for currency, interest rate and commodity price exposures, and the use of derivative financial instruments are discussed in the Financial review on pages 32 to 36 of the 2003 Annual report. In addition, the Group's quantitative and qualitative disclosures about market risk are set out in note 28 on pages 111 to 116 of the 2003 Annual report and in note 28 on pages A-39 to A-44 of the 2003 Annual report – Appendix. The discussion regarding market risk contains certain forward looking statements and attention is drawn to the Cautionary statement under Item 3 on page 6.

2003 compared with 2002
Currency hedges of trading transactions which matured during 2003 have not been replaced by new hedges. The sensitivity of the Group's earnings to currency movements has therefore increased slightly.

Exchange rates
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 incurred has an adverse effect on Rio Tinto’s net earnings. The approximate effect on the Group's net earnings of ten per cent movements from the 2003 full year average exchange rates of the currencies having most impact on costs are as follows:

  2003
Average
exchange rate
in US cents		 2003
Effect of 10%
change in full year
average
US$m		 2002
Average
exchange rate
in US cents		 2002
Effect of 10%
change in full year
average
US$m		 
 
Australian $ 65 141 +/- 54 115 +/- 
Canadian $ 71 26 +/- 64 18 +/- 
South African rand 13 22 +/- 9 14 +/- 
 

These sensitivities are based on the prices, costs and volumes for each respective year and assume that all other variables remain constant. They take into account the effect of hedges maturing in each year as disclosed in note 28 on pages 111 to 116 of the 2003 Annual report and in note 28 on pages A-39 to A-44 of the 2003 Annual report – Appendix. These exchange rate sensitivities include the effect on operating costs of movements in exchange rates but exclude the impact through revaluation of foreign currency working capital and should therefore be used with care.

Interest rates
Based on the Group's net debt at 31 December 2003 and with other variables unchanged, the approximate effect on the Group's net earnings of a one per cent increase in US dollar LIBOR interest rates would be a reduction of US$30 million (2002: US$40 million – based on the Group's net debt at 31 December 2002).

Commodity prices
Approximately 40 per cent (2002: 35 per cent) of Rio Tinto's net earnings from operating businesses came from products whose prices were terminal market related and the remainder came from products priced by direct negotiation.
     The approximate effect on the Group's net earnings of a ten per cent change from the full year average market price for the following metals would be:

  2003 2003 2002 2002 
AverageEffect of 10%AverageEffect of 10%
marketchange in full yearmarketchange in full year
priceaveragepriceaverage
 US$m US$m
 
Copper 80 c/lb 109 +/- 71 c/lb 95 +/- 
Aluminium 65 c/lb 95 +/- 61 c/lb 75 +/- 
Gold  US$363 oz 52 +/- US$309 oz 55 +/- 
 

Item 12.Description of Securities other than Equity Securities
Not applicable.

Rio Tinto 2003 Form 20-F17

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PART II

Item 13.Defaults, Dividend Arrearages and Delinquencies
None.

Item 14.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
The conclusions of management about the effectiveness of the Rio Tinto Group’s disclosure controls and procedures have been set out on page 80 of the 2003 Annual report.

Item 16A.Audit Committee Financial Expert
Details relating to the Audit committee financial expert have been set out under Corporate governance on page 72 of the 2003 Annual report.

Item 16B.Code of Ethics
Rio Tinto’s statement of business practice, The way we work and its supplementary guidance documents, has been described under Corporate governance on page 71 of the 2003 Annual report and can be viewed on the Group’s website at www.riotinto.com.     

Item 16C.Principal Accountant Fees and Services
The remuneration of the Group’s principal auditors for audit services and other services as well as remuneration payable to other accounting firms has been set out in note 37 on page 121 of the 2003 Annual report and in note 37 on page A-50 of the 2003 Annual report – Appendix.

Audit-related regulatory reporting
Includes the audit of employee benefit plans, consultation regarding GAAP and International FRS and assistance and advice in connection with the implementation of Section 404 of the Sarbanes-Oxley Act of 2002.

Further assurance services
Includes due diligence of potential business acquisitions and disposals.

Tax services
Includes tax compliance, involving the preparation or review of tax returns for corporation, income, sales, excise and other taxes and duties, consultancy in relation to tax audits, accounting, restructurings, mergers and acquisitions, advice on transfer pricing and dealing with tax returns for expatriates.

Other services
Includes reviews of risk management policies and procedures, forensic investigations, review of actuarial reports, provision of training services and other procedures of an assurance nature.

Rio Tinto has adopted policies designed to uphold the independence of the 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. The engagement of the Group’s principal auditors to provide other permitted services are individually subject to the specific approval of the Audit committee or its chairman.
     Prior to the commencement of each financial year the Group’s Finance director and its principal auditors submit to the Audit committee a schedule of the types of services that are expected to be performed during the following year for its approval. The Audit committee may 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, 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.
     The Audit committee adopted policies for the pre-approval of permitted services provided by the Group’s principal auditors during January 2003 which were further refined and adopted during September 2003. All of the 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 the Audit committee.

Item 16D.Exemptions from the Listing Standards for Audit Committees
Not applicable.

Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.

Rio Tinto 2003 Form 20-F18

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PART III

Item 17.Financial Statements
Not applicable.

Item 18.Financial Statements
The financial statements for the Rio Tinto Group and the Report of the Independent Auditors have been set out on pages 81 to 135 of the 2003 Annual report and the separate financial statements for the Rio Tinto plc and Rio Tinto Limited parts of the Rio Tinto Group and the Report of the Independent Auditors have been set out on pages A-1 to A-75 of the 2003 Annual report – Appendix.

Item 19.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
NumberDescription

1.1Memorandum and Articles of Association of Rio Tinto plc (adopted by special resolution passed on 11 April 2002) (incorporated by reference to Exhibit 1.11 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2002, File No. 1-10533).
1.2Constitution of Rio Tinto Limited (ACN 004 458 404) (as adopted by special resolution passed on 24 May 2000 and amended by special resolution on 18 April 2002) (incorporated by reference to Exhibit 1.2 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2002, File No. 1-10533).
3.1DLC Merger Implementation Agreement, dated 3 November 1995 between CRA Limited and The RTZ Corporation PLC relating to the implementation of the DLC merger (incorporated by reference to Exhibit 2.1 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 1995, File No. 1-10533).
3.2DLC Merger Sharing Agreement, dated 21 December 1995 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 2.1 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 1995, File No. 1-10533).
3.3RTZ 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 Exhibit 2.3 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 1995, File No. 1-10533).
3.4CRA 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 Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 1995, File No. 1-10533).
4.01Letter dated 1 January 1992 to Mr R Adams about supplementary pension arrangements (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 2000, File No. 1-10533).
4.02Supplementary 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).
4.03Letter dated 22 November 1994 to Mr R Adams about supplementary pension arrangements (incorporated by reference to Exhibit 4.29 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.04Letter dated 20 January 1997 to Mr R Adams about directors' pension arrangements (incorporated by reference to Exhibit 4.32 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2001, File No. 1-10533).
4.05Service 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).
*4.06Memorandum effective 1 March 2004 to Service Agreement dated 15 April 2003 between Mr R Adams and Rio Tinto London Limited.

Rio Tinto 2003 Form 20-F19

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4.07Service Agreement dated 24 March 1999 between Mr R L Clifford and Rio Tinto Limited (incorporated by reference to Exhibit 4.18 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.08Memorandum effective 1 April 1999 to Service Agreement dated 24 March 1999 between Mr R L Clifford and Rio Tinto Limited (incorporated by reference to Exhibit 4.19 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.09Memorandum effective 1 April 2000 to Service Agreement dated 24 March 1999 between Mr R L Clifford and Rio Tinto Limited (incorporated by reference to Exhibit 4.20 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.10Memorandum effective 1 April 2001 to Service Agreement dated 24 March 1999 between Mr R L Clifford and Rio Tinto Limited (incorporated by reference to Exhibit 4.21 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.11Memorandum effective 1 March 2002 to Service Agreement dated 24 March 1999 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 2001, File No. 1-10533).
4.12Memorandum effective 1 March 2003 to Service Agreement dated 24 March 1999 between Mr R L Clifford and Rio Tinto Limited (incorporated by reference to Exhibit 4.25 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2002, File No. 1-10533).
*4.13Memorandum effective 1 November 2003 to Service Agreement dated 24 March 1999 between Mr R L Clifford and Rio Tinto Limited.
4.14Service 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).
4.15Memorandum 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 the financial year ended 31 December 2002, File No. 1-10533).
*4.16Memorandum effective 1 March 2004 to Service Agreement dated 19 June 2002 between Mr G R Elliott and Rio Tinto London Limited.
4.17Service Agreement dated 19 January 1999 between Mr O L Groeneveld and Rio Tinto Limited (incorporated by reference to Exhibit 4.53 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.18Memorandum effective 1 April 1999 to Service Agreement dated 19 January 1999 between Mr O L Groeneveld and Rio Tinto Limited (incorporated by reference to Exhibit 4.54 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.19Memorandum effective 1 April 2000 to Service Agreement dated 19 January 1999 between Mr O L Groeneveld and Rio Tinto Limited (incorporated by reference to Exhibit 4.55 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.20Memorandum effective 1 April 2001 to Service Agreement dated 19 January 1999 between Mr O L Groeneveld and Rio Tinto Limited (incorporated by reference to Exhibit 4.56 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.21Memorandum effective 1 March 2002 to Service Agreement dated 19 January 1999 between Mr O L Groeneveld and Rio Tinto Limited (incorporated by reference to Exhibit 4.61 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2001, File No. 1-10533).
4.22Memorandum effective 1 March 2003 to Service Agreement dated 19 January 1999 between Mr O L Groeneveld and Rio Tinto Limited (incorporated by reference to Exhibit 4.38 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2002, File No. 1-10533).
*4.23Service Agreement dated 19 January 2004 between Mr O L Groeneveld and Rio Tinto Limited.
*4.24Memorandum effective 1 March 2004 to Service Agreement dated 19 January 2004 between Mr O L Groeneveld and Rio Tinto Limited.
4.25Service Agreement dated 1 June 1994 between Mr J C A Leslie and RTZ Limited (incorporated by reference to Exhibit 4.57 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.26Letter dated 22 November 1994 to Mr J C A Leslie about supplementary pension arrangements (incorporated by reference to Exhibit 4.58 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.27Memorandum effective 1 April 1995 to Service Agreement dated 1 June 1994 between Mr J C A Leslie and RTZ Limited (incorporated by reference to Exhibit 4.59 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.28Letter dated 20 January 1997 to Mr J C A Leslie about directors' pension arrangements (incorporated by reference to Exhibit 4.60 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.29Memorandum effective 1 April 1998 to Service Agreement dated 1 June 1994 between Mr J C A Leslie and Rio Tinto London Limited (formerly RTZ Limited) (incorporated by reference to Exhibit 4.61 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.30Memorandum effective 1 April 1999 to Service Agreement dated 1 June 1994 between Mr J C A Leslie and Rio Tinto London Limited (formerly RTZ Limited) (incorporated by reference to Exhibit 4.62 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).

Rio Tinto 2003 Form 20-F20

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4.31Memorandum effective 1 April 2000 to Service Agreement dated 1 June 1994 between Mr J C A Leslie and Rio Tinto London Limited (formerly RTZ Limited) (incorporated by reference to Exhibit 4.63 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.32Memorandum effective 1 April 2001 to Service Agreement dated 1 June 1994 between Mr J C A Leslie and Rio Tinto London Limited (formerly RTZ Limited) (incorporated by reference to Exhibit 4.64 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.33Memorandum effective 1 March 2002 to Service Agreement dated 19 August 1991 between Mr J C A Leslie and Rio Tinto London Limited (formerly RTZ Limited) (incorporated by reference to Exhibit 4.70 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2001, File No. 1-10533).
4.34Service Agreement dated 1 January 1992 between Sir Robert Wilson and RTZ Limited (incorporated by reference to Exhibit 4.01 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.35Letter dated 1 January 1992 to Sir Robert Wilson about supplementary pension arrangements (incorporated by reference to Exhibit 4.02 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.36Supplementary letter dated 1 January 1992 to Sir Robert Wilson about pension arrangements (incorporated by reference to Exhibit 4.03 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.37Memorandum effective 1 April 1992 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and RTZ Limited (incorporated by reference to Exhibit 4.04 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.38Memorandum effective 1 April 1993 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and RTZ Limited (incorporated by reference to Exhibit 4.05 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.39Letter dated 9 March 1994 amending Service Agreement dated 1 January 1992 between Sir Robert Wilson and RTZ Limited (incorporated by reference to Exhibit 4.06 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.40Memorandum effective 1 April 1994 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and RTZ Limited (incorporated by reference to Exhibit 4.07 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.41Letter dated 22 November 1994 to Sir Robert Wilson about supplementary pension arrangements (incorporated by reference to Exhibit 4.08 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.42Memorandum effective 1 April 1995 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and RTZ Limited (incorporated by reference to Exhibit 4.09 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.43Memorandum effective 1 April 1996 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and RTZ Limited (incorporated by reference to Exhibit 4.10 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.44Letter dated 20 January 1997 to Sir Robert Wilson about directors' pension arrangements (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 2000, File No. 1-10533).
4.45Memorandum effective 1 April 1997 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and RTZ Limited (incorporated by reference to Exhibit 4.12 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.46Memorandum effective 1 April 1998 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and Rio Tinto London Limited (formerly RTZ Limited) (incorporated by reference to Exhibit 4.13 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.47Memorandum effective 1 April 1999 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and Rio Tinto London Limited (formerly RTZ Limited) (incorporated by reference to Exhibit 4.14 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.48Memorandum effective 1 April 2000 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and Rio Tinto London Limited (formerly RTZ Limited) (incorporated by reference to Exhibit 4.15 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.49Supplementary letter dated 14 February 2001 to Sir Robert Wilson about reduction of notice period (incorporated by reference to Exhibit 4.16 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.50Memorandum effective 1 April 2001 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and Rio Tinto London Limited (formerly RTZ Limited) (incorporated by reference to Exhibit 4.17 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).

Rio Tinto 2003 Form 20-F21

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4.51Memorandum effective 1 March 2002 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and Rio Tinto London Limited (formerly RTZ Limited) (incorporated by reference to Exhibit 4.18 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2001, File No. 1-10533).
4.52Memorandum effective 1 March 2003 to Service Agreement dated 1 January 1992 between Sir Robert Wilson and Rio Tinto London Limited (formerly RTZ Limited) (incorporated by reference to Exhibit 4.19 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2002, File No. 1-10533).
4.53Mining 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).
4.54Share 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).
4.55Medical expenses plan (incorporated by reference to Exhibit 4.67 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
4.56Pension plan (incorporated by reference to Exhibit 4.68 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2000, File No. 1-10533).
*8.1List of subsidiary companies.
*10.1Consent of Independent Accountants.
*99.1Certifications pursuant to Rule 13a-14(a) of the Exchange Act.
*99.2Certifications furnished pursuant to Rule 13a-14(b) of the Exchange Act (such certificate is not deemed filed for purpose of Section 18 of the Exchange Act and not incorporated by reference with any filing under the Securities Act).

SIGNATURE

The Registrants hereby certify that they meet all of the requirements for filing on Form 20-F and that they have duly caused and authorised the undersigned to sign this Annual Report on their behalf.

Rio Tinto plc2006
Rio Tinto Limited
(Registrant)(Registrant)


/s/   Anette Lawless/s/   Anette Lawless
Name: Anette Lawless
Name: Anette Lawless
Title: SecretaryTitle: Assistant Secretary
Date: 26 March 2004

Rio Tinto 2003 Form 20-F22

Rio Tinto

Rio Tinto is a leader in finding, mining and processing the earth’s mineral resources. The Group’s worldwide operations supply essential minerals and metals that help to meet global needs and contribute to improvements in living standards. Rio Tinto encourages strong local identities and has a devolved management philosophy, entrusting responsibility with accountability to the workplace.
In order to deliver superior returns to shareholders over time, Rio Tinto takes a long term and responsible approach to the Group’s business. We concentrate on the development of first class orebodies into large, long life and efficient operations, capable of sustaining competitive advantage through business cycles.
Major products include aluminium, copper, diamonds, energy products (coal and uranium), gold, industrial minerals (borax, titanium dioxide, salt and talc) and iron ore. The Group’s activities span the world but are strongly represented in Australia and North America with significant businesses in South America, Asia, Europe and southern Africa.
Wherever Rio Tinto operates, health and safety is our first priority. We seek to contribute to sustainable development. We work as closely as possible with our host countries and communities, respecting laws and customs. We minimise adverse effects and strive to improve every aspect of our performance. We employ local people at all levels and ensure fair and equitable transfer of benefits and enhancement of opportunities.


Cover photograph, stacked aluminium billets at Boyne Island smelter, Australia.

2003 Annual report and financial statements
FORM 20-FANNUAL REPORT AND FINANCIAL STATEMENTS
The information referenced in this Annual report and financial statements will be incorporated into Rio Tinto’s Annual report on Form 20-F that will be filed with the US Securities and Exchange Commission (SEC). This filing will exclude certain pages that are not SEC compliant and will include some additional replacement pages and additional data and so the index to Form 20-F is for general reference only.Rio Tinto’s Annual report and financial statements encompass Australian, UK and relevant US statutory requirements. The majority of shareholders have chosen to receive a shorter Annual review but those who wish to receive the full Annual report and financial statements for all future years may do so by writing to the Companies’ registrars.
The attention of readers is drawn to the Risk factors and Cautionary statement about forward looking statements on page 7.Both the above documents are also available in electronic form. For futher details please visit the Rio Tinto website www.riotinto.com
 Form 20-F Item Annual report contentsPage 
       
       
    Chairman’s letter2 
    Chief executive’s report3 
       
3 Key Information Selected financial data6 
    Risk factors & cautionary statement about  
    forward looking statements7 
       
4 Information on the Company About Rio Tinto9 
    Tables of production; reserves; resources13 
    Map of Group operations25 
    Information on Group mines26 
    Information on Group smelters, refineries and  
    processing plants30 
       
5 Operating and Financial Review and Prospects Financial review32 
    Operational review:  
         Iron Ore37 
         Energy40 
         Industrial Minerals42 
         Aluminium44 
         Copper46 
         Diamonds50 
         Exploration52 
         Technology54 
         Society & environment55 
       
6 Directors, Senior Management and Employees Executive committee members57 
    Chairman and Directors58 
    Directors’ report60 
    Remuneration report62 
    Corporate governance70 
    Audit committee73 
    Shareholder information74 
         Dividends74 
         Market listings and share prices74 
         Taxation75 
         Exchange controls76 
         Dual listed companies structure77 
         Supplementary information79 
       
7 Major Shareholders and Related Party Transactions Other disclosures80 
8 Financial Information    
9 The Offer and Listing    
10 Additional Information    
11 Quantitative and Qualitative Disclosures about Market Risk    
13 Defaults, Dividend Arrearages and Delinquencies    
14 Material Modifications to the Rights of Security Holders    
  and Use of Proceeds    
15 Controls and Procedures    
16A Audit Committee Financial Expert    
16B Code of Ethics    
16C Principal Accountant Fees and Services    
18 Financial Statements 2003 Financial statements81 
       
    Supplementary information for US investors137 
    Rio Tinto share ownership, definitions, exchange rates,  
    financial calendar & useful addresses149 
       
       
Rio Tinto 2003 Annual report and financial statements14

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Chairman’s letter

Adjusted earnings
US$m

Net earnings
US$m

Net earnings in 2001
2002 and 2003 were
after exceptional items.

Cash flow from
operations
US$m

Dividends per share
US     UK      Australian
cents  pence  cents



Dividends from
associates and
joint ventures


Operating cash flow

Dear shareholder
Having joined the board as a non executive director in 2001, I was delighted to be asked to succeed Sir Robert Wilson as chairman in November 2003. I look forward to working with Leigh Clifford and his executive team and I share fully the Group’s long standing commitment to creating shareholder value, delivering operational excellence and embracing sustainable development.
     My focus will be on corporate governance, strategy and relations with our key stakeholders. I intend to contribute where possible to the Group’s continuing efforts to integrate sustainable development into our business. Rio Tinto now represents my principal activity and I will commit whatever time is required to fulfil my role.
     The year 2003 proved to be challenging for Rio Tinto. As the world economy continued its slow recovery, strong growth in key markets, like China, resulted in significant increases in the prices of some of our key commodities. This was particularly the case with iron ore, copper and alumina. Prices for seaborne thermal and coking coal improved towards the end of the year, but those for industrial minerals remained weak.
     Unfortunately, revenue gains from higher US dollar prices were mostly offset by the weakness of the US dollar against some of our main producing currencies. We also incurred higher costs as a result of supply and logistical constraints and a number of operational events which affected production at some of our businesses.
     Our adjusted earnings were US$1,382 million, US$148 million below 2002, while net earnings were US$1,508 million, or 109.5 US cents per share. The term adjusted earnings is defined on page 32. Cash flow from operations was US$3,486 million, only seven per cent below the previous year. Dividends equivalent to 64 US cents per share have been declared for 2003 as a whole compared with 60 US cents in 2002. This also means that the 2004 interim dividend payable in September can be expected to be 32 US cents per share.
     We continue to manage our assets proactively. Our diversified portfolio includes many world class assets across a range of commodities which continue to provide resilience in earnings as well as attractive growth opportunities. Our current development programme includes major investments in our iron ore, bauxite and alumina operations. New capacity has also recently been added in coking coal and diamonds. During 2004/2005 we plan to

invest approximately US$4 billion in our core businesses.
     We aim to achieve high standards of corporate governance. Our board consists of nine non executive directors, of whom seven have been assessed by the board to be fully independent, four executive directors and myself as chairman. Collectively, the non executive directors bring an outstanding range of experience which is vital to good governance and corporate accountability in today’s world. An account of our level of compliance with both the current and the new, recently introduced, Combined Codes in the UK is given in our discussion of corporate governance starting on page 70. We also comply with the requirements of the Australian Stock Exchange Best Practice Corporate Governance Guidelines and those of other authorities in countries where we have obligations.
     Lord Tugendhat will be retiring from the board at this year’s annual meeting after seven years of distinguished contribution, for which we thank him. We welcomed Sir John Kerr, formerly head of the UK Diplomatic Service, to the board in October 2003 and he is standing for election to the board at the forthcoming annual general meetings.
     This letter would not be complete without special recognition of Sir Robert Wilson’s retirement after 33 years of outstanding service to the Group. Bob’s vision and strategic leadership were pivotal to a number of major portfolio transactions which have transformed Rio Tinto into the industry leading position it holds today. We thank him for all he has done for the Group, and for shareholders, and wish him well in his new activities.
     Looking forward to 2004, we expect to see stronger markets for a number of our products. Overall market conditions and increased production from recent investments look encouraging. However, exchange rate developments will be a critical determinant of earnings in 2004.
     In conclusion, I would like to acknowledge the hard work and dedication of Rio Tinto’s employees throughout the world in 2003. Their contribution and continuing commitments to our core values is a vital factor in delivering sustained high performance in a challenging world.



Paul Skinner Chairman



2

Rio Tinto 2003Annual report and financial statements

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Chief executive’s report

Graph
intentionally
omitted

Product group
earnings
US$m

Note: 2003, 2002 and 2001
exclude exceptional items.
Product group earnings are stated before exceptional items, net
interest, exploration and evaluation costs and other central items. A reconciliation is shown on page 132.

The year 2003 was characterised by the impact of the weak US dollar eroding margins and by prices which did not strengthen until towards the end of the year. However, strong cash flow and a number of completed and current projects paved the way for strong progress to be sustained in the future. Continuing robust demand from China has presented us with opportunities for growth in a number of commodities.

Operating performance
Product group earnings were US$1,584 million, compared with US$1,776 million in 2002.
     Market conditions remained difficult for much of the year. An additional challenge was the rapid depreciation of the US dollar against most major currencies which had a significant effect on our earnings. Periods of US dollar weakness have been typically associated with stronger commodity prices. We saw metals prices responding to the weaker dollar in the second half of the year. However, our US based businesses benefited from higher copper and gold prices without incurring additional production costs.
     Demand for iron ore, alumina, coking coal and diamonds has been strong. Towards the end of the year there was improved demand and prices for thermal coal from Australia.
     The unprecedented demand for iron ore is stretching our infrastructure. Capacity and infrastructure expansions at Hamersley Iron and Robe River are under way involving expenditure of more than US$1 billion.

Strategy
Rio Tinto has had a very consistent strategy resulting in long term shareholder returns superior to those delivered by most of our peers. Fundamentally, we remain convinced that our competitive advantage is in mining, and that returns are best in the upstream part of the industry.
     Furthermore, we believe that the best returns are delivered by large, long life, low cost orebodies that often have the potential for further development in the future. In order to maximise the value of these high quality assets we focus on operational excellence. Our growth comes from creating options and recognising opportunities. We do not set growth targets but look at the quality of each investment opportunity on its merits.
     The strength of our balance sheet coupled with the resilience of our cash flows enables us to invest in projects throughout the economic cycle. Across our portfolio we have a range of value creating opportunities and numerous options for future growth.

New projects
Because our strength lies in long life assets, we have the capability in the current environment to increase production in line with demand. We have recently invested heavily in copper, alumina, iron ore and diamonds. Weare especially pleased with the Diavik diamond project in Canada, which reinforces our

position in the diamond industry. We opened the Hail Creek coking coal mine in Australia just as demand was firming and Comalco’s alumina refinery in Australia, which will make us a major player in the alumina market, is on track to ship its first product in early 2005.
     Opportunities to invest have been enhanced considerably by China’s ongoing demand for raw materials. While there will undoubtedly be hiccups along China’s growth path, fundamentally we believe the underlying trend for industrialisation in China presents a significant opportunity for the mining industry. We have positioned Rio Tinto to take its fair share of a market, the size of which has no precedent in our industry.
     Hail Creek coking coal is a huge resource, giving us options for expansion as market demand allows. In iron ore, we are expanding capacity significantly. We have options for expansion of the new Comalco Alumina Refinery which will increase the demand for bauxite from Weipa.
     In 2003, we pursued opportunities for asset disposals in a patient and disciplined manner. We sold our interests in Minera Alumbrera, Peak Gold, Kaltim Prima Coal and a number of exploration projects that did not fit our investment criteria. The sale of Fortaleza in Brazil was also agreed in 2003.
     Following our Exploration group’s evaluation of the large Resolution copper deposit in the US, the project was transferred to the Copper group in 2003 for further study.

Iron ore
Iron ore shipments were at an all time high, and we celebrated our 30th anniversary of iron ore exports to China. Rio Tinto shipped more than 100 million tonnes of iron ore in 2003.
     In December, we announced an investment of US$920 million to increase output at Hamersley Iron. This involves increasing Dampier port capacity to 116 million tonnes per annum by late 2005, from the current 74 million tonnes per annum capacity, and expanding the Yandicoogina mine to produce 36 million tonnes per annum by early 2005 from the 24 million tonnes per annum capacity it will achieve in 2004. The Robe River joint venture approved a US$105 million expansion of the new West Angelas mine from 20 million tonnes per annum to 25 million tonnes.
     Rio Tinto’s managed iron ore infrastructure capacity in Australia is currently about 130 million tonnes per annum. These investments will take this to about 170 million tonnes by 2006.

Energy
Our energy businesses were challenged by weak markets for most of 2003. Continuing pit stability issues affected production in the US. In Australia, the formation of Rio Tinto Coal Australia unified management of our coal interests in New South Wales and Queensland.
     We increased our production of hard


Rio Tinto 2003 Annual report and financial statements3

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Chief executive’s report continued

Net debt: total capital
%

coking coal with the commencement of the Hail Creek mine, and the opening of the Ti Tree area at the Kestrel mine. Chinese steel mills have shown considerable interest in the Hail Creek product, indicating potential for a faster ramp up of production than was initially planned.

Industrial minerals
Demand for industrial minerals is related to the performance of mature economies, which have been weak. Market conditions in 2003 were consequently very difficult. To varying degrees, all products– borates, talc, titanium dioxide, salt – have had to contend with soft markets in 2003.
     In the case of salt and titanium dioxide, the situation has been compounded by new supply and high customer stocks. We have curtailed production and taken action to mitigate the impact of lower production on the cost base, in anticipation of markets continuing to be oversupplied. In the case of our boric acid and upgraded slag expansions, we are allocating resources in areas where we see good opportunities for growth. Our industrial minerals assets are of high quality and capital demands have been low in recent years so cash generation continues to be solid.

Aluminium
In aluminium, our main focus is the development of our alumina business. The options we have to expand mean that we could be a six million tonnes per annum alumina producer within a decade.
     Our two major projects in Queensland are working towards this goal. Two years into construction, our new alumina refinery at Gladstone will come on stream at a rate of 1.4 million tonnes per annum late in 2004. Designed to have an ultimate annual capacity of over four million tonnes, we are already looking at a phase two expansion. At Weipa, the source of the high quality bauxite that underpins our alumina business, we are increasing annual production to 16.5 million tonnes from the current capacity of 12 million tonnes. Three million tonnes of this capacity is required to support stage one of the new alumina refinery.

Copper
A slippage and subsequent debris flow at the Grasberg mine in Indonesia late in the year affected earnings in the fourth quarter. Despite this event and depressed prices for most of the year, our Copper group was able to maintain a robust earnings performance. We are well positioned to benefit from an upturn in the market. We have invested a total of US$850 million atPalabora, Escondida, Northparkes and Grasberg, and these projects are expected to be at full production by 2005.
     We have made significant progress at Kennecott Utah Copper in the US to improve performance. The finalisation of a labour agreement in June, work practice changes in the mine, together with the implementation of 12 hour shifts, have resulted in a significant improvement in productivity.

Diamonds
Diamonds have become a major product for Rio Tinto. About a quarter of our exploration expenditure is devoted to the search for diamonds, mainly in Canada, but also in India.
     The Diavik diamond mine was completed ahead of schedule and within budget. The process plant reached design throughput of 1.5 million tonnes of ore per annum six months ahead of schedule. We have established a strategic planning team separate from mine operations to look at options, including underground mining and construction of a second dike to open a third kimberlite pipe.
     Initial production from Diavik entered a robust diamond market and we have enjoyed good sales volumes and prices significantly higher than the feasibility study projections. At the same time, Argyle in Australia benefited from the sale of stockpiled inventory.

Safety, health, environment
and communities
We place the utmost importance on health and safety in the workplace. While our record compares very well with our own and other industries, the rate of improvement towards our goal of zero injuries levelled off in 2003. Rigorous compliance with the Rio Tinto safety standards and increased visible


4

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leadership from all levels of management is expected. The 2003 winners of the Chief Executive’s Safety Award were US Borax’s Boron mine in California, Rio Tinto Brasil’s Morro do Ouro gold mine and Comalco’s Tiwai Point aluminium smelter in New Zealand. The award recognises outstanding performance as a leadership example for other Group operations.
     Despite our strenuous efforts, I very much regret to have to report that there were six deaths at operations we manage in 2003; three were Group employees and three were contractors. There were 468 lost time incidents during the year, a four per cent decrease from 2002. The frequency rate was 0.81 compared with 0.85 in 2002.
     By the end of 2003, 80 per cent of our managed operations had implemented the ISO 14001 environmental management system (EMS) or equivalent. We are now requiring all operations to certify their EMS by mid 2005. To complement the safety standards we are implementing Group wide occupational health and environmentstandards. We are targeting fewer workplace exposures and new cases of occupational disease. We seek improved efficiency of greenhouse gas emissions, energy use and fresh water withdrawn from the environment. Specific five year targets have been integrated into business plans to ensure that fully resourced and costed action plans are in place to achieve them.
     We made further progress in integrating sustainable development practices and approaches into our activities. Most businesses have appointed cross functional teams to implement a sustainable development framework appropriate to local circumstances, and efforts are being made to formalise the incorporation of relevant criteria into key business decisions.
     All of our businesses continued to report social and environmental performance to their local communities. Increasingly, this includes community verification.

Outlook
While 2003 was challenging, the Group’s strong fundamentals ensured a satisfactory operating and financial result. We are ready to

benefit from improving economic conditions.
     In 2003, the world economy ended in better shape, with growth in China being a significant factor. Together with the cyclical upswing in the US and in other developed economies, significant pressure is being exerted on mineral raw materials markets. Iron ore and coking coal are particularly short whilst copper is getting rapidly tighter. Deferral of production at Grasberg due to the slippage event will, however, affect copper production.
     The major economic uncertainty ahead lies in the currency markets, both with respect to possible impacts on our costs expressed in US dollars, and the responses which further moves in exchange rates might provoke from economic policy makers.
     Our natural hedge against the weakening US dollar provided by strengthening prices for our diverse product range protects us to some extent, as does our policy of borrowing at floating interest rates, but the relative value of the US dollar remains a key uncertainty.
     Considering the expansion plans we have announced, and the strong outlook for a number of our products on the back of growth in China, we see a promising medium to long term outlook, with our performance underpinned by some of the best mining assets in the world.
     Finally, whatever the mix of challenge and opportunity, I am delighted to be supported by a very strong management team and employees of the highest calibre. In the end, it is the quality of people that makes the difference in delivering long term value. Recognising this, we are increasing our focuson developing a cadre of future leaders. I believe that Rio Tinto is exceptionally well placed in this regard to continue to deliver value to our shareholders.

Leigh CliffordChief executive


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Selected financial data for Rio Tinto Group for the period 1999 to 2003

Gross turnover
US$m

Graph
intentionally
omitted

Cash flow from
operations
US$m

Capital expenditure and
financial investment
US$m


Adjusted earnings
US$m

A reconciliation of
adjusted earnings with
net earnings is
included on page 82.

Net earnings
US$m

Net earnings in 2001,
2002 and 2003 were
after exceptional items.

Adjusted earnings
per share
US cents

Net earnings per share
US cents


Dividends per share
US cents

UK pence

Australian cents



Shareholders’ funds
US$m

Total capital
US$m

Net debt:total capital
%


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Risk factors and cautionary statement

RISK FACTORS

The following describes some of the risks that could affect Rio Tinto. In addition, some risksThere may be additional risks unknown to Rio Tinto and other risks, currently believed to be immaterial, could turn out to be material. These risks, whether individualthey materialise individually or simultaneous occurrences,simultaneously, could significantly affect the Group’s business and financial results. They should also be considered in connection with any forward looking statements in this document and the cautionary statement below.on the following page.

Economic conditions

Commodity prices, and demand for the Group’s products, are influenced strongly by world economic growth, particularly that in the US and China.Asia. The Group’s normal policy is to sell its products at prevailing market prices. Commodity prices can fluctuate widely and could have a material and adverse impact on the Group’s asset values, revenues, earnings and cash flows.
The strong underlying economic conditions and commodity prices have led to a rapid growth in demand for technical skills in mining, metallurgy and geological sciences, and for materials and supplies related to the mining industry, causing skills and materials shortages. The retention of skilled employees, the recruitment of new staff and the purchasing of materials and supplies may lead to increased costs, interruptions to existing operations and to delays in new projects.
Further discussion can be found on page 11,12, Business environment, markets and markets,regulations, and on page 34, Commodity79, commodity prices.

Exchange rates

The Group’s assets,asset values, earnings and cash flows are influenced by a wide variety of currencies due to the geographic diversity of the Group’s sales and the countries in which it operates.areas of operation. The US dollar is the currency in which the majority of the Group’s sales are denominated. Thedenominated in US dollars.The Australian and US dollars are the most important currencies influencing costs. The relative value of currencies can fluctuatecanfluctuate widely and could have a material and adverse impact on the Group’s revenues,asset values, costs, earnings and cash flows. Further discussion can be found on page 34,under, Exchange rates, reporting currencies and currency exposure.exposure on page 77.

Acquisitions

The Group has grown partly through the acquisition of other businesses. There are numerousBusiness combinations commonly entail anumber of risks commonly encountered in business combinations and Rio Tinto cannot ensurebe sure that management will be able effectively to integrate businesses acquired, oracquiredor generate the cost savings and synergies anticipated. Failure to do so could have a material and adverse impact on the Group’s costs, earnings and cash flows. Furthermore, the Group may, under the terms of the acquisition, be liable forthe past acts or omissions of the acquired businesses in circumstances where the price paid does not adequately reflect the eventual cost of these liabilities.

Exploration and new projects

The Group seeks to identify new mining properties through an active exploration programme. However, thereThere is no guarantee,however, that such expenditure will be recouped or that the existing mineral reserves will be replaced. Failure to do so couldsocould have a material and adverse impact on the Group’s financial results and prospects. In particular, Rio Tinto has commenced or recommenced exploration for new projects in a number of new countries which may increase risksaround land and resource tenure.
The Group develops new mining properties and expands its existing operations as a means of generating shareholder value. However, there are increasingIncreasing regulatory, environmental and

social approvals are, however, required thatwhich can potentially result in significantinsignificant increases in construction costs and/or significant delays in construction. These increases could materially andadversely affect the economics of a project and, adversely impact upon a project’s economics,consequently, the Group’s asset values, costs, earnings and cash flows.

Reserve estimationOre reserve estimates

There are numerous uncertainties inherent in estimating ore reserves. Reservesreserves; assumptions that are valid at the time of estimation may change significantly when new information becomes available. Fluctuations
Changes in the priceforecast prices of commodities, exchange rates, increased production costs or reduced recovery rates may render lower gradechange theeconomic status of reserves uneconomic and may, ultimately, result in a restatement. A significant restatementthe reserves being restated. Such changes in reserves could have a material and adverse impact on the Group’sdepreciation and amortisation rates, asset carrying values, costs, cash flowsdeferred stripping calculations and earnings.provisions forclose down, restoration and environmental clean up costs. Further discussion can be found under Ore reserve estimates on page 82.

Political and community

The Group has operations in some countries wherejurisdictions having varying degrees of political instability exist.and commercial instability. Political instability can result in civil unrest, expropriation, nationalisation, renegotiation or nullification of existing contracts,agreements, mining leases and permits, or other agreements, changes in laws, taxation policies or currency restrictions. Commercial instability caused by bribery and corruption in their various guises can lead to similar consequences. Any of these can have a material adverse impact uponeffect on the profitability or, in extreme cases, the viability of an operation.
Some of the Group’s current and potential operations are located in or near communities that may now, or in the future, regard such an operation as having a detrimental effect on their economic and social circumstances. Should this

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occur, it mightmay have a material adverse impact uponon the profitability or, in extreme cases, the viability of an operation. In addition, such an event may adversely affect the Group’s ability to enter into new operations.operations in the country.

Technology

The Group has invested in and conductsimplemented information system and operational initiatives. Several technical aspects of theseofthese initiatives are still unproven and the eventual operational outcome or commercial viability cannot be assessed with certainty.Accordingly,certainty.Accordingly, the costs and benefits from participating and investing in new technologiesthese initiatives and the consequent effects on the Group’sGroup’s future earnings and financial results may vary widely from present expectations.

Land and resource tenure

The Group operates in several countries where title to land and rights in respect of land and resources (including indigenous(includingindigenous title) are sometimesmay be unclear and disputes may ariselead to disputes over resource development. Such disputes could disrupt somerelevant mining projects and/or impede the Group’s ability to develop new mining properties.

Health, safety and environment

Rio Tinto operates in an industry that is subject to numerous health, safety and environmental laws and regulations andaswell as community expectations. Evolving regulatory standards and expectations can result in increased litigation and/or increased capital, operating, compliance and remediationorincreased costs all of which can have a material and adverse impacteffect on earnings and cash flows.

Mining operations

Mining operations are vulnerable to a number of circumstances beyond the Group’s control, including transport disruption, weather and other natural disasters, such as cyclones and flooding, unexpected maintenance problems, collapse or damage to pit walls, unexpected geological variations and industrial actions. These can affect costs at particular mines for varying periods. Mining, smelting and refining processes also rely on key inputs, for example fuel and electricity. Appropriate insurance can provide protection from some, but not all, of the costs that may arise from unforeseen events. Disruption to the supply of key inputs, or changes in their pricing, may have a material and adverse impact on the Group’s asset values,costs, earnings and cash flows.

Rehabilitation

Costs associated with rehabilitating land disturbed during the mining process and addressing environmental, health and communityandcommunity issues are estimated and provided for based on the most current information available. However, there is a risk that estimatesEstimates may, however, be insufficient and/or further issues may be identified. Any underestimated or unidentified rehabilitation costs willcostswill reduce earnings and could materially and adversely affect the Group’s financial resultsasset values, earnings and cash flows.

Non managed projects and operations

Rio TintoWhere projects and operations are controlled and managed by the Group’s partners, the Group may provide expertise and advice, but it cannot guarantee that localcompliance with its standards and objectives. Improper management or ineffectivepolicies, procedures or controls could not only adversely affect the value of mining and processing assets where it does not have managerial control will comply withthe related non managed projects andoperations but could also, by association, harm the Group’s standards or objectives, nor that they continually maintain effective policies, proceduresother operations and controls, including disclosure and reporting controls, over theirfuture access to new assets.

CAUTIONARY STATEMENT ABOUT FORWARD LOOKING STATEMENTS

This document contains certain forward looking statements with respect to the financial condition, results of operations and business of the Rio Tinto Group. The words “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believes”, “expects”“expects”, “may”, “should”, “will”, or similar expressions, commonly identify such forward looking statements. Examplesstatements.Examples of forward looking statements in this Annualannual report on Form 20-Finclude, without limitation, those regardingestimated ore reserves, anticipated production or construction commencement dates, costs, outputs and productive lives of


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Risk factors and cautionary statement continued

assets or similar factors. Forward looking statements involve known and unknown risks, uncertainties, assumptions and other factors set forth in this document that are beyond the Group’s control. For example, future ore reserves will be based in part on market prices that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors that could affect the Group’s results include the ability to produce and transport products profitably, demand for our products, the impacteffect of foreign currency exchange rates on market prices and operating costs, and activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty.

In light of these risks, uncertainties and assumptions, actual results could be materially different from any future results expressed or implied by these forward looking statements. Thestatements which speak only as at the date of this report. Exceptas required by applicable regulations or by law, the Group does not undertake any obligation to publicly update or reviseorrevise any forward looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward looking statements will not differ materially from actual results.results.

 


8Rio Tinto 2003 2006Annual report and financial statementsForm 20-F6

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Item 4.Information on the Company

About Rio Tinto

INTRODUCTION

Rio Tinto is a leading international mining group whose business is finding, mining and processing the earth’s mineral resources. The Group’s interests are diverse both in geography and product. Our activities span the world but we are strongly represented in Australia and North America and we have significant businesses in South America, Asia, Europe and southern Africa. Those businesses include open pit and underground mines, mills, refineries and smelters as well as a number of research and service facilities.
The Group combines Rio Tinto plc, registered in England and Wales, listed on the London Stock Exchange and headquartered in the UK; and, Rio Tinto Limited, incorporated in Victoria, Australia, listed on the Australian Securities Exchange and with executive offices in Melbourne. The Group consists of wholly and partly owned subsidiaries, jointly controlled assets, jointly controlled entities and associated companies, the principal ones being listed in notes 35 to 38 to the 2006 financial statements.
On 31 December 2006, Rio Tinto plc had a market capitalisation of £27.8 billion (US$54 .5 billion) and Rio Tinto Limited had a market capitalisation in publicly held shares of A$21.2 billion (US$16.8 billion). The combined Group’s market capitalisation in publicly held shares at the end of 2006 was US$71.3 billion.

Objective, strategy and management structure
Our fundamental objective is to maximise the overall long term value and return to our shareholders. We do this byoperating responsibly and sustainably in areas of proven expertise such as exploration, project evaluation and mining,where the Group has a competitive advantage.
Our strategy is to maximise net present value by investing in large, long life, cost competitive mines. Investmentsare driven by the quality of each opportunity, not by the choice of commodity.
Rio Tinto’s management structure is designed to facilitate a clear focus on the Group’s objective. This structure, reflected in this report, is based on the following principal product and global support groups:

•Iron Ore
•Energy
•Industrial Minerals
•Aluminium
•Copper
•Diamonds
•Exploration
•Technology and Innovation (formerly Operational and Technical Excellence).
The chief executive of each product group reports to the chief executive of Rio Tinto.

Nomenclature and financial data
Rio Tinto Limited and Rio Tinto plc operate as one business organisation, referred to in this report asRio Tinto,, theRio Tinto Groupor, more simply,the Group.Group. These collective expressions are used for convenience only, since both Companies, and the individual companies in which they directly or indirectly own investments, are separate and distinct legal entities.
“Limited”, “plc”, “Pty”, “Inc”, “Limitada”, or “SA” hasand similar suffixes have generally been omitted from Group company names, except to distinguish between Rio Tinto plc and Rio Tinto Limited.
Financial data in United States dollars (US$) is derived from, and should be read in conjunction with, the Rio Tinto Group’s consolidated financial2006financial statements which are in US$. In general, financial data in pounds sterling (£) and Australian dollars (A$) hashave been translated from the consolidated financial statements at the rates shown on page 153 and hashave been provided solely for convenience; exceptionsarise where data, such as directors’ remuneration, can be extracted directly from source records. Certain key information has been provided in all three currencies on page 136.
Rio Tinto Group turnover,sales revenue, profit before tax and net earnings and operating assets for 20022005 and 20032006 attributable to the Group’s productsproduct groups and geographical areas are shown in notes 2630 and 2731 to the Financial statements on pages 106 to 110. In2006 financial statements.In the OperationalOperating and financial review(OFR), operating assets and turnoversales revenue for 2005 and 2006 are consistent withthe financial information by business unit on pages 132 and 133.in note 47 to the 2006 financial statements.
The tables on pages 1319 to 1622 show production for 2001, 20022004, 2005 and 20032006 and include estimates of proved and probable reserves and mineral resources. The weights and measures used are mainly metric units; conversions into other units are shown on page 153.proven andprobable ore reserves. Words and phrases, often technical, have been used which have particular meanings; definitions of these terms are in the Glossary on pages 150153 to 152.

AN OVERVIEW OF RIO TINTO
Rio Tinto is a leading international mining group, combining Rio Tinto plc155. The weights and Rio Tinto Limited in a dual listed companies (DLC) structure as a single economic entity.
     Nevertheless, both Companies remain legal entities with separate share listings and registers. Rio Tinto plc is incorporated in England and Wales and Rio Tinto Limited is incorporated in Australia.
     Rio Tinto’s international headquarters is in London whilst the Australian representative office in Melbourne provides support for operations, undertakes external and investor relations and fulfils statutory obligations there. For legal purposes, Rio Tinto’s US agent is Shannon Crompton, Secretary of Rio Tinto’s US holding companies, 8309 West 3595 South, Magna, Utah 84044. Investor relations in the USmeasures used are provided by Makinson Cowell US Limited, One Penn Plaza, 250 W 34th St,

Suite 1935, New York, NY 10119.
     Rio Tinto’s address and telephone detailsmainly metric units;conversions into other units are shown on the inside back cover of this report.page 155.

Objective, strategy and management structureHistory

Rio Tinto’s fundamental objective is to maximise the overall long term return to its shareholders by operating responsibly and sustainably in areas of proven expertise where the Group has competitive advantage. Its strategy is to maximise the net present value per share by investing in large, long life, cost competitive mines. Investments are driven by the quality of opportunity, not choice of commodity.
     Rio Tinto’s substantial mining interests are diverse both in geography and product. The Group consists of wholly and partly owned subsidiaries, joint ventures, associatedpredecessor companies and joint arrangements, the principal ones being listed in notes 31 to 34 of the Financial statements on pages 118 to 120.
     Rio Tinto’s management structure is designed to facilitate a clear focus on business performance and the Group’s objective. The management structure, which is reflected in this report, is based on principal product and global support groups:

•Iron Ore
•Energy
•Aluminium
•Copper
•Diamonds
•Exploration, and
•Technology.
The chief executive of each group reports to the chief executive of Rio Tinto.

2003 FINANCIAL SUMMARY
On 31 December 2003, Rio Tinto plc had a market capitalisation of £16.5 billion (US$29.3 billion) and Rio Tinto Limited had a market capitalisation of A$18.6 billion (US$13.9 billion). The combined Group’s market capitalisation in publicly held shares at the end of 2003 was US$38.0 billion.
     At 31 December 2003, Rio Tinto had consolidated operating assets of US$15.8 billion; 56 per cent were located in Australia and New Zealand and 31 per cent in North America. Group turnover, or sales revenue, in 2003 was US$11.8 billion (or US$9.2 billion excluding Rio Tinto’s share of joint ventures’ and associates’ turnover). Net earnings in 2003 were US$1,508 million.

History
Rio Tinto plc was formed in 1962 by the merger of two English companies, The Rio Tinto Company1873 and The Consolidated Zinc Corporation. At the same time, the Australian interests of these two companies were also merged to form Rio Tinto Limited.
1905. The Rio Tinto Company was formed by investors in1873 to mine ancient copper workings at Rio Tinto, near Seville in southern Spain. The

Consolidated Zinc Corporation was incorporated in 1905 initially to treat zinc bearing mine waste at Broken Hill, New South Wales, Australia.
The RTZ Corporation (formerly The Rio Tinto-Zinc Corporation) was formed in 1962 by the merger of The RioTinto Company and The Consolidated Zinc Corporation.
CRA Limited (formerly Conzinc Riotinto of Australia Limited) was formed at the same time by a merger of the

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Australian interests of The Consolidated Zinc Corporation and The Rio Tinto Company.
Between 1962 and 1995, Rio Tinto plcboth RTZ and Rio Tinto LimitedCRA discovered important mineral deposits, developed major miningprojects and also grew through acquisition. Their DLC merger
RTZ and CRA were unified in 1995 was structuredthrough a dual listed companies structure. This means the Group, with its common board of directors, is designed to ensure that, as far as possible,place the shareholders of both Companies are in substantially the same economic positionas if they held shares in a single enterprise which ownsowning all the Companies’ assets. A more detailed description of the DLC can be found on page 77.assets of both Companies.
     FollowingIn 1997, The RTZ Corporation became Rio Tinto plc and CRA Limited became Rio Tinto Limited, together known as the DLCRio Tinto Group. Since the 1995 merger, Rio Tintothe Group has continued to invest in developments and acquisitionsandacquisitions in keeping with its strategy.

RECENT DEVELOPMENTSContact details
Share buybacks and issues 2003
In April 2003,The registered office of Rio Tinto plc shareholders renewed approvals foris at 6 St James’s Square, London, SW1Y 4LD (telephone: +44 20 7930 2399) and the buybackregistered office of up to ten per cent of its own shares. Rio Tinto Limited is authorised by shareholder approvals obtainedat Level 33, 120 Collins Street, Melbourne, Victoria 3000 (telephone: +61 3 9283 3333). Rio Tinto’s agent in 1999 to buy back up to 100 per centthe US is Shannon Crompton, secretary of Rio Tinto Limited shares held by Tinto Holdings Australia Pty Limited (a wholly owned subsidiary ofTinto’s US holding companies, who may be contacted at Rio Tinto plc) plus, on market, and up to ten per cent of the publicly held capital in any 12 month period.
     Rio Tinto plc and Rio Tinto Limited will seek renewal of their existing shareholder approvals at their respective annual general meetings in 2004. The number of shares, if any, which may be bought back under these authorities will continue to be determined by the directors, based on what they consider to be in the best interests of the continuing shareholders.
     In the year to 31 December 2003, neither Rio Tinto plc nor Rio Tinto Limited purchased any publicly held shares for cancellation in either Company. However, a further 1,192,702 Rio Tinto plc and 240,466 Rio Tinto Limited shares were issued in respect of the CompaniesServices Inc., 80 State Street, Albany, New York, 12207-2543.’ employee share plans. During the year, options for a further 2,696,000 Rio Tinto plc and 1,627,000 Rio Tinto Limited shares were granted under Rio Tinto’s share plans.

Share buybacks and issues 2001-2002
In 2001, 398,000 Rio Tinto plc and 10,000 Rio Tinto Limited shares were issued in connection with the completion of the acquisition of Ashton Mining.
     An additional 681,000 Rio Tinto plc and 79,000 Rio Tinto Limited shares were issued in respect of the Companies’ employee share plans which were extended to subsidiary companies worldwide. In aggregate, approximately 24 per cent of eligible employees took out a savings contract for a fixed monthly amount over periods of up to five years and were granted options over 1.0 million Rio Tinto plc shares and 1.4 million Rio Tinto Limited shares.
     Rio Tinto plc converted its share warrants


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About CAPITAL PROJECTS

Rio Tinto continuedis investing heavily in future growth opportunities from the Group’s broad portfolio of assets. Projects havebeen financed out of internally generated funds. Major projects completed and ongoing are summarised below.

ProjectEstimated costStatus/Milestones
(100% basis)
US$m
Completed in 2004
Iron ore –Development of the Eastern Range (Rio Tinto: 54%) with a capacity of ten million tonnes per year.67First shipments dispatched in the first half of the year.
Aluminium –Construction of the first stage of new 1.4million tonnes per year alumina refinery at Gladstone.750Completed three months early. Initial shipments started in early 2005.
Copper –Northparkes (Rio Tinto: 80%) construction ofsecond block cave.100Production commenced in 2004.
Copper –Palabora (Rio Tinto: 49%) underground blockcaving operation465Construction completed but production was initially impacted by fragmentation of the cave.
Completed in 2005
Iron ore –HIsmelt® plant (Rio Tinto: 60%) at Kwinana inWestern Australia.200The full production rate of 800,000 tonnes per year is expected to be reached over three years.
Iron ore –Expansion of Yandicoogina mine.200Expansion completed in the third quarter.
Iron ore –Expansion of West Angeles mine (Rio Tinto:53%).105Project completed in the third quarter.
Titanium dioxide– Expansion of upgraded slag plant.76Commissioning started in first quarter.
Copper –Development of the Escondida Norte satellitedeposit (Rio Tinto: 30%) to provide mill feed to keep Escondida’s capacity above 1.2 million tonnes of copper per year to the end of 2008.400First production occurred in 2005.
Iron ore –Expansion of port capacity to 116 milliontonnes per annum.685Focus on production ramp up following completionof construction.
Completed in 2006
Iron ore –Expansion of Hamersley Iron’s (Rio Tinto:100%) Tom Price and Marandoo mines and construction of new mine capacity at Nammuldi.290The Marandoo and Nammuldi components arecomplete and Tom Price is scheduled forcompletion by the first quarter of 2007.
Iron ore– Expansion by Robe River (Rio Tinto: 53%) ofrail capacity including completion of dual tracking of 100 km mainline section.200The project was completed on budget and ahead of schedule.
Copper– Escondida sulphide leach (Rio Tinto: 30%). Theproject will produce 180,000 tonnes per annum of copper cathode for more than 25 years.925The first cathode production from the sulphideleach plant occurred in June 2006.
Titanium dioxide– Expansion of annual capacity at UGSplant from 325,000 tonnes to 375,000 tonnes.79The project was completed in October three monthsahead of schedule and under budget.
Boric acid –Phase 2 of Rio Tinto Minerals boric acidExpansion50The project was completed on schedule and under budget.
Coking coal– Hail Creek (Rio Tinto: 82%) Expansion ofannual capacity from 6 million tonnes to nameplate 8 million tonnes per annum, with washing plant increased to 12 million tonnes per annum.223The new dragline was commissioned early in thethird quarter of 2006.
Ongoing
Copper– KUC (Rio Tinto: 100%) East 1 pushback. Theproject extends the life of the open pit to 2017 while retaining options for further underground or open pit mining thereafter.170The project was approved in February 2005 and work on the pushback continues. The pebble crushing unit was commissioned in the third quarter of 2006.
Diamonds– Construction at Diavik (Rio Tinto: 60%) ofthe A418 dyke, and funding for further study of the viability of underground mining, including the construction of an exploratory decline.265The project was approved in 2004. The A418 dykewas closed off in late 2005 with dewateringcompleted in 2006. The dyke was completed duringMarch 2007 with production from the A418 pipe expected to commence during April 2008. Construction of the exploratory decline is expected to be completed during June 2007.

 

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Iron ore– Brownfields mine expansion of HamersleyIron’s (Rio Tinto: 100%) Yandicoogina mine from 36 million tonnes per annum to 52 million tonnes per annum.530The project was approved in October 2005 and completion is expected by the end of the third quarter of 2007.
Iron ore– Expansion of Hamersley Iron’s (Rio Tinto:100%) Dampier port (Phase B) from 116 million tonnes per annum to 140 million tonnes per annum capacity and additional rolling stock and infrastructure.803This project was also approved in October 2005 and completion is expected by the end of 2007.
Titanium dioxide– Construction by QMM (Rio Tinto:80%) of a greenfield ilmenite operation in Madagascar and associated upgrade of processing facilities at QIT.850Basic infrastructure is being put in place and the port construction contract was awarded in 2006. First production is scheduled for 2008.
Gold– Development of Cortez Hills (Rio Tinto: 40%).504Approved in September 2005, the project continues to focus on permitting requirements.
Energy– Rössing (Rio Tinto: 68.6%) uranium mine lifeextension to 2016.82Approved in December 2005, works are on schedule and on budget to prolong the life of the mine to 2016 and beyond.
Diamonds– Argyle (Rio Tinto: 100%) development ofunderground mine and open pit cutback, extending the life of the mine to 2018.910Approved in December 2005, the underground development is progressing with the mine due to start ramping up from 2008. Underground development cost estimates are currently under review.
Recently approved
Iron ore –Hope Downs development (Rio Tinto share:50% of mine and 100% of infrastructure). Construction of 22 million tonnes per annum mine and related980Construction is under way. First production expected in early 2008.
infrastructure.
Copper– Northparkes (Rio Tinto: 80%) E48 block caveproject extending mine life to 2016.160Approved in November 2006.
Energy– Clermont (Rio Tinto: 50.1%) is expected toproduce 12.2 million tonnes per annum, replacing Blair Athol.750Approved in January 2007, first shipments are expected in the second quarter of 2010 with full capacity being reached in 2013.
Iron ore– Cape Lambert port expansion (Rio Tinto share:53%) from 55 to 80 million tonnes per annum.860Approved in January 2007, the project is forecast to be complete by the end of 2008, with progressive capacity ramp up in the first half of 2009.

ACQUISITIONS
AssetEstimatedStatus
cost
US$m
Acquired in 2004
Energy– additional 177 million tonnes of in-situ coalreserves at West Antelope146Successful bid.
Acquired in 2005
Iron ore– Hope Downs iron ore assets in WesternAustralian/aRio Tinto reached agreement with Hancock Prospecting Pty Ltd to purchase a 50% interest.
Acquired in 2006
Copper– Ivanhoe Mines (Rio Tinto: 9.9%)303Agreement to acquire a strategic stake including, upon completion of satisfactory a long term investment agreement with the Mongolian government, a second tranche of 9.9% for US$338m.
Copper– Northern Dynasty Minerals (Rio Tinto: 9.9%)Increased stake to 19.8% during February 2007

Rio Tinto 2006 Form 20-F10

Back to registered ordinary shares in June 2001.Contents

DIVESTITURES
AssetEstimatedStatus
proceeds
US$m
Divested in 2004
Copper– Mineração Serra da Fortaleza Ltda (Rio Tinto:100%) nickel mining company.80Sold to Votorantim Metais, a Brazilian controlled mining company. Proceeds included an adjustment for future nickel prices.
Other operations– Sepon project in Laos (Rio Tinto:20%), comprising a gold operation and the Khanong copperproject.85Sold to Oxiana Limited.
Copper– Freeport-McMoRan Copper & Gold Inc (FCX)(Rio Tinto: 13.1%).882Rio Tinto retains its 40 per cent joint venture interest in reserves discovered after 1994 at the Grasberg mine, which is managed by FCX. The sale of FCX shares does not affect the terms of the joint venture nor the management of the Grasberg mine.
Copper– Zinkgruvan Mining AB (Rio Tinto: 100%)n/aSold to South Atlantic Ventures. Zinkgruvan was acquired in 2000 as part of North Ltd.
Copper– Neves Corvo copper mine in Portugal (RioTinto: 49%)92Rio Tinto and Empresa de Desenvolvimento Mineiro completed the sale of their interests to EuroZinc for a cash consideration and a participation in the average copper price in excess of certain thresholds.
Diamonds– Rio Tinto Zimbabwe (RioZim) (Rio Tinto:56%)n/aAs a result of a restructuring of Rio Tinto’s interests in Zimbabwe, it became the holder of a direct 78% interest in Murowa, and RioZim became an independent listed company owning the remaining 22% and certain other Zimbabwean interests. Rio Tinto also retains a reduced cash participation in RioZim’s other interests for a period of ten years.
Energy– Hail Creek Joint Venture (Rio Tinto: 92%)150Sale of a 10% interest in the Hail Creek Joint Venture and a 47% interest in the Beasley River iron ore deposits to Rio Tinto’s Japanese partners.
Iron ore– Beasley River iron ore deposits (Rio Tinto:100%)
Copper– Rio Paracatu Mineração (Rio Tinto: 51%)250The sale of the owner of the Morro do Ouro mine in Brazil.
Divested in 2005
Iron ore– Labrador Iron Ore Royalty Income Fund (LIORIF) (Rio Tinto: 19%)130LIORIF has an interest of 15.1% in, and receives royalties from, Iron Ore Company of Canada (IOC), a subsidiary of Rio Tinto. The transaction had no effect on Rio Tinto’s 59% direct interest in IOC.
Other operations– Lihir Gold (Rio Tinto: 14.5%)295Rio Tinto relinquished its management agreement with Lihir, and subsequently sold its interest.
Divested in 2006
Aluminium –Eurallumina SpA (Rio Tinto: 56.2%)n/aSold to RUSAL
Diamonds– Ashton Mining of Canada Inc (Rio Tinto:51.7%)n/aSold to Stornaway Diamond Corporation for US$26m plus shares representing an interest of 17.7%

Rio Tinto 2006 Form 20-F11

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BUSINESS ENVIRONMENTS, MARKETS AND REGULATIONS

Competitive environment
     In 2002, a further 887,000 Rio Tinto plcis a major producer in all the metals and 360,000 Rio Tinto Limited shares were issuedminerals markets in respect ofwhich it operates. It is generally among the Companies’ employee share plans and options were granted over 2.6 million Rio Tinto plc shares and 2.2 million Rio Tinto Limited shares.
     During 2001-2002, neither Rio Tinto plc nor Rio Tinto Limited purchased any publicly held shares for cancellation in either Company.

Operations divested 2003
top five global producers by volume. The salecompetitive arena is spread across the globe.
Most of Rio Tinto’s 25 per centcompetitors are private sector companies which are publicly quoted. Several are, like Rio Tinto, diversified in terms of commodity exposure, but others are focused on particular commodity segments. Metal and mineral markets are highly competitive, with few barriers to entry. They can be subject to price declines in real terms reflecting large productivity gains, increasing technical sophistication, better management and advances in information technology.
High quality and long life mineral resources, the basis of good financial returns, are relatively scarce. Rio Tinto’s ownership of or interest in Minera Alumbrera Limited in Argentina, together with its wholly owned Peak Gold mine in New South Wales, Australia, was completed in March 2003. Cash consideration was US$210 million.
      On 21 July 2003 Rio Tinto and BP announced that they had agreed to sell their interests in Kaltim Prima Coal for a cash price of US$500 million, including assumed debt, to PT Bumi Resources, a public company listed on the Jakarta and Surabaya Stock Exchanges. The sale was completed on10 October and each company received 50 per centsome of the net proceeds.
      Rio Tinto announced in late December the sale of its 100 per cent interest in the nickel mining and smelting company Mineração Serra da Fortaleza in Brazil. The final consideration, which is dependent on the forward nickel price, is expectedworld’s largest deposits enables it to becontribute to long term market growth. World production volumes are likely to grow at least US$90 million.in line with global economic activity. The transaction was completed during January 2004.emergence of China and eventually India as major economies requiring metals and minerals for development could mean even higher market growth.

Operations acquired and divested 2001– 2002Economic overview

In January 2001, Coal & Allied Industries acquired the Peabody Group’s Australian coal businesses for US$455 million and the assumption of US$100 million in debt.Rio Tinto acquired an additional 1.83 per cent interest in Coal & Allied on market for US$15 million in March 2001.
     In April 2001, Rio Tinto’s 50 per cent share of the Norzink smelter was sold for an after tax gain of US$54 million.
     Rio Tinto sold North Forest Products for US$171 million in May. Following a review, Rio Tinto also sold its 34.8 per cent interest in Aurora Gold as well as other minority interests acquired with Ashton Mining whilst increasing its interest in Ashton Mining of Canada to 63.8 per cent.
     Rio Tinto’s offer resulted in it purchasing, for US$56 million, units representing 20.3 per cent of the Labrador Iron Ore Royalty Income Fund (LIORF).
     In July, Rio Tinto purchased additional shares in Palabora Mining, increasing its interestThe world economy grew by some 0.7 per cent to 49.2 per cent.
     Dampier Salt acquired Cargill Australia’s Port Hedland operation for US$95 million and contingent performance payments not exceeding US$15 million in aggregate.
     With effect from September 2001, Comalco acquired an additional 8.34.9 per cent in Queensland Alumina2006 on a purchasing power parity basis. This was the fourth successive year of global growth in excess of four per cent.
Growth was broad based, but once again the US and China provided the bedrock for US$189 million,

takingthis expansion. Although thepace of US economic growth progressively slowed over the course of the year, as the housing market faltered, it still managed to rise by 3.3 per cent over its overall interest to 38.62005 level. Chinese growth for the year was 10.5 per cent. Rio Tinto acquired the Three Springs talc minecent, its biggest annualincrease in Western Australia for US$28 million in the same month.
     In January 2002, Kennecott Energy (KEC) purchased the North Jacobs Ranch coal reserves for US$380 million, payable in installments over a five year period.decade. The reserves are adjacent to KEC’s existing Jacobs Ranch operation and provide a basis for low cost expansion in line with market demand.
     Following the purchase of outstanding units in the Western Australian Diamond Trust, Rio Tinto’s interest in Argyle Diamonds increased from 99.8Japanese economy rose 2.4 per cent to 100and in Asia as a whole growth was 5.1 per cent.
     In August, Comalco completed the acquisition of an additional 9.5Latin America grew by 4.8 per cent interestand activity picked up in reduction lines 1 and 2 of the Boyne Island Smelter for US$78.5 million. This increased Comalco’s share in lines 1 and 2 of the smelter to 59.5Europe, rising by 2.7 per cent from 50 per cent. Theon 2005.
     Despite this sustained rapid global growth and higher commodity prices, global inflation remained relativelytame. Central banks have increased interest in line 3 remained unchanged at 59.25 per cent.
     Duringrates as the balance of inflationary pressure has shifted towards the upside.Even the Japanese Central Bank raised interest rates for the first halftime since 2001, but this has been a progressive development and both financial and foreign exchange markets have been stable.
These strong underlying economic conditions, a general ongoing low level of 2002, Coal & Allied completed the sale of its interestcommodity stock availability and continued delays in the Moura Joint Venture for US$166 million andbringing on new supply contributed to further large increases in Narama and Ravensworth for US$64 million. These were classified as assets held for resale and consequently their disposal had no effect on net earnings. In September, Rio Tinto acquired for cash in the market a further three per cent in Coal & Allied to bring its shareholding to 75.7 per cent.
     As a result of a refinancing in December 2002, in which LIORF chose not to participate, Rio Tinto’s interest in Iron Ore Company of Canada increased from 56.1 to 58.7 per cent.

Development projects 2003
Rio Tinto invested US$1.6 billion in 2003 on capital projects around the world.
     The Diavik diamond project in the Northwest Territories, Canada, was completed well ahead of schedule and within budget. Initial production commenced from the contact zone above the orebody with the main orebody accessed during the second half of 2003.
     Construction of the US$100 million second block cave at the underground Northparkes copper gold mine in New South Wales, Australia was delayed by ground control problems. Production from the first underground block cave ceased in early 2003 to be replaced by the Lift 2 block cave which is expected to commence production in 2004.
     Production ramp up at Palabora’s US$460 million underground copper mine in South Africa was constrained by an inability to clear drawpoints blocked by poorly fragmented, large rocks. Further work resulted in design capacity of 30,000 tonnes per day being reached intermittently by the end of 2003.
     Development of the Escondida Norte satellite deposit at the 30 per cent owned Escondida copper mine in Chile was started

in June 2003 to provide mill feed to keep Escondida’s capacity above 1.2 million tonnes of copper per year to the end of 2008. First production is expected by the end of 2005. Commissioning of the new US$1,045 million, 110,000 tonnes of ore per day Laguna Seca concentrator was completed in the second quarter of 2003.
      Expansion of the Weipa bauxite mine in Queensland, Australia, is underway to increase production capacity to 16.5 million tonnes per year in support of the requirements of the new Comalco Alumina Refinery. A key component of the US$150 million expenditure is a 9.5 million tonne beneficiation plant to allow mining of lower grade ores. The project is expected to be completed in 2004.
     Construction of Comalco’s
US$750 million alumina refinery at Gladstone, Queensland, proceeds on schedule with US$576 million spent to date. Initial shipments from the 1.4 million tonne per year plant are expected in early 2005. Options exist to expand capacity to more than four million tonnes per year.
     Pacific Coal completed development of the US$255 million Hail Creek coking coal project in Queensland, Australia with a capacity of 5.5 million tonnes annually.
     Construction began in January 2003 on an expanded US$200 million HIsmelt®plant at Kwinana in Western Australia. The plant is expected to be commissioned in late 2004 and reach full production of 800,000 tonnes of iron per yearcommodity prices in the first half of 2006.
      Development of the 54 per cent owned Eastern Range iron ore mine with a capacity of ten million tonnes per year continued. First shipments are expected in the first half of 2004.
In the first quarter of 2003, Freeport Indonesia completed an expansion to 35,000 tonnes of ore per day of its Deep Ore Zone (DOZ) project at a cost of US$34 million.
      Kennecott Land’s Project Daybreak in Utah, US, a mixed use land development on a 1,800 hectare site, was commenced in 2003 with land sales planned to start in 2004 and ramp up over a period of five to six years.
     A major US$920 million expansion of Hamersley Iron’s Dampier port and Yandicoogina mine in Western Australia was announced during December 2003. Further detail on these investments and projects is provided in the Operational review on pages 37 to 56.
     Development projects have been funded using the US commercial paper market, the 2003 bond issue, the European medium term note facility and internally generated funds.

Development projects 2001– 2002
In the US, Kennecott Utah Copper closed its North Concentrator in December 2001.
      Work on the Robe River Joint Venture’s US$450 million West Angelas iron ore mine and port facilities in Western Australia was completed in mid 2002 and the first shipments were made. The mine is expected


10Rio Tinto 2003 Annual report and financial statements

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to be operating at an annualised rate of 20 million tonnes by the end of the first quarter of 2004, two years earlier than originally scheduled. The Robe River partners agreed to share rail infrastructure with Hamersley Iron.
     Freeport Indonesia’s Deep Ore Zone (DOZ) underground block cave project was declared fully operational from 1 October, 2002. This achieved design capacity of 25,000 tonnes of ore per day in 2002, a year earlier than originally projected.
     Pacific Coal began development of the Hail Creek coking coal project in Queensland, Australia.

BUSINESS ENVIRONMENT
AND MARKETS
Overview
The world economy continued its uncertain recovery in 2003, global output rising 3.3 per cent, slightly more than the three per cent of 2002. The volume of world trade grew at around three per cent, similar to the rate achieved in 2002, but well below the six per cent average of the previous 20 years.
     The year began slowly with uncertainties over the strength of the US economy and mounting concerns over the possible impact of a war with Iraq causing growth in OECD countries to stall. Successive US interest rates cuts, coupled with tax cuts and the conclusion of the war in April, helped to reverse the trend, producing a very much stronger second half of 2006 some general easing in prices was recorded as the pace of demand growth slowed and expectations of faster supply growth filtered through. There are however some important differences between trends inindividual commodities. With few exceptions prices remain well above their historical levels and significantly so inmany cases.
Strong growth in Chinese iron ore imports continued into 2006 and the already tight market conditions worsened following heavy rain early in the year. After a record price increase of 71.5 per cent during 2005 a further 19 per cent
     Low interest rateswas agreed in particular helped boost2006. Benchmark prices are set to rise a further 9.5 per cent in 2007.
The cash price of copper reached a record high of almost US$4 per pound in May 2006, but finished the housing market and support US consumer spending. The renewed strength of US demand, however, aggravated the country’s already sizeable current account imbalance and pushed down the US dollar, particularly against the euro and against the currencies of commodity producing countries such as Australia, Canada and South Africa.
     The economies of Europe and Japan followed a similar pattern to that of the US, only inyear on a weaker formtone and withover the year averaged US$3.06 per pound.
After lagging the other base metals in 2005 the aluminium price rose to an annual average of US$1.16 a lag. Growthpound in 2006, its highest in real terms for 17 years. Whilst the euro zonemetal was restrained by the maintenance of a relatively tight economic policy environment and by the impact on export growth of the strong, euro. Germany, the largest economyspot alumina prices fell sharply later in Europe, recorded three negative quarters of growth up to the middle of 2003 and, for the year as a whole, failed to grow at all. Like Europe, Japan also suffered from weak domestic demand althoughsurge in contrast to Europe its exports enjoyedChinese refinery production came on the benefits of strong import demand from China. Japan’s GDP formarket. After starting the year asat US$650 a whole rose a surprisingly robust 2.3 per cent.tonne, spot aluminaended not much above US$200.
     Much the most dynamic market during theThe volatility seen in metals markets last year was China. Despite suffering the disruptive effects of an outbreak of Severe Acute Respiratory Syndrome (SARS) through the second quarter, China bounced back to record another remarkable year of economic growth. Lifted by high levels of investment and rapidly growing exports, GDP grew nine per cent while industrial production was up 17 per cent. The emphasis of China’s growth

on materials intensive sectors of industry and construction resultedreplicated in the demandenergy sector. Spot prices for seaborne thermal coal reached the low US$50s a number of metals, including steel, copper and aluminium, rising by over 20tonne early in 2006, but were US$10 per cent duringtonne off their peak later in the year.
     With China providing a consistent underpinning of global demand for mineral commodities,year.The annual average price was similar to that achieved in 2005. After more than doubling in the gradual recovery2005/6 marketing year,coking coal prices fell slightly in 2006/7 in response to mixed demand in the OECD countries during the second half of the year produced a quickening of the pace in commodity markets, leading them to end the year on a generally high note.
     The markettheir major markets. Prices for seaborne iron ore enjoyed another strong year, its fourth successive year of growth, assisted by a 33 per cent increase in China’s ore imports. After producers achieved a price increase of around nine per cent during the annual contract negotiations in May, the market continued to tighten. The high level of deliveries also created acute pressuresPowder River Basin coal in the market for bulk shipping resulting in record freight rates.
     The seaborne market for steam coalUS started the year more slowlyat very high levels and contract prices in the Asian market were reduced for the second year in succession. Asalthough they ended the year progressed, however, market conditions began to improve and bysomewhat weaker the fourth quarter, withannualaverage price was up 25-30 per cent (depending on grade) over 2005 levels. Uranium prices rose sharply during 2006on concerns about low stocks. Spot prices doubled over the strengthcourse of domestic demand restricting China’s capacity to export, spot prices surged ahead of contract levels.
     With demand concentrated more heavily on the more mature economies, the marketyear.
Demand for industrial minerals such as borates and titanium dioxide did not experienceminerals continued to benefit from solid US demandin the full benefit of China’s robust economic performance. Although the secondfirst half of the year represented an improvement onbut concerns about the first, rates of demand growth generally fell short of those achieved by metals.
     Responding toUS housing market dampened expectations in the broader trendslatter part of the global economy,year.
Diamond prices started the markets for non ferrous metals stalledyear on a very firm basis but conditions declined, due to monsoon flooding in their upward course during MarchmajorIndian cutting and April, before climbing from May through to the end of the year. Firming demandpolishing centres, and declining stocks helped underpin this shiftincreased stockholding costs in the market,jewellery supply chain.
Gold prices have not seen the same degree of escalation as other metals but prices also appear to have been boosted by fund buyingrecorded a strong trend in anticipation of future economic growth and US dollar weakness.2006,
     Global demand for copper increased around fouraveraging over US$600 per cent during 2003, China being by far the world’s strongest market. With mine output restrained by the low level of investment in recent years, refined metal production was unable to respond to rising demand and metal stocks fell around 300,000 tonnes. Spot prices trended upwards for most of the year, achieving an average of 80.7 US cents a pound forounce over the year as a whole, compared to 70.6 US cents in 2002.
     Demand growth for aluminium in 2003, at eightup 36 per cent was even more buoyant than that for copper. However, strong Chinese production of aluminium meant that the market did not experience copperon 2005.
’s deficits. Price growth for aluminium was accordingly more subdued, an average spotMany less widely traded metals have also continued to benefit from firm demand. The molybdenum price of

65 US cents per pound compared with61 US centsaveraged US$25 per pound in 2002. The spot price for alumina, the raw material for producing aluminium, rose very sharply during the year and by the end of the year a shortage of alumina was beginning to constrain world metal output.
     Like non ferrous metals, gold felt the effects of growing speculative influences and the weakening of the US dollar. Prices rose through much of the year. The average price for the year was US$363 per ounce, compared with US$309 in 2002. Also helping to support prices, a number of gold producers who had previously hedged their gold sales bought back their positions, effectively adding to gold demand.
     A discussion of the financial results for the three years to 31 December 2003 is given in the Financial review2006, down on pages 32 to 36. Comments on the financial performance of the individual product groups for the three years to 31 December 2003its 2005 level but still historically high.

Marketing channels
Rio Tinto’s marketing channels are included in the Operational review on pages 37 to 56. Details of production, reserves and resources, and information on Group mines are given on pages 13 to 24 and 26 to 31, respectively. Analyses of Rio Tinto’s revenues by product group, geographical origin and geographical destination have been set out in Financial information by business unitdescribed under ‘Marketing’ on page 132 and note 27 to the Financial statements on pages 108 to 110.66.

Marketing channels
Each business within each product group is responsible for the marketing and sale of their respective metal and mineral production. Rio Tinto therefore has numerous marketing channels, which now include electronic marketplaces, with differing characteristics and pricing mechanisms.
     In general, Rio Tinto’s businesses contract their metal and mineral production direct to end users under long term supply contracts and at prevailing market prices. Typically, these contracts specify annual volume commitments and an agreed mechanism for determining 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. Fluctuations in these prices, particularly for aluminium, copper and gold, inevitably affect the Group’s financial results.
     Businesses producing iron ore would typically reference their sales prices to annually negotiated industry benchmarks. In markets where international reference market prices do not exist or are not transparent, businesses negotiate product prices on an individual customer basis.
     Rio Tinto’s marketing channels include a network of regional sales offices worldwide. Some products in certain geographical markets are sold via third party agents or to major trading companies.


 

Rio Tinto 2003 2006Annual report and financial statements Form 20-F1112

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About Rio Tinto continued

Governmental regulations

Rio Tinto is subject to extensive governmental regulations that affectaffecting all aspects of its operations and consistently seeks toseeksto apply best practice in all of its activities. Due to Rio Tinto’sTinto’s product and geographical spread, there is unlikely to beany single governmental regulation that could have a material effect on the Group’s business.

     Native title has, since 1992, been accepted as a partRio Tinto’s operations in Australia, New Zealand, and Indonesia are subject to state, provincial and federalregulations of Australiageneral application governing mining and processing, land tenure and use, environmental requirements,including site specific environmental licences, permits and statutory authorisations, workplace health and safety, trade and export, corporations, competition, access to infrastructure, foreign investment and taxation. Some operations areconducted under specific agreements with the respective governments and associated acts of parliament. In addition,’s common law. The Native Title Act 1993 provides, amongst other things, a framework forRio Tinto’s uranium operations in the validation of title, includingNorthern Territory, Australia and Namibia are subject to specific regulation in relation to mining tenements, that might be affected by the existence of native title; the determination of native title claims; a “right to negotiate” process with respect to the grant of new exploration and mining tenements and certain compulsory acquisitions of land; and the negotiationexport of uranium.
US and registration of indigenous land use agreements.
     USCanada based operations are subject to local, state, provincial and national regulations governing land tenure and use, environmental legislation.aspects of operations, product and workplace health and safety, trade and exportadministration, corporations, competition, securities and taxation.
The South African DepartmentMineral and Petroleum Resources Development Act 2002, as read with the Empowerment Charter for the South African Mining Industry, targets the transfer (for fair value) of Mines has published26 per cent ownership of existingSouth African mining assets to historically disadvantaged South Africans (HDSAs) within ten years. Attached to theEmpowerment Charter is a“scorecard” “scorecard” by which companies will be judged on their progress with black economictowards empowerment and the attainment for value, of the target fortransfer of 26 per cent ownership. The scorecard also provides that in relation to existingmining assets, 15 per cent ownership should vest in ten years. In addition,HDSAs within five years of 1 May 2004. Rio Tinto anticipates thatthe government of South Africa will continue working towards the introduction of new royalty payments arein respect of mining tenements, expected to be introduced that will be calculatedbecome effective during 2009.

Environmental regulation
Rio Tinto measures its performance against environmental regulation referred to in the previous section by rating incidents on a gross sales value basislow, moderate, high, or critical scale of likelihood and consequence of impacting the environment. Highand critical ratings are reported to the Executive committee and the boardCommittee on social and environmental accountability, including progress with remedial actions. Prosecutions and other breaches are also used to gauge RioTinto’s performance.
In 2006, there were eight reportable incidents, the same number as in relation2005. Three of these incidents resulted in spills which caused minor contamination.
Four operations incurred fines in 2006 amounting to any minerals extracted.US$56,779 (predominantly relating to incidents in 2005) compared with three operations incurring fines of US$67,900 during 2005. The 2006 fines included:

•US$38,500 imposed by the Utah State government’s Department of Environmental Quality, Division of Air Quality against Kennecott Utah Copper for exceeding the permissible concentration of emissions of fine particles from its smelter near Salt Lake City, Utah on two occasions. However, the mass emission rate was below the threshold permitted.
•US$12,900 imposed by the United States Environmental Protection Agency following a spill at Greens Creek base and precious metals mine, Alaska of four gallons of diesel fuel during exploration drilling. The company and the drilling contractor have implemented additional controls and training to prevent any further spills.

Further information in respect of the Group’s environmental performance is in the 2006Sustainable development reviewavailable on the Rio Tinto website.

 


12Rio Tinto 2003 Annual report and financial statements

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Metals and minerals production

               
      2001   2002   2003
      Production (a)   Production (a)   Production (a)
   Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto
   % share (b)   share   share   share
 
 
 
ALUMINA (’000 tonnes)              
Eurallumina (Italy) 56.2 993 557 1,010 567 1,021 573
Queensland Alumina (Australia) (c) 38.6 3,624 1,204 3,574 1,380 3,731 1,440
Rio Tinto total     1,761   1,947   2,014
ALUMINIUM (refined) (’000 tonnes)              
Anglesey (UK) 51.0 139.3 71.0 139.3 71.1 144.8 73.9
Bell Bay (Australia) 100.0 160.8 160.8 163.9 163.9 166.6 166.6
Boyne Island (Australia) (d) 59.4 508.9 277.5 520.2 294.6 520.9 311.1
Tiwai Point (New Zealand) 79.4 322.3 256.2 333.9 265.9 334.4 266.5
Rio Tinto total     765.6   795.4   818.1
BAUXITE (’000 tonnes)              
Boké (Guinea) 4.0 11,987 469 12,041 482 12,060 418
Weipa (Australia) 100.0 11,326 11,326 11,241 11,241 11,898 11,898
Rio Tinto total     11,795   11,724   12,316
BORATES (’000 tonnes)(e)              
Boron mine (US) 100.0 549 549 514 514 541 541
Borax Argentina (Argentina) 100.0 14 14 15 15 17 17
Rio Tinto total     564   528   559
COAL (’000 tonnes)              
Coal & Allied Industries(f)              
Bengalla (Australia) (g)SC30.3 4,894 1,418 5,385 1,587 6,203 1,879
Hunter Valley Operations (Australia)SC75.7 8,209 5,945 9,183 6,756 9,146 6,925
      MC75.7 4,034 2,913 3,442 2,531 2,862 2,167
Mount Thorley Operations (Australia)SC60.6 2,376 1,373 2,465 1,451 1,720 1,042
      MC60.6 2,171 1,255 1,827 1,073 1,432 868
Moura (Australia) (g)SC– 2,175 867 1,018 407 – –
      MC– 2,713 1,080 1,381 552 – –
Narama (Australia) (g)SC– 2,177 789 370 135 – –
Ravensworth East (Australia) (g)SC– 1,511 1,096 387 281 – –
Warkworth (Australia) (g)SC42.1 5,141 2,070 6,314 2,586 5,369 2,259
      MC42.1 550 221 568 231 500 210
Total Coal & Allied Industries     19,026   17,590   15,348
Rio Tinto Coal Australia(h)              
Blair Athol (Australia)SC71.2 10,592 7,546 11,809 8,412 12,480 8,890
Hail Creek Coal (Australia)MC92.0 – – – – 883 812
Kestrel Coal (Australia)SC80.0 1,202 962 1,685 1,348 1,449 1,159
      MC80.0 2,068 1,654 2,406 1,925 1,873 1,499
Tarong Coal (Australia)SC100.0 5,276 5,276 5,685 5,685 6,538 6,538
Total Rio Tinto Coal Australia     15,437   17,370   18,898
Total Australian coal     34,464   34,960   34,246
Kaltim Prima Coal (Indonesia)(i)SC0.0 15,611 7,806 17,740 8,870 12,655 6,327
Kennecott Energy              
Antelope (US)SC100.0 22,344 22,344 24,319 24,319 26,806 26,806
Colowyo (US)SC(j) 5,231 5,231 4,889 4,889 4,535 4,535
Cordero Rojo (US)SC100.0 39,452 39,452 34,724 34,724 32,671 32,671
Decker (US)SC50.0 8,510 4,255 9,021 4,511 7,358 3,679
Jacobs Ranch (US)SC100.0 26,612 26,612 28,784 28,784 32,418 32,418
Spring Creek (US)SC100.0 8,767 8,767 8,093 8,093 8,069 8,069
Total US coal     106,661   105,320   108,177
Rio Tinto total     148,930   149,149   148,750
Coal type: SC – steam/thermal coal, MC – metallurgical/coking coal.
See notes on page 16.              

Rio Tinto 2003 2006Annual report and financial statements Form 20-F13

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Metals and minerals production continuedGROUP MINES

     2001   2002   2003 
     Production (a)   Production (a)   Production (a) 
 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share   share   share 
 
 
 
 
COPPER (mined) (’000 tonnes)              
Alumbrera (Argentina) (k)0.0 191.6 47.9 203.7 50.9 34.9 8.7 
Bingham Canyon (US)100.0 312.7 312.7 260.2 260.2 281.8 281.8 
Escondida (Chile)30.0 774.8 232.4 754.5 226.3 992.7 297.8 
Grasberg – FCX (Indonesia) (l)11.8 513.5 93.5 494.4 107.5 444.1 84.5 
Grasberg – Joint Venture (Indonesia) (l)40.0 235.9 94.4 370.0 148.0 271.7 108.7 
Neves Corvo (Portugal)49.0 82.9 40.6 77.2 37.8 77.5 38.0 
Northparkes (Australia)80.0 55.1 44.1 38.4 30.7 27.1 21.7 
Palabora (South Africa) (m)49.2 78.4 38.4 52.2 25.7 52.4 25.8 
 
Rio Tinto total    904.1   887.1   867.0 
 
COPPER (refined) (’000 tonnes)              
Atlantic Copper (Spain) (l)13.1 235.3 39.1 250.5 41.5 247.1 38.1 
Escondida (Chile)30.0 151.0 45.3 138.7 41.6 147.6 44.3 
Kennecott Utah Copper (US)100.0 234.3 234.3 293.7 293.7 230.6 230.6 
Palabora (South Africa) (m)49.2 86.9 42.5 81.6 40.2 73.4 36.1 
 
Rio Tinto total    361.2   416.9   349.1 
 
DIAMONDS (’000 carats)              
Argyle (Australia) (n)100.0 26,097 26,045 33,519 33,503 30,910 30,910 
Diavik (Canada)60.0 – – – – 3,833 2,300 
Merlin (Australia)100.0 55 55 117 117 62 62 
 
Rio Tinto total    26,100   33,620   33,272 
 
GOLD (mined) (’000 ounces)              
Alumbrera (Argentina) (k)0.0 672 168 754 188 124 31 
Barneys Canyon (US)100.0 140 140 75 75 35 35 
Bingham Canyon (US)100.0 592 592 412 412 305 305 
Cortez/ Pipeline (US)40.0 1,188 475 1,082 433 1,085 434 
Escondida (Chile)30.0 101 30 126 38 184 55 
Grasberg – FCX (Indonesia) (l)11.8 1,397 388 1,375 355 1,456 354 
Grasberg – Joint Venture (Indonesia) (l)40.0 2,199 880 1,655 662 1,806 722 
Greens Creek (US)70.3 88 62 103 72 99 70 
Kelian (Indonesia)90.0 453 408 539 485 469 422 
Lihir (Papua New Guinea) (o)14.5 648 105 607 99 551 88 
Morro do Ouro (Brazil)51.0 187 95 225 115 201 103 
Northparkes (Australia)80.0 41 33 41 33 49 39 
Peak (Australia) (k)0.0 101 101 97 97 20 20 
Rawhide (US)51.0 101 52 82 42 64 32 
Rio Tinto Zimbabwe (Zimbabwe)56.0 67 38 38 21 25 14 
Others– 20 10 17 8 14 7 
 
Rio Tinto total    3,577   3,135   2,731 
 
GOLD (refined) (’000 ounces)              
Kennecott Utah Copper (US)100.0 389 389 488 488 308 308 
 
IRON ORE (’000 tonnes)              
Channar (Australia)60.0 11,088 6,653 10,594 6,356 10,347 6,208 
Corumbá (Brazil)100.0 642 642 858 858 1,074 1,074 
Hamersley (Australia)100.0 58,828 58,828 57,563 57,563 63,056 63,056 
Iron Ore Company of Canada (Canada) (p)58.7 14,562 8,169 12,758 7,168 14,225 8,353 
Robe River (Australia)53.0 30,706 16,274 35,860 19,006 45,136 23,922 
 
Rio Tinto total    90,566   90,951   102,613 
 
See notes on page 16.              
MineLocationAccessTitle/lease
ALUMINIUM
Rio Tinto Aluminium
Weipa		Weipa, Queensland, AustraliaRoad, air, and portQueensland Government lease expires in 2041 with 21 year extension, then two years’ notice of termination
COPPER
Escondida(30%)Atacama Desert, ChilePipeline and road to deep sea port at ColosoRights conferred by Government under Chilean Mining Code
Grasberg joint venture(40%)Papua, IndonesiaPipeline, road and portIndonesian Government Contracts of Work expire in 2021 with option of two ten year extensions
Kennecott MineralsNevada, USRoadPatented and unpatented mining claims
Cortez/Pipeline (40%)
Kennecott MineralsAlaska, USPortPatented and unpatented mining claims
Greens Creek (70%)
Kennecott Utah CopperNear Salt Lake City, Utah, USPipeline, road and railOwned
Bingham Canyon
Northparkes(80%)Goonumbla, New South Wales, AustraliaRoad and railState Government mining lease issued in 1991 for 21 years
Palabora(58%)Phalaborwa, Northern Province, South AfricaRail and roadLease from South African Government valid until deposits exhausted. Base metal claims owned by Palabora
DIAMONDS
Argyle DiamondsKimberley Ranges, Western AustraliaRoad and airMining tenement held under Diamond (Argyle Diamond Mines Joint Venture) Agreement Act 1981-83; lease extended for 21 years from 2004
Diavik(60%)Northwest Territories, CanadaAir, ice road in winterMining leases from Canadian federal government
Murowa(78%)Zvishavane, ZimbabweRoad and airClaims and mining leases
ENERGY
Energy Resources ofNorthern Territory, AustraliaRoadLeases granted by State
Australia(68%)
Ranger

 

Rio Tinto 2006 Form 20-F14Rio Tinto 2003 Annual report and financial statements

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     2001   2002   2003 
     Production (a)   Production (a)   Production (a) 
 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share   share   share 
 
 
 
 
LEAD (’000 tonnes)              
Greens Creek (US)70.3 20.3 14.3 22.3 15.7 22.5 15.8 
Zinkgruvan (Sweden)100.0 24.5 24.5 24.7 24.7 31.8 31.8 
 
Rio Tinto total    38.8   40.4   47.6 
 
MOLYBDENUM (’000 tonnes)              
Bingham Canyon (US)100.0 8.1 8.1 6.1 6.1 4.6 4.6 
 
NICKEL (mined) (’000 tonnes)              
Fortaleza (Brazil) (q)100.0 10.2 10.2 6.3 6.3 6.0 6.0 
 
NICKEL (refined) (’000 tonnes)              
Empress (Zimbabwe)56.0 6.6 3.7 6.4 3.6 6.2 3.5 
 
SALT (’000 tonnes)              
Dampier Salt (Australia) (r)64.9 6,541 4,248 7,186 4,667 7,135 4,633 
 
SILVER (mined) (’000 ounces)              
Bingham Canyon (US)100.0 4,475 4,475 3,663 3,663 3,548 3,548 
Escondida (Chile)30.0 3,198 959 2,981 894 4,728 1,418 
Grasberg – FCX (Indonesia) (l)11.8 3,943 700 3,795 804 3,659 745 
Grasberg – Joint Venture (Indonesia) (l)40.0 1,602 641 2,607 1,043 2,815 1,126 
Greens Creek (US)70.3 10,964 7,703 10,912 7,668 11,707 8,226 
Zinkgruvan (Sweden)100.0 1,496 1,496 1,554 1,554 1,841 1,841 
Others– 3,378 1,729 3,231 1,582 2,511 1,407 
 
Rio Tinto total    17,703   17,207   18,311 
 
SILVER (refined) (’000 ounces)              
Kennecott Utah Copper (US)100.0 2,882 2,882 4,037 4,037 2,963 2,963 
 
TALC (’000 tonnes)              
Luzenac Group (Australia/Europe/N. America) (s)99.9 1,268 1,267 1,328 1,327 1,358 1,357 
 
TIN (tonnes)              
Neves Corvo (Portugal)49.0 1,201 588 345 169 203 100 
 
TITANIUM DIOXIDE FEEDSTOCK (’000 tonnes)              
Rio Tinto Iron & Titanium (Canada/South Africa) (t)100.0 1,427 1,427 1,274 1,274 1,192 1,192 
 
URANIUM (tonnes U3O8)              
Energy Resources of Australia (Australia)68.4 4,211 2,880 4,486 3,068 5,134 3,512 
Palabora (South Africa) (m) (u)49.2 31 15 – – – – 
Rössing (Namibia)68.6 2,640 1,811 2,751 1,887 2,401 1,647 
 
Rio Tinto total    4,705   4,955   5,158 
 
ZINC (mined) (’000 tonnes)              
Greens Creek (US)70.3 58.0 40.7 66.5 46.7 69.1 48.5 
Zinkgruvan (Sweden)100.0 61.8 61.8 48.0 48.0 64.5 64.5 
 
Rio Tinto total    102.5   94.7   113.0 
 
ZINC (refined) (’000 tonnes)              
Norzink (Norway) (v)0.0 40.9 20.4 – – – – 
 
See notes on page 16.              

GROUP MINES

MineHistoryType of minePower source
ALUMINIUM
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 capacity to 16.5 million tonnes. Mining commenced on the adjacent Ely mining lease in 2006, in accordance with the 1998 agreement with Alcan. A second shiploader that increases the shipping capability of the Weipa operation was commissioned in 2006Open cutOn site generation; newpower station underconstruction
COPPER
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 sulphide leach produced the first cathode during 2006Open pitSupplied from SING gridunder various contracts with Norgener Gas Atacama andEdelnor
Grasberg joint venture(40%)Joint venture interest acquired 1995; capacity expanded to over 200,000 tonnes of ore per day in 1998 with addition of underground production of more than 35,000 tonnes per day in 2003 with an expansion to a sustained rate of 50,000 tones per day by mid 2007Open pit and undergroundLong term contract withUS-Indonesian consortium operated, purpos e built, coalfired generating station
Kennecott Minerals
Cortez/Pipeline (40%)		Gold production started at Cortez in 1969, Pipeline in 1997 and Cortez Hills was approved in 2005.Open pitPublic utility
Kennecott MineralsRedeveloped in 1997Underground / drift and fill On site diesel generators
Greens Creek (70%)
Kennecott Utah Copper
Bingham Canyon		Interest acquired in 1989; modernisation includes smelter complex and expanded tailings damOpen pitOn site generationsupplemented by long term contracts with Utah Powerand Light
Northparkes(80%)Interest acquired in 2000; production started in 1995Open pit and undergroundSupplied from State grid
Palabora(58%)Development of 20 year underground mine commenced 1996 with open pit closure in 2003UndergroundSupplied by ESCOM via grid network
DIAMONDS
Argyle DiamondsInterest increased from 59.7% following purchase of Ashton Mining in 2000. Underground mine project approved in 2005 to extend mine life to 2018Open pitLong term contract withOrd Hydro Consortium andon site generation back up
Diavik(60%)Deposits discovered 1994-1995; construction approved 2000; diamond production started 2003. Second dyke closed off in 2005 for mining of additional orebodyOpen pit to underground in future On site diesel generators;  installed capacity 27MW
Murowa(78%)Discovered 1997; small scale production started 2004Open pitSupplied by ZESA
ENERGY
Energy Resources ofAustralia (68%)
Ranger		Mining commenced 1981; interest acquired through North in 2000; life of mine extension to 2014 announced in 2005Open pitOn site diesel/steam power generation

 

Rio Tinto 20032006 Annual report and financial statementsForm 20-F15

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Metals and mineralsGROUP MINES

MineLocationAccessTitle/lease
ENERGY(continued)
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, AustraliaRoad, rail conveyor and portLeases granted by State
Rio Tinto Energy America
Antelope
Colowyo (20%)
Cordero Rojo
Decker (50%)
Jacobs Ranch
Spring Creek		Wyoming, Montana and Colorado, USRail and roadLeases from US and State Governments and private parties, with minimum coal production levels, and adherence to permit requirements and statutes
Rössing Uranium(69%)Namib Desert, NamibiaRail, road and portFederal lease
INDUSTRIAL MINERALS
Rio Tinto Minerals -BoronCalifornia, USRoad, rail and portOwned
Rio Tinto Minerals - salt(65%)Dampier, Lake MacLeod and Port Hedland, Western AustraliaRoad and portMining leases expiring in 2013 at Dampier, 2018 at Port Hedland and 2021 at Lake MacLeod with options to renew in each case
Rio Tinto Minerals - talcTrimouns, France (other smaller operations in Australia, Europe and North America)Road and railOwner of ground (orebody) and long term lease agreement to 2012
QIT-Fer et TitaneSaguenay County, Quebec, CanadaRail 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
Richards Bay Minerals(50%)Richards Bay, KwaZulu - Natal, South AfricaRail, road and portLong term renewable leases ; State lease for Reserve 4 initially runs to end 2022; Ingonyama Trust lease for Reserve 10 runs to 2010
IRON ORE
Hamersley Iron
Brockman
Marandoo
Mount Tom Price
Nammuldi
Paraburdoo
Yandicoogina
Channar (60%)
Eastern Range (54%)		Hamersley Ranges, Western AustraliaRailway and port (owned by Hamersley Iron and operated by Pilbara Iron)Agreements for life of mine with Government of We stern Australia
Iron Ore Company ofCanada (59%)Labrador City, Province of Labrador and NewfoundlandRailway and port facilities in Sept-Iles, Quebec (owned and operated by IOC)Sublease with the Labrador Iron Ore Royalty Income Fund which has lease agreements with the Government of Newfoundland and Labrador that are due to be renewed in 2020 and 2022
Rio Tinto BrasilCorumbáMatto Grosso do Sul, BrazilRoad, air and riverGovernment licence for undetermined period
Robe River Iron
Associates (53%)
Mesa J
West Angelas		Pilbara region, Western AustraliaRailway and port (owned by Robe River and operated by Pilbara Iron)Agreements for life of mine with Government of We stern Australia

Rio Tinto 2006 Form 20-F16

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GROUP MINES

MineHistoryType of minePower source
ENERGY(continued)
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
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 2004Open cutSupplied by IPPs andCooperatives through national grid service
Rössing Uranium(69%)Production began in 1978. Life of mine extension to 2016 approved in 2005Open pitNamibian National Power
INDUSTRIAL MINERALS
Rio Tinto Minerals - BoronDeposit discovered in 1925, acquired by Rio Tinto in 1967Open pitOn site co-generation units
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 fieldSolar evaporation of seawater (Dampier and Port Hedland) and underground brine (Lake MacLeod); dredging of gypsum from surface of Lake MacLeodDampier supply from Hamersley Iron Power; Lake MacLeod from Western Power and on site generation units; Port Hedland from Western Power
Rio Tinto Minerals - talcProduction started in 1885; acquired in 1988. (Australian mine acquired in 2001)Open pitSupplied by EdF and on site generation units
QIT-Fer et TitaneProduction started 1950; interest acquired in 1989Open pitLong term contract with Quebec Hydro
Richards Bay Minerals
(50%)		Production started 1977; interest acquired 1989; fifth dredge commissioned 2000Beach sand dredgingContract with ESCOM
IRON ORE
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 2004Open pitsSupplied through theintegrated Hamersley and Robe power network operated by Pilbara Iron
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 NorthOpen pitSupplied by NewfoundlandHydro under long term contract
Rio Tinto Brasil
Corumbá		Iron ore production started 1978; interest acquired in 1991Open pitSupplied by ENERSUL
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 2005Open pitSupplied through theintegrated Hamersley and Robe power network operated by Pilbara Iron

Rio Tinto 2006 Form 20-F17

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GROUP SMELTERS

Smelter, refinery or plantLocationTitle/leasePlant type/productCapacity
ALUMINIUM GROUP
Anglesey Aluminium(51%)Holyhead, Anglesey, Wales100% FreeholdAluminium smelter producing aluminium billet, block, sow145,000 tonnes per year aluminium
Bell BayBell Bay, Northern Tasmania, Australia100% FreeholdAluminium smelter producing aluminium ingot, block, t-bar178,000 tonnes per year aluminium
Boyne Smelters(59%)Boyne Island, Queensland, Australia100% FreeholdAluminium smelter producing aluminium ingot, billet, t-bar545,000 tonnes per year aluminium
Yarwum(previouslyComalco Alumina Refinery)Gladstone, Queensland, Australia97% Freehold 3% Leasehold (expiring in 2101 and after)Refinery producing alumina1,400,000 tonnes per year alumina
Gladstone Power
Station (42%)		Gladstone, Queensland, Australia100% FreeholdThermal power station1,680 megawatts
New Zealand
Aluminium Smelters
(NZAS) (79%)		Tiwai Point, Southland, New Zealand19.6% Freehold 80.4% Leasehold (expiring in 2029 anduse of certain Crown land)Aluminium smelter producing aluminium ingot, billet, t-bar352,000 tonnes per year aluminium
Queensland Alumina
(39%)		Gladstone, Queensland, Australia73.3% Freehold 26.7% Leasehold (of which more than 80% expires in 2026 and after)Refinery producing alumina3,953,000 tonnes per year alumina
COPPER GROUP
Kennecott Utah
Copper		Magna, Salt Lake City, Utah, US100% FreeholdFlash smelting furnace / Flash convertor furnace copper refinery335,000 tonnes per  year refined copper
Palabora(58%)Phalaborwa, South Africa100% FreeholdReverberatory Pierce Smith copper refinery130,000 tonnes per year refined copper
INDUSTRIAL
MINERALS
BoronCalifornia, US100% FreeholdBorates refinery584,000 tonnes per year boric oxide
QIT-Fer et Titane Sorel PlantSorel-Tracy, Quebec, Canada100% FreeholdIlmenite smelter1,100,000 tonnes peryear titanium dioxide slag 900,000 tonnes per year iron
Richards Bay
Minerals (50%)		Richards Bay, South Africa100% FreeholdIlmenite smelter1,060,000 tonnes peryear titanium dioxide slag
IRON ORE GROUP
Hlsmelt®(60%)Kwinana, Western Australia100% Leasehold (expiring in 2010 with rights of renewal for two further 25 year terms)Hlsmelt®ironmaking plant producing pig iron800,000 tonnes per year pig iron
IOC Pellet Plant
(59%)		Labrador City, Newfoundland, Canada100% Leaseholds (expiring in 2020, 2022 and 2025 with rights of renewal for further terms of 30 years)Pellet induration furnaces producing multiple iron ore pellet types13,500,000 tonnes per year pellet

Rio Tinto 2006 Form 20-F18

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METALS AND MINERALS PRODUCTION

   2004 2005 2006 
   Production (a) Production (a) Production(a) 
 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share          share   share 
 
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 
 
Rio Tinto total    2,231   2,963   3,247 
 
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 
 
Rio Tinto total    836.5   853.7   844.7 
 
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 
 
Rio Tinto total    12,828   15,474   16,139 
 
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 
 
Rio Tinto total    565   560   553 
 
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 
 
Rio Tinto total hard coking coal    6,760   7,195   5,909 
 
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 
 
Total Australian other coal    32,943   30,863   31,159 
 
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 
 
Total US coal    117,734   115,580   125,260 
 
Rio Tinto total other coal    150,677   146,443   156,418 
 
*Coal – other includes thermal coal, semi-soft coking coal and semi-hard coking coal.
See notes on page 22

Rio Tinto 2006Form 20-F19

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METALS AND MINERALS PRODUCTION continued

   2004 2005 2006 
   Production (a) Production (a) Production(a) 
 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share   share   share 
 
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 
 
Rio Tinto total    753.1   784.4   803.5 
 
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 
 
Rio Tinto total    332.6   314.5   299.2 
 
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 
 
Rio Tinto total    25,202   35,635   35,162 
 
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 
 
Rio Tinto total    1,552   1,726   1,003 
 
GOLD (refined) (’000 ounces)              
Kennecott Utah Copper (US)100.0 300 300 369 369 462 462 
 
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 
 
Rio Tinto total    107,757   124,494   132,780 
 
See notes on page 22              

Rio Tinto 2006Form 20-F20

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Production data notesMETALS AND MINERALS PRODUCTION continued

   2004 2005 2006 
   Production (a) Production (a) Production(a) 
 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share   share   share 
 
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 — — — — 
 
Rio Tinto total    25.1   11.9   11.9 
 
MOLYBDENUM (’000 tonnes)              
Bingham Canyon (US)100.0 6.8 6.8 15.6 15.6 16.8 16.8 
 
NICKEL (refined) (’000 tonnes)              
Empress (Zimbabwe) (q)— 2.9 1.6 — — — — 
 
PIG IRON (’000 tonnes)              
HIsmelt®(Australia) (t)60.0 — — 9 5 89 53 
 
SALT (’000 tonnes)              
Rio Tinto Minerals - salt (Australia)64.9 7,380 4,792 8,480 5,507 8,323 5,405 
 
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 
 
Rio Tinto total    14,830   14,926   13,968 
 
SILVER (refined) (’000 ounces)              
Kennecott Utah Copper (US)100.0 3,344 3,344 3,538 3,538 4,152 4,152 
 
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 
 
TIN (tonnes)              
Neves Corvo (Portugal) (l)— 120 59 — — — — 
 
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 
 
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 
 
Rio Tinto total    5,974   6,582   5,698 
 
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 — — — — 
 
Rio Tinto total    73.8   37.2   33.4 
 
See notes on page 22              

Rio Tinto 2006Form 20-F21

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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 20032006 and has applied over the period 2001–20032004 – 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 share varies at individual mines and refineries in the “others”“Others” category and thus no value is shown.
 Rio Tinto share %        
 OperationSee note 2001 2002 2003 
 
 
 Atlantic Copper(l) 16.6 16.5 15.4 
 Argyle(n) 99.8 99.9 100.0 
 Bengalla(f) (g) 29.0 29.4 30.3 
 Boyne Island(d) 54.2 56.6 59.4 
 Grasberg(l) 14.3 15.0 13.9 
 Hunter Valley Operations(f) 72.4 73.6 75.7 
 Iron Ore Company of Canada(p) 56.1 56.2 58.7 
 Lihir(o) 16.3 16.3 16.0 
 Mount Thorley Operations(f) 57.8 58.9 60.6 
 Moura(f) (g) 39.9 40.0 – 
 Narama(f) (g) 36.2 36.4 – 
 Palabora(m) 49.0 49.2 49.2 
 Queensland Alumina(c) 33.2 38.6 38.6 
 Ravensworth East(f) (g) 72.5 72.7 – 
 Warkworth(f) (g) 40.3  41.2  42.1 
 
 
          
 Rio Tinto share %        
 OperationSee Note 2004 2005 2006 
 
 
 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 
 
 
(c)Rio Tinto increasedsold its holding in Queensland Alumina Limited from 30.356.2 per cent to 38.6 per cent,share in Eurallumina with effect from September 2001.
(d)Rio Tinto acquired an approximately five per cent additional interest in production from the Boyne Island smelter with effect from August 2002.
(e)Borate quantities are expressed asB2O3.
(f)Rio Tinto increased its stake in Coal & Allied Industries from 70.9 per cent to 72.7 per cent during March 2001 and to 75.7 per cent during September 2002.
(g)Production data are shown from 29 January 2001, the effective date of Coal & Allied’s acquisition of the Australian coal businesses of the Peabody Group. Effective on the same date, Coal & Allied acquired an additional 11.8 per cent interest in the Warkworth mine.
On 14 March 2002, Coal & Allied completed the sale of its interests in Narama31 October 2006 and Ravensworth. Coal & Allied sold its interest in the Moura coal mine with effect from 24 May 2002. Productionproduction data are shown up to the dates of sale.that date.
(h)(d)Rio Tinto Coal Australia wasYarwun, previously known as Pacific Coal.Comalco Alumina Refinery, started production in October 2004.
(i)(e)Rio Tinto had a 50 per cent share in Kaltim Prima Coal and, under the terms of its Coal Agreement, the Indonesian Government was entitled to a 13.5 per cent share of Kaltim Prima’s production. Rio Tinto’s share of production shown is before deduction of the Government share. Rio Tinto completed the sale of its four per cent interest in Kaltim Prima Coalthe Boké mine on 10 October 2003.25 June 2004. Production data are shown up tot 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)KennecottIn view of Rio Tinto Energy has a partnership interest in the Colowyo mine but, as it is responsibleAmerica’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 completed the saleheld 23.93 million shares of its 25 per cent interest in Minera Alumbrera together with its wholly owned Peak Gold Mine on 17 March 2003. Production data are shown up to the date of sale.
(l)Through its interest in Freeport-McMoRan-CopperFreeport-McMoRan Copper & Gold (FCX), Rio Tinto had, as common stock from which it derived a share of 31 December 2003, an 11.8 per cent share in the Grasberg mine and a 13.1 per cent share in Atlantic Copper. Throughproduction. 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 the expansionexpansions and developments of the Grasberg facilities since 1998.
(m)(l)Rio Tinto increasedcompleted 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 Mining Company from 48.649.2 per cent to 49.247.2 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 in July 2001.interest.
(n)Rio Tinto acquired controlOre mining and processing at Murowa commenced during the third quarter of Ashton Mining Limited in late 2000 and as a result of this purchase, Rio Tinto’s effective interest in Argyle Diamonds became 99.8 per cent. Rio Tinto’s interest in Argyle Diamonds subsequently increased from 99.8 per cent to 100 per cent on 29 April 2002, following the purchase of the outstanding units in the Western Australian Diamond Trust.2004.
(o)Following a placement of shares onOn 30 November 2005, Rio Tinto sold its 14.5 per cent in Lihir Gold; it had agreed in September 2005 to relinquish the 13 November 2003,management agreement for Lihir. The production data are shown up to 30 September 2005, from which date the Rio Tinto’sTinto interest in Lihir moved from 16.3 per cent to 14.5 per cent.was held as an investment rather than being equity accounted..
(p)Rio Tinto increasedsold its shareholding in Iron Ore Company of Canada from 56.151 per cent interest in Morro do Ouro on 31 December 2004. Production data are shown up to 58.7the 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 renamed RioZim but will retain a reduced cash participation in its gold and nickel assets for a period of ten years.
(r)Rio Tinto’s share of production includes 100 per cent on 20 December 2002.of the production from the Eastern Range mine, which commenced production in March 2004. Under the terms of the joint venture agreement (Rio Tinto 54 per cent), Hamersley Iron manages the operation and is obliged to purchase all mine production from the joint venture.
(q)(s)Rio Tinto completed the sale of its 100 per cent interest in the Fortaleza nickelZinkgruvan mine on 16 January2 June 2004. Production data are shown up to the date of sale.
(r)(t)Production from the Port Hedland operation (Dampier Salt 100 per cent) is included from 17 August 2001.HIsmelt® commenced production during September 2005.
(s)(u)Talc production includes some products derived from purchased ores. The Three Springs talc mine in Western Australia was acquired in September 2001 and is included in the data from that date.
(t)(v)Quantities comprise 100 per cent of QIT and 50 per cent of Richards Bay Minerals’ production.
(u)Uranium production at Palabora ceased with the closure of the heavy minerals plant in August 2001.
(v)Rio Tinto completed the sale of its interest in Norzink on 17 April 2001.

 

16Rio Tinto 2003 2006Annual report and financial statementsForm 20-F22

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Ore reservesORE RESERVES
(under Industry Guide 7)

Ore Reserves and Mineral Resources in this report (for Rio Tinto managed operations) are reported in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves, September 1999 (the JORC Code) as required by the Australian Stock Exchange (ASX). Codes or Guidelines similar to JORC with only minor regional variations have been adopted in South Africa, Canada, US, UK, Ireland and Europe and together these represent current best practice for reporting Ore Reserves and Mineral Resources.

     The JORC Code envisages the use of reasonable investment assumptions, including the use of projected long term commodity prices, in calculating reserve estimates. However, during 2003 the US Securities and Exchange Commission indicated that for US reporting, historical price data should be used. Only certain operations are affected by this guidance and resulting changes to reserves are shown on page 147.

     Ore Reserve and Mineral Resource information in the tables below is based on information compiled by Competent Persons (as defined by JORC), or ‘recognised overseas mining professionals’ as defined by the ASX, most of whom are full time employees of Rio Tinto or related companies. Each has had a minimum of five years relevant estimation experience and is a member of a recognised professional body whose members are bound by a professional code of ethics. Each Competent Person consents to the inclusion in this report of information they have provided in the form and context in which it appears. A register of the names of the Competent Persons who are responsible for the estimates is maintained by the company secretaries in London and Melbourne and is available on request.

     The ore reserve figures in the following tables are as of 31 December 2003. Summary data for year end 2002 are shown for comparison. 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                  Proved ore reserves      Probable ore reserves      Total ore reserves 2003 compared with 2002      Rio Tinto share 
mineat end 2003at end 2003          
(a)
   Tonnage   GradeTonnage   GradeTonnage            Interest   Recoverable
        
  
2003 2002%mineral
 
         millions      millions      millions  millions              millions 
BAUXITE(b)  of tonnes of tonnes of tonnesof tonnes   of tonnes
Reserves at operating mine                        
Weipa (Australia) (c)O/P   138   1,074   1,212 730     100.0 1,212 
 
                       Marketable 
                       product 
 
         millions      millions      millions  millions              millions 
BORATES(d)of tonnesof tonnesof tonnesof tonnesof tonnes
Reserves at operating mines                        
Boron (US)O/P   24.3   5.3   29.6 30.5     100.0 29.6 
Tincalayu (Argentina) (e)O/P   0.2   0.1   0.3 0.1     100.0 0.3 
 
Total                      29.9 
 
COAL(f)        Coal    Recoverable    % Yield        Marketable reserves Marketable coal quality              
   typereservesto give
  
(g)totalmarketableProved  Probable  Total  Total       Marketable
  reserves  20032002(h)(h) reserves
 
Reserves at operating        millions      millions  millions  millions  millions  Calorific  Sulphur      millions 
minesof tonnesof tonnesof tonnesof tonnesof tonnesvaluecontentof tonnes
                 MJ/kg %     
Coal & Allied Industries                        
Bengalla (Australia)O/C SC 204 81 104 62 166 185 28.30 0.50 30.3 50 
Hunter Valley Operations                        
(Australia)O/C SC+MC 465 70 249 77 326 352 28.90 0.59 75.7 247 
Mount Thorley Operations                        
(Australia)O/C SC+MC 42 64 27   27 30 28.20 0.53 60.6 16 
Warkworth (Australia)O/C SC+MC 332 65 216   216 213 29.35 0.53 42.1 91 
 
Sub-total                      404 
 
Kaltim Prima                        
Sangatta (Indonesia) (i)O/C SC         – 383 – – – – 
 
Kennecott Energy                        
Antelope (US)O/C SC 260 100 260   260 297 20.59 0.23 100.0 260 
Colowyo (US) (j)O/C SC 28 100 28   28 106 24.42 0.41 100.0 28 
Cordero Rojo (US)O/C SC 402 100 402   402 444 19.59 0.30 100.0 402 
Decker (US)O/C SC 45 100 45   45 55 22.11 0.42 50.0 23 
Jacobs Ranch (US)O/C SC 531 100 531   531 581 20.31 0.47 100.0 531 
Spring Creek (US)O/C SC 250 100 250   250 258 21.75 0.33 100.0 250 
 
Sub-total                      1,493 
 
Rio Tinto Coal Australia(k)                        
Blair Athol (Australia)O/C SC 65 100 66   66 78 27.95 0.32 71.2 47 
Hail Creek (Australia) (l)O/C MC 310 63 116 80 196 148 32.20 0.35 92.0 180 
Kestrel (Australia)U/G SC+MC 153 80 47 76 123 127 32.20 0.65 80.0 98 
Tarong-Meandu (Australia)O/C SC 146 69 93 7 100 115 21.05 0.30 100.0 100 
 
Sub-total                      425 
 
Total reserves at operating mines                    2,323 
 
See notes on page 21.                        
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 mineral deposit that can be economically and legally extracted orproduced at the time of the 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 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 may occur as part of the mining 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 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 20032006Annual report and financial statementsForm 20-F1723

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Ore reservesORE RESERVES (under Industry Guide 7) continued

COALType of Coal Recoverable %Yield     Marketable reserves Marketable coal quality   Rio Tinto share
CONTINUED (f)mine type reserves to give 
      
 (a) (g) total marketable Proved Probable Total Total       Interest Marketable
       reserves     2003 2002 (h) (h)   % reserves
     millions   millions millions millions millions Calorific Sulphur     millions
     of tonnes   of tonnes of tonnes of tonnes of tonnes value content     of tonnes
Other undeveloped reserves(m)               MJ/kg %      
Coal & Allied Industries                         
Maules Creek (Australia)O/C SC+MC 160 73   117 117 117 29.90 0.40   75.7 89
Mount Pleasant (Australia) (n)O/C SC 459 76 306 44 350 285 26.73 0.51   75.7 265
Oaklands (Australia)O/C SC 400 100   400 400 400 20.90 0.25   75.7 303
Sub-total                        656
Kaltim Prima                         
Bengalon (Indonesia) (i)O/C SC         – 169 – –   – –
Rio Tinto Coal Australia(k)                         
Clermont (Australia)O/C SC 192 97 186   186 186 27.90 0.33   50.1 93
SW Yarraman (Australia)O/C SC 54 76   41 41 41 21.05 0.30   100.0 41
Tarong-Kunioon (Australia)O/C SC 257 63   163 163 163 21.05 0.30   100.0 163
Valeria (Australia) (o)O/C SC         – 88 – –   – –
Sub-total                        297
Total undeveloped reserves                        954
                          
     Proved ore reserves Probable ore reserves Total ore reserves 2003 compared with 2002   Rio Tinto share
       at end 2003   at end 2003           
     
 
      
                     Average    
                     mill    
     Tonnage Grade Tonnage Grade   Tonnage   Grade recovery Interest Recoverable
             
      
             2003 2002 2003 2002 % % metal
     millions   millions   millions millions         millions
COPPER    of tonnes %Cu of tonnes %Cu of tonnes of tonnes %Cu %Cu     of tonnes
Reserves at operating mines and                       
mines under construction                       
Alumbrera (Argentina) (p)O/P           – 368 – 0.51 – – –
Bingham Canyon (US) (dd)                         
– open pitO/P   28.2 0.56 529 0.51 557 624 0.51 0.53 89 100.0 2.542
– underground block caveU/G       321 0.70 321 321 0.70 0.70 91 100.0 2.022
– underground skarn oresU/G       13.5 1.89 13.5 13.5 1.89 1.89 93 100.0 0.236
Escondida (Chile) (dd)                         
– sulphideO/P   644 1.46 839 1.02 1,482 1,545 1.21 1.21 86 30.0 4.615
– low grade floatO/P   148 0.60 417 0.60 565 575 0.60 0.60 81 30.0 0.827
– oxideO/P   132 0.76 52.4 0.51 185 198 0.69 0.70 88 30.0 0.334
– mixedO/P       50.0 1.04 50.0 49.7 1.04 1.03 39 30.0 0.061
Escondida Norte (Chile) (q)                         
– sulphideO/P   84 1.84 417 1.35 502 – 1.44 – 87 30.0 1.880
– low grade floatO/P       95 0.61 95 – 0.61 – 80 30.0 0.139
– oxideO/P       117 0.77 117 – 0.77 – 85 30.0 0.229
Fortaleza (Brazil) (r)U/G   0.2 0.03 0.9 0.25 1.1 1.4 0.21 0.26 78 100.0 0.002
Grasberg (Indonesia) (s)O/P+U/G   765 1.13 1,931 1.07 2,696 2,584 1.08 1.12 88   of which:
– FCX                      11.8 2.206
– Joint Venture                      40.0 6.914
Neves Corvo (Portugal) (t)                         
– copper oreU/G   17.1 5.32 0.8 3.59 17.9 23.5 5.24 5.10 86 49.0 0.396
– tin-copper oresU/G   1.1 6.81 0.1 4.48 1.2 1.7 6.68 9.11 81 49.0 0.031
Northparkes (Australia)                         
– open pit and stockpiles (u)O/P   7.3 0.66     7.3 9.9 0.66 0.68 69 80.0 0.026
– undergroundU/G       46.7 1.20 46.7 48.0 1.20 1.20 88 80.0 0.392
Palabora (South Africa) (v)                         
– open pitO/P           – 3.0 – 0.50 – – –
– underground block caveU/G   210 0.69 16.0 0.49 226 232 0.68 0.67 88 49.2 0.662
– surface stockpiles            – 12 – 0.14 – – –
Total                        23.514
                         Recoverable
                         diamonds
     millions carats millions carats millions millions carats carats     millions
DIAMONDS(b)    of tonnes per tonne of tonnes per tonne of tonnes of tonnes per tonne per tonne     of carats
Reserves at operating mines                         
and mines under construction                         
Argyle (Australia)                         
– AK1 pipe (w)O/P+U/G   44.8 2.3 17.5 2.4 62.3 42.9 2.3 3.2   100.0 146.4
Diavik (Canada)O/P+U/G   15.2 3.9 10.4 3.6 25.6 27.1 3.8 3.9   60.0 58.7
Murowa (Zimbabwe)O/P       23.1 0.7 23.1 23.1 0.7 0.7   78.0 12.4
Total                        217.5
See Notes on page 21.                        

18Rio Tinto 2003Annual report and financial statements

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 Type of Proved ore reserves Probable ore reserves Total ore reserves 2003 compared with 2002   Rio Tinto share 
 mine at end 2003 at end 2003               
 (a) 
 
 
   
 
                   Average     
                   mill     
   Tonnage Grade Tonnage Grade   Tonnage   Grade recovery Interest Recoverable 
 
           2003 2002 2003 2002 % % metal 
 
   millions grammes millions grammes millions millions grammes grammes     millions 
GOLD  of tonnes per tonne of tonnes per tonne of tonnes of tonnes per tonne per tonne     of ounces 
Reserves at operating mines                        
Alumbrera (Argentina) (p)O/P         – 368 – 0.51 – – – 
Bingham Canyon (US) (dd)                        
– open pitO/P 28.2 0.35 529 0.33 557 624 0.33 0.33 66 100.0 3.834 
– underground block caveU/G     321 0.27 321 321 0.27 0.27 68 100.0 1.856 
– underground skarn oresU/G     13.5 1.22 13.5 13.5 1.22 1.22 66 100.0 0.351 
Cortez/Pipeline (US) (x)O/P 149 1.88 84.0 1.39 233 170 1.70 1.18 87 40.0 4.408 
Grasberg (Indonesia) (s)O/P+U/G 765 1.11 1,931 0.92 2,696 2,584 0.98 1.02 73   of which: 
– FCX                    11.8 5.677 
– Joint Venture                    40.0 14.252 
Greens Creek (US) (dd)U/G     6.8 3.95 6.8 6.4 3.95 4.40 72 70.3 0.435 
Kelian (Indonesia) (y)O/P 9.9 1.74     9.9 15.5 1.74 2.23 72 90.0 0.361 
Lihir (PNG) (y)O/P 36.5 2.86 127 4.18 164 143 3.88 3.63 90 14.5 2.663 
Morro do Ouro (Brazil) (dd)O/P 305 0.42 56.6 0.38 361 369 0.42 0.43 81 51.0 1.999 
Northparkes (Australia)                        
– open pit and stockpiles (u)O/P 7.3 0.60     7.3 9.9 0.60 0.55 54 80.0 0.061 
– undergroundU/G     46.7 0.48 46.7 48.0 0.48 0.50 74 80.0 0.423 
Peak (Australia) (p)U/G         – 2.4 – 7.26 – – – 
Rawhide (US) (z)O/P         – 2.1 – 0.46 – – – 
Rio Tinto ZimbabweU/G 0.2 6.56     0.2 0.3 6.56 6.93 89 56.0 0.026 
 
Total                      36.347 
 
                       Marketable 
                       product 
                       
 
   millions   millions   millions millions         millions 
IRON ORE(b)  of tonnes %Fe of tonnes %Fe of tonnes of tonnes %Fe %Fe     of tonnes 
Reserves at operating mines and mines under construction                        
Channar (Australia)                        
– Brockman OreO/P 115 63.5 13 64.7 127 130 63.6 63.6   60.0 76 
Corumbá (Brazil)O/P 112 67.2 106 67.2 218 218 67.2 67.2   100.0 218 
Eastern Range (Australia)                        
– Brockman OreO/P 89 62.7 23 62.9 112 112 62.8 62.7   54.0 61 
Hamersley (Australia)                        
– Brockman 2 (Brockman Ore)O/P 23 62.9 7 62.8 30 35 62.9 62.9   100.0 30 
– Marandoo (Marra Mamba Ore)O/P 84 62.4 3 62.6 86 96 62.4 62.4   100.0 86 
– Mt Tom Price (Brockman Ore)O/P 131 64.4 58 64.6 189 199 64.4 64.5   100.0 189 
– Mt Tom Price (Marra Mamba Ore)O/P     23 60.7 23 23 60.7 60.7   100.0 23 
– Paraburdoo (Brockman Ore)O/P 15 64.1 8 63.5 23 23 63.9 64.5   100.0 23 
– Paraburdoo (Marra Mamba Ore)O/P     1 63.0 1 1 63.0 63.4   100.0 1 
– Nammuldi (Marra Mamba Ore)O/P 10 62.0 0 61.6 10 10 62.0 62.0   100.0 10 
– Yandicoogina (Pisolite Ore 1.4% Al2O3)O/P 219 58.6     219 240 58.6 58.6   100.0 219 
– Yandicoogina (Pisolite Ore 1.9% Al2O3)      82 58.0 82 71 58.0 57.8   100.0 82 
                         
Iron Ore Company of
   Canada (Canada)		O/P 473 66.4 152 66.4 625 685 66.4 65.0   58.7 367 
Robe River (Australia)                        
– Pannawonica (Pisolite Ore)O/P 125 57.0 75 57.0 200 230 57.0 57.0   53.0 106 
– West Angelas (Marra Mamba Ore)O/P 125 62.5 315 62.0 440 455 62.2 62.2   53.0 233 
 
Total                      1,726 
 
                       Recoverable 
                       metal 
                       
 
                         
   millions   millions   millions millions         millions 
LEAD  of tonnes %Pb of tonnes %Pb of tonnes of tonnes %Pb %Pb     of tonnes 
Reserves at operating mines                        
Greens Creek (US) (dd)U/G     6.8 4.02 6.8 6.4 4.02 4.57 76 70.3 0.146 
Zinkgruvan (Sweden)U/G 7.9 5.20 1.6 2.80 9.5 10.5 4.79 4.50 90 100.0 0.410 
 
Total                      0.556 
 
   millions   millions   millions millions         millions 
MOLYBDENUM  of tonnes %Mo of tonnes %Mo of tonnes of tonnes %Mo %Mo     of tonnes 
Reserves at operating mine                        
Bingham Canyon (US) (dd)                        
– open pitO/P 28.2 0.035 529 0.037 557 624 0.037 0.033 55 100.0 0.114 
– underground block caveU/G     321 0.035 321 321 0.035 0.035 48 100.0 0.054 
 
Total                      0.168 
 
See notes on page 21.                        
           
 Type of Total ore reserves at end 2006     
 mine 
 Interest Rio Tinto 
 (b) Tonnage Grade % share 
 
         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 
 
           
         Marketable 
         product 
   millions     millions 
BORATES (e)  of tonnes     of tonnes 
Reserves at operating mine          
Rio Tinto Minerals - Boron (US) (j)          
– mineO/P 19.8   100.0 19.8 
– stockpiles (i)S/P 2.1   100.0 2.1 
 
Rio Tinto total        21.9 
 
             
   Coal type Marketable Marketable coal quality     
   (g) reserves (h) (h)     
     
     
             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 
 
Total US coal            1,283 
 
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 OperationsO/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 OperationsO/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 
 
Total Australian coal            664 
 
Rio Tinto total reserves at operating mines            1,946 
 
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 
 
Rio Tinto total undeveloped reserves            360 
 
See notes on pages 32 to 33              

 

Rio Tinto 20032006Annual report and financial statementsForm 20-F1924

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Ore reservesORE RESERVES (under Industry Guide 7) continued

 Type of Proved ore reserves Probable ore reserves Total ore reserves 2003 compared with 2002   Rio Tinto share 
 mine at end 2003 at end 2003               
 (a) 
 
 
   
 
                   Average     
   Tonnage Grade Tonnage Grade   Tonnage   Grade mill     
           
 recovery Interest Recoverable 
           2003 2002 2003 2002 % % metal 
 
   millions   millions   millions millions         millions 
NICKEL  of tonnes %Ni of tonnes %Ni of tonnes of tonnes %Ni %Ni     of tonnes 
Reserves at operating mine                        
Fortaleza (Brazil) (r)U/G 0.2 2.94 0.9 1.95 1.1 1.4 2.12 2.14 84 100.0 0.019 
 
   millions grammes millions grammes millions millions grammes��grammes     millions 
SILVER  of tonnes per tonne of tonnes per tonne of tonnes of tonnes per tonne per tonne     of ounces 
Reserves at operating mines                        
Bingham Canyon (US) (dd)                        
– open pitO/P 28.2 3.16 529 2.69 557 624 2.72 2.83 80 100.0 38.908 
– underground block caveU/G     321 2.69 321 321 2.69 2.69 71 100.0 19.682 
– underground skarn oresU/G     13.5 13.4 13.5 13.5 13.4 13.4 71 100.0 4.114 
Grasberg (Indonesia) (s)O/P+U/G 765 3.72 1,931 3.71 2,696 2,584 3.72 3.73 64   of which: 
– FCX                    11.8 17.883 
– Joint Venture                    40.0 56.167 
Greens Creek (US) (dd)U/G     6.8 483 6.8 6.4 483 511 75 70.3 55.556 
Neves Corvo (Portugal) (t)                        
– copper oreU/G 17.1 50.0 0.8 50.0 17.9 23.5 50.0 50.0 31 49.0 4.402 
– tin-copper oreU/G 1.1 37.9 0.1 38.5 1.2 1.7 37.9 38.4 36 49.0 0.249 
Rawhide (US) (z)O/P         – 2.1 – 8.5 – – – 
Zinkgruvan (Sweden)U/G 7.9 103.0 1.6 68.0 9.5 10.5 97.0 94.1 74 100.0 21.923 
 
Total                      218.884 
 
                       Marketable 
                       product 
 
   millions   millions   millions millions         millions 
TALC(d)  of tonnes   of tonnes   of tonnes of tonnes         of tonnes 
Reserves at operating mines                        
Luzenac Group (aa)O/P+U/G 37.0   21.1   58.1 81.6       99.9 58.1 
(Europe/North America/Australia)                        
 
                       Recoverable 
                       metal 
 
   millions   millions   millions millions         millions 
TIN  of tonnes %Sn of tonnes %Sn of tonnes of tonnes %Sn %Sn     of tonnes 
Reserves at operating mine                        
Neves Corvo (Portugal) (t)                        
– tin-copper oresU/G 0.3 3.47 0.02 1.39 0.3 0.4 3.36 4.20 44 49.0 0.002 
 
                       Marketable 
                       product 
 
TITANIUM DIOXIDE FEEDSTOCK(d) millions
of tonnes		   millions
of tonnes		   millions
of tonnes		 millions
of tonnes		         millions
of tonnes		 
                  
Reserves at operating mines                       
Rio Tinto Iron & Titanium (bb)O/P+D/O 46.0   34.1   80.1 79.6         80.1 
(Canada/South Africa)                        
 
                       Recoverable 
                       metal 
 
   millions   millions   millions millions         millions 
URANIUM  of tonnes %U3O8 of tonnes %U3O8 of tonnes of tonnes %U3O8 %U3O8     of tonnes 
Reserves at operating mines                        
Energy Resources of Australia (Australia)                        
– JabilukaU/G 6.8 0.57 7.0 0.45 13.8 13.8 0.51 0.51 94 68.4 0.045 
– Ranger #3 (y)O/P 10.2 0.24 7.8 0.25 18.0 19.9 0.24 0.25 89 68.4 0.027 
Rössing (Namibia)                        
– open pit (cc)O/P 3.9 0.052 21.8 0.038 25.8 135 0.040 0.041 85 68.6 0.006 
– stockpiled ore  2.6 0.040     2.6 2.6 0.040 0.041 85 68.6 0.001 
 
Total                      0.079 
 
   millions   millions   millions millions         millions 
ZINC  of tonnes %Zn of tonnes %Zn of tonnes of tonnes %Zn %Zn     of tonnes 
Reserves at operating mines                        
Greens Creek (US) (dd)U/G     6.8 10.7 6.8 6.4 10.7 11.4 87 70.3 0.444 
Zinkgruvan (Sweden)U/G 7.9 9.9 1.6 9.3 9.5 10.5 9.8 9.6 93 100.0 0.867 
 
Total                      1.310 
 
See notes on page 21.                        
   Total ore reserves Average     
 Type of at end 2006 mill     
 mine 
 recovery Interest Rio Tinto 
 (b) Tonnage Grade % % share 
 
           Recoverable 
           metal 
   millions       millions 
COPPER  of tonnes %Cu     of tonnes 
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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 mineO/P 1,360 1.06 85 30.0 3.681 
– sulphide leach mineO/P 1,412 0.51 34 30.0 0.744 
– oxide mineO/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 mineO/P 455 1.40 85 30.0 1.621 
– sulphide leach mineO/P 604 0.60 34 30.0 0.371 
– oxide mineO/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)            
– mineU/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)            
– mineU/G 118 0.64 88 57.7 0.381 
 
Rio Tinto total          17.989 
 
             
           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)            
– mineO/P 22 0.7   77.8 11.8 
– stockpiles (i)S/P 0.1 1.2   77.8 0.1 
 
Rio Tinto total          281.5 
 
             
           Recoverable 
           metal 
   millions grammes     millions 
GOLD  of tonnes per tonne     of ounces 
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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)            
– mineO/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)            
– mineU/G 46 0.46 74 80.0 0.407 
– stockpiles (i)S/P 3.8 0.58 76 80.0 0.043 
 
Rio Tinto total          20.834 
 
See notes on pages 32 to 33            

 

20Rio Tinto 20032006Annual report and financial statementsForm 20-F25

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ORE RESERVES (under Industry Guide 7) continued

    Total ore reserves Average     
 Type of at end 2006 mill     
 mine 
 recovery Interest Rio Tinto 
 (b) Tonnage Grade % % share 
 
           Marketable 
           product 
   millions       millions 
IRON ORE (d)  of tonnes %Fe     of tonnes 
Reserves at operating mines            
and mines under construction            
Channar (Australia)            
– Brockman OreO/P 100 63.5   60.0 60 
Corumbá (Brazil)            
   – mineO/P 213 67.2   100.0 213 
   – stockpiles (i)S/P 1 66.7   100.0 1 
Eastern Range (Australia)            
– Brockman OreO/P 91 62.9   54.0 49 
Hope Downs (Australia) (t)            
– Marra Mamba OreO/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)            
   – mineO/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)            
   – mineO/P 327 58.7   100.0 327 
   – stockpiles (i)S/P 1.5 58.1   100.0 1 
– Yandicoogina (Process Product)            
   – mineO/P 109 58.4   100.0 109 
Iron Ore Company of CanadaO/P 416 65.0   58.7 244 
(Canada)            
Robe River (Australia)            
– Pannawonica (Pisolite Ore)            
   – mineO/P 327 57.2   53.0 174 
   – stockpiles (i)S/P 17 56.9   53.0 9 
– West Angelas (Marra Mamba Ore)            
   – mineO/P 403 61.9   53.0 213 
   – stockpiles (i)S/P 6 59.3   53.0 3 
 
Rio Tinto total          2,326 
 
             
           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 
 
             
           Recoverable 
           metal 
   millions       millions 
MOLYBDENUM  of tonnes %Mo     of tonnes 
Reserves at operating mine            
Bingham Canyon (US)            
– mineO/P 604 0.047 61 100.0 0.175 
– stockpiles (i)S/P 37 0.032 61 100.0 0.007 
 
Rio Tinto total          0.183 
 
See notes on pages 32 to 33            

Rio Tinto 2006Form 20-F26

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ORE RESERVES (under Industry Guide 7) continued

    Total ore reserves Average     
 Type of at end 2006 mill     
 mine 
 recovery Interest Rio Tinto 
 (b) Tonnage Grade % % share 
 
           Recoverable 
           metal 
   millions grammes     millions 
SILVER  of tonnes per tonne     of ounces 
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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 
 
Rio Tinto total          169.185 
 
             
           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 
 
             
           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 
 
Rio Tinto total          75.0 
 
             
           Recoverable 
           metal 
   millions       millions 
URANIUM  of tonnes %U308      of tonnes 
Reserves at operating mines            
Energy Resources of Australia            
(Australia)            
– Ranger #3 mineO/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)            
– mineO/P 17.7 0.038 85 68.6 0.0039 
– stockpiles (i)S/P 2.3 0.015 85 68.6 0.0002 
 
Rio Tinto total          0.0345 
 
             
           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 
 
See notes on pages 32 to 33            

Rio Tinto 2006Form 20-F27

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ORE RESERVES (under Industry Guide 7) continued

   Proven ore reserves Probable ore reserves 
   at end 2006 at end 2006 
 Type of 
 
 mine     Drill hole     Drill hole 
   (b)   Tonnage  Grade spacing (c)   Tonnage   Grade spacing (c) 
 
   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) 
 
               
   millions     millions     
BORATES (e)  of tonnes     of tonnes     
Reserves at operating mine              
Rio Tinto Minerals - Boron (US) (j)              
– mineO/P 14.8   61m x 61m 5.0   61m x 61m 
– stockpiles (i)S/P 0.1     2.0     
 
         
     % Yield to Marketable Reserves 
   Recoverable give 
 
   reserves marketable   Drill hole   Drill hole 
   total reserves Proven spacing (c) Probable spacing (c) 
 
   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 
 
See notes on pages 32 to 33              

Rio Tinto 2006Form 20-F28

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ORE RESERVES (under Industry Guide 7) continued

   Proven ore reserves Probable ore reserves 
 Type of at end 2006 at end 2006 
 mine 
 
  (b) Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing (c)     spacing (c) 
 
COPPER  millions    millions    
   of tonnes %Cu  of tonnes %Cu  
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/P 325 0.59 90m 279 0.48 110m 
– stockpiles (i)S/P 12 0.35  25 0.32  
Escondida (Chile) (n)            
– sulphide mineO/P 516 1.17 60m x 60m 844 1.00 100m x 100m 
– sulphide leach mineO/P 421 0.51 60m x 60m 992 0.51 105m x 105m 
– oxide mineO/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 mineO/P 138 1.53 60m x 60m 318 1.34 100m x 100m 
– sulphide leach mineO/P 57 0.53 60m x 60m 548 0.61 105m x 105m 
– oxide mineO/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)            
– mineU/G      46 1.06 40 x 40 x 80m 
– stockpiles (i)S/P 3.8 0.67       
Palabora (South Africa) (p)            
– mineU/G 118 0.64 76m      
 
             
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            
– mineO/P       22 0.7 25m 
– stockpiles (i)S/P       0.1 1.2  
 
           
GOLD  millions grammes  millions grammes  
   of tonnes per tonne  of tonnes per tonne  
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/P 325 0.34 90m 279 0.28 110m 
– stockpiles (i)S/P 12 0.20  25 0.20  
Cortez/Pipeline (US) (s)            
– mineO/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)            
– mineO/P      46 0.46 40 x 40 x 80m 
– stockpiles (i)S/P 3.8 0.58       
 
See notes on pages 32 to 33              

Rio Tinto 2006 Form 20-F29

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 
 
 (b) Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing (c)     spacing (c) 
 
IRON ORE (d)  millions     millions     
   of tonnes %Fe   of tonnes            %Fe   
Reserves at operating mines              
and mines under construction              
Channar (Australia)              
– Brockman OreO/P 87 63.5 60m x 60m 13 63.6 max 120m 
Corumbá (Brazil)              
 – mineO/P 108 67.2 100m x 100m 106 67.2 200m x 400m 
 – stockpiles (i)S/P 1 66.7         
Eastern Range (Australia)              
– Brockman OreO/P 66 63.0 60m x 60m 25 62.8 max 120m 
Hope Downs (Australia) (t)              
– Marra Mamba OreO/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)              
   – mineO/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)              
   – mineO/P 327 58.7 50m x 50m       
   – stockpiles (i)S/P       1.5 58.1   
– Yandicoogina (Process Product)              
   – mineO/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)              
   – mineO/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)              
   – mineO/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   
 
             
LEAD  millions     millions    
   of tonnes %Pb   of tonnes %Pb  
Reserves at operating mine             
Greens Creek (US)U/G       7.0 3.98 30m 
 
             
MOLYBDENUM  millions     millions    
   of tonnes %Mo   of tonnes %Mo  
Reserves at operating mine            
Bingham Canyon (US)            
– mineO/P 325 0.047 90m 279 0.047 110m 
– stockpiles (i)S/P 12.1 0.028  25 0.034  
 
See notes on pages 32 to 33              

Rio Tinto 2006 Form 20-F30

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  
 
 (b)  Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing (c)     spacing (c) 
 
SILVER  millions grammes  millions grammes  
   of tonnes per tonne  of tonnes per tonne  
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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 
 
               
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 
 
             
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 
 
           
URANIUM  millions    millions    
   of tonnes %U308  of tonnes %U308  
Reserves at operating mines            
Energy Resources of Australia            
(Australia)            
– Ranger #3 mineO/P 4.9 0.24 25m 4.8 0.24 50m 
– Ranger #3 stockpiles (i) (x)S/P 25.9 0.11       
Rössing (Namibia)            
– mineO/P 0.8 0.036 20m 16.9 0.038 60m 
– stockpiles (i)S/P 2.3 0.015       
 
             
ZINC  millions     millions    
   of tonnes %Zn   of tonnes %Zn  
Reserves at operating mine             
Greens Creek (US)U/G       7.0 10.39 30m 
 
See notes on pages 32 to 33              

Rio Tinto 2006 Form 20-F31

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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 reservesUnitUS$
ALUMINIUM
Weipa (Australia)pound0.85
COPPER
Bingham Canyon (US)pound1.59
Escondida (Chile)*pound1.59
Escondida Norte (Chile)*pound1.59
Grasberg (Indonesia)*pound1.59
Northparkes (Australia)pound1.59
Palabora (South Africa)pound1.59
GOLD
Bingham Canyon (US)ounce446
Cortez / Pipeline (US)*ounce446
Grasberg (Indonesia)*ounce446
Greens Creek (US)ounce446
Northparkes (Australia)ounce446
IRON ORE
Australian benchmark (fines)dmtu**0.46
Atlantic benchmark (fines)dmtu**0.49
LEAD
Greens Creek (US)pound0.41
MOLYBDENUM
Bingham Canyon (US)pound20.5
SILVER
Bingham Canyon (US)ounce7.34
Grasberg (Indonesia)*ounce7.34
Greens Creek (US)ounce7.34
ZINC
Greens Creek (US)pound0.64
* = 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.operation, S/P = stockpile.
(b)(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. Al2O3 grades are not shown for commercial reasons.
(c)Reserves at Weipa have increased as a result of the application of revised economic parameters permitting development of a new resource model and the subsequent transfer of resources to reserves.
(d)(e)Reserves of industrial minerals are expressed in terms of marketable product, iei.e. after all mining and processing losses. In the case of borates, the saleable product is B2O3.
(e)Reserves at Tincalayu have increased following development of a new geological model and a new life of mine plan.
(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"American Standard Testing Methods”Methods" (ASTM) on an “As Received”"As Received" moisture basis whereas the coals from Australia have been analysed on an “Air Dried”"Air Dried" moisture basis according to Australian Standards (AS). MJ/kg = megajoules per kilogramme. 1 MJ/kg = 430.2 Btu/lb.
(i)Rio Tinto completed the saleStockpile components of its 50 per cent interest in Kaltim Prima Coal on 10 October 2003.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’sColowyo's reserves are included in Rio Tinto’sTinto's share shown above. Reserves at Colowyo have decreased following the reclassification of all material outside the current production area as measured resources.

(k)Rio Tinto Coal Australia was previously known as Pacific Coal.2006 Form 20-F32
(l)Production at Hail Creek commenced in July 2003; reserves are now reported in the operating mines section rather than in the other undeveloped reserves section. Reserves have increased as a result of a major strategic review and the development of a new life of mine plan.

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ORE RESERVES (under Industry Guide 7) continued

(m)The term ‘other undeveloped reserves’'undeveloped reserves' is used here to describe material that is economically viable on the basis of technical and economic studies but for which miningconstruction and processing permitscommissioning have yet to be requested or obtained. There is a reasonable, but not absolute, certainty that the necessary permits will be issued and that mining can proceed when required.commence.
(n)MarketableThe increase in reserves at Mount Pleasant haveEscondida and Escondida Norte results from updated models following increased as a consequence of additional project studies which led to the development of a new resource model, and indicated higher yields as a result of improved processing methodsdrilling and the planned miningapplication of higher quality seams.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)Marketable reserves at Valeria have been reclassified as measured resources following a revision of economic parameters.
(p)Rio Tinto completed the sale of its 25 per cent interest in Minera Alumbrera together with its wholly owned Peak Gold Mine on 17 March 2003.
(q)Reserves at Escondida Norte are declared for the first time.
(r)Rio Tinto completed the sale of its 100 per cent interest in the Fortaleza nickel mine on 16 January 2004.
(s)Rio Tinto is entitled to a share in metal production from Freeport’s Grasberg operations due to its direct shareholding in Freeport-McMoRan Copper & Gold (FCX). In addition, underUnder the terms of a joint venture agreement between Rio Tinto and FCX,Freeport-McMoRan Copper & Gold (FCX), Rio Tinto is entitled to a direct 40 per cent share in reserves discovered at Grasberg after 31 December 1994.1994 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’s shareTinto 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 due to these two entitlements are shown separately.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)Reserves at Neves Corvo have decreased following developmentFollowing the acquisition of a new resource model and revised mine plan that takes into account revised cutoff grades for different mining methods and50 per cent interest in the exclusion of additional safety pillars.
(u)The depletion inHope Downs iron ore project, reserves at Northparkes is mainly due to the reclamation of material from stockpiles.
(v)Open pit mining at Palabora was completed in November 2003. In addition stockpile reserves at Palabora have been reclassified as measured resources in order to meet more accurately the requirements of the JORC code.
(w)Reserves at Argyle have increased as a result of the development of a new resource model and revised mine plan which includes additional open pittable material and underground reservesare presented here for the first time.
(x)(u)The increase inMt Tom Price reserves at Cortez reflectshave increased following the inclusionupgrading of the Cortez Hills deposit for the first time,mineralised material and the transfer of material from mineral resources.approved mine design extensions into a new area.
(y)(v)ProvedFollowing a reassessment of economic and design criteria a proportion of reserves at Kelian, Lihir and Ranger #3 include 9.95, 33.3 and 6.9 million tonnes respectively stockpiled at the end of December 2003 for future treatment. At Kelian, open pit mining ceased in April 2003, stockpiled ore is now being processed. At Lihir, additional drilling led to remodelling of the Kapit and Lienitz deposits; this together with a review of the life of mine plan has led to an increase in reserves.
(z)At Rawhide, mining operations have ceased and processing of stockpiled ore was completed in May 2003. Reclamation activities are now underway.
(aa)Reserves of talc have decreasedwere reclassified as a result of a decision to closemineralised material at several of the North American mines.talc operations. Rio Tinto Minerals - talc was formerly known as the Luzenac Group.
(bb)(w)ComprisesThe reserve model was updated on receipt of new data, which including depletion, resulted in a reduction of reserves at QIT-Fer et Titane (Rio Tinto 100 per cent) and Richards Bay Minerals (RBM) (Rio Tinto 50 per cent).QIT.
(cc)(x)At RössingImprovements in processing and economic parameters enabled lower grade stockpile material to be added to the significant reduction in reserves has resulted from a major change in the planned mining strategy which may result in mine closure when the current pit is mined out. Material outside of the current final pit has been transferred back to resources.
(dd)These operations have different reported reserves when SEC reporting guidelines are applied (see page 147).at Ranger #3.

 

Rio Tinto 2006 Form 20-F33

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LOCATION OF GROUP OPERATIONS as at June 2007 (wholly owned unless stated otherwise)
ALUMINIUM
Operating sites
1Anglesey Aluminium (51%)
2Bell Bay
3Boyne Island (59%)
3Gladstone Power Station (42%)
3Queensland Alumina (39%)
4Tiwai Point (79%)
5Weipa
3Yarwun (formerly Comalco
Alumina Refinery)
BORATES
Operating sites
6Boron
7Coudekerque Plant
8Tincalayu
9Wilmington Plant
COAL
Operating sites
10Antelope
11Bengalla (30%)
12Blair Athol (71%)
13Colowyo (20%)
10Cordero Rojo
14Decker (50%)
12Hail Creek (82%)
15Hunter Valley Operations (76%)
10Jacobs Ranch
16Kestrel (80%)
15Mt Thorley Operations (61%)
14Spring Creek
17Tarong
15Warkworth (42%)
Projects
12Clermont (50%)
11Mt Pleasant (76%)
COPPER AND GOLD
Operating sites
18Bougainville (not operating) (54%)
19Cortez/Pipeline (40%)
20Escondida (30%)
21Grasberg joint venture (40%)
22Kennecott Utah Copper
23Northparkes (80%)
24Palabora (58%)
25Rawhide (51%)
Projects
26La Granja
27Oyu Tolgoi (10%)
28Pebble (20%)
29Resolution (55%)
DIAMONDS
Operating sites
30Argyle
31Diavik (60%)
32Murowa (78%)
IRON ORE
Operating sites
33Corumbá
34Hamersley Iron mines:
Brockman
Marandoo
Mt Tom Price
Nammuldi
Paraburdoo
Yandicoogina
Channar (60%)
Eastern Range (54%)
35HIsmelt®(60%)
34Robe River mines: (53%)
West Angelas
Pannawonica
35Iron Ore Company of
Canada (59%)
Projects
34Hope Downs (50%)
37IOC Pellet Plant (59%)
38Orissa (51%)
39Simandou (95%)
NICKEL
Projects
40Eagle
POTASH
Projects
41Rio Colorado Potash
SALT
Operating sites
42Dampier (65%)
43Lake MacLeod (65%)
42Port 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
51QIT 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 20032006Annual report and financial statementsForm 20-F2134

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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-F35

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Mineral resourcesStrategy
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 required bywe 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 Australian Stock Exchange additional dataprofitability and value of the business and major enhancements in relation to mineral resourcesour 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 disclosed on pages 22a 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 24Tom 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 2003 Annual reportmajor economies. China’s strong, growing demand for metals and financial statements but these pagesminerals, 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 intentionally omitted frompossible without the 2003 Form 20-F becausecommitment, 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 conflict with the SEC Industry Guide 7.have achieved in an excellent year forRio Tinto.

Paul Skinner Chairman
23 February 2007

22-24*Rio Tinto 2003Adjusted following a reclassification post publication in the 2006 Annual report and financial statementsstatements.

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Rio Tinto 2003 2006Annual report and financial statementsForm 20-F25

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Information on Group mines
(Rio Tinto’s interest 100 per cent unless otherwise shown)

MineLocationAccessTitle/leaseHistoryType of minePower source
ALUMINIUM
Comalco36 Weipa, Queensland, AustraliaRoad, air, and portQueensland Government lease expiresin 2041 with 21 year extension, thentwo years notice of terminationBauxite mining commenced in 1961; Major upgrade completed in 1998 to incorporate Alcan’s adjacent Ely reserve in overall miningplan; Rio Tinto interest increased from 72.4% to 100% in 2000;Project NeWeipa announced in 2003 to lift annual capacity to16.5 million tonnesOpen cutOn site generation
COPPER
Escondida(30%)Atacama Desert, ChilePipeline and road to deep seaport at ColosoRights conferred by Government underChilean Mining CodeProduction started in 1990 and expanded in phases to 2002 when new concentrator was completedOpen pitSupplied from SING grid under two contracts with Norgener to 2008 and Nopel (Gas Atacama) to 2009
Grasberg(12% and 40% ofjoint venture)Papua, IndonesiaPipeline, road and portIndonesian Government Contracts ofWork expire in 2021 with two ten yearextensionsInterest acquired 1995; capacity expanded to over 200,000 tonnes of ore per day in 1998Open pit and undergroundLong term contract withUS-Indonesian consortium operatedpurpose built coal fired generating station
Kennecott Minerals
Cortez/Pipeline (40%)		Nevada, USRoadPatented and unpatented mining claimsGold production started at Cortez in 1969. Pipeline in 1997Open pitPublic utility
Kennecott Minerals
Greens Creek (70%)		Alaska, USPortPatented and unpatented mining claimsRedeveloped in 1997Underground/drift and fillOn site diesel generators
Kennecott Utah Copper
Bingham Canyon		Near Salt Lake City, Utah, USPipeline, road and railOwnedInterest acquired in 1989; modernisation includes smelter complex and expanded tailings damOpen pitOn site generation supplemented bylong term contracts with Utah Power and Light
Neves Corvo(49%)Castro Verde, PortugalRail and roadMining rights granted by Portuguese State for 90 years from 1989Interest acquired 1985; production started in 1989UndergroundSupplied by EdP via grid network
Northparkes(80%)Goonumbla, New South Wales, AustraliaRoad and railState Government mining lease issuedin 1991 for 21 yearsInterest acquired in 2000; production started in 1995Open pit and undergroundSupplied from State grid
Palabora(49%)Phalaborwa, Northern Province, South AfricaRail and roadLease from South African Government until deposits exhausted and base metal claims owned by PalaboraDevelopment of 20 year underground mine commenced 1996 with full production timed to coincide with open pit closure in 2003Open pit/
underground		Supplied by ESKOM via grid network
Rio Tinto Brasil
Corumbá		Matto Grosso do Sul, BrazilRoad, air and riverGovernment licence for undeterminedperiodIron ore production started 1978; interest acquired in 1991Open pitSupplied by ENERSUL
Rio Tinto Brasil
Fortaleza		Minas Gerais, BrazilRoadGovernment licence for undetermined periodNickel matte production from underground mineUnderground – open stopingSupplied by CEMIG
Rio Tinto Brasil
Morro do Ouro (51%)		Minas Gerais, BrazilRoad and airGovernment licence for undetermined periodGold production started in 1987Open pitSupplied by CEMIG
ZinkgruvanSwedenRoadExploration concession with Swedish Government to 2024Mining began in 1857 and production progressively expanded; acquired by North in 1995 prior to Rio Tinto in 2000UndergroundSupplied by State owned power company (Valtenfall) via grid
DIAMONDS
Diavik(60%)Northwest Territories, CanadaAir, ice road in winterMining leases from Canadian federal governmentDeposits discovered 1994–1995; construction approved 2000;diamond production started 2003Open pit to underground in futureOn site diesel generators; installedcapacity 27MW
Argyle DiamondsKimberley Ranges, Western AustraliaRoad and airMining tenement held under Diamond(Argyle Diamond Mines Joint Venture)Agreement Act 1981–83 with right toextend for 21 years from 2004Studies into further development options, including underground mining, continue; interest increased from 59.7% following purchaseof Ashton Mining in 2000Open pitLong term contract with Ord HydroConsortium and on site generation back up
Rio Tinto Zimbabwe
Renco (56%)		ZimbabweRoad and airClaims and mining leasesRenco redevelopment completed in 1982Underground/reef miningSupplied by ZESA
ENERGY
Coal & Allied Industries(76%)
Bengalla (30%)
Hunter Valley Operations (76%)
Mount Thorley (61%)
Warkworth (42%)		New South Wales, AustraliaRoad, rail and portLeases granted by StateLemington acquired late 2000 and integrated with Hunter Valley Operations. Peabody Australian interests acquired in 2001. Moura,Narama and Ravensworth interests divested in 2002Open cutState owned grid
Energy Resources ofAustralia(68%)
Ranger		Northern Territory, AustraliaRoadLeases granted by StateMining commenced 1981; interest acquired through North in 2000Open pitOn site diesel/steam power generation

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Information on Group mines continued

MineLocationAccessTitle/leaseHistoryType of minePower source
ENERGY CONTINUED
Kennecott Energy
Antelope
Colowyo (20%)
Cordero Rojo
Decker (50%)
Jacobs Ranch
Spring Creek		Wyoming, Montana andColorado, USRail and roadLeases from US and State Governments and private parties, withminimum coal production levels, andadherence to permit requirements and statutesAntelope, Spring Creek, Decker and Cordero acquired in 1993, Colowyo in 1995, Caballo Rojo and Fort Union in 1997 and Jacobs Ranch in 1998Open cutSupplied by IPPs and Cooperatives through national grid service
Rio Tinto Coal Australia
Blair Athol (71%)
Hail Creek (92%)
Kestrel (80%)
Tarong		Queensland, AustraliaConveyor, road, rail and portLeases granted by StateProduction started for export at Blair Athol and adjacent power station at Tarong in 1984. Kestrel acquired and recommissioned 1999Open cut (Blair Athol, Hail Creek and Tarong) and underground (Kestrel)State owned grid
Rössing Uranium(69%)Namib Desert, NamibiaRail, road and portFederal leaseProduction began in 1978Open pitNamibian National Power
INDUSTRIAL MINERALS
BoronCalifornia, USRoad, rail and portOwnedMine redesign project completed on budget and schedule in 2000Open pitOn site co-generation units
Dampier Salt(65%)Dampier, Lake MacLeod andPort Hedland, Western AustraliaRoad and portMining leases expiring in 2013 at Dampier, 2018 at Port Hedland and2021 at Lake MacLeod with options torenew in each caseConstruction of the Dampier field started in 1969; first shipment in 1972. Lake MacLeod was acquired in 1978 as an operating fieldSolar evaporation of seawater (Dampier and Port Hedland) and underground brine (Lake MacLeod); dredging of gypsum from surface of Lake MacLeodDampier supply from Hamersley Iron Power; Lake MacLeod from Western Power and on site generation units; Port Hedland from Western Power
LuzenacTrimouns, France (other smaller operations in Australia, Europe and North America)Road and railOwner of ground (orebody) and long term lease agreement to 2012Production started in 1885; acquired in 1988. (Australian mine acquired in 2001)Open pitSupplied by EdF and on site generation units
QIT-Fer et TitaneSaguenay County, Quebec, CanadaRail and port (St Lawrence River)Mining covered by two Concessions granted by State in 1949 and 1951which, subject to certain Mining Act restrictions, confer rights and obligations of an ownerProduction started 1950; interest acquired in 1989Open pitLong term contract with Quebec Hydro
Richards Bay Minerals(50%)Richards Bay, KwaZulu-Natal, South AfricaRail, road and portLong term renewable leases; Statelease for Reserve 4 initially runs to end2022; Ingonyama Trust lease forReserve 10 runs to 2010Production started 1977; interest acquired 1989; fifth dredge commissioned 2000Beach sand dredgingContract with ESCOM
IRON ORE
Hamersley Iron
Brockman
Marandoo
Mount Tom Price
Paraburdoo
Yandicoogina
Channar (60%)		Hamersley Ranges, Western AustraliaRailway (owned by HamersleyIron and operated by Pilbara Rail Company) and port (owned andoperated by Hamersley Iron)Agreements for life of mine withGovernment of Western AustraliaAnnual capacity increased to 68 million tonnes during 1990s; Yandicoogina first ore shipped in 1999 and port capacity increasedOpen pitsSupplied by Hamersley Iron Power
Iron Ore Company of Canada(59%)
(Rio Tinto also holds a 20% interestin the Labrador Iron Ore RoyaltyIncome Fund which owns 15.1%of IOC)		Labrador City, Province ofLabrador and NewfoundlandRailway and port facilities inSept-Iles, Quebec (owned andoperated by IOC)Sublease with the Labrador Iron OreRoyalty Income Fund which has leaseagreements with the Government of Newfoundland and Labrador that are due to be renewed in 2020 and 2022Current operation began in 1962 and has processed over 1 billion tonnes of crude ore since; annual capacity now 17.5 million tonnes of concentrate of which 12.5 million tonnes can be pelletised. Interest acquired in 2000 through NorthOpen pitSupplied by Newfoundland Hydro under long term contract
Robe River Iron Associates (53%)
Mesa J
West Angelas		Pilbara region, Western AustraliaRailway (owned by Robe River Iron Associates and operated byPilbara Rail Company) and port(owned and operated by RobeAgreements for life of mine withGovernment of Western AustraliaFirst shipment in 1972; annual sales reached 30 million tonnes in late 1990s; interest acquired in 2000 through North; West Angelas first ore shipped and port capacity increasedOpen pitSupplied by Robe River Iron Associates; West Angelas supplied by Hamersley Iron Power (commercial arrangement)
OTHER
Kelian(90%)Kalimantan, IndonesiaRoad, river and portContract of Work with IndonesianGovernment for 30 yearsGold production started in 1992 and is scheduled to cease in 2004Open pitKelian’s own 29MW generating station with six identical 4.9MW rated units
Lihir Gold(14%)Lihir Island, Papua New GuineaOwn road, airstrip and portSpecial Mining Lease with Papua NewGuinea Government expires in 2035Production started in 1997; refinancing in 1999 and merger with Niugini Mining in 2000Open pit12 diesel unit power plant, four steam wells producing ten per cent of requirements
    
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Information on Group smelters, refineries and processing plants

Smelter, refinery or plant
(Rio Tinto interest 100%unless otherwise shown)		LocationTitle/leasePlant type/productCapacity
ALUMINIUM Comalco
Anglesey Aluminium(51%)Holyhead, Anglesey, Wales100% FreeholdAluminium smelter producing aluminium billet, block, sow145,000 tonnes per year aluminium
Bell BayBell Bay, Northern Tasmania, Australia100% FreeholdAluminium smelter producing aluminium ingot, block, t-bar167,000 tonnes per year aluminium
Boyne Smelters(59%)Boyne Island, Queensland, Australia100% FreeholdAluminium smelter producing aluminium ingot, billet, t-bar521,000 tonnes per year aluminium
Comalco Alumina Refinery(under construction)Gladstone, Queensland, Australia97% Freehold
3% Leasehold		Refinery: alumina production to startlate 20041,400,000 tonnes per year alumina
Eurallumina(56%)Portoscuso, Sardinia, Italy39% Freehold
61% Leasehold		Refinery producing alumina1,020,000 tonnes per year alumina
Gladstone Power Station(42%)Gladstone, Queensland, Australia100% FreeholdThermal power station1,680 megawatts
New Zealand AluminiumSmelters (NZAS)(79%)Tiwai Point, Southland, New Zealand19.6% Freehold
80.4% Leasehold		Aluminium smelter producing aluminiumingot, billet, t-bar334,000 tonnes per year aluminium
Queensland Alumina(39%)Gladstone, Queensland, Australia73.3% Freehold
26.7% Leasehold		Refinery producing alumina3,731,000 tonnes per year alumina
COPPER GROUP
Atlantic Copper Smelter(13%)Huelva, Spain100% FreeholdFlash smelting furnace/Pierce Smith convertor copper refinery300,000 tonnes per year refined copper
Kennecott Utah CopperMagna, Salt Lake City, Utah, US100% FreeholdFlash smelting furnace/Flash convertor furnace copper refinery335,000 tonnes per year refined copper
Palabora(49%)Phalaborwa, South Africa100% FreeholdReverberatory Pierce Smith copper refinery130,000 tonnes per year refined copper
INDUSTRIAL MINERALS
BoronCalifornia, US100% FreeholdBorates refinery584,000 tonnes per year boric oxide
QIT-Fer et Titane Sorel PlantSorel-Tracy, Quebec, Canada100% FreeholdIlmenite smelter1,100,000 tonnes per year titanium dioxide slag, 900,000 tonnes per year iron
Richards Bay Minerals(50%)Richards Bay, South Africa100% FreeholdIlmenite smelter1,060,000 tonnes per year titanium dioxide slag
IRON ORE
Hlsmelt®(60%)Kwinana, Western Australia100% LeaseholdHlsmelt®ironmaking plant producingpig iron800,000 tonnes per year pig iron
IOC Pellet Plant(59%)Labrador City, Newfoundland, Canada100% Subleased landPellet induration furnaces producing multiple iron ore pellet types12,500,000 tonnes per year pellet
    
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Financial review

Financial risk management
The Group’s policies with regard to risk management are clearly defined and consistently applied. They are a fundamental tenet 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, obviating the need to use derivatives or other forms of synthetic hedging for this purpose. Such hedging is therefore undertaken to a strictly limited degree, as described below.
     The Group has a diverse 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 addition, the Group’s policy of borrowing at floating US dollar interest rates helps to counteract the effect of economic and commodity price cycles.
     The Group’s financial statements and disclosures show the full extent of its financial commitments including debt and similar exposures. The Group’s share of the net debt of joint ventures and associates is also disclosed. It is not the Group’s practice to engineer financial structures as a way of avoiding disclosure.
     The risk factors to which the Group is subject that are thought to be of particular importance are summarised on page 7.
     The effectiveness of internal control procedures continues to be a high priority in the Rio Tinto Group. A statement on this is included in Corporate governance on pages 71 and 72.
     The Group’s policies with regard to currencies, commodities, interest rates and treasury management are discussed below.

Adjusted earnings
UK Financial Reporting Standard 3 allows presentation of an adjusted measure of earnings. As presented by Rio Tinto, this excludes the effect of exceptional items of such magnitude that their exclusion is necessary in order that adjusted earnings fulfil their purpose of reflecting the Group’s underlying performance. Except where otherwise indicated, earnings contributions from business units and business segments exclude the effect of these exceptional items. Adjusted earnings is reconciled with net earnings on page 82.

Group operating performance
2003 compared with 2002
Adjusted earnings of US$1,382 million were US$148 million below 2002. Including the exceptional items described below, net earnings at US$1,508 million compared with US$651 million reported for 2002.
     The weakening of the US dollar against the currencies in which most of the Group’s costs are denominated reduced earnings by US$412 million. The average levels of the

Australian dollar, Canadian dollar and South African rand were respectively 20 per cent, 11 per cent and 39 per cent stronger in 2003 than in 2002. The effect of these and other currency movements on operating costs was to reduce earnings by US$352 million. The effect of the shift in exchange rates on balance sheet values expressed in the functional currencies of the relevant units further reduced earnings and this charge was US$100 million more than the corresponding charge in 2002. Gains on currency hedges initiated by North, Ashton and Comalco, before they became wholly-owned subsidiaries in 2000, increased earnings by US$40 million relative to 2002.
     The prices of many products were stronger, increasing earnings by US$442 million. Copper prices averaged 13 per cent higher; gold 17 per cent and aluminium seven per cent. The copper price was 51 per cent higher at the end of the year than at the beginning and this led to a favourable effect from provisional pricing of US$39 million. Benchmark iron ore prices increased by nine per cent.
     Over the full year, seaborne thermal coal prices were on average seven per cent lower and realised uranium prices were lower due to some higher priced contracts expiring at Rössing.
     Overall, volume changes increased earnings by US$38 million. Lower gold and molybdenum volumes at Kennecott Utah Copper, as a result of reduced by product grades, partly offset volume growth from new mines at Diavik (diamonds) and West Angelas (iron ore) and capacity expansions at Escondida (copper) and Hamersley (iron ore). The benefit of higher gold grades at Grasberg, particularly in the first half of the year, was negated by lower production following a slippage in the mine in the fourth quarter of the year. Robust demand for diamonds enabled Argyle to reduce inventories. Volumes of titanium dioxide feedstock were affected by weak markets.
     Turning to costs, higher oil, power and gas prices reduced earnings by US$54 million. Average oil prices were US$3.50 per barrel or 14 per cent higher than in 2002. Gas prices in the US market were also higher and there were also increases in electricity prices, principally in New Zealand.
     Excluding the effects of energy prices and the US$106 million impact of inflation, cost increases reduced earnings by US$82 million. Two significant events adversely affected cost performance in the period. In the first half of the year, there was a three week smelter shut down at Kennecott Utah Copper as a result of the acid plant failure. The slippage at the Grasberg mine in the fourth quarter impacted both production volumes and costs.
     Costs at Coal & Allied were affected by higher demurrage caused by a shortage of rail capacity in the Hunter Valley. Lower earnings at Rio Tinto Iron & Titanium included

a charge associated with the partial write down of a customer receivable.
     Excluding exceptional items, the effective tax rate at 28.8 per cent compares with 31.2 per cent for 2002. The lower charge in 2003 reflects reduced tax payments in the US and a number of one off benefits including a credit of US$8 million resulting from the proposed entry into the Australian tax consolidation regime, with effect from 1 January 2003.
     The Group continues to benefit from low interest rates thanks to its policy of having predominantly floating rate debt. The after tax net interest charge was US$36 million less than in 2002, due both to lower interest paid and higher capitalised interest. The net central cost of the Group’s pension schemes was about US$60 million higher than in 2002.
     The sale of the Fortaleza nickel mine was completed on 16 January 2004 and the profit on sale will, therefore, be taken up in 2004. However, the net earnings of Rio Tinto Brasil include a credit of US$32 million resulting from the reversal of part of an impairment provision relating to Fortaleza recorded in a previous year.
     The 2003 exceptional items of US$126 million relate to gains on the disposal of Kaltim Prima Coal, Peak and Alumbrera. No tax was payable on these gains.

2002 compared with 2001
Adjusted earnings of US$1,530 million for 2002 were US$132 million below 2001. After the exceptional charges described below, net earnings at US$651 million compared with US$1,079 million reported for 2001.
     Changes in selling prices and exchange rates reduced earnings by US$74 million. Average gold prices were 14 per cent higher than in 2001, but aluminium prices averaged eight per cent lower. Average copper prices were slightly down but there was a benefit from provisionally priced copper. Benchmark prices for iron ore and seaborne thermal coal fell. North American domestic coal prices improved with market fundamentals, as the effects of the California energy crisis in early 2001 flowed into contract prices. The negative variance due to exchange rate movements was principally a result of the Australian dollar being stronger relative to the US dollar.
    Higher volumes increased earnings by US$85 million. Demand for iron ore was extremely strong with Hamersley Iron achieving record production and shipments from the West Angelas mine beginning to ramp up. Diamond sales volumes were also higher than in 2001. There were lower gold volumes from the Group’s interest in Grasberg as a result of lower grades, particularly in the first half of the year.
     Excluding the effect of inflation, changes in costs benefited earnings by US$54 million. However, cost inflation more than offset this benefit, reducing earnings by US$76 million.
     The interest charge on the Group’s debt in 2002 was US$72 million lower than in 2001 although the level of debt did not


32Rio Tinto 2003 Annual report and financial statements

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change significantly.
     Other variances reduced earnings by US$193 million compared with 2001. Of this, US$54 million resulted from the gain that was included in 2001 earnings as a result of the disposal of Norzink. There were also adverse variances on other corporate items, including pension costs. Earnings in 2002 suffered from the reduced value of pension fund assets associated with falling stock markets and from a reduction in the expected return on pension fund equity investments compared with that applied in previous years.
     Excluding exceptional items, the effective tax rate at 31.2 per cent was broadly in line with the previous year.
     Exceptional charges in 2002 of US$879 million, net of tax and outside shareholder interests, comprised provisions for the write down of asset carrying values of US$763 million and a charge relating to environmental remediation works at Kennecott Utah Copper (KUC) of US$116 million. US$480 million of the asset write downs related to KUC and US$235 million related to the Iron Ore Company of Canada.
     The increase in the expected cost of environmental remediation resulted from a significant change in the planned methodology for treatment of contaminated groundwater in the vicinity of the Bingham Canyon mine. The 2001 exceptional charge comprised provisions for the write down of asset carrying values.

Cash flow
2003 compared with 2002
The Group’s operating cash flow remained strong. Total cash flow from operations of US$3,486 million, including dividends from associates and joint ventures, was only seven per cent below 2002 despite ten per cent lower adjusted earnings.
     Tax paid includes an amount of US$106 million relating to the disputed tax assessments from the Australian Tax Office described in note 29 of the financial statements. The amount paid has been recorded as a receivable in these accounts because the directors believe that the relevant tax assessments are not sustainable.
     Investment in the business continued at a high level. Capital expenditure and financial investment of US$1,673 million was US$197 million less than 2002. Purchases of plant and equipment included the expansion of iron ore capacity and the construction of the Comalco Alumina Refinery. Purchases less sales of investments in 2002 of US$323 million mainly related to US Treasury bonds held as security for the deferred consideration on the North Jacobs Ranch acquisition, of which US$76 million were sold in 2003.
     Rio Tinto continues to explore opportunities to dispose of non core assets but only when such disposals are value creating. The sale of assets, principally Peak, Alumbrera and Kaltim Prima Coal generated a cash inflow of US$405 million.

2002 compared with 2001
Cash from operating activities together with dividends from joint ventures and associates totalled US$3,743 million in 2002, an increase of ten per cent compared with 2001. Tight control of working capital was reflected in reductions in accounts receivable and inventories totalling US$243 million, which largely reversed increases reported in 2001.
     Net investment in property, plant and equipment of US$1,417 million was at a similar level to that in 2001. The major areas of expansionary investment in 2002 were the Diavik diamond mine, the West Angelas iron ore mine, the Hail Creek coking coal development, Comalco’s alumina refinery and the first instalment on the purchase of additional coal reserves at North Jacobs Ranch.
     Disposals of businesses net of acquisitions generated US$127 million. This largely related to units acquired with Peabody’s Australian coal business in 2001, which the Group sold on as planned.
     Purchases of other investments absorbed a further US$323 million of cash. These investments included US$304 million of US Treasury bonds held as security for the deferred consideration on the North Jacobs Ranch reserves acquired during the period, which is payable over the next four years. Dividends paid were US$145 million higher than 2001 as a result of the change in policy for weighting of interim and final dividends announced in 2001.

Balance sheet
Shareholders’ funds increased byUS$2,575 million to US$10,037 million mainly due to profits exceeding dividends by US$626 million and due to exchange rate movements of US$1,924 million. The most significant of these was the strengthening of the Australian dollar by 32 per cent against the US dollar. Net debt reduced by US$101 million to US$5,646 million. The ratio of net debt to total capital improved from 41 per cent, at 31 December 2002, to 34 per cent at 31 December 2003. Interest was covered 11 times.
     As detailed in note 18 to the Financial statements, US$2,194 million (36 per cent) of the Group’s borrowings at the end of 2003 will mature in 2004. Of this, US$1,687 million was commercial paper, mainly raised through markets in the US. Although US$1,100 million of this is backed by bank standby facilities expiring after one year, it is regarded as short term debt under UK accounting rules. Under Australian and US accounting practices, commercial paper backed in this way would be grouped with non current borrowings, and the Group regards it as such in managing the maturity profile of its debt.
     At the year end, medium and long term borrowings (excluding the above commercial paper), totalled US$3,849 million. The amount issued under the US$3 billion European Medium Term Notes Programme was US$1,618 million of which US$70 million

is repayable within one year. In addition to the above, the Group’s share of the third party net debt of joint ventures and associates totalled US$1,004 million at 31 December 2003, as detailed in note 14 to the Financial statements. Save for US$6 million, this debt is without recourse to Rio Tinto.

Liquidity and capital resources
Rio Tinto plc and Rio Tinto Limited continue to enjoy the strong long and short term credit ratings from Moody’s and Standard and Poor’s shown below.

Long TermShort TermOutlook
Standard & Poor’sA+A-1Stable
Moody’sAa3P-1Negative

The unified credit status of the Group is maintained through cross guarantees whereby contractual obligations of Rio Tinto plc and Rio Tinto Limited are automatically guaranteed by the other. 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 Group has access to the following markets for its financing requirements:

•US and Canadian commercial paper markets
•European Medium Term Note (EMTN) private placement
•US, euro and sterling bond markets.

During 2003, the Group raised US$462 million in maturities of one to five years via its EMTN programme. In June 2003, the Group issued a US$600 million Global bond. Proceeds of these issues were employed to repay maturing term debt and commercial paper.
     The Group’s commercial paper programmes are fully backed by bank standby facilities which totalled US$2.75 billion at 31 December 2003, of which US$1.1 billion was on terms exceeding one year. These facilities can be drawn upon at any time in the unlikely event of disruption in the commercial paper market. These standby facilities are provided by strongly rated banking counterparties.
     As at 31 December 2003, the Group had contractual obligations other than short term debt in the form of commercial paper and bank borrowings repayable on demand arising in the ordinary course of business as follows:

 Total Less Between Between After 5 
   than 1 1 and 3 3 and 5 years 
US$m  year years years   
Contractual cash          
obligations          
Debt (a)4,208 359 1,638 1,764 447 
Operating leases131 38 34 12 47 
Unconditional purchase          
obligations3,010 268 553 477 1,712 
Other (b)679 665 14 – – 
Total8,028 1,330 2,239 2,253 2,206 

(a) Debt obligations exclude commercial paper and bank borrowings repayable on demand
(b) Other relates to long term obligations including capital commitments


Rio Tinto 2003 Annual report and financial statements33

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Financial review continuedINTERVIEW WITH THE CHIEF EXECUTIVE

OnHow would you describe the basispast 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 levelssituation with increased production at many of obligations described above, the unused capacity under the Group’s commercial paper programmes, the Group’s anticipated abilityour operations – maximising deliveryinto strong markets. With our strong balance sheet we are in a position to access debtinvest heavily in growth and equityto return capital marketsto shareholders. Through our business improvement programme,Improving performance together(IPT), we are seeinga significant change in the futureway 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 anticipated internalprices 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 generation,flow at all points of the directors believecycle. 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 has sufficient shortover 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 long term sourcesexpanding ten mines, three ports and more than 1,600km of funding available to meet its liquidity requirements.
The Group’s committed bank standby facilities containrail line in the Pilbara at a financial undertaking that the Group’s consolidated income before interest and taxes for any annual accounting period shalltime of buoyant market conditions should not be less than three times consolidated interest payable for such period. The ratio for 2003 is well above this minimum. The Group does not have any financial agreements that would be affected to any material extentunderestimated. With totalexpenditure of US$3 billion, by a reduction in the Group’s credit rating.
     The Group’s policy is to centralise and minimise surplus cash balances whenever possible. The majority of cash balances are held in jurisdictions without exchange controls.

Exchange rates, reporting currencies and currency exposure
Rio Tinto’s assets, earnings and cash flows are influenced by a wide variety of currencies due to the geographic 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 US dollars are the most important currencies influencing costs.
     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 on Rio Tinto’s net earnings. The approximate effects on the Group’s net earnings of ten per cent movements from the 2003 full year average exchange rates of the currencies having most impact on costs are as follows:

AverageEffect of
exchange rate10% change
for 2003in full year
in US centsaverage US$m
Australian $65141±
Canadian $7126±
Rand1322±

These sensitivities are based on 2003 prices, costs and volumes and assume that all other variables remain constant. They take into account the effect of hedges maturing in 2004, as disclosed in note 28 to the Financial statements. These exchange rate sensitivities include the effect on operating costs of movements in exchange rates but exclude

the impact through revaluation of foreign currency working capital. They should therefore be used with care.
     In the case of the Australian dollar, there is a significant degree of natural protection against cyclical fluctuations, in that the currency tends to be weak, reducing costs in US dollar terms, when commodity prices are low, and vice versa.
Given the dominant role of the US currency in the Group’s affairs, the US dollar is the currency in which financial performance is measured and in which financial results are presented both internally and externally. It is also the natural currency for borrowing and holding surplus cash. Modest amounts of cash are held in other currencies for short term operational reasons.
The Group finances its operations primarily in US dollars, either directly or using currency swaps, 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 directly 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.
Under US generally accepted accounting principles (GAAP), the above exchange differences must be charged against the profit for the year except to the extent that the US dollar debt is effective as a hedge of assets accounted for in US dollars in the particular companies in which the debt resides. This gives rise to an adjustment in the US GAAP reconciliation for 2003, increasing US GAAP earnings by US$623 million net of tax and outside shareholders’ interests; but no adjustment to US GAAP shareholders’ funds is required.
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 28 to the Financial statements, as at 31 December 2003 there were forward contracts, including synthetic forwards, to purchase A$1,459 million, C$18 million and NZ$875 million in respect of future trading transactions. From the Group’s perspective, these forward contracts offset the impact of exchange rate variations on a portion of the local currency costs incurred by various subsidiaries. Much 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 Group has also entered into forward

currency contracts in respect of certain capital commitments. As at 31 December 2003, it held contracts to purchase A$393 million in respect of future committed capital expenditure.

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, cyclical movements of interest rates tend to compensate, 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 2003, only 13 per cent2007 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 Group’s net debt was fixed rate. Basedagreement on the Group’s net debt at 31 December 2003,Hope Downs to first deliveries will be only three years.
Our ilmenite project in Madagascar is on schedule, and with other variables unchanged, the approximate effect on the Group’s net earningsconstruction of basic infrastructure by local contractors is under way. The port contract has been awarded, enabling us to finalise a one percentage point increase in US dollar LIBOR interest rates would be a reductiondefinitive cost estimate of US$30 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 is diversified by virtue of its broad commodity spread and the Group does not generally believe commodity price hedging would provide long term benefit to shareholders.
     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 New York, 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 priced 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.
Approximately 40 per cent of Rio Tinto’s 2003 net earnings from operating businesses came from products whose prices were terminal market related and the remainder came from products priced by direct negotiation.
     The approximate effect on the Group’s net earnings of a ten per cent change from the full year average market price in 2003850 million for the following metals would be: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 200634Form 20-FRio Tinto 2003 Annual report and financial statements37

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     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 Average38

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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 
 
Profit for the year7,867 5,498 3,244 
Less: attributable to outside equity shareholders(429)(283)53 
 
Attributable to equity shareholders of Rio Tinto (net earnings)7,438 5,215 3,297 
Less: exclusions from underlying earnings(100)(260)(1,025)
 
Underlying earnings attributable to shareholders of Rio Tinto7,338 4,955 2,272 
 

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 
 
Profit less losses on disposal of interests in businesses3 311 1,175 
Impairment reversals less charges44 4 (321)
Adjustment to environmental remediation provision37 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 
 
Total excluded in arriving at underlying earnings100 260 1,025 
 

Changes in underlying earnings 2004 - 2006US$m Effect of 10%
market pricechange in full
for 2003year average
US$m
Copper2004 Underlying earnings80 c/lb2,272
Effect of changes in: 109 ±
Aluminium             Prices65 c/lb2,374 
95 ±             Exchange rates(123)
Gold             General inflationUS$363/oz(141)
             Volumes1,140 
52 ±             Costs(598)
             Tax and other31
2005 Underlying earnings4,955
Effect of changes in:
             Prices3,068
             Exchange rates(35)
             General inflation(174)
             Volumes(135)
             Costs(741)
             Tax and other400
2006 Underlying earnings7,338

The above sensitivities are based on 2003 volumes and give the estimated impact on net2006 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 prices, assuming that all other variables remain constant. The relationships between currencies and commodity prices is a complex one and movements in exchange rates can cause movements in commodity prices and vice versa. The sensitivities allow for the effect of the commodity hedges maturing in 2004, as disclosed in note 28 to the Financial statements.

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 permittedunderlying earnings are laid down by the Rio Tinto board and are subject to rigorous internal controls. 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; and does not 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 raisedshown in the capital markets to achieve a floating rate obligation which is consistent with the Group’s interest rate policy. Currency swaps are used to convert debt or investments into currencies, primarily the US dollar, which are consistent with the Group’s policy on currency exposure management. 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 for the purposes of the Financial instrument disclosures in the Financial statements by reference to quoted market prices, quotations from independent financial institutions or by discounting expected cash flows.table above.

Dividends
Dividends paid on Rio Tinto plc and Rio Tinto Limited shares are equalised on a net cash basis; that is without taking into 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 Tinto Limited 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. For 2002 and subsequently, the policy is that the interim dividend for each year in US dollar terms will be equivalent to 50 per cent of the previous year’s total US dollar dividends.

Critical accounting policies & estimates
Dual listed company reporting
As explained in detail, in the “Outline of dual listed companies’ structure and basis of financial statements”, the consolidated financial statements of the Rio Tinto Group deal with the results and assets and liabilities of both of the dual listed companies, Rio Tinto plc and Rio Tinto Limited and their subsidiaries. They are prepared under UK GAAP and satisfy the obligations of Rio Tinto Limited, as laid down by the Australian Securities and Investments Commission. This annual report also includes reconciliation statements setting out the effect of the adjustments to net earnings and to shareholders’ funds for the Group that would be required, under Australian and under US GAAP. The US dollar is the presentation currency used in these financial statements, as it most reliably reflects the Group’s global business performance.
     The treatment of gains and losses on US dollar debt is described above in the section dealing with Exchange rates, reporting currencies and currency exposure.

Ore reserve estimates
Rio 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). 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. Such changes in reserves could impact on depreciation rates, asset carrying values and provisions for close down, restoration and environmental costs.
     The SEC has indicated that, for US reporting, historical price data should be used as a basis for ore reserve estimation. The application of such historical prices has led to reduced ore reserve quantities for US reporting purposes for certain of the Group’s

operations. This increased the present value of the provision for close down costs, which increased the cumulative effect of the change in accounting principle recorded on implementation of FAS 143 in the US GAAP reconciliation for 2003. It also reduced US GAAP earnings for 2003 by a further US$82 million, largely as a result of higher depreciation charges.

Asset carrying values
Exceptional charges of US$583m in 2001 and US$879m in 2002, net of tax and minority interests, related largely to impairment of the balance sheet carrying values of certain of the Group’s businesses. No significant impairment charges occurred in 2003 but it will be necessary to keep under review in each future accounting period whether events or changes in circumstances may necessitate further adjustments to asset carrying values.
     The carrying values are assessed by reference to the net present values of forecast future cash flows. The cash flows are particularly sensitive to the long term values of two particular parameters: exchange rates and commodity selling prices. Management considers that over time there is a tendency for increases in prices to compensate to some extent for a reduction in the value of the US dollar (and vice versa). But such compensating changes are not synchronised and do not fully offset each other. The great majority of the Group’s sales are based on prices denominated in US dollars. To the extent that the US dollar weakens without commodity price offset, cash flows and therefore net present values are reduced.
     During 2003, the US dollar weakened by 32 per cent against the Australian dollar, by 22 per cent against the Canadian dollar, and 30 per cent against the South African rand. Towards the end of 2003, there were substantial increases in commodity prices, which have continued to rise in early 2004.
     Rio Tinto’s cash flow forecasts are based on assessments of expected long term commodity prices derived from analysis of supply and demand for particular products. These assessments often differ from current price levels and are updated periodically. For the majority of Rio Tinto’s businesses, by both number and by value, the net present value of the expected cash flows, using the most recent assessments, is substantially in excess of the carrying value in the balance sheet. For a minority of the businesses the carrying value is close to the net present value of the cash flows, using the most recent assessments. The effects of exchange rates and commodity price changes on the values of these units relative to their book values are monitored closely.

Environmental obligations
Provision is made for environmental remediation costs when the related environmental disturbance occurs, based on the net present value of estimated future


 

Rio Tinto 20032006 Annual report and financial statementsForm 20-F3539

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Financial reviewChanges 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. WhereCosts at KUC were affected by an extended, scheduled smeltermaintenance shutdown whilst Escondida experienced higher wages, following the ultimatestrike 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 environmental disturbance is uncertain, there may be variances from these cost estimates, which could affect future financial results.sale.
     Close down and restoration costs are a normal consequenceThe 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 mining, and the majorityUS$335 million of close down and restoration expenditure is incurred at the end of the life of the mine. Although the ultimate costUS Alternative Minimum Tax (AMT) credits now expected to be incurred is uncertain, subsidiary companies have estimated their respective costs based on feasibility and engineering studies using current restoration standards and techniques.

Post retirements benefits
Post retirement benefits are accounted forutilised in accordance with Statementfuture years. This reflected improved projections of Standard Accounting Practice 24, which requires gradual recognitionlong term taxable earnings from our US operations. Additionally, the high levels of profit generated by the surpluses and deficits that emergeGroup’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 from actuarial assumptions. The Accounting Standards Board has extendedare includedwithin the transitional period before FRS 17 is required to be implemented. Under FRS 17, all deficits would be recognised in fullfavourable variance of US$400 million for ‘Tax and surpluses would be recognised to the extent that they are considered recoverable. FRS 17 transitional disclosures are included on pages 125 to 128. If FRS 17 had been applied in drawing up the 2003 financial statements, shareholders’ funds would have been US$650 million lower, including the impact of the level of stock markets at 31 December 2003, and net earnings would have been US$17 million higher.other items’.

Overburden removal costsExclusions in arriving at underlying earnings
In open pit mining operations, it is necessary2006 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 remove overburdenthe sale of Rio Tinto’s interests in the Labrador Iron Ore Royalty Income Fund and other waste materials to access ore fromin Lihir Gold.
Net earnings in 2006 included net impairment reversals totalling US$44 million. Impairments were reversed atKUC and IOC which minerals can economically be extracted.more than offset impairment charges at Argyle and Tarong Coal. The process of mining overburden and waste materials is referred to as stripping. During the development of a mine, before production commences, it is generally accepted that stripping costs are capitalised as partvaluation of the investmentArgyleunderground project is being kept under review, given the continuing pressure on mine development costs resultingfrom acute shortages in constructionthe mining industry and more challenging mining conditions than expected. In addition, net earnings in 2006 include a reduction of the mine.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).
     Stripping of waste materials continues during the production stage of the mine. Some mining companies expense these production stage stripping costs as incurred, while others defer such stripping costs. Those mining companiesExchange gains and losses on external net debt and intragroup balances that expense stripping costs as incurred will report greater volatilityare recorded in the resultsUS 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 their operations from period to period.
Rio Tinto defers 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.US$16 million (2005: a loss of US$139 million).
     The relationship betweeneffective 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 “stripping ratio”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 period and that plannedtable 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 lifemajor 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 particularglobal 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-F40

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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 is importantexpansions(to 36 million tonnes per annum) were completed in determining2005 whilst strong operational performance led to majorproduction gains at many operations including IOC and Argyle. The improvement over 2004 also reflected the amount, if any,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 strippingthe 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 that are deferred. The stripping ratio isreduced 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, calculated by dividing the tonnage of waste minedcosts were influenced by the tonnage of ore mined during the relevant period. In these cases, deferral of stripping costs is not impactedstrong price environment beingenjoyed by the reported ore grade. Themining 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 behigher 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-off

deferred (or accrued) are thosecosts included restructuring costs of US$30 million relating to the excess (or shortfall)formation of the current period stripping ratioRio Tinto Minerals organisation.
The effective tax rate on underlying earnings, excluding equity accounted units, was 29.2 per cent compared with that projected for the lifewith27.1 per cent in 2004 because of the mine. The life of mine stripping ratio is basedhigher rates on the provenincreased profits in Canada and probable reserves of the operation.
Indonesia and higher withholdingIn operations that experience material fluctuations in the stripping ratio on a year by year basis over the life of the mine, deferral of stripping costs is designed to smooth the cost of stripping allocated to individual reporting periods, generally in relation to the tonnage of ore mined. Stripping costs incurred in the period are deferred to the extent that the stripping ratio exceeds the life of mine stripping ratio. Such deferred costs are then charged against reported profits to the extent that, in subsequent periods, the stripping ratio falls short of the life of mine stripping ratio.taxes.
     In some operations, there are distinct periodstotal “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 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 departurenet debt. Also within “Tax and other items”, 2004 underlying earnings included contributions totalling US$88 million from the lifeoperations of mine stripping ratio. Excess stripping costsbusinesses that were sold during such periods are deferred and subsequently amortised pro rata, generallythat 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 tonnageabsence of ore minedcyclone related damages experienced in the remaining life of the operation.
2004.

Deferred stripping costs form part of the total investmentExclusions in the relevant income generating unit, which is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.
During 2003, production stage stripping costs incurred by subsidiaries and equity accounted operations exceeded the amounts charged against pre tax profit by US$109 million. The net book value carried forward in property, plant and equipment and in investments in joint ventures and associated companiesarriving at 31 December 2003 was US$671 million.
Amortisation of deferred stripping costs is included in depreciation of property, plant and equipment or in the Group’s share of the results of its equity accounted operations, as appropriate.

Contingencies
Disclosure is made of material contingent liabilities unless the possibility of any loss arising is considered remote. Disclosure of material contingent assets is made where the inflow of economic benefits is probable. Contingencies are disclosed in note 29 on page 117. These include tax assessments of approximately A$500 million, which, based on Counsels’ opinion, the Group expects to be successful in challenging.

International financial reporting standards
To satisfy its reporting obligations in the UK and in Australia, the Group will be drawing up its financial statements for 2005 and subsequent years in accordance with

International Financial Reporting Standards.

Comparative figuresunderlying earnings
In 2005 the Operational review section, comparative figures have been restatednet profit on the disposal of interests in businesses was US$311 million relating mainly to reflect the compositionsale of each product group in 2003, as well as a changeRio Tinto’s interests in the basisLabrador Iron Ore Royalty Income Fund and in Lihir Gold. Disposals in 2004, principally the holding in Freeport-McMoRan Copper & Gold, resulted in gains of attributionUS$1,175 million.
Net earnings in 2005 include a reduction of post retirement costs to business units. These changes are explainedUS$84 million in more detail on pages 132 and 133.

Forward looking statements
Forward looking statements are containedan environmental remediation provision atKennecott Utah Copper, reversing part of an exceptional charge taken up in this financial review and attention is drawn2002 (which was excluded from adjustedearnings in that year). Net earnings in 2004 included an impairment charge of US$160 million relating to the Cautionary statementColowyocoal operation and of US$161 million for the write down of Palabora’s copper assets.
Exchange gains and losses on pages 7external net debt and 8.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.


 

36Rio Tinto 20032006 Annual report and financial statementsForm 20-F41

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OperationalGroup 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 
 
Iron Ore2,279 1,722 565 
Energy711 733 431 
Industrial Minerals243 187 243 
Aluminium746 392 331 
Copper3,562 2,020 860 
Diamonds205 281 188 
Other operations33 40 25 
Exploration and evaluation(163)(174)(128)
Other items(261)(202)(174)
Net interest(17)(44)(69)
 
Group underlying earnings7,338 4,955 2,272 
Exclusions from underlying earnings100 260 1,025 
 
Net earnings7,438 5,215 3,297 
 

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.

Iron Ore group

Iron OreIron Ore
(Rio Tinto share)2006 Form 20-F(Rio Tinto share)
million tonnesmillion tonnes
MINED42RESERVES

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Iron Ore
IRON ORE GROUPEarnings contribution
US$m

Note: 2002 excludes
exceptional charges
ProductionRio Tinto share 
 million tonnes 
 
200291.0 
2003102.6 
2004107.8 
2005124.5 
2006132.8 
 
   
Underlying earnings contribution*US$m 
 
2004565 
20051,722 
20062,279 
 
   
Changes in underlying earnings 2004 - 2006US$m 
 
2004 Underlying earnings565 
Effect of changes in:  
             Prices and exchange rates968 
             General inflation(18)
             Volumes270 
             Costs(51)
             Tax and other(12)
 
2005 Underlying earnings1,722 
Effect of changes in:  
             Prices and exchange rates616 
             General inflation(25)
             Volumes156 
             Costs(220)
             Tax and other30 
 
2006 Underlying earnings2,279 
 
*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 wholly owns Hamersley Iron(RTIO) comprises iron ore operations in Western Australia. Hamersley Iron wholly owns five minesAustralia, Canada and also operates the 60 per cent owned Channar mine, a joint venture with an Australian subsidiary of the China Iron & Steel Industry & Trade Group Corporation.
Brazil and development projects in Guinea (west Africa) and India. The Iron Ore groupportfolio also includes Rio Tinto’s effective 53 per cent interesta HIsmelt®plant in Robe River Iron Associates’ two mines in Western Australia, and Rio Tinto’s 59 per cent interest in the Iron Ore Company of Canada. The Iron Ore group operates both enterprises, which were acquired in 2000.is arevolutionary process that converts iron ore fines into high quality pig iron.
In addition, the Iron Ore group includes the HIsmelt®direct smelting technology developed in Western Australia.
At 31 December 2003,2006, the iron ore group accounted for 2532 per cent of Rio Tinto’s operating assets, an increase of four per cent over the year. In 2003, the group and in 2006contributed approximately 1827 per cent of the Group’s turnovergross sales revenue and 3631 per cent of adjusted earnings,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 twoto 220 million tonnes of iron ore exports annually. The growth strategy has seen approximately US$5 billion committed to port, rail, power and sixmine 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 per cent respectively on 2002. Adjusted earnings are explained on page 32.annum stage one Hope Downs mine has started, with production expected to commence in early 2008.
     Late in the year, Rio Tinto reached agreement with its joint venture partners in Robe River to allow closer cooperation between the Pilbara operations of Hamersley Iron and Robe.
     Under the agreement, the two companies’ existing separate structures will continue, with no change to the ownership of Robe or Hamersley Iron or to the ownership of their respective assets. While preserving these structural elements, the agreement allows for continued cooperation and common usage of rail infrastructure; for closer cooperation and common usage of infrastructure areas such as port and power; and for closer cooperation in relation to the management of non infrastructure assets, including mobile and other mining equipment and site and corporate services.
     New entities will be formed to facilitate the implementation of the agreement. The entities will collectively be referred to as Pilbara Iron.
     Rio Tinto and the Robe River Joint Venture participants are working towards final documentation of the agreement, and implementation will be subject to obtaining any necessary Government approvals.
     In January 2004, Hamersley Iron announced iron ore price settlements that increased prices by 18.62 per cent for the contract commencing 1 April 2004.
     Chris Renwick,Sam Walsh, chief executive Iron Ore, is based in Perth, Western Australia.

FINANCIAL PERFORMANCE
Financial performance

20032006 compared with 20022005

The Iron Ore group’sRTIO’s contribution to 20032006 underlying earnings was US$4992,279 million, US$47557 million higher than in 2002.2005.
      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-F43

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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 2003, particularly from China, where imports of2005, driven by continued strong growth in global steel production and improvements in steel demand. Chinese iron ore were

imports rose 30 per cent higher than 2002. Strong demand for ironyear on year, and steelHamersley Iron, Robe River, IOC and Corumbá all achieved record production in China bolstered demand for iron ore in other markets, with Japan, Korea and Taiwan all at record levels.
     Price increases reflected the strong market, with a nine per cent increase for 2003 achieved in May.
     In September Hamersley became aware that China Iron & Steel Industry Trade Group Corporation had entered into a conditional heads of agreement with Lynas Corporation Ltd to dispose of its 40 per cent interest in the Channar Joint Venture in return for cash and shares in Lynas under a transaction which remains incomplete. Hamersley subsequently issued proceedings in the Western Australia Supreme Court to protect confidential joint venture information. Those proceedings are continuing.2005.

2002 compared with 2001
OperationsThe Iron Ore group’s contribution to 2002 earnings was US$452 million, US$50 million lower than in 2001.
     After a relatively slow start, and with considerable uncertainty surrounding the future outlook, the performance of the world iron and steel industry improved markedly throughout 2002.
     Reflecting the early uncertainty, global iron ore prices declined in 2002 by 2.4 per cent for fines, 5.0 per cent for lump and 5.5 per cent for pellets. However, as demand grew through the year, especially from China, shipments increased quarter by quarter, leading to some delays in loading vessels and consequent demurrage costs towards the end of the year.
     An exceptional charge of US$235 million relating to the impairment of asset carrying values at IOC was recorded in the fourth quarter of 2002.

Kennecott Utah CopperNear Salt Lake City, Utah, USPipeline, road and railOwnedBingham Canyon

Northparkes(80%)Goonumbla, New South Wales, AustraliaRoad and railState Government mining lease issued in 1991 for 21 years
Palabora(58%)Phalaborwa, Northern Province, South AfricaRail and roadLease from South African Government valid until deposits exhausted. Base metal claims owned by Palabora
DIAMONDS
Argyle DiamondsKimberley Ranges, Western AustraliaRoad and airMining tenement held under Diamond (Argyle Diamond Mines Joint Venture) Agreement Act 1981-83; lease extended for 21 years from 2004
Diavik(60%)Northwest Territories, CanadaAir, ice road in winterMining leases from Canadian federal government
Murowa(78%)Zvishavane, ZimbabweRoad and airClaims and mining leases
ENERGY
Energy Resources ofNorthern Territory, AustraliaRoadLeases granted by StateAustralia(68%)Ranger

Rio Tinto 2006 Form 20-F14

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GROUP MINES

MineHistoryType of minePower source
ALUMINIUM
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 capacity to 16.5 million tonnes. Mining commenced on the adjacent Ely mining lease in 2006, in accordance with the 1998 agreement with Alcan. A second shiploader that increases the shipping capability of the Weipa operation was commissioned in 2006Open cutOn site generation; newpower station underconstruction
COPPER
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 sulphide leach produced the first cathode during 2006Open pitSupplied from SING gridunder various contracts with Norgener Gas Atacama andEdelnor
Grasberg joint venture(40%)Joint venture interest acquired 1995; capacity expanded to over 200,000 tonnes of ore per day in 1998 with addition of underground production of more than 35,000 tonnes per day in 2003 with an expansion to a sustained rate of 50,000 tones per day by mid 2007Open pit and undergroundLong term contract withUS-Indonesian consortium operated, purpos e built, coalfired generating station
Kennecott Minerals
Cortez/Pipeline (40%)		Gold production started at Cortez in 1969, Pipeline in 1997 and Cortez Hills was approved in 2005.Open pitPublic utility
Kennecott MineralsRedeveloped in 1997Underground / drift and fill On site diesel generators
Greens Creek (70%)
Kennecott Utah Copper
Bingham Canyon		Interest acquired in 1989; modernisation includes smelter complex and expanded tailings damOpen pitOn site generationsupplemented by long term contracts with Utah Powerand Light
Northparkes(80%)Interest acquired in 2000; production started in 1995Open pit and undergroundSupplied from State grid
Palabora(58%)Development of 20 year underground mine commenced 1996 with open pit closure in 2003UndergroundSupplied by ESCOM via grid network
DIAMONDS
Argyle DiamondsInterest increased from 59.7% following purchase of Ashton Mining in 2000. Underground mine project approved in 2005 to extend mine life to 2018Open pitLong term contract withOrd Hydro Consortium andon site generation back up
Diavik(60%)Deposits discovered 1994-1995; construction approved 2000; diamond production started 2003. Second dyke closed off in 2005 for mining of additional orebodyOpen pit to underground in future On site diesel generators;  installed capacity 27MW
Murowa(78%)Discovered 1997; small scale production started 2004Open pitSupplied by ZESA
ENERGY
Energy Resources ofAustralia (68%)
Ranger		Mining commenced 1981; interest acquired through North in 2000; life of mine extension to 2014 announced in 2005Open pitOn site diesel/steam power generation

Rio Tinto 2006 Form 20-F15

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GROUP MINES

MineLocationAccessTitle/lease
ENERGY(continued)
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, AustraliaRoad, rail conveyor and portLeases granted by State
Rio Tinto Energy America
Antelope
Colowyo (20%)
Cordero Rojo
Decker (50%)
Jacobs Ranch
Spring Creek		Wyoming, Montana and Colorado, USRail and roadLeases from US and State Governments and private parties, with minimum coal production levels, and adherence to permit requirements and statutes
Rössing Uranium(69%)Namib Desert, NamibiaRail, road and portFederal lease
INDUSTRIAL MINERALS
Rio Tinto Minerals -BoronCalifornia, USRoad, rail and portOwned
Rio Tinto Minerals - salt(65%)Dampier, Lake MacLeod and Port Hedland, Western AustraliaRoad and portMining leases expiring in 2013 at Dampier, 2018 at Port Hedland and 2021 at Lake MacLeod with options to renew in each case
Rio Tinto Minerals - talcTrimouns, France (other smaller operations in Australia, Europe and North America)Road and railOwner of ground (orebody) and long term lease agreement to 2012
QIT-Fer et TitaneSaguenay County, Quebec, CanadaRail 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
Richards Bay Minerals(50%)Richards Bay, KwaZulu - Natal, South AfricaRail, road and portLong term renewable leases ; State lease for Reserve 4 initially runs to end 2022; Ingonyama Trust lease for Reserve 10 runs to 2010
IRON ORE
Hamersley Iron
Brockman
Marandoo
Mount Tom Price
Nammuldi
Paraburdoo
Yandicoogina
Channar (60%)
Eastern Range (54%)		Hamersley Ranges, Western AustraliaRailway and port (owned by Hamersley Iron and operated by Pilbara Iron)Agreements for life of mine with Government of We stern Australia
Iron Ore Company ofCanada (59%)Labrador City, Province of Labrador and NewfoundlandRailway and port facilities in Sept-Iles, Quebec (owned and operated by IOC)Sublease with the Labrador Iron Ore Royalty Income Fund which has lease agreements with the Government of Newfoundland and Labrador that are due to be renewed in 2020 and 2022
Rio Tinto BrasilCorumbáMatto Grosso do Sul, BrazilRoad, air and riverGovernment licence for undetermined period
Robe River Iron
Associates (53%)
Mesa J
West Angelas		Pilbara region, Western AustraliaRailway and port (owned by Robe River and operated by Pilbara Iron)Agreements for life of mine with Government of We stern Australia

Rio Tinto 2006 Form 20-F16

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GROUP MINES

MineHistoryType of minePower source
ENERGY(continued)
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
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 2004Open cutSupplied by IPPs andCooperatives through national grid service
Rössing Uranium(69%)Production began in 1978. Life of mine extension to 2016 approved in 2005Open pitNamibian National Power
INDUSTRIAL MINERALS
Rio Tinto Minerals - BoronDeposit discovered in 1925, acquired by Rio Tinto in 1967Open pitOn site co-generation units
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 fieldSolar evaporation of seawater (Dampier and Port Hedland) and underground brine (Lake MacLeod); dredging of gypsum from surface of Lake MacLeodDampier supply from Hamersley Iron Power; Lake MacLeod from Western Power and on site generation units; Port Hedland from Western Power
Rio Tinto Minerals - talcProduction started in 1885; acquired in 1988. (Australian mine acquired in 2001)Open pitSupplied by EdF and on site generation units
QIT-Fer et TitaneProduction started 1950; interest acquired in 1989Open pitLong term contract with Quebec Hydro
Richards Bay Minerals
(50%)		Production started 1977; interest acquired 1989; fifth dredge commissioned 2000Beach sand dredgingContract with ESCOM
IRON ORE
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 2004Open pitsSupplied through theintegrated Hamersley and Robe power network operated by Pilbara Iron
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 NorthOpen pitSupplied by NewfoundlandHydro under long term contract
Rio Tinto Brasil
Corumbá		Iron ore production started 1978; interest acquired in 1991Open pitSupplied by ENERSUL
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 2005Open pitSupplied through theintegrated Hamersley and Robe power network operated by Pilbara Iron

Rio Tinto 2006 Form 20-F17

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GROUP SMELTERS

Smelter, refinery or plantLocationTitle/leasePlant type/productCapacity
ALUMINIUM GROUP
Anglesey Aluminium(51%)Holyhead, Anglesey, Wales100% FreeholdAluminium smelter producing aluminium billet, block, sow145,000 tonnes per year aluminium
Bell BayBell Bay, Northern Tasmania, Australia100% FreeholdAluminium smelter producing aluminium ingot, block, t-bar178,000 tonnes per year aluminium
Boyne Smelters(59%)Boyne Island, Queensland, Australia100% FreeholdAluminium smelter producing aluminium ingot, billet, t-bar545,000 tonnes per year aluminium
Yarwum(Rio Tinto: 100previouslyComalco Alumina Refinery)Gladstone, Queensland, Australia97% Freehold 3% Leasehold (expiring in 2101 and after)Refinery producing alumina1,400,000 tonnes per cent)year alumina
Gladstone Power
Hamersley Iron’s six minesStation (42%)		Gladstone, Queensland, Australia100% FreeholdThermal power station1,680 megawatts
New Zealand
Aluminium Smelters
(NZAS) (79%)		Tiwai Point, Southland, New Zealand19.6% Freehold 80.4% Leasehold (expiring in 2029 anduse of certain Crown land)Aluminium smelter producing aluminium ingot, billet, t-bar352,000 tonnes per year aluminium
Queensland Alumina
(39%)		Gladstone, Queensland, Australia73.3% Freehold 26.7% Leasehold (of which more than 80% expires in 2026 and after)Refinery producing alumina3,953,000 tonnes per year alumina
COPPER GROUP
Kennecott Utah
Copper		Magna, Salt Lake City, Utah, US100% FreeholdFlash smelting furnace / Flash convertor furnace copper refinery335,000 tonnes per  year refined copper
Palabora(58%)Phalaborwa, South Africa100% FreeholdReverberatory Pierce Smith copper refinery130,000 tonnes per year refined copper
INDUSTRIAL
MINERALS
BoronCalifornia, US100% FreeholdBorates refinery584,000 tonnes per year boric oxide
QIT-Fer et Titane Sorel PlantSorel-Tracy, Quebec, Canada100% FreeholdIlmenite smelter1,100,000 tonnes peryear titanium dioxide slag 900,000 tonnes per year iron
Richards Bay
Minerals (50%)		Richards Bay, South Africa100% FreeholdIlmenite smelter1,060,000 tonnes peryear titanium dioxide slag
IRON ORE GROUP
Hlsmelt®(60%)Kwinana, Western Australia 630 kilometre dedicated railway,100% Leasehold (expiring in 2010 with rights of renewal for two further 25 year terms)Hlsmelt®ironmaking plant producing pig iron800,000 tonnes per year pig iron
IOC Pellet Plant
(59%)		Labrador City, Newfoundland, Canada100% Leaseholds (expiring in 2020, 2022 and port2025 with rights of renewal for further terms of 30 years)Pellet induration furnaces producing multiple iron ore pellet types13,500,000 tonnes per year pellet

Rio Tinto 2006 Form 20-F18

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METALS AND MINERALS PRODUCTION

   2004 2005 2006 
   Production (a) Production (a) Production(a) 
 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share          share   share 
 
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 
 
Rio Tinto total    2,231   2,963   3,247 
 
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 
 
Rio Tinto total    836.5   853.7   844.7 
 
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 
 
Rio Tinto total    12,828   15,474   16,139 
 
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 
 
Rio Tinto total    565   560   553 
 
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 
 
Rio Tinto total hard coking coal    6,760   7,195   5,909 
 
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 
 
Total Australian other coal    32,943   30,863   31,159 
 
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 
 
Total US coal    117,734   115,580   125,260 
 
Rio Tinto total other coal    150,677   146,443   156,418 
 
*Coal – other includes thermal coal, semi-soft coking coal and infrastructure facilities at Dampiersemi-hard coking coal.
See notes on page 22

Rio Tinto 2006Form 20-F19

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METALS AND MINERALS PRODUCTION continued

   2004 2005 2006 
   Production (a) Production (a) Production(a) 
 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share   share   share 
 
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 
 
Rio Tinto total    753.1   784.4   803.5 
 
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 
 
Rio Tinto total    332.6   314.5   299.2 
 
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 
 
Rio Tinto total    25,202   35,635   35,162 
 
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 
 
Rio Tinto total    1,552   1,726   1,003 
 
GOLD (refined) (’000 ounces)              
Kennecott Utah Copper (US)100.0 300 300 369 369 462 462 
 
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 
 
Rio Tinto total    107,757   124,494   132,780 
 
See notes on page 22              

Rio Tinto 2006Form 20-F20

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METALS AND MINERALS PRODUCTION continued

   2004 2005 2006 
   Production (a) Production (a) Production(a) 
 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share   share   share 
 
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 — — — — 
 
Rio Tinto total    25.1   11.9   11.9 
 
MOLYBDENUM (’000 tonnes)              
Bingham Canyon (US)100.0 6.8 6.8 15.6 15.6 16.8 16.8 
 
NICKEL (refined) (’000 tonnes)              
Empress (Zimbabwe) (q)— 2.9 1.6 — — — — 
 
PIG IRON (’000 tonnes)              
HIsmelt®(Australia) (t)60.0 — — 9 5 89 53 
 
SALT (’000 tonnes)              
Rio Tinto Minerals - salt (Australia)64.9 7,380 4,792 8,480 5,507 8,323 5,405 
 
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 
 
Rio Tinto total    14,830   14,926   13,968 
 
SILVER (refined) (’000 ounces)              
Kennecott Utah Copper (US)100.0 3,344 3,344 3,538 3,538 4,152 4,152 
 
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 
 
TIN (tonnes)              
Neves Corvo (Portugal) (l)— 120 59 — — — — 
 
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 
 
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 
 
Rio Tinto total    5,974   6,582   5,698 
 
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 — — — — 
 
Rio Tinto total    73.8   37.2   33.4 
 
See notes on page 22              

Rio Tinto 2006Form 20-F21

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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 run as one operation. Hamersley Iron employs approximately 2,100 people.
In 2003, Hamersley Iron completed option analysis studies to increase its system capacity to ensure its ability to meetthen refined onsite, except for the needs of customers and the strong growth in demanddata for iron ore particularlyand 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 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 share varies at individual mines and refineries in China.
the “Others” category and thus no value is shown.
          
 Rio Tinto share %        
 OperationSee Note 2004 2005 2006 
 
 
 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 
 
 
(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 interest in Morro do Ouro on 31 December 2004. Production data are shown up to the date of sale.
(q)As a consequence, in December,result of the corporate restructuring completed on 8 July 2004, Rio Tinto approved projectshas ceased to expandbe an ordinary shareholder in the Dampier portrenamed RioZim but will retain a reduced cash participation in its gold and nickel assets for a period of ten years.
(r)Rio Tinto’s share of production includes 100 per cent of the production from the Eastern Range mine, which commenced production in March 2004. Under the terms of the joint venture agreement (Rio Tinto 54 per cent), Hamersley Iron manages the operation and is obliged to purchase all mine production from the joint venture.
(s)Rio Tinto completed the sale of its 100 per cent interest in the Zinkgruvan mine on 2 June 2004. Production data are shown up to the date of sale.
(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-F22

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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 Yandicooginafollowing definitions:
•An ‘Ore Reserve’ means that part of a mineral deposit that can be economically and legally extracted orproduced at the time of the 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 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 may occur as part of the mining 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 a particular deposit will be accomplished in the ordinary courseand in a timeframe consistent with the Company’s current mine worth a total of US$920 million, with US$200 million of this committed to long lead time capital items.
plans.
•The port expansion will increase Dampier’s export capacityterm “proven reserves” means reserves for which (a) quantity is computed from 74 million tonnes per annum to 116 million tonnes per annum. The Yandicoogina mine expansion will increase output to 36 million tonnes per annumdimensions 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-F23

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ORE RESERVES (under Industry Guide 7) continued

           
 Type of Total ore reserves at end 2006     
 mine 
 Interest Rio Tinto 
 (b) Tonnage Grade % share 
 
         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 
 
           
         Marketable 
         product 
   millions     millions 
BORATES (e)  of tonnes     of tonnes 
Reserves at operating mine          
Rio Tinto Minerals - Boron (US) (j)          
– mineO/P 19.8   100.0 19.8 
– stockpiles (i)S/P 2.1   100.0 2.1 
 
Rio Tinto total        21.9 
 
             
   Coal type Marketable Marketable coal quality     
   (g) reserves (h) (h)     
     
     
             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 
 
Total US coal            1,283 
 
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 OperationsO/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 OperationsO/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 
 
Total Australian coal            664 
 
Rio Tinto total reserves at operating mines            1,946 
 
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 
 
Rio Tinto total undeveloped reserves            360 
 
See notes on pages 32 to 33              

Rio Tinto 2006Form 20-F24 million

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ORE RESERVES (under Industry Guide 7) continued

   Total ore reserves Average     
 Type of at end 2006 mill     
 mine 
 recovery Interest Rio Tinto 
 (b) Tonnage Grade % % share 
 
           Recoverable 
           metal 
   millions       millions 
COPPER  of tonnes %Cu     of tonnes 
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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 mineO/P 1,360 1.06 85 30.0 3.681 
– sulphide leach mineO/P 1,412 0.51 34 30.0 0.744 
– oxide mineO/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 mineO/P 455 1.40 85 30.0 1.621 
– sulphide leach mineO/P 604 0.60 34 30.0 0.371 
– oxide mineO/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)            
– mineU/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)            
– mineU/G 118 0.64 88 57.7 0.381 
 
Rio Tinto total          17.989 
 
             
           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)            
– mineO/P 22 0.7   77.8 11.8 
– stockpiles (i)S/P 0.1 1.2   77.8 0.1 
 
Rio Tinto total          281.5 
 
             
           Recoverable 
           metal 
   millions grammes     millions 
GOLD  of tonnes per tonne     of ounces 
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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)            
– mineO/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)            
– mineU/G 46 0.46 74 80.0 0.407 
– stockpiles (i)S/P 3.8 0.58 76 80.0 0.043 
 
Rio Tinto total          20.834 
 
See notes on pages 32 to 33            

Rio Tinto 2006Form 20-F25

Back to Contents

ORE RESERVES (under Industry Guide 7) continued

    Total ore reserves Average     
 Type of at end 2006 mill     
 mine 
 recovery Interest Rio Tinto 
 (b) Tonnage Grade % % share 
 
           Marketable 
           product 
   millions       millions 
IRON ORE (d)  of tonnes %Fe     of tonnes 
Reserves at operating mines            
and mines under construction            
Channar (Australia)            
– Brockman OreO/P 100 63.5   60.0 60 
Corumbá (Brazil)            
   – mineO/P 213 67.2   100.0 213 
   – stockpiles (i)S/P 1 66.7   100.0 1 
Eastern Range (Australia)            
– Brockman OreO/P 91 62.9   54.0 49 
Hope Downs (Australia) (t)            
– Marra Mamba OreO/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)            
   – mineO/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)            
   – mineO/P 327 58.7   100.0 327 
   – stockpiles (i)S/P 1.5 58.1   100.0 1 
– Yandicoogina (Process Product)            
   – mineO/P 109 58.4   100.0 109 
Iron Ore Company of CanadaO/P 416 65.0   58.7 244 
(Canada)            
Robe River (Australia)            
– Pannawonica (Pisolite Ore)            
   – mineO/P 327 57.2   53.0 174 
   – stockpiles (i)S/P 17 56.9   53.0 9 
– West Angelas (Marra Mamba Ore)            
   – mineO/P 403 61.9   53.0 213 
   – stockpiles (i)S/P 6 59.3   53.0 3 
 
Rio Tinto total          2,326 
 
             
           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 
 
             
           Recoverable 
           metal 
   millions       millions 
MOLYBDENUM  of tonnes %Mo     of tonnes 
Reserves at operating mine            
Bingham Canyon (US)            
– mineO/P 604 0.047 61 100.0 0.175 
– stockpiles (i)S/P 37 0.032 61 100.0 0.007 
 
Rio Tinto total          0.183 
 
See notes on pages 32 to 33            

Rio Tinto 2006Form 20-F26

Back to Contents

ORE RESERVES (under Industry Guide 7) continued

    Total ore reserves Average     
 Type of at end 2006 mill     
 mine 
 recovery Interest Rio Tinto 
 (b) Tonnage Grade % % share 
 
           Recoverable 
           metal 
   millions grammes     millions 
SILVER  of tonnes per tonne     of ounces 
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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 
 
Rio Tinto total          169.185 
 
             
           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 
 
             
           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 
 
Rio Tinto total          75.0 
 
             
           Recoverable 
           metal 
   millions       millions 
URANIUM  of tonnes %U308      of tonnes 
Reserves at operating mines            
Energy Resources of Australia            
(Australia)            
– Ranger #3 mineO/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)            
– mineO/P 17.7 0.038 85 68.6 0.0039 
– stockpiles (i)S/P 2.3 0.015 85 68.6 0.0002 
 
Rio Tinto total          0.0345 
 
             
           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 
 
See notes on pages 32 to 33            

Rio Tinto 2006Form 20-F27

Back to Contents

ORE RESERVES (under Industry Guide 7) continued

   Proven ore reserves Probable ore reserves 
   at end 2006 at end 2006 
 Type of 
 
 mine     Drill hole     Drill hole 
   (b)   Tonnage  Grade spacing (c)   Tonnage   Grade spacing (c) 
 
   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) 
 
               
   millions     millions     
BORATES (e)  of tonnes     of tonnes     
Reserves at operating mine              
Rio Tinto Minerals - Boron (US) (j)              
– mineO/P 14.8   61m x 61m 5.0   61m x 61m 
– stockpiles (i)S/P 0.1     2.0     
 
         
     % Yield to Marketable Reserves 
   Recoverable give 
 
   reserves marketable   Drill hole   Drill hole 
   total reserves Proven spacing (c) Probable spacing (c) 
 
   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 
 
See notes on pages 32 to 33              

Rio Tinto 2006Form 20-F28

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 
 
  (b) Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing (c)     spacing (c) 
 
COPPER  millions    millions    
   of tonnes %Cu  of tonnes %Cu  
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/P 325 0.59 90m 279 0.48 110m 
– stockpiles (i)S/P 12 0.35  25 0.32  
Escondida (Chile) (n)            
– sulphide mineO/P 516 1.17 60m x 60m 844 1.00 100m x 100m 
– sulphide leach mineO/P 421 0.51 60m x 60m 992 0.51 105m x 105m 
– oxide mineO/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 mineO/P 138 1.53 60m x 60m 318 1.34 100m x 100m 
– sulphide leach mineO/P 57 0.53 60m x 60m 548 0.61 105m x 105m 
– oxide mineO/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)            
– mineU/G      46 1.06 40 x 40 x 80m 
– stockpiles (i)S/P 3.8 0.67       
Palabora (South Africa) (p)            
– mineU/G 118 0.64 76m      
 
             
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            
– mineO/P       22 0.7 25m 
– stockpiles (i)S/P       0.1 1.2  
 
           
GOLD  millions grammes  millions grammes  
   of tonnes per tonne  of tonnes per tonne  
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/P 325 0.34 90m 279 0.28 110m 
– stockpiles (i)S/P 12 0.20  25 0.20  
Cortez/Pipeline (US) (s)            
– mineO/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)            
– mineO/P      46 0.46 40 x 40 x 80m 
– stockpiles (i)S/P 3.8 0.58       
 
See notes on pages 32 to 33              

Rio Tinto 2006 Form 20-F29

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 
 
 (b) Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing (c)     spacing (c) 
 
IRON ORE (d)  millions     millions     
   of tonnes %Fe   of tonnes            %Fe   
Reserves at operating mines              
and mines under construction              
Channar (Australia)              
– Brockman OreO/P 87 63.5 60m x 60m 13 63.6 max 120m 
Corumbá (Brazil)              
 – mineO/P 108 67.2 100m x 100m 106 67.2 200m x 400m 
 – stockpiles (i)S/P 1 66.7         
Eastern Range (Australia)              
– Brockman OreO/P 66 63.0 60m x 60m 25 62.8 max 120m 
Hope Downs (Australia) (t)              
– Marra Mamba OreO/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)              
   – mineO/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)              
   – mineO/P 327 58.7 50m x 50m       
   – stockpiles (i)S/P       1.5 58.1   
– Yandicoogina (Process Product)              
   – mineO/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)              
   – mineO/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)              
   – mineO/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   
 
             
LEAD  millions     millions    
   of tonnes %Pb   of tonnes %Pb  
Reserves at operating mine             
Greens Creek (US)U/G       7.0 3.98 30m 
 
             
MOLYBDENUM  millions     millions    
   of tonnes %Mo   of tonnes %Mo  
Reserves at operating mine            
Bingham Canyon (US)            
– mineO/P 325 0.047 90m 279 0.047 110m 
– stockpiles (i)S/P 12.1 0.028  25 0.034  
 
See notes on pages 32 to 33              

Rio Tinto 2006 Form 20-F30

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  
 
 (b)  Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing (c)     spacing (c) 
 
SILVER  millions grammes  millions grammes  
   of tonnes per tonne  of tonnes per tonne  
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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 
 
               
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 
 
             
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 
 
           
URANIUM  millions    millions    
   of tonnes %U308  of tonnes %U308  
Reserves at operating mines            
Energy Resources of Australia            
(Australia)            
– Ranger #3 mineO/P 4.9 0.24 25m 4.8 0.24 50m 
– Ranger #3 stockpiles (i) (x)S/P 25.9 0.11       
Rössing (Namibia)            
– mineO/P 0.8 0.036 20m 16.9 0.038 60m 
– stockpiles (i)S/P 2.3 0.015       
 
             
ZINC  millions     millions    
   of tonnes %Zn   of tonnes %Zn  
Reserves at operating mine             
Greens Creek (US)U/G       7.0 10.39 30m 
 
See notes on pages 32 to 33              

Rio Tinto 2006 Form 20-F31

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 reservesUnitUS$
ALUMINIUM
Weipa (Australia)pound0.85
COPPER
Bingham Canyon (US)pound1.59
Escondida (Chile)*pound1.59
Escondida Norte (Chile)*pound1.59
Grasberg (Indonesia)*pound1.59
Northparkes (Australia)pound1.59
Palabora (South Africa)pound1.59
GOLD
Bingham Canyon (US)ounce446
Cortez / Pipeline (US)*ounce446
Grasberg (Indonesia)*ounce446
Greens Creek (US)ounce446
Northparkes (Australia)ounce446
IRON ORE
Australian benchmark (fines)dmtu**0.46
Atlantic benchmark (fines)dmtu**0.49
LEAD
Greens Creek (US)pound0.41
MOLYBDENUM
Bingham Canyon (US)pound20.5
SILVER
Bingham Canyon (US)ounce7.34
Grasberg (Indonesia)*ounce7.34
Greens Creek (US)ounce7.34
ZINC
Greens Creek (US)pound0.64
* = non managed operations
** = dry metric tonne per annum capacity it will achieve in 2004.
Construction on both projects began in December 2003. Commissioningunit
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-F32

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Rio Tinto 2003 Annual report and financial statements37

ORE 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-F33

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Operational review continuedLOCATION OF GROUP OPERATIONS as at June 2007 (wholly owned unless stated otherwise)

36 million tonne ALUMINIUM
Operating sites
1Anglesey Aluminium (51%)
2Bell Bay
3Boyne Island (59%)
3Gladstone Power Station (42%)
3Queensland Alumina (39%)
4Tiwai Point (79%)
5Weipa
3Yarwun (formerly Comalco
Alumina Refinery)
BORATES
Operating sites
6Boron
7Coudekerque Plant
8Tincalayu
9Wilmington Plant
COAL
Operating sites
10Antelope
11Bengalla (30%)
12Blair Athol (71%)
13Colowyo (20%)
10Cordero Rojo
14Decker (50%)
12Hail Creek (82%)
15Hunter Valley Operations (76%)
10Jacobs Ranch
16Kestrel (80%)
15Mt Thorley Operations (61%)
14Spring Creek
17Tarong
15Warkworth (42%)
Projects
12Clermont (50%)
11Mt Pleasant (76%)

COPPER AND GOLD
Operating sites
18Bougainville (not operating) (54%)
19Cortez/Pipeline (40%)
20Escondida (30%)
21Grasberg joint venture (40%)
22Kennecott Utah Copper
23Northparkes (80%)
24Palabora (58%)
25Rawhide (51%)
Projects
26La Granja
27Oyu Tolgoi (10%)
28Pebble (20%)
29Resolution (55%)
DIAMONDS
Operating sites
30Argyle
31Diavik (60%)
32Murowa (78%)
IRON ORE
Operating sites
33Corumbá
34Hamersley 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 performance35HIsmelt®(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 incurred

to 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
China33.9
Japan19.0
Other Asia16.0
Europe5.4
Total74.3
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
Japan26.2
Europe9.4
Other Asia3.1
China5.2
Total43.9

Iron Ore Company of

Canada (59%)
Projects
34Hope Downs (50%)
37IOC Pellet Plant (59%)
38Orissa (51%)
39Simandou (95%)
NICKEL
Projects
40Eagle
POTASH
Projects
41Rio Colorado Potash
SALT
Operating sites
42Dampier (65%)
43Lake MacLeod (65%)
42Port 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
51QIT 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


3834Rio Tinto 2003Annual report and financial statements

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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 America4.7
Europe6.5
Asia Pacific3.7
Total14.9

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

CoalCoal
(Rio Tinto share)(Rio Tinto share)
million tonnesmillion tonnes
MINEDRESERVES

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).


40Rio 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.


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Operational review continued

Industrial Minerals group

BoratesBorates
(Rio Tinto share)(Rio Tinto share)
’000 tonnes B2O3 content’000 tonnes B2O3 content
PRODUCTIONRESERVES

Titanium dioxideTitanium dioxide
(Rio Tinto share)(Rio Tinto share)
’000 tonnes’000 tonnes
PRODUCTIONRESERVES

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.


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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.


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Operational review continued

Aluminium
group
Weipa bauxiteWeipa bauxite
(Rio Tinto share)(Rio Tinto share)
million tonnesmillion tonnes
MINEDRESERVES

AluminaAluminium
(Rio Tinto share)(Rio Tinto share)
’000 tonnes’000 tonnes
PRODUCTIONPRODUCTION

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.


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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.


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Operational review continued

Copper group

CopperCopper
(Rio Tinto share)(Rio Tinto share)
’000 tonnes’000 tonnes
MINEDRESERVES

CopperCopper
(Rio Tinto share)Earnings contribution
’000 tonnesUS$m
REFINED

Note: 2003, 2002 and 2001 exclude
exceptional items

GoldGold
(Rio Tinto share)(Rio Tinto share)
’000 tonnes’000 ounces
MINEDRESERVES

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.

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-F35

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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-F36

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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.

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     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

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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 
 
Profit for the year7,867 5,498 3,244 
Less: attributable to outside equity shareholders(429)(283)53 
 
Attributable to equity shareholders of Rio Tinto (net earnings)7,438 5,215 3,297 
Less: exclusions from underlying earnings(100)(260)(1,025)
 
Underlying earnings attributable to shareholders of Rio Tinto7,338 4,955 2,272 
 

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 
 
Profit less losses on disposal of interests in businesses3 311 1,175 
Impairment reversals less charges44 4 (321)
Adjustment to environmental remediation provision37 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 
 
Total excluded in arriving at underlying earnings100 260 1,025 
 

Changes in underlying earnings 2004 - 2006US$m
2004 Underlying earnings2,272
Effect of US$116 million was raised during 2002. This provision relates to costs to be incurred over a numberchanges in:
             Prices2,374
             Exchange rates(123)
             General inflation(141)
             Volumes1,140
             Costs(598)
             Tax and other31
2005 Underlying earnings4,955
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:
             Prices3,068
             Exchange rates(35)
             General inflation(174)
             Volumes(135)
             Costs(741)
             Tax and recoveries and higher gold prices, partly offset by lower gold volumes.other400
2006 Underlying earnings7,338

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

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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-F40

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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-F41

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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 
 
Iron Ore2,279 1,722 565 
Energy711 733 431 
Industrial Minerals243 187 243 
Aluminium746 392 331 
Copper3,562 2,020 860 
Diamonds205 281 188 
Other operations33 40 25 
Exploration and evaluation(163)(174)(128)
Other items(261)(202)(174)
Net interest(17)(44)(69)
 
Group underlying earnings7,338 4,955 2,272 
Exclusions from underlying earnings100 260 1,025 
 
Net earnings7,438 5,215 3,297 
 

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-F42

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IRON ORE GROUP

ProductionRio Tinto share 
 million tonnes 
 
200291.0 
2003102.6 
2004107.8 
2005124.5 
2006132.8 
 
   
Underlying earnings contribution*US$m 
 
2004565 
20051,722 
20062,279 
 
   
Changes in underlying earnings 2004 - 2006US$m 
 
2004 Underlying earnings565 
Effect of changes in:  
             Prices and exchange rates968 
             General inflation(18)
             Volumes270 
             Costs(51)
             Tax and other(12)
 
2005 Underlying earnings1,722 
Effect of changes in:  
             Prices and exchange rates616 
             General inflation(25)
             Volumes156 
             Costs(220)
             Tax and other30 
 
2006 Underlying earnings2,279 
 
*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-F43

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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, USPipeline, road and railOwned
Bingham Canyon
Northparkes(80%)
Goonumbla, New South Wales, AustraliaRoad and railState Government mining lease issued in 1991 for 21 years
     KUC supplies more than ten per centPalabora(58%)Phalaborwa, Northern Province, South AfricaRail and roadLease from South African Government valid until deposits exhausted. Base metal claims owned by Palabora
DIAMONDS
Argyle DiamondsKimberley Ranges, Western AustraliaRoad and airMining tenement held under Diamond (Argyle Diamond Mines Joint Venture) Agreement Act 1981-83; lease extended for 21 years from 2004
Diavik(60%)Northwest Territories, CanadaAir, ice road in winterMining leases from Canadian federal government
Murowa(78%)Zvishavane, ZimbabweRoad and airClaims and mining leases
ENERGY
Energy Resources ofNorthern Territory, AustraliaRoadLeases granted by State
Australia(68%)
Ranger

Rio Tinto 2006 Form 20-F14

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GROUP MINES

MineHistoryType of minePower source
ALUMINIUM
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 cutOn site generation; newpower station underconstruction
COPPER
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 2006Open pitSupplied 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
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
* 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
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

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 undergroundLong term contract withUS-Indonesian consortium operated, purpos e built, coalfired generating station

Principal operating statistics at Escondida  
2000-2002     
 2001 2002 2003
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

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 pitPublic utility
Rio Tinto 2003 Annual report and financial statements47

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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
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

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
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

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
Ore milled (’000 tonnes):     
   Copper*2,021 1,756 1,700
   Tin190 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
* 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 1997Underground / drift and fill On site diesel generators
Greens Creek (70%)
Kennecott Utah Copper
Bingham Canyon		Interest acquired in 1989; modernisation includes smelter complex and expanded tailings damOpen pitOn site generationsupplemented by long term contracts with Utah Powerand Light
Northparkes(80%)Interest acquired in 2000; production started in 1995Open pit and undergroundSupplied from State grid
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

UndergroundSupplied by ESCOM via grid network
DIAMONDS
Argyle DiamondsInterest increased from 59.7% following purchase of new reservesAshton Mining in 2000. Underground mine project approved in 2005 to extend mine life to 2018Open pitLong term contract withOrd Hydro Consortium andon site generation back up
Diavik(60%)Deposits discovered 1994-1995; construction approved 2000; diamond production started 2003. Second dyke closed off in 2005 for mining of additional orebodyOpen pit to underground in future On site diesel generators;  installed capacity 27MW
Murowa(78%)Discovered 1997; small scale production started 2004Open pitSupplied by ZESA
ENERGY
Energy Resources ofAustralia (68%)
Ranger		Mining commenced 1981; interest acquired through North in 2000; life of mine extension to 2014 announced in 2005Open pitOn site diesel/steam power generation

Rio Tinto 2006 Form 20-F15

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GROUP MINES

MineLocationAccessTitle/lease
ENERGY(continued)
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, AustraliaRoad, rail conveyor and portLeases granted by State
Rio Tinto Energy America
Antelope
Colowyo (20%)
Cordero Rojo
Decker (50%)
Jacobs Ranch
Spring Creek		Wyoming, Montana and Colorado, USRail and roadLeases from US and State Governments and private parties, with minimum coal production levels, and adherence to permit requirements and statutes
Rössing Uranium(69%)Namib Desert, NamibiaRail, road and portFederal lease
INDUSTRIAL MINERALS
Rio Tinto Minerals -BoronCalifornia, USRoad, rail and portOwned
Rio Tinto Minerals - salt(65%)Dampier, Lake MacLeod and Port Hedland, Western AustraliaRoad and portMining leases expiring in 2013 at Dampier, 2018 at Port Hedland and 2021 at Lake MacLeod with options to renew in each case
Rio Tinto Minerals - talcTrimouns, France (other smaller operations in Australia, Europe and North America)Road and railOwner of ground (orebody) and long term lease agreement to 2012
QIT-Fer et TitaneSaguenay County, Quebec, CanadaRail 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
Richards Bay Minerals(50%)Richards Bay, KwaZulu - Natal, South AfricaRail, road and portLong term renewable leases ; State lease for Reserve 4 initially runs to end 2022; Ingonyama Trust lease for Reserve 10 runs to 2010
IRON ORE
Hamersley Iron
Brockman
Marandoo
Mount Tom Price
Nammuldi
Paraburdoo
Yandicoogina
Channar (60%)
Eastern Range (54%)		Hamersley Ranges, Western AustraliaRailway and port (owned by Hamersley Iron and operated by Pilbara Iron)Agreements for life of mine with Government of We stern Australia
Iron Ore Company ofCanada (59%)Labrador City, Province of Labrador and NewfoundlandRailway 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

Rio Tinto Brasil(CorumbáMatto Grosso do Sul, BrazilRoad, air and riverGovernment licence for undetermined period
Robe River Iron
Associates (53%)
Mesa J
West Angelas		Pilbara region, Western AustraliaRailway and port (owned by Robe River and operated by Pilbara Iron)Agreements for life of mine with Government of We stern Australia

Rio Tinto: 100 per cent)Tinto 2006 Form 20-F16

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GROUP MINES

MineHistoryType of minePower source
ENERGY(continued)
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
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 2004Open cutSupplied by IPPs andCooperatives through national grid service
Rössing Uranium(69%)Production began in 1978. Life of mine extension to 2016 approved in 2005Open pitNamibian National Power
INDUSTRIAL MINERALS
Rio Tinto Minerals - BoronDeposit discovered in 1925, acquired by Rio Tinto in 1967Open pitOn site co-generation units
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 fieldSolar evaporation of seawater (Dampier and Port Hedland) and underground brine (Lake MacLeod); dredging of gypsum from surface of Lake MacLeodDampier supply from Hamersley Iron Power; Lake MacLeod from Western Power and on site generation units; Port Hedland from Western Power
Rio Tinto Minerals - talcProduction started in 1885; acquired in 1988. (Australian mine acquired in 2001)Open pitSupplied by EdF and on site generation units
QIT-Fer et TitaneProduction started 1950; interest acquired in 1989Open pitLong term contract with Quebec Hydro
Richards Bay Minerals
(50%)		Production started 1977; interest acquired 1989; fifth dredge commissioned 2000Beach sand dredgingContract with ESCOM
IRON ORE
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 2004Open pitsSupplied through theintegrated Hamersley and Robe power network operated by Pilbara Iron
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 NorthOpen pitSupplied by NewfoundlandHydro under long term contract
Rio Tinto Brasil manages
Corumbá		Iron ore production started 1978; interest acquired in 1991Open pitSupplied by ENERSUL
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 2005Open pitSupplied through the Morro do Ouro gold mine (Riointegrated Hamersley and Robe power network operated by Pilbara Iron

Rio Tinto 512006 Form 20-F17

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GROUP SMELTERS

Smelter, refinery or plantLocationTitle/leasePlant type/productCapacity
ALUMINIUM GROUP
Anglesey Aluminium(51%)Holyhead, Anglesey, Wales100% FreeholdAluminium smelter producing aluminium billet, block, sow145,000 tonnes per cent)year aluminium
Bell BayBell Bay, Northern Tasmania, Australia100% FreeholdAluminium smelter producing aluminium ingot, block, t-bar178,000 tonnes per year aluminium
Boyne Smelters(59%)Boyne Island, Queensland, Australia100% FreeholdAluminium smelter producing aluminium ingot, billet, t-bar545,000 tonnes per year aluminium
Yarwum(previouslyComalco Alumina Refinery)Gladstone, Queensland, Australia97% Freehold 3% Leasehold (expiring in 2101 and the Corumbafter)Refinery producing alumina1,400,000 tonnes per year alumina
Gladstone Power
Station (42%)		Gladstone, Queensland, Australia100% FreeholdThermal power station1,680 megawatts
New Zealand
Aluminium Smelters
(NZAS) (79%)		Tiwai Point, Southland, New Zealand19.6% Freehold 80.4% Leasehold (expiring in 2029 anduse of certain Crown land)Aluminium smelter producing aluminium ingot, billet, t-bar352,000 tonnes per year aluminium
Queensland Alumina
(39%)		Gladstone, Queensland, Australia73.3% Freehold 26.7% Leasehold (of which more than 80% expires in 2026 and after)Refinery producing alumina3,953,000 tonnes per year alumina
COPPER GROUP
Kennecott Utah
Copper		Magna, Salt Lake City, Utah, US100% FreeholdFlash smelting furnace / Flash convertor furnace copper refinery335,000 tonnes per  year refined copper
Palabora(58%)Phalaborwa, South Africa100% FreeholdReverberatory Pierce Smith copper refinery130,000 tonnes per year refined copper
áINDUSTRIAL
MINERALS
BoronCalifornia, US100% FreeholdBorates refinery584,000 tonnes per year boric oxide
QIT-Fer et Titane Sorel PlantSorel-Tracy, Quebec, Canada100% FreeholdIlmenite smelter1,100,000 tonnes peryear titanium dioxide slag 900,000 tonnes per year iron
Richards Bay
Minerals (50%)		Richards Bay, South Africa100% FreeholdIlmenite smelter1,060,000 tonnes peryear titanium dioxide slag
IRON ORE GROUP
Hlsmelt®(60%)Kwinana, Western Australia100% Leasehold (expiring in 2010 with rights of renewal for two further 25 year terms)Hlsmelt®ironmaking plant producing pig iron800,000 tonnes per year pig iron
IOC Pellet Plant
(59%)		Labrador City, Newfoundland, Canada100% 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 types13,500,000 tonnes per year pellet

Rio Tinto 2006 Form 20-F18

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METALS AND MINERALS PRODUCTION

   2004 2005 2006 
   Production (a) Production (a) Production(a) 
 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share          share   share 
 
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 
 
Rio Tinto total    2,231   2,963   3,247 
 
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 
 
Rio Tinto total    836.5   853.7   844.7 
 
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 
 
Rio Tinto total    12,828   15,474   16,139 
 
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 
 
Rio Tinto total    565   560   553 
 
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 
 
Rio Tinto total hard coking coal    6,760   7,195   5,909 
 
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 
 
Total Australian other coal    32,943   30,863   31,159 
 
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 
 
Total US coal    117,734   115,580   125,260 
 
Rio Tinto total other coal    150,677   146,443   156,418 
 
*Coal – other includes thermal coal, semi-soft coking coal and semi-hard coking coal.
See notes on page 22

Rio Tinto 2006Form 20-F19

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METALS AND MINERALS PRODUCTION continued

   2004 2005 2006 
   Production (a) Production (a) Production(a) 
 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share   share   share 
 
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 
 
Rio Tinto total    753.1   784.4   803.5 
 
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 
 
Rio Tinto total    332.6   314.5   299.2 
 
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 
 
Rio Tinto total    25,202   35,635   35,162 
 
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 
 
Rio Tinto total    1,552   1,726   1,003 
 
GOLD (refined) (’000 ounces)              
Kennecott Utah Copper (US)100.0 300 300 369 369 462 462 
 
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 
 
Rio Tinto total    107,757   124,494   132,780 
 
See notes on page 22              

Rio Tinto 2006Form 20-F20

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METALS AND MINERALS PRODUCTION continued

   2004 2005 2006 
   Production (a) Production (a) Production(a) 
 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share   share   share 
 
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 — — — — 
 
Rio Tinto total    25.1   11.9   11.9 
 
MOLYBDENUM (’000 tonnes)              
Bingham Canyon (US)100.0 6.8 6.8 15.6 15.6 16.8 16.8 
 
NICKEL (refined) (’000 tonnes)              
Empress (Zimbabwe) (q)— 2.9 1.6 — — — — 
 
PIG IRON (’000 tonnes)              
HIsmelt®(Australia) (t)60.0 — — 9 5 89 53 
 
SALT (’000 tonnes)              
Rio Tinto Minerals - salt (Australia)64.9 7,380 4,792 8,480 5,507 8,323 5,405 
 
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 
 
Rio Tinto total    14,830   14,926   13,968 
 
SILVER (refined) (’000 ounces)              
Kennecott Utah Copper (US)100.0 3,344 3,344 3,538 3,538 4,152 4,152 
 
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 
 
TIN (tonnes)              
Neves Corvo (Portugal) (l)— 120 59 — — — — 
 
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 
 
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 
 
Rio Tinto total    5,974   6,582   5,698 
 
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 — — — — 
 
Rio Tinto total    73.8   37.2   33.4 
 
See notes on page 22              

Rio Tinto 2006Form 20-F21

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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.

          
 Rio Tinto share %        
 OperationSee Note 2004 2005 2006 
 
 
 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 
 
 
(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-F22

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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-F23

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ORE RESERVES (under Industry Guide 7) continued

           
 Type of Total ore reserves at end 2006     
 mine 
 Interest Rio Tinto 
 (b) Tonnage Grade % share 
 
         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 
 
           
         Marketable 
         product 
   millions     millions 
BORATES (e)  of tonnes     of tonnes 
Reserves at operating mine          
Rio Tinto Minerals - Boron (US) (j)          
– mineO/P 19.8   100.0 19.8 
– stockpiles (i)S/P 2.1   100.0 2.1 
 
Rio Tinto total        21.9 
 
             
   Coal type Marketable Marketable coal quality     
   (g) reserves (h) (h)     
     
     
             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 
 
Total US coal            1,283 
 
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 OperationsO/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 OperationsO/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 
 
Total Australian coal            664 
 
Rio Tinto total reserves at operating mines            1,946 
 
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 
 
Rio Tinto total undeveloped reserves            360 
 
See notes on pages 32 to 33              

Rio Tinto 2006Form 20-F24

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ORE RESERVES (under Industry Guide 7) continued

   Total ore reserves Average     
 Type of at end 2006 mill     
 mine 
 recovery Interest Rio Tinto 
 (b) Tonnage Grade % % share 
 
           Recoverable 
           metal 
   millions       millions 
COPPER  of tonnes %Cu     of tonnes 
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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 mineO/P 1,360 1.06 85 30.0 3.681 
– sulphide leach mineO/P 1,412 0.51 34 30.0 0.744 
– oxide mineO/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 mineO/P 455 1.40 85 30.0 1.621 
– sulphide leach mineO/P 604 0.60 34 30.0 0.371 
– oxide mineO/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)            
– mineU/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)            
– mineU/G 118 0.64 88 57.7 0.381 
 
Rio Tinto total          17.989 
 
             
           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)            
– mineO/P 22 0.7   77.8 11.8 
– stockpiles (i)S/P 0.1 1.2   77.8 0.1 
 
Rio Tinto total          281.5 
 
             
           Recoverable 
           metal 
   millions grammes     millions 
GOLD  of tonnes per tonne     of ounces 
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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)            
– mineO/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)            
– mineU/G 46 0.46 74 80.0 0.407 
– stockpiles (i)S/P 3.8 0.58 76 80.0 0.043 
 
Rio Tinto total          20.834 
 
See notes on pages 32 to 33            

Rio Tinto 2006Form 20-F25

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ORE RESERVES (under Industry Guide 7) continued

    Total ore reserves Average     
 Type of at end 2006 mill     
 mine 
 recovery Interest Rio Tinto 
 (b) Tonnage Grade % % share 
 
           Marketable 
           product 
   millions       millions 
IRON ORE (d)  of tonnes %Fe     of tonnes 
Reserves at operating mines            
and mines under construction            
Channar (Australia)            
– Brockman OreO/P 100 63.5   60.0 60 
Corumbá (Brazil)            
   – mineO/P 213 67.2   100.0 213 
   – stockpiles (i)S/P 1 66.7   100.0 1 
Eastern Range (Australia)            
– Brockman OreO/P 91 62.9   54.0 49 
Hope Downs (Australia) (t)            
– Marra Mamba OreO/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)            
   – mineO/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)            
   – mineO/P 327 58.7   100.0 327 
   – stockpiles (i)S/P 1.5 58.1   100.0 1 
– Yandicoogina (Process Product)            
   – mineO/P 109 58.4   100.0 109 
Iron Ore Company of CanadaO/P 416 65.0   58.7 244 
(Canada)            
Robe River (Australia)            
– Pannawonica (Pisolite Ore)            
   – mineO/P 327 57.2   53.0 174 
   – stockpiles (i)S/P 17 56.9   53.0 9 
– West Angelas (Marra Mamba Ore)            
   – mineO/P 403 61.9   53.0 213 
   – stockpiles (i)S/P 6 59.3   53.0 3 
 
Rio Tinto total          2,326 
 
             
           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 
 
             
           Recoverable 
           metal 
   millions       millions 
MOLYBDENUM  of tonnes %Mo     of tonnes 
Reserves at operating mine            
Bingham Canyon (US)            
– mineO/P 604 0.047 61 100.0 0.175 
– stockpiles (i)S/P 37 0.032 61 100.0 0.007 
 
Rio Tinto total          0.183 
 
See notes on pages 32 to 33            

Rio Tinto 2006Form 20-F26

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ORE RESERVES (under Industry Guide 7) continued

    Total ore reserves Average     
 Type of at end 2006 mill     
 mine 
 recovery Interest Rio Tinto 
 (b) Tonnage Grade % % share 
 
           Recoverable 
           metal 
   millions grammes     millions 
SILVER  of tonnes per tonne     of ounces 
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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 
 
Rio Tinto total          169.185 
 
             
           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 
 
             
           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 
 
Rio Tinto total          75.0 
 
             
           Recoverable 
           metal 
   millions       millions 
URANIUM  of tonnes %U308      of tonnes 
Reserves at operating mines            
Energy Resources of Australia            
(Australia)            
– Ranger #3 mineO/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)            
– mineO/P 17.7 0.038 85 68.6 0.0039 
– stockpiles (i)S/P 2.3 0.015 85 68.6 0.0002 
 
Rio Tinto total          0.0345 
 
             
           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 
 
See notes on pages 32 to 33            

Rio Tinto 2006Form 20-F27

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ORE RESERVES (under Industry Guide 7) continued

   Proven ore reserves Probable ore reserves 
   at end 2006 at end 2006 
 Type of 
 
 mine     Drill hole     Drill hole 
   (b)   Tonnage  Grade spacing (c)   Tonnage   Grade spacing (c) 
 
   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) 
 
               
   millions     millions     
BORATES (e)  of tonnes     of tonnes     
Reserves at operating mine              
Rio Tinto Minerals - Boron (US) (j)              
– mineO/P 14.8   61m x 61m 5.0   61m x 61m 
– stockpiles (i)S/P 0.1     2.0     
 
         
     % Yield to Marketable Reserves 
   Recoverable give 
 
   reserves marketable   Drill hole   Drill hole 
   total reserves Proven spacing (c) Probable spacing (c) 
 
   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 
 
See notes on pages 32 to 33              

Rio Tinto 2006Form 20-F28

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ORE RESERVES (under Industry Guide 7) continued

   Proven ore reserves Probable ore reserves 
 Type of at end 2006 at end 2006 
 mine 
 
  (b) Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing (c)     spacing (c) 
 
COPPER  millions    millions    
   of tonnes %Cu  of tonnes %Cu  
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/P 325 0.59 90m 279 0.48 110m 
– stockpiles (i)S/P 12 0.35  25 0.32  
Escondida (Chile) (n)            
– sulphide mineO/P 516 1.17 60m x 60m 844 1.00 100m x 100m 
– sulphide leach mineO/P 421 0.51 60m x 60m 992 0.51 105m x 105m 
– oxide mineO/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 mineO/P 138 1.53 60m x 60m 318 1.34 100m x 100m 
– sulphide leach mineO/P 57 0.53 60m x 60m 548 0.61 105m x 105m 
– oxide mineO/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)            
– mineU/G      46 1.06 40 x 40 x 80m 
– stockpiles (i)S/P 3.8 0.67       
Palabora (South Africa) (p)            
– mineU/G 118 0.64 76m      
 
             
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            
– mineO/P       22 0.7 25m 
– stockpiles (i)S/P       0.1 1.2  
 
           
GOLD  millions grammes  millions grammes  
   of tonnes per tonne  of tonnes per tonne  
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/P 325 0.34 90m 279 0.28 110m 
– stockpiles (i)S/P 12 0.20  25 0.20  
Cortez/Pipeline (US) (s)            
– mineO/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)            
– mineO/P      46 0.46 40 x 40 x 80m 
– stockpiles (i)S/P 3.8 0.58       
 
See notes on pages 32 to 33              

Rio Tinto 2006 Form 20-F29

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ORE RESERVES (under Industry Guide 7) continued

   Proven ore reserves Probable ore reserves 
 Type of at end 2006 at end 2006 
 mine 
 
 (b) Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing (c)     spacing (c) 
 
IRON ORE (d)  millions     millions     
   of tonnes %Fe   of tonnes            %Fe   
Reserves at operating mines              
and mines under construction              
Channar (Australia)              
– Brockman OreO/P 87 63.5 60m x 60m 13 63.6 max 120m 
Corumbá (Brazil)              
 – mineO/P 108 67.2 100m x 100m 106 67.2 200m x 400m 
 – stockpiles (i)S/P 1 66.7         
Eastern Range (Australia)              
– Brockman OreO/P 66 63.0 60m x 60m 25 62.8 max 120m 
Hope Downs (Australia) (t)              
– Marra Mamba OreO/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)              
   – mineO/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)              
   – mineO/P 327 58.7 50m x 50m       
   – stockpiles (i)S/P       1.5 58.1   
– Yandicoogina (Process Product)              
   – mineO/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)              
   – mineO/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)              
   – mineO/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   
 
             
LEAD  millions     millions    
   of tonnes %Pb   of tonnes %Pb  
Reserves at operating mine             
Greens Creek (US)U/G       7.0 3.98 30m 
 
             
MOLYBDENUM  millions     millions    
   of tonnes %Mo   of tonnes %Mo  
Reserves at operating mine            
Bingham Canyon (US)            
– mineO/P 325 0.047 90m 279 0.047 110m 
– stockpiles (i)S/P 12.1 0.028  25 0.034  
 
See notes on pages 32 to 33              

Rio Tinto 2006 Form 20-F30

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ORE RESERVES (under Industry Guide 7) continued

   Proven ore reserves Probable ore reserves 
 Type of at end 2006 at end 2006 
 mine  
 
 (b)  Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing (c)     spacing (c) 
 
SILVER  millions grammes  millions grammes  
   of tonnes per tonne  of tonnes per tonne  
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/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 
 
               
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 
 
             
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 
 
           
URANIUM  millions    millions    
   of tonnes %U308  of tonnes %U308  
Reserves at operating mines            
Energy Resources of Australia            
(Australia)            
– Ranger #3 mineO/P 4.9 0.24 25m 4.8 0.24 50m 
– Ranger #3 stockpiles (i) (x)S/P 25.9 0.11       
Rössing (Namibia)            
– mineO/P 0.8 0.036 20m 16.9 0.038 60m 
– stockpiles (i)S/P 2.3 0.015       
 
             
ZINC  millions     millions    
   of tonnes %Zn   of tonnes %Zn  
Reserves at operating mine             
Greens Creek (US)U/G       7.0 10.39 30m 
 
See notes on pages 32 to 33              

Rio Tinto 2006 Form 20-F31

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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 reservesUnitUS$90 million.
ALUMINIUM
Weipa (Australia)pound0.85
COPPER
Bingham Canyon (US)pound1.59
Escondida (Chile)*pound1.59
Escondida Norte (Chile)*pound1.59
Grasberg (Indonesia)*pound1.59
Northparkes (Australia)pound1.59
Palabora (South Africa)pound1.59
GOLD
Bingham Canyon (US)ounce446
Cortez / Pipeline (US)*ounce446
Grasberg (Indonesia)*ounce446
Greens Creek (US)ounce446
Northparkes (Australia)ounce446
IRON ORE
Australian benchmark (fines)dmtu**0.46
Atlantic benchmark (fines)dmtu**0.49
LEAD
Greens Creek (US)pound0.41
MOLYBDENUM
Bingham Canyon (US)pound20.5
SILVER
Bingham Canyon (US)ounce7.34
Grasberg (Indonesia)*ounce7.34
Greens Creek (US)ounce7.34
ZINC
Greens Creek (US)pound0.64
* = 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-F32

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7   Taxation charge for the year

48

ORE 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-F33Rio Tinto 2003 Annual report and financial statements

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LOCATION OF GROUP OPERATIONS as at June 2007 (wholly owned unless stated otherwise)

ALUMINIUM
Operating sites
1Anglesey Aluminium (51%)
2Bell Bay
3Boyne Island (59%)
3Gladstone Power Station (42%)
3Queensland Alumina (39%)
4Tiwai Point (79%)
5Weipa
3Yarwun (formerly Comalco
Alumina Refinery)
BORATES
Operating sites
6Boron
7Coudekerque Plant
8Tincalayu
9Wilmington Plant
COAL
Operating sites
10Antelope
11Bengalla (30%)
12Blair Athol (71%)
13Colowyo (20%)
10Cordero Rojo
14Decker (50%)
12Hail Creek (82%)
15Hunter Valley Operations (76%)
10Jacobs Ranch
16Kestrel (80%)
15Mt Thorley Operations (61%)
14Spring Creek
17Tarong
15Warkworth (42%)
Projects
12Clermont (50%)
11Mt Pleasant (76%)
COPPER AND GOLD
Operating sites
18Bougainville (not operating) (54%)
19Cortez/Pipeline (40%)
20Escondida (30%)
21Grasberg joint venture (40%)
22Kennecott Utah Copper
23Northparkes (80%)
24Palabora (58%)
25Rawhide (51%)
Projects
26La Granja
27Oyu Tolgoi (10%)
28Pebble (20%)
29Resolution (55%)
DIAMONDS
Operating sites
30Argyle
31Diavik (60%)
32Murowa (78%)
IRON ORE
Operating sites
33Corumbá
34Hamersley Iron mines:
Brockman
Marandoo
Mt Tom Price
Nammuldi
Paraburdoo
Yandicoogina
Channar (60%)
Eastern Range (54%)
35HIsmelt®(60%)
34Robe River mines: (53%)
West Angelas
Pannawonica
35Iron Ore Company of
Canada (59%)
Projects
34Hope Downs (50%)
37IOC Pellet Plant (59%)
38Orissa (51%)
39Simandou (95%)
NICKEL
Projects
40Eagle
POTASH
Projects
41Rio Colorado Potash
SALT
Operating sites
42Dampier (65%)
43Lake MacLeod (65%)
42Port 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
51QIT 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-F34

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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-F35

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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-F36

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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-F37

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     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

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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 
 
Profit for the year7,867 5,498 3,244 
Less: attributable to outside equity shareholders(429)(283)53 
 
Attributable to equity shareholders of Rio Tinto (net earnings)7,438 5,215 3,297 
Less: exclusions from underlying earnings(100)(260)(1,025)
 
Underlying earnings attributable to shareholders of Rio Tinto7,338 4,955 2,272 
 

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 
 
Profit less losses on disposal of interests in businesses3 311 1,175 
Impairment reversals less charges44 4 (321)
Adjustment to environmental remediation provision37 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 
 
Total excluded in arriving at underlying earnings100 260 1,025 
 

Changes in underlying earnings 2004 - 2006US$m
2004 Underlying earnings2,272
Effect of changes in:
             Prices2,374
             Exchange rates(123)
             General inflation(141)
             Volumes1,140
             Costs(598)
             Tax and other31
2005 Underlying earnings4,955
Effect of changes in:
             Prices3,068
             Exchange rates(35)
             General inflation(174)
             Volumes(135)
             Costs(741)
             Tax and other400
2006 Underlying earnings7,338

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-F39

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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-F40

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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-F41

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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 
 
Iron Ore2,279 1,722 565 
Energy711 733 431 
Industrial Minerals243 187 243 
Aluminium746 392 331 
Copper3,562 2,020 860 
Diamonds205 281 188 
Other operations33 40 25 
Exploration and evaluation(163)(174)(128)
Other items(261)(202)(174)
Net interest(17)(44)(69)
 
Group underlying earnings7,338 4,955 2,272 
Exclusions from underlying earnings100 260 1,025 
 
Net earnings7,438 5,215 3,297 
 

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-F42

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IRON ORE GROUP

ProductionRio Tinto share 
 million tonnes 
 
200291.0 
2003102.6 
2004107.8 
2005124.5 
2006132.8 
 
   
Underlying earnings contribution*US$m 
 
2004565 
20051,722 
20062,279 
 
   
Changes in underlying earnings 2004 - 2006US$m 
 
2004 Underlying earnings565 
Effect of changes in:  
             Prices and exchange rates968 
             General inflation(18)
             Volumes270 
             Costs(51)
             Tax and other(12)
 
2005 Underlying earnings1,722 
Effect of changes in:  
             Prices and exchange rates616 
             General inflation(25)
             Volumes156 
             Costs(220)
             Tax and other30 
 
2006 Underlying earnings2,279 
 
*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-F43

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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 2006Million tonnes
China52.9
Japan27.4
Other Asia15.8
Europe2.0
Total98.1
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

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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 2006Million tonnes
Japan24.7
China18.5
Europe6.1
Other Asia2.7
Total52.0

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 2006Million tonnes
Europe5.7
Asia Pacific5.4
North America4.8
Total15.9

Rio Tinto 2006Form 20-F45

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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-F46

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ENERGY GROUP 
MinedRio Tinto share 
Coal million tonnes 
 
2002149.1 
2003148.8 
2004157.4 
2005153.6 
2006162.3 
 
   
   
Underlying earnings contribution*US$m 
 
2004431 
2005733 
2006711 
 
   
   
Changes in underlying earnings 2004 - 2006US$m
2004 Underlying earnings431
Effect of changes in:
             Prices and European customers.

2003 operating performance
Productionexchange rates

483
             General inflation(41)
             Volumes8
             Costs(140)
             Tax and other(8)
2005 Underlying earnings733
Effect of lump ore was 25 per cent higher than in 2002.

COPPER GROUP PROJECTS
Resolutionchanges in:

             Prices and exchange rates199
             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 other51
2006 Underlying earnings711
*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-F47

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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-F48

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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 statements
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Operational review continued

Diamonds group

Diamonds

Diamonds
(Rio Tinto share)(Rio Tinto share) 
’000 carats’000 carats
MINEDRESERVES

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.


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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.


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Operational review continued

Exploration
group

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

Technology
group

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.


56Rio Tinto 2003Annual report and financial statements

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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 statements57

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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-F50

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INDUSTRIAL MINERALS GROUP

ProductionRio Tinto share 
Borates‘000 tonnes B2O3  
 
2002528 
2003559 
2004565 
2005560 
2006553 
 
   
Titanium dioxide‘000 tonnes 
 
20021,274 
20031,192 
20041,192 
20051,312 
20061,415 
 
  
Underlying earnings contribution*US$m 
 
2004243 
2005187 
2006243 
 
  
Changes in underlying earnings 2004 - 2006US$m
2004 Underlying earnings243
Effect of changes in:
             Prices and exchange rates35
             General inflation(14)
             Volumes27
             Costs(92)
             Tax and other(12)
2005 Underlying earnings187
Effect of changes in:
             Prices and exchange rates34
             General inflation(18)
             Volumes3
             Costs—
             Tax and other37
2006 Underlying earnings243
*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-F51

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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-F52

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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-F53

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ALUMINIUM GROUP

MinedRio Tinto share 
Weipa bauxitemillion tonnes 
 
200211.2 
200311.9 
200412.6 
200515.5 
200616.1 
 
  
ProductionRio Tinto share 
Alumina‘000 tonnes 
 
20021,947 
20032,014 
20042,231 
20052,963 
20063,247 
 
   
Aluminium‘000 tonnes 
 
2002794 
2003817 
2004837 
2005854 
2006845 
 
   
Underlying earnings contribution*US$m 
 
2004331 
2005392 
2006746 
 
Changes in underlying earnings 2004 - 2006US$m
2004 Underlying earnings331
Effect of changes in:
             Prices and exchange rates93
             General inflation(34)
             Volumes34
             Costs(47)
             Tax and other15
2005 Underlying earnings392
Effect of changes in:
             Prices and exchange rates454
             General inflation(36)
             Volumes8
             Costs(65)
             Tax and other(7)
2006 Underlying earnings746
*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-F54

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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-F55

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     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-F56

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COPPER GROUP

MinedRio Tinto share 
Copper‘000 tonnes 
 
2002887 
2003867 
2004753 
2005784 
2006803 
 
   
Gold‘000 ounces 
 
20023,135 
20032,731 
20041,552 
20051,726 
20061,003 
 
  
RefinedRio Tinto share 
Copper‘000 tonnes 
 
2002417 
2003349 
2004333 
2005314 
2006299 
 
   
Underlying earnings contribution*US$m 
 
2004860 
20052,020 
20063,562 
 
   
Changes in underlying earnings 2004 - 2006US$m
2004 Underlying earnings860
Effect of changes in:
             Prices and exchange rates629
             General inflation(26)
             Volumes696
             Costs(130)
             Tax and other(9)
2005 Underlying earnings2,020
Effect of changes in:
             Prices and exchange rates1,707
             General inflation(28)
             Volumes(179)
             Costs(205)
             Tax and other247
2006 Underlying earnings3,562
*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,

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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

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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 
 
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 
 

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.

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Principal operating statistics for PTFI 2004-2006

 2004 2005 2006 
 
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 
 

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 
 
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 
 

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

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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 
 
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 
 

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 
 
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 
 

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.

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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.

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DIAMONDS GROUP

MinedRio Tinto share 
Diamonds‘000 carats 
 
200233,620 
200333,272 
200425,502 
200535,635 
200635,162 
 
Underlying earnings contribution*US$m 
 
2004188 
2005281 
2006205 
 
Changes in underlying earnings 2004 - 2006US$m
2004 Underlying earnings188
Effect of changes in:
       Prices and exchange rates46
       General inflation(5)
       Volumes89
       Costs(18)
       Tax and other(19)
2005 Underlying earnings281
Effect of changes in:
       Prices and exchange rates12
       General inflation(8)
       Volumes(100)
       Costs(10)
       Tax and other30
2006 Underlying earnings205
*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

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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.

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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.

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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.

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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,

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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.

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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.

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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.

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SOCIETY AND ENVIRONMENT

Group employees      
       
Approximate average for the yearSubsidiaries and jointly Equity Total 
 controlled assets accounted units   
 
200229,000 8,000 37,000 
200329,000 7,000 36,000 
200428,000 4,000 32,000 
200528,000 4,000 32,000 
200631,000 4,000 35,000 
 
Principal employee locations 2006      
 
Australia / New Zealand    14,000 
North America    10,000 
Africa    5,000 
Other    6,000 
 
     35,000 
 

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

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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

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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.

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     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.

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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.

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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 obligationsTotal  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 
 
Debt (a)3,179 1,157 847 544 631 
Operating leases427 62 72 51 242 
Unconditional purchase obligations (b)3,600 903 1,211 660 826 
Deferred consideration179 37 78 29 35 
Other (c)2,413 1,675 572 129 37 
 
Total9,798 3,834 2,780 1,413 1,771 
 
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.

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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.

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     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 sensitivities2006
Effect on underlying
Averageearnings of 10%
Exchangechange in full
rate foryear average
2006+/- US$m
Australian dollar75 US cents280
Canadian dollar88 US cents80
Chilean pesoUS$1 = 530 pesos10
New Zealand dollar65 US cents6
South African rand15 US cents22
UK Sterling184 US cents15
Othern/a6

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 
 
Functional currency of business unit:      
Australian dollar487 1 488 
Canadian dollar86 8 94 
South African rand26 5 31 
Other currencies95 19 114 
 
Total694 33      727 
 

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.

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   Net debt1 2006 Intragroup balances 2006 
 Currency of exposure   Currency of exposure   
 
   
   
 US$ Other Total US$ Other Total 
Functional currency of business unit:US$m US$m US$m US$m US$m US$m 
 
United States dollar— (5)(5)— 2,74722,747 
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 currencies17 4 21 (38)20 (18)
 
Total(624)6 (618)(1,843)2,794 951 
 
Notes
1The 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.
2These 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 
 
Australian dollar79 1,161 
Canadian dollar86 152 
South African rand14 (4)
UK Sterling196 32 
Other— (1)
 

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.

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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  
CommoditySourceUnit US$  US$  US$  
 
AluminiumLMEpound 0.78  0.86  1.16  
CopperLMEpound 1.30  1.66  3.06  
GoldLBMAounce 409.444.602.
Iron oreAustralian benchmark (fines)(a)dmtu (b) 0.35  0.55  0.71  
LeadLMEpound 0.40  0.44  0.59  
MolybdenumMetals Week: quote for dealer oxide pricepound 16.31.25.
SilverLBMAounce 6.6  7.3  11.6  
ZincLMEpound 0.48  0.63  1.49  
 
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

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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 
 
CopperPound 3.06  422 
AluminiumPound 1.16  167 
GoldOunce 602.46 
MolybdenumPound 25.56 
Iron oredmtu n/a  367 
 

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.

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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

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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

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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

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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 
  
 
 
  2004 2005 2006 2004 2005 2006 
 
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 
 
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

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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.

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  EU IFRS  US GAAP  
Sensitivity of Group’s 2006 net earnings to changes in:US$m  US$m  
 
Expected return on assets        
– increase of 1 percentage point26  24  
– decrease of 1 percentage point(26)(24)
Discount rate        
– increase of 0.5 percentage points1  8  
– decrease of 0.5 percentage points(1)(8)
Salary increases        
– increase of 0.5 percentage points(4)(6)
– decrease of 0.5 percentage points4  6  
Demographic – allowance for additional future mortality improvements        
– overall increase of 5% in benefit obligation(11)(18)
– overall decrease of 5% in benefit obligation11  18  
 

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.

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    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  
 
 
 
  US$m %  US$m %  
 
20069 .001%127 .007%
200515 .003%120 .008%
200420 .006%105 .008%
 

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.

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Item 6.Directors, Senior Management and Employees
Committee on social
AuditNominationsRemunerationand environmental
committeecommitteecommitteeaccountability
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 *••
* 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

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-F89

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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-F90

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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-FRio Tinto 2003Annual report and financial statements91

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Company
secretaries

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-F92

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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-F93

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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-F59

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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.


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     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 
 
Robert Adams8 8                 
Sir David Clementi17 4 6 5 4 3         
Leigh Clifford8 8                 
Leon Davis8 8         3 3     
Guy Elliott8 8                 
Sir Richard Giordano8 7 8 8     3 3 2 2 
Andrew Gould8 7 8 6 5 5         
Oscar Groeneveld8 8                 
Sir John Kerr21 –                 
Jonathan Leslie32 2                 
David Mayhew8 8 8 8         2 2 
John Morschel8 6     5 5 3 3 2 2 
The Hon. Raymond Seitz44 3         1 –     
Paul Skinner8 8 7 7     3 3 2 2 
Sir Richard Sykes8 7     5 5         
Lord Tugendhat8 8 8 8     3 3     
Sir Robert Wilson57 7             1 1 
 
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
5Sir Robert Wilson retired on 31 October 2003

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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.

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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.
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.


 

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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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Ranking in comparator group                
Percentage vesting:                
 1st-2nd 3rd 4th 5th 6th 7th 8th 9th-16th 
 
%150 125  100  83.75  67.5  51.25  35  — 
 

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
PeriodRanking out of 16
1992-968th
1993-971993 - 974th4
1994-981994 - 984th4
1995-991995 - 992nd2
1996-001996 - 002nd2
1997-011997 - 012nd2
1998-021998 - 023rd3
1999-031999 - 037th7
2000 - 0411
2001 - 0510
2002 - 0610
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


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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

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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.

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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 ofNoticeif less than
NameAgreementperiod12 months
Executive directors
Leigh Clifford30 Mar 200512 months7 months
Guy Elliott19 Jun 200212 monthsN/A
Tom Albanese10 Apr 200612 monthsN/A
Product group chief executives
Preston Chiaro30 Sep 200312 monthsN/A
Oscar Groeneveld1 Oct 200412 monthsN/A
Bret Clayton1 Jun 200612 monthsN/A
Keith Johnson12 Mar 200412 monthsN/A
Andrew Mackenzie4 May 200412 monthsN/A
Sam Walsh3 Aug 200412 monthsN/A

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

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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  
Yearpaid during the year Rio Tinto plc  Rio Tinto Limited      (TSR)  
 
     1 Jan 31 Dec 1 Jan 31 Dec plc  Limited Combined  
  US cents pence  pence  A$  A$  %  %  %  
 
2006191.5 2,655 2,718 69.00 74.30 6.3 12.2 7.6 
200583.5 1,533  2,655  39.12  69.00  77.5  81.3  78.4  
200466.0 1,543  1,533  37.54  39.12  1.7  7.4  3.0  
200360.5 1,240  1,543  33.95  37.54  27.9  14.7  24.8  
200268.5 1,316  1,240  37.21  33.95  (2.3)(5.4)(3.0)
 

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.

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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:


Business / financialPersonal / non financial
(score = 0% to 133%)(score = 0% to 133%)
Target
STIPx75% weight25% weightx
(60%)GroupGroupPersonal targets
financial resultssafety performanceand objectives

For each product group chief executive, STIP payments are calculated as a percentage of salary in accordance with the formula set out below:


Business / financialPersonal / non financial
(score = 0% to 133%)(score = 0% to 133%)
Target
STIPx40% weight60% weightx25% weight75% weight
(60%)GroupProduct groupProduct groupPersonal targets
financial resultsfinancial resultssafetyand objectives

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).
Tom Albanese
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).

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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 
 
  % of % of % % % % 
 maximum maximum vested forfeited vested forfeited 
  vested forfeited             
 
Leigh Clifford76.6 23.4 — — — 100 
Guy Elliott76.6 23.4 — — — 100 
Tom Albanese73.8 26.2 — — 25 75 
Preston Chiaro57.3 42.7 — — 25 75 
Bret Clayton66.6 33.4 — — 25 75 
Oscar Groeneveld68.1 31.9 — — — 100 
Keith Johnson74.8 25.2 — — 25 75 
Andrew Mackenzie475.8 24.2 — — — — 
Sam Walsh58.3 41.7 — — 25 75 
 
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.

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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 
 
 Min Max Min Max Min Max 
 US$ US$         
 
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 
 
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

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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 2006As at 1 Jan 2006
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

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.


 

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     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 
 
Chairman    
Paul Skinner1,147 1,049 
Non executive directors    
Ashton Calvert179 132 
Vivienne Cox136 107 
Sir David Clementi153 138 
Leon Davis— 95 
Sir Rod Eddington130 43 
Michael Fitzpatrick109 — 
Sir Richard Giordano— 80 
Richard Goodmanson156 127 
Andrew Gould171 142 
Lord Kerr142 130 
David Mayhew148 122 
John Morschel— 43 
Sir Richard Sykes217 188 
Executive directors    
Robert Adams— 220 
Tom Albanese1,295 — 
Leigh Clifford3,576 3,093 
Guy Elliott2,070 1,872 
 

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 
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 
Notes           
1Sterling 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.
3Other 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.
4Mr 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.
5Emoluments 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.
6Sir 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.
7Mr 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.
8Sir David Clementi was appointed a director on 28 January 2003 and Sir John Kerr appointed a director on 14 October 2003.
9In 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.
10Awards made under the long term incentive schemes are set out in Tables 4 and 5.2007 Annual general meetings.

 

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Remuneration report continued106

Table 2– Directors’ pension entitlements(as at 31 December 2003)

                                  Accrued benefits            Transfer values3          
  
AgeYears ofAt       At Increase in       Increase InAt        At       Change, netTransfer value
 service31 December31 December accrued benefitsaccrued benefit31 December31 Decemberof personalof increase
 completed20022003 during the yearnet of inflation2002 2003contributionsin accrued
         ended 31    benefit net
   December 2003    of inflation
 £’000 pa£’000 pa £’000 pa£’000 pa£’000£’000£’000£’000
UK directors pensionpension pensionpension    
Robert Adams58 33 325 360 35 26 6,767 6,1594(608)451
Guy Elliott48 23 173 212 39 34 2,630 2,0664(564)337
Jonathan Leslie552 25 211 21665 3 3,745 2,780 (965)44
Sir Robert Wilson660 33 656 710554 40 14,620 10,261 (4,359)760
     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        
Leigh Clifford256 33 9,700 12,099 2,399 2,132 9,700 12,099 2,399 2,132
Oscar Groeneveld250 28 4,165 4,661 496 287 4,165 4,661 496 287
Notes                   
1A$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.
2The increases in accrued lump sums for Australian directors are before contributions tax and exclude interest.
3Transfer 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.
4During 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.
5Mr Leslie left service on 2 April 2003. The accrued entitlement shown above represent the value at the date of leaving.
6Sir 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 
 
Robert Adams356,599 71,764 71,782 
Sir David Clementi4– – – 
Leigh Clifford2,100 2,100 2,100 
 56,300 76,428 76,428 
Leon Davis6,100 6,100 6,100 
 133,838 187,293 187,293 
Guy Elliott328,897 40,847 40,863 
Sir Richard Giordano1,065 1,065 1,065 
Andrew Gould– – – 
Oscar Groeneveld19,010 19,010 19,010 
 6,909 23,515 23,515 
Sir John Kerr4– – – 
Jonathan Leslie544,886 55,396 n/a 
David Mayhew2,500 2,500 2,500 
John Morschel– – – 
The Hon. Raymond Seitz5500 500 n/a 
Paul Skinner1,000 5,140 5,140 
Sir Richard Sykes2,294 2,359 2,359 
Lord Tugendhat1,135 1,135 1,135 
Sir Robert Wilson5114,124 138,609 n/a 
 
Notes      
1Rio Tinto plc – ordinary shares of 10p each;Rio Tinto Limited – shares – stated in italics.
2Or date of appointment if later.
3These 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.
4Sir David Clementi and Sir John Kerr were appointed directors on 28 January 2003 and 14 October 2003 respectively.
5Mr 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.
6The 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”.
7The total beneficial interest of the directors in the Group amounts to less than one per cent.
8Or date of retirement or resignation if earlier.

66Rio Tinto 2003 Annual report and financial statements

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Table 41 – Directors’ and senior management’s total remuneration– Awards to directors under long term incentive plans

                   Plan terms and conditions 
  
 
                        Monetary 
            Conditional Performance  Market Date  Market value of 
                award period  price at award  price at
 3
vested 
 Plan1 Jan Awarded Lapsed Vested1 31 Dec granted concludes  award vests  vestingaward
  2003       20032             £’000 
 
Robert AdamsMCCP 200027,830 – 10,437 17,393 – 7/03/2000 31/12/2003  953p27/02/2004  1,386p241 
      MCCP 200127,330 – – – 27,330 6/03/2001 31/12/2004  1,310p–  – – 
      MCCP 200225,064 – – – 25,064 13/03/2002 31/12/2005  1,424p–  – – 
      MCCP 2003– 26,837 – – 26,837 7/03/2003 31/12/2006  1,198p–  – – 
  
             
 
  80,224 26,837 10,437 17,393 79,231             241 
  
             
 
Leigh Clifford5MCCP 200037,609 – 14,104 23,505 – 7/03/2000 31/12/2003  A$24.156 27/02/2004  A$35.24 3483
      MCCP 200137,474 – – – 37,474 6/03/2001 31/12/2004  A$34.406 –  – – 
      MCCP 200234,435 – – – 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 –  – – 
  
             
 
  109,518 36,341 14,104 23,505 108,250             348 
  
             
 
Guy ElliottMCCP 20004,307 – 1,616 2,691 – 7/03/2000 31/12/2003  953p27/02/2004  1,386p37 
     MCCP 20017,845 – – – 7,845 6/03/2001 31/12/2004  1,310p–  – – 
      MCCP 200216,935 – – – 16,935 13/03/2002 31/12/2005  1,424p–  – – 
      MCCP 2003– 22,923 – – 22,923 7/03/2003 31/12/2006  1,198p–  – – 
  
             
 
  29,087 22,923 1,616 2,691 47,703             37 
  
             
 
Oscar Groeneveld5MCCP 200021,266 – 7,975 13,291 – 7/03/2000 31/12/2003  A$24.156 27/02/2004  A$35.24 1973
     MCCP 200120,934 – – – 20,934 6/03/2001 31/12/2004  A$34.406 –  – – 
      MCCP 200220,322 – – – 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 –  – – 
  
             
 
  62,522 21,469 7,975 13,291 62,725             197 
  
             
 
Jonathan Leslie6MCCP 200021,574 – 8,091 13,483 – 7/03/2000 31/12/2003  953p27/02/2004  1,386p187 
     MCCP 200121,192 – – – 21,192 6/03/2001 31/12/2004  1,310p–  – – 
     MCCP 200219,758 – 19,758 – – 13/03/2002 31/12/2005  1,424p–  – – 
  
             
 
  62,524 – 27,849 13,483 21,192             187 
  
             
 
Sir Robert   WilsonMCCP 200050,191 – 18,822 31,369 – 7/03/2000 31/12/2003  953p27/02/2004  1,386p435 
    MCCP 200149,796 – – – 49,796 6/03/2001 31/12/2004  1,310p–  – – 
      MCCP 200247,983 – – – 47,983 13/03/2002 31/12/2005  1,424p–  – – 
      MCCP 2003– 50,599 8,456 – 42,143 7/03/2003 31/12/2006  1,198p–  – – 
  
             
 
  147,970 50,599 27,278 31,369 139,922             435 
  
             
 
                         
Notes                         
1The 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.
2Rio Tinto plc – ordinary shares of 10p each;Rio Tinto Limited – shares – stated in italics.
3The 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.
4The 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$33.3518, with the result that the values of the awards had been understated in respect of Sir Robert Wilson by £105,773, Mr Adams by £61,321, Mr Leslie by £36,304, Mr Davis by £183,279, Mr Clifford by £12,143 and Mr Groeneveld by £36,319 and overstated in respect of Mr Elliott by £4,308.
5Mr Clifford was given a conditional award over 36,341 Rio Tinto Limited shares and Mr Groeneveld was given a conditional award over 21,469 Rio Tinto Limited shares during the year. These awards were approved by the shareholders under ASX Listing Rule 10.14 at the 2002 annual general meeting.
6Following Mr Leslie’s resignation from the boards of Rio Tinto plc and Rio Tinto Limited on 31 March 2003, theRemuneration committeeagreed that his MCCP awards in 2000 and 2001 should continue to the end of their respective performance periods. The 2002 MCCP award was forfeited.
7A full explanation of the MCCP together with the proposed changes under the plan can be found on pages 63 and 64.
8Or as at date of resignation or retirement if earlier.
     Short term employee benefits and costs Other Value of share based awards5 
             long term       
             benefits       
     Other               
     cash Non- Second- Employ-         
 Base Cash based monetary ment ment Long     SSP/ 
Stated in US$’0001salary bonus benefits2 benefits2 costs3 costs4 Service 13 MCCP6 SOP7 Others9 
 
Chairman                    
Paul Skinner1,114 — 31 2 — 145 — — — — 
Non executive directors                    
Ashton Calvert119 — 53 7 — 9 — — — — 
Vivienne Cox129 — 7 — — 16 — — — — 
Sir David Clementi138 — 15 — — 18 — — — — 
Leon Davis16— — — — — — — — — — 
Sir Rod Eddington109 — 21 — — 7 — — — — 
Michael Fitzpatrick1174 — 35 — — 6 — — — — 
Sir Richard Giordano16— — — — — — — — — — 
Richard Goodmanson138 — 18 — — — — — — — 
Andrew Gould156 — 15 — — — — — — — 
Lord Kerr135 — 7 — — 17 — — — — 
David Mayhew12133 — 15 — — — — — — — 
John Morschel16— — — — — — — — — — 
Sir Richard Sykes16202 — 15 — — — — — — — 
Executive directors                    
Robert Adams16— — — — — — — — — — 
Tom Albanese11,13,14899 842 — 38 (85)114 378 (115)599 13 
Leigh Clifford151,611 1,598 148 3 156 408 — (1,162)1,090 3 
Guy Elliott1,016 1,011 28 6 — 258 — (614)512 11 
Product group chief executives                   
Preston Chiaro14591 412 21 9 205 26 — (119)444 7 
Bret Clayton429 349 50 3 427 36 — 64 102 12 
Oscar Groeneveld13962 839 — 37 51 95 359 (606)418 2 
Keith Johnson663 644 — 35 — 167 — (54)325 9 
Andrew MacKenzie737 723 — 32 — 162 — 57 267 11 
Chris Renwick16— — — — — — — — — — 
Sam Walsh887 664 — 6 51 110 — (28)381 2 
 
 
2006 Remuneration10,242 7,082 479 178 805 1,594 737 (2,577)4,138 70 
 
 
2005 Remuneration9,223 5,981 422 314 1,568 1,696 737 7,484 4,600 70 
 
 

 

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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 
 
                      
Robert AdamsA398,615 114,014 – 512,629 1,136p         512,629 
Leigh CliffordA384,050 254,132 – 638,182 A$31.10         638,182 
 B208,882     208,882 A$39.87         208,882 
Leon DavisA93,978 – – 93,978 A$23.44         93,978 
Guy ElliottA106,183 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 GroeneveldA175,084 91,511 – 266,595 A$29.83         266,595 
 B73,965     73,965 A$39.87         73,965 
Jonathan Leslie6A309,775 – 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 Wilson6A841,076 358,273 253,954 945,395 1,288p 129,636 808.8p 1,292p 626 n/a 
            124,318 1,263.0p – –   
            
         
            253,954         
            
         
 Post employment costs9 Termination Remuneration   Total   
         benefits      mix10 remuneration   
 
 
 
       
 Pension – Defined                   
 
                   
           Fixed At-risk         
       Post   as % as % Options     Currency 
   Contrib- Medical service   2006 2006 as %     of actual 
Stated in US$’000Benefits utions costs payments Gifts total total total 2006 200513,14 payment 
 
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 Albanese11,13,14707 — — — — 60.5 39.5 17.7 3,390 3,962 £ 
Leigh Clifford15346 60 — — — 64.1 35.9 25.6 4,261 6,704 £ 
Guy Elliott707 — — — — 68.6 31.4 17.5 2,935 3,897 £ 
Product group chief executives                     
Preston Chiaro14168 12 5 — — 58.2 41.8 25.0 1,781 2,983 US$ 
Bret Clayton57 13 3 — — 65.9 34.1 6.6 1,545 900 US$ 
Oscar Groeneveld13204 50 — — — 72.9 27.1 17.5 2,411 3,509 A$ 
Keith Johnson385 — — — — 57.5 42.5 15.0 2,174 2,284 £ 
Andrew MacKenzie475 — — — — 57.1 42.9 10.9 2,464 2,217 £ 
Chris Renwick16— — — — — — — — — 1,225 A$ 
Sam Walsh220 32 — — — 56.2 43.8 16.5 2,325 3,151 A$ 
 
   
2006 Remuneration3,269 167 8 — —       26,192     
 
     
2005 Remuneration2,199 114 12 1,115 14         35,549   
 
   
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   
                 
   
                 26,192 35,549   
                 
   
Ais 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.
Bis 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
1Rio Tinto plc ordinary shares of 10p each;Rio Tinto Limited – shares – stated in italics.
2Options have been granted under the Share Option Plan, the Rio Tinto plc Share Savings Plan and the Rio Tinto Limited Share Savings Plan.
3The 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).
4Two 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.
5All 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.
6No 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.
7Or 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.

68Rio Tinto 2003 Annual report and financial statements

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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 benefits2   contributions3 long term the term of the Total1
 fees         incentive Performance   
Stated in US$’000          shares4Period5 US$ 
 
                 
Chairman                
Paul Skinner275 – 7 282 – – – 282 
                 
Non executive directors                
Sir David Clementi80 – – 80 – – – 80 
Leon Davis245 – – 245 – – – 245 
Sir Richard Giordano156 – – 156 – – – 156 
Andrew Gould91 – – 91 – – – 91 
Sir John Kerr18 – – 18 – – – 18 
David Mayhew91 – – 91 – – – 91 
John Morschel123 – – 123 – – – 123 
The Hon. Raymond Seitz34 – – 34 – – – 34 
Sir Richard Sykes92 – – 92 – – – 92 
Lord Tugendhat91 – – 91 – – – 91 
                 
Executive directors                
Robert Adams774 511 49 1,334 – 2,834 (1,964)2,204 
Leigh Clifford1,086 703 354 2,143 268 5,630 (3,859)4,182 
Guy Elliott656 455 35 1,146 – 1,456 (1,011)1,591 
Oscar Groeneveld621 471 131 1,223 156 2,284 (1,586)2,077 
Jonathan Leslie147 92 104 343 – 331 (248)426 
Sir Robert Wilson1,217 790 72 2,079 – 6,961 (4,775)4,265 
                 
Five highest paid executives in the Group (other than directors)6 
Tom Albanese549 313 649 1,511 – 2,726 (1,858)2,379 
Preston Chiaro419 217 234 870 – 987 (679)1,178 
David Klingner434 210 250 894 109 754 (533)1,224 
Christopher Renwick681 606 98 1,385 156 2,106 (1,461)2,186 
Sam Walsh542 443 123 1,108 124 1,590 (1,100)1,722 
 
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.
2Includes 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.
5Under 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.
6The 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

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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.

 

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Table 2 – Executive directors’ pension entitlements (as at 31 December 2006)

     Accrued benefits Transfer values 
     
 
 
 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         
 
Tom Albanes2,349 25 115 126 11 7 729 882 153 137 
Guy Elliott251 26 291 335 44 31 3,781 4,484 703 415 
 
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         
 
Leigh Clifford4,559 36 13,877 15,341 1,464 1,006 13,877 15,341 1,464 1,006 
 
Notes to Table 2
1Price inflation is calculated as the increase in the relevant retail or consumer price index over the year to 31 December 2006.
2Transfer 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.
3Tom 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.
4In 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.
5The 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.

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Table 3 – Directors’ and senior management’s beneficial interests in Rio Tinto shares   
 
     
  Rio Tinto plc  Rio Tinto Limited Movement  
 
  
 
  
  1 Jan 31 Dec 31 May 1 Jan 31 Dec 31 May Exercise Compen-          Other6  
  20061  20062  2007  200611  20062  2007 of sation5    
                        options4        
 
Directors                               
Tom Albanese3,7,923,261  41,814  44,839  —  —  — 35,350 3,025 (19,640)
Ashton Calvert—  —  —  —  —  735 — — 735  
Sir David Clementi—  147  308  —  —  — — — 308  
Leigh Clifford2,100  2,100  2,100  91,255  91,255  91,255 — — —  
Vivienne Cox381  528  692  —  —  — — — 311  
Sir Rod Eddington—  —  —  —  —  — — — —  
Guy Elliott747,827  48,033  48,644  —  —  — — 357 470  
Michael Fitzpatrick3—  —  —  2,100  2,100  2,100 — — —  
Richard Goodmanson—  677  1,628  —  —  — — — 1,628  
Andrew Gould1,000  1,000  1,000  —  —  — — — —  
Lord Kerr2,300  3,000  3,000  —  —  — — — 700  
David Mayhew2,500  2,500  2,500  —  —  — — — —  
Paul Skinner5,409  5,598  5,657  —  —  — — — 248  
Sir Richard Sykes2,482  2,569  2,596  —  —  — — — 114  
                   
Product group chief executives                               
Preston Chiaro7,960,762  60,927  62,585  —  —  — 490 — 1,823  
Bret Clayton3,7,96,640  6,867  7,376  —  —  — — — 736  
Oscar Groeneveld3,000  3,000  3,000  79,502  66,790  66,790 171,000 — (183,712)
Keith Johnson72,236  17,536  18,882  —  —  — 43,426 2,446 (29,216)
Andrew Mackenzie1039,197  40,456  40,597  —  —  — — 357 1,053  
Sam Walsh—  —  —  6,570  42,322  42,723 187,118 4,156 (155,121)
 
Notes to Table 3
1Or date of appointment if later.
2Or date of retirement or resignation if earlier.
3Tom 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.
4Shares 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.
5Shares 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.
7These 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.
8Shares in Rio Tinto plc are ordinary shares of ten pence each. Shares in Rio Tinto Limited are ordinary shares.
9The shareholdings of Tom Albanese, Preston Chiaro and Bret Clayton include Rio Tinto plc ADRs held through the Rio Tinto America Savings Plan.
10Andrew Mackenzie’s 31 December 2005 balance was understated in the 2005 Remuneration report by ten Rio Tinto plc shares.

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Table 4 – Directors’ and senior management’s awards under long term incentive plans

       Mining Companies Comparative Plan  Plan terms and conditions 
 
 
 
  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 
 
 
 
Executive directors                                      
Tom7 Mar                      31 Dec 16 Feb        
Albanese2003  1198p19,274  — 14,456 4,818 —  2006  2007  2697p255 
  22 Apr                      31 Dec            
  2004  1276p56,015  — — — 56,015  2007             
  9 Mar                      31 Dec            
  2005  1839p55,951  — — — 55,951  2008             
  7 Mar��                     31 Dec            
  2006  2630p—  45,007 — — 45,007  2009             
          
           
 
          131,240  45,007 14,456 4,818 156,973              255 
          
           
 
Leigh7 Mar                     31 Dec            
Clifford2003  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             
          
           
 
          269,246  84,661 36,341 — 317,566              — 
          
           
 
Guy7 Mar                      31 Dec            
Elliott2003  1198p22,923  — 22,923 — —  2006             
  22 Apr                      31 Dec            
  2004  1276p51,550  — — — 51,550  2007             
  9 Mar                      31 Dec            
  2005  1839p51,081  — — — 51,081  2008             
  7 Mar                      31 Dec            
  2006  2630p—  40,670 — — 40,670  2009             
          
           
 
          125,554  40,670 22,923 — 143,301              — 
          
           
 
Product group chief executives                                  
Preston7 Mar                      31 Dec 16 Feb        
Chiaro2003  1198p7,352  — 5,514 1,838 —  2006  2007  2697p97 
  22 Apr                      31 Dec            
  2004  1276p46,995  — — — 46,995  2007             
  9 Mar                      31 Dec            
  2005  1839p42,351  — — — 42,351  2008             
  7 Mar                      31 Dec            
  2006  2630p—  34,182 — — 34,182  2009             
          
           
 
          96,698  34,182 5,514 1,838 123,528              97 
          
           
 
Bret7 Mar                      31 Dec 16 Feb        
Clayton2003  1198p4,862  — 3,647 1,215 —  2006  2007  2697p64 
  22 Apr                      31 Dec            
  2004  1276p13,315  — — — 13,315  2007             
  9 Mar                      31 Dec            
  2005  1839p11,539  — — — 11,539  2008             
  7 Mar                      31 Dec            
  2006  2630p—  10,767 — — 10,767  2009             
          
           
 
          29,716  10,767 3,647 1,215 35,621              64 
          
           
 

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Table 4 – Awards to executive directors and product group chief executives under long term incentive plans

Mining Companies Comparative Plan  Plan terms and conditions 
 
  
 
  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 
 
  
 
Oscar7 Mar                     31 Dec            
Groeneveld2003  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  —  —  — 
     
       
 
          110,278  36,460 21,469 — 125,269              — 
     
       
 
Keith7 Mar                      31 Dec 16 Feb        
Johnson2003  1198p8,186  — 6,140 2,046 —  2006  2007  2697p108 
  22 Apr                      31 Dec            
  2004  1276p30,387  — — — 30,387  2007  —  —  — 
  9 Mar                      31 Dec            
  2005  1839p33,556  — — — 33,556  2008  —  —  — 
  7 Mar                      31 Dec            
  2006  2630p—  26,508 — — 26,508  2009  —  —  — 
     
       
 
          72,129  26,508 6,140 2,046 90,451              108 
     
       
 
Andrew7 Mar                      31 Dec            
Mackenzie2003  1198p—  — — — —  2006  —  —  — 
  22 Apr                      31 Dec            
  2004  1276p16,270  — — — 16,270  2007  —  —  — 
  9 Mar                      31 Dec            
  2005  1839p37,638  — — — 37,638  2008  —  —  — 
  7 Mar                      31 Dec            
  2006  2630p—  29,413 — — 29,413  2009  —  —  — 
     
       
 
          53,908  29,413 — — 83,321              — 
     
       
 
Sam Walsh7 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  —  —  — 
     
       
 
          96,083  33,655 12,663 4,221 112,854              252 
     
       
 

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Table 4 – Awards to executive directors and product group chief executives under long term incentive plans

 Mining Companies Comparative PlanPlan terms and conditions 
 
 
 
 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 vestingvested 
           concludes    award 
               US$’000 
 
 
Executive directors                
Tom22Apr          31Dec      
Albanese2004 1276p56,015 — — — 56,015 2007 — —— 
 9Mar          31Dec      
 2005 1839p55,951 — — — 55,951 2008 — —— 
 7Mar          31Dec      
 2006 2630p45,007 — — — 45,007 2009 — —— 
 13Mar          31Dec      
 2007 2681p— 44,124 — — 44,124 2010 — —— 
   
 
  156,973 44,124 — — 201,097    — 
   
 
Leigh22Apr A$          31Dec      
Clifford2004 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 — —— 
   
 
  317,566 61,550 — — 379,116    — 
   
 
Guy22Apr          31Dec      
Elliott2004 1276p51,550 — — — 51,550 2007 — —— 
 9Mar          31Dec      
 2005 1839p51,081 — — — 51,081 2008 — —— 
 7Mar          31Dec      
 2006 2630p40,670 — — — 40,670 2009 — —— 
 13Apr          31Dec      
 2007 2681p— 30,837 — — 30,837 2010 — —— 
   
 
  143,301 30,837 — — 174,138    — 
   
 
Product group chief executives                 
Preston22Apr          31Dec      
Chiaro2004 1276p46,995 — — — 46,995 2006 — —— 
 9Mar          31Dec      
 2005 1839p42,351 — — — 42,351 2007 — —— 
 7Mar          31 Dec      
 2006 2630p34,182 — — — 34,182 2008 — —— 
 13Apr          31 Dec      
 2007 2681p— 25,679 — — 25,679 2010 — —— 
   
 
  123,528 25,679 — — 149,207    — 
   
 
Bret22Apr          31Dec      
Clayton2004 1276p13,315 — — — 13,315 2007 — —— 
 9Mar          31Dec      
 2005 1839p11,539 — — — 11,539 2008 — —— 
 7Mar          31Dec      
 2006 2630p10,767 — — — 10,767 2009 — —— 
 13Apr          31Dec      
 2007 2681p— 22,566 — — 22,566 2010 — —— 
   
 
  35,621 22,566 — — 58,187    — 
   
 

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Corporate governanceTable 4 – Awards to executive directors and product group chief executives under long term incentive plans

 Mining Companies Comparative PlanPlan terms and conditions 
 
 
 
 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 vestingvested 
            concludes    award 
                US$’000 
 
 
 
Oscar22 Apr A$          31 Dec      
Groeneveld2004 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 — —— 
   
 
   125,269 26,590 — — 151,859    — 
   
 
Keith22 Apr           31 Dec — —  
Johnson2004 1276p30,387 — — — 30,387 2007    — 
 9 Mar           31 Dec      
 2005 1839p33,556 — — — 33,556 2008 — —— 
 7 Mar           31 Dec      
 2006 2630p26,508 — — — 26,508 2009 — —— 
 13 Apr           31 Dec      
 2007 2681p— 19,805 — — 19,805 2010 — —— 
   
 
   90,451 19,805 — — 110,256    — 
   
 
Andrew22 Apr           31 Dec      
Mackenzie2004 1276p16,270 — — — 16,270 2007 — —— 
 9 Mar           31 Dec      
 2005 1839p37,638 — — — 37,638 2008 — —— 
 7 Mar           31 Dec      
 2006 2630p29,413 — — — 29,413 2009 — —— 
 13 Apr           31 Dec      
 2007 2681p— 21,811 — — 21,811 2010 — —— 
   
 
   83,321 21,811 — —��105,132    — 
   
 
Sam Walsh22 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 — —— 
   
 
   112,854 25,103 — — 137,957    — 
   
 
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-F115

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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 20069exercise exercisable date 
 
Rio Tinto plc Share Savings Plan           
 
Tom           1 Jan 7 Jan 
Albanese530 — 530 530 — — 1150p£8,072 2673p2006 2006 
            1 Jan 30 Jun 
 — 791 — — — 791 2068p— — 2012 2012 
 
Preston           1 Jan 5 Jan 
Chiaro490 — — — — 490 1277p— — 2007 2007 
            1 Jan 6 Jan 
 — 298 — — — 298 2088p— — 2009 2009 
 
Bret           1 Jan 7 Jan 
Clayton2530 — 530 530 — — 1150p£8,072 2673p2006 2006 
 
Guy           1 Jan 30 Jun 
Elliott1,431 — — — — 1,431 1107p— — 2009 2009 
 
Keith           1 Jan 5 Jan 
Johnson1,078 — 1,078 1,078 — — 876p£21,528 2873p2007 2007 
            1 Jan 6 Jan 
 — 456 — — — 456 2068p— — 2009 2009 
 
Andrew           1 Jan 30 Jun 
Mackenzie1,021 — — — — 1,021 1576p— — 2009 2009 
 
Rio Tinto plc Share Option Plan           
 
Tom           27 May 27 May 
Albanese11,142 — — 11,142 — — 820p£221,280 2806p2001 2008 
            12 Mar 12 Mar 
 12,382 — — 12,382 — — 808.8p£247,293 2806p2002 2009 
            7 Mar 7 Mar 
 7,530 — — 7,530 — — 965.4p£138,597 2806p2003 2010 
            7 Mar 7 Mar 
 3,766 — — 3,766 — — 965.4p£69,317 2806p2005 2010 
            6 Mar 6 Mar 
 102,718 — — — 102,718 102,718 1265.6p— — 2005 2011 
            13 Mar 13 Mar 
 125,336 — — — 125,336 125,336 1458.6p— — 2005 2012 
            7 Mar 7 Mar 
 139,165 — 139,165 — 139,165 139,165 1263p— — 2006 2013 
            22 Apr 22 Apr 
 84,020 — — — — 84,020 1329p— — 2007 2014 
            9 Mar 9 Mar 
 83,926 — — — — 83,926 1826.2p— — 2008 2015 
            7 Mar 7 Mar 
 — 67,511 — — — 67,511 2711.2p— — 2009 2016 
 
Preston           7 Mar 7 Mar 
Chiaro37,160 — 37,160 — 37,160 37,160 1263p— — 2006 2013 
            22 Apr 22 Apr 
 70,490 — — — — 70,490 1329p— — 2007 2014 
            9 Mar 9 Mar 
 63,527 — — — — 63,527 1826.2p— — 2008 2015 
            7 Mar 7 Mar 
 — 51,274 — — — 51,274 2711.2p— — 2009 2016 
 

Rio Tinto 2006 Form 20-F116

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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 20069exercise exercisable date 
 
Rio Tinto plc Share Option Plan (continued)         
 
Bret           7 Mar 7 Mar 
Clayton224,573 — 24,573 24,573 — — 1263p£343,531 2661p2006 2013 
            22 Apr 22 Apr 
 13,315 — — — — 13,315 1329p— — 2007 2014 
            9 Mar 9 Mar 
 11,539 — — — — 11,539 1826.2p— — 2008 2015 
            7 Mar 7 Mar 
 10,767 — — — — 10,767 2711.2p— — 2009 2016 
 
Guy           13 Mar 13 Mar 
Elliott61,703 — — — 61,703 61,703 1458.6p— — 2005 2012 
            7 Mar 7 Mar 
 97,387 — 97,387   97,387 97,387 1263p— — 2006 2013 
            22 Apr 22 Apr 
 73,700 — — — — 73,700 1329p— — 2007 2014 
            9 Mar 9 Mar 
 72,972 — — — — 72,972 1826.2p— — 2008 2015 
            7 Mar 7 Mar 
 — 58,100 — — — 58,100 2711.2p— — 2009 2016 
 
Keith           7 Mar 7 Mar 
Johnson3,855 — — 3,855 — — 965.4p68,488 2742p2005 2010 
            6 Mar 6 Mar 
 11,667 — — 11,667 — — 1265.6p172,252 2742p2005 2011 
            13 Mar 13 Mar 
 10,595 — — 10,595 — — 1458.6p135,976 2742p2005 2012 
            7 Mar 7 Mar 
 16,231 — 16,231 16,231 — — 1263p240,056 2742p2006 2013 
            22 Apr 22 Apr 
 43,500 — — — — 43,500 1329p— — 2007 2014 
            9 Mar 9 Mar 
 47,937 — — — — 47,937 1826.2p— — 2008 2015 
            7 Mar 7 Mar 
 — 37,869 — — — 37,869 2711.2p— — 2009 2016 
 
Andrew           9 Mar 9 Mar 
Mackenzie1053,769 — — — — 53,769 1826.2p— — 2008 2015 
            7 Mar 7 Mar 
 — 42,019 — — — 42,019 2711.2p— — 2009 2016 
 
Rio Tinto Limited Share Savings Plan         
 
Leigh        A$   30 Sep 31 Mar 
Clifford111,486 — — — — 1,486 29.04 — — 2007 2008 
 
Oscar        A$   1 Jan 30 Jun 
Groeneveld1,431 — — — — 1,431 27.48 — — 2009 2009 
 
Sam        A$ A$ A$ 1 Jan 30 Jun 
Walsh1,078 — 1,078 1,078 — — 25.57 53,787 75.465 2006 2006 
         A$   1 Jan 30 Jun 
 601 — — — — 601 40.92 — — 2009 2009 
 

Rio Tinto 2006 Form 20-F117

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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    exercisedprice on Date from  
 1 Jan   during   31 Dec 31 Dec Option duringdate ofwhich first Expiry 
 2006 Granted 2006 Exercised 2006 2006 price 20069exerciseexercisable date 
 
Rio Tinto Limited Share Option Plan          
 
Leigh        A$    28 May 28 May 
Clifford1152,683 — — — 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 
 
Oscar        A$ A$A$ 6 Mar 6 Mar 
Groeneveld80,920 — — 80,920 — — 33.0106 3,136,41171.77 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 
 
Sam        A$ A$  6 Mar 6 Mar 
Walsh49,983 — — 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 
 

Rio Tinto 2006 Form 20-F118

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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 
 
Rio Tinto plc Share Savings Plan                   
 
Tom                  1 Jan 30 Jun 
Albanese 791 — — — — 791 2068p— — 2012 2012 
 
Preston                  1Jan 5 Jan 
Chiaro 490 — 490 �� — — 1277p£6,017 £25.05 2007 2007 
                   1 Jan 6 Jan 
  298 — — — — 298 2088p— — 2009 2009 
 
Bret                      
Clayton2 — — — — — — — — — — — 
 
Guy                  1 Jan 30 Jun 
Elliott 1,431 — — — — 1,431 1107p— — 2009 2009 
 
Keith                  1 Jan 6 Jan 
Johnson 456 — — — — 456 2068p— — 2009 2009 
 
Andrew                  1 Jan 30 Jun 
Mackenzie 1,021 — — — — 1,021 1576p— — 2009 2009 
 
Rio Tinto plc Share Option Plan                   
 
Tom                  6 Mar 6 Mar 
Albanese 102,718 — — — 102,718 102,718 1265.6p— — 2005 2011 
                   13 Mar 13 Mar 
  125,336 — — — 125,336 125,336 1458.6p— — 2005 2012 
                   7 Mar 7 Mar 
  139,165 — — — 139,165 139,165 1263.0p— — 2006 2013 
                   22 Apr 22 Apr 
  84,020 — — — — 84,020 1329.0p— — 2007 2014 
                   9 Mar 9 Mar 
  83,926 — — — — 83,926 1826.2p— — 2008 2015 
                   7 Mar 7 Mar 
  67,511 — — — — 67,511 2711.2p— — 2009 2016 
                   13 Mar 13 Mar 
  — 66,186 — — — 66,186 2701.2p— — 2010 2017 
 
Preston                  7 Mar 7 Mar 
Chiaro 37,160 — — — 37,160  37,160 1263.0p— — 2006 2013 
                   22 Apr 22 Apr 
  70,490 — — — — 70,490 1329.0p— — 2007 2014 
                   9 Mar 9 Mar 
  63,527 — — — — 63,527 1826.2p— — 2008 2015 
                   7 Mar 7 Mar 
  51,274 — — — — 51,274 2711.2p— — 2009 2016 
                   7 Mar 7 Mar 
  — 38,519 — — — 38,519 2701.2p— — 2010 2017 
 

Rio Tinto 2006 Form 20-F119

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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 
 
Rio Tinto plc Share Option Plan (continued)                 
 
Bret                   22Apr 22Apr 
Clayton2 13,315 — — — — 13,315 1329.0p— — 2007 2014 
                    9Mar 9Mar 
  11,539 — — — — 11,539 1826.2p— — 2008 2015 
                    7Mar 7Mar 
  10,767 — — — — 10,767 2711.2p— — 2009 2016 
                    7Mar 7Mar 
  — 33,850 — — — 33,850 2701.2p— — 2010 2017 
 
Guy                   13Mar 13Mar 
Elliott 61,703 — — — 61,703 61,703 1458.6p— — 2005 2012 
                    7Mar 7Mar 
  97,387 — — – 97,387 97,387 1263.0p— — 2006 2013 
                    22Apr 22Apr 
  73,700 — — — — 73,700 1329.0p— — 2007 2014 
                    9Mar 9Mar 
  72,972 — — — — 72,972 1826.2p— — 2008 2015 
                    7Mar 7Mar 
  58,100 — — — — 58,100 2711.2p— — 2009 2016 
                    7Mar 7Mar 
  — 44,052 — — — 44,052 2701.2p— — 2010 2017 
 
Keith                   22Apr 22Apr 
Johnson 43,500 — — — — 43,500 1329.0p— — 2007 2014 
                    9Mar 9Mar 
  47,937 — — — — 47,937 1826.2p— — 2008 2015 
                    7Mar 7Mar 
  37,869 — — — — 37,869 2711.2p— — 2009 2016 
                    7Mar 7Mar 
  — 28,294 — — — 28,294 2701.2p— — 2010 2017 
 
Andrew                   9Mar 9Mar 
Mackenzie10 53,769 — — — — 53,769 1826.2p— — 2008 2015 
                    7Mar 7Mar 
  42,019 — — — — 42,019 2711.2p— — 2009 2016 
                    7Mar 7Mar 
  — 31,159 — — — 31,159 2701.2p— — 2010 2017 
 
Rio Tinto Limited Share Savings Plan                 
 
Leigh             A$     30 Sep 31 Mar  
Clifford11 1,486 — — — — 1,486 29.04 — — 2007 2008 
 
Oscar             A$     1Jan 30Jun 
Groeneveld 1,431 — — — — 1,431 27.48 — — 2009 2009 
 
Sam             A$     1Jan 30Jun 
Walsh 601 — — — — 601 40.92 — — 2009 2009 
 

Rio Tinto 2006 Form 20-F120

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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 
 
Rio Tinto Limited Share Option Plan                 
 
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 
 
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 
 
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 
 
Notes to Table 5
1Or at date of appointment if later.
2Bret Clayton was appointed chief executive of the Copper group on 1 July 2006.
3All 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.
4No options lapsed during the year.
5The 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.
6The 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.
7Under the plans no options would be vested and unexercisable at the reporting date.
8The 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.
9The 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.
10Andrew 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.

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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

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Directors’ attendance at board and committee meetings during 2006

           Committee on   
           social and   
       Audit       Remunerationenvironmental    Nominations 
     Board committee       committeeaccountability    committee 
  
 
 
 
 
 
Name of Director A1,2 B1 A B A B      A B A B 
 
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 
 
Notes
1A = Maximum number of meetings the director could have attended; B = Number of meetings attended
2Eight of the board meetings were scheduled and one was called at short notice.
3Tom Albanese was appointed on 7 March 2006.
4Michael 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.

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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.


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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.

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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

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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


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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.

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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-F127

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


 

72Rio Tinto 20032006 Form 20-FAnnual report and financial statements128

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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-F129

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•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-F130

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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 plcDate of Number of Percentage 
  notice shares of issued 
        share capital 
 
Barclays PLC12 Jul 2006 42,129,019 4.02 
The Capital Group Companies, Inc13 Jun 2006 41,031,494 3.90 
Legal & General plc5 Oct 2005 33,539,570 3.13 
 
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 LimitedDate of noticeNumber ofPercentage
sharesof issued
share capital
None——
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-F73131

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ANALYSIS OF ORDINARY SHAREHOLDERS As at 9 February 2007

        Rio Tinto plc       Rio Tinto Limited 
  No of % Shares % No of % Shares % 
  accounts          accounts          
 
1 to 1,000 shares38,405 71.07 14,822,316 1.46 82,340 80.40 29,578,002 10.35 
1,001 to 5,000 shares12,810 23.70 25,735,953 2.53 17,665 17.25 34,745,068 12.16 
5,001 to 10,000 shares1,098 2.03 7,540,348 0.74 1,489 1.45    10,395,908 3.64 
10,001 to 25,000 shares560 1.04 8,800,248 0.86 597 0.58 8,920,489 3.12 
25,001 to 125,000 shares550 1.02 31,301,789 3.07 225 0.22 11,279,596 3.95 
125,001 to 250,000 shares204 0.38 37,073,012 3.64 40 0.04 6,602,885 2.31 
250,001 to 1,250,000 shares273 0.50 148,918,025 14.63 36 0.04 20,609,086 7.21 
1,250,001 to 2,500,00071 0.13 124,513,650 12.23 8 0.01 15,088,234 5.28 
2,500,001 and over68 0.13 515,236,968 50.61 10 0.01 148,524,155 51.98 
ADRs— — 104,131,792 10.23 — — — — 
 
Publicly held shares54,309 100 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    
 
        1,071,681,438          456,815,943    
 
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 
 
1Tinto Holdings Australia Pty Limited171,072,520 37.45 
2National Nominees Limited38,626,816 8.46 
3J P Morgan Nominees Australia Limited36,164,864 7.92 
4Westpac Custodian Nominees Pty Limited33,163,997 7.26 
5Citicorp Nominees Pty Limited10,141,523 2.22 
6ANZ Nominees Limited8,209,196 1.80 
7Cogent Nominees Pty Limited6,320,939 1.38 
8Queensland Investment Corporation6,151,422 1.35 
9HSBC Custody Nominees (Australia) Limited4,006,203 0.88 
10Citicorp Nominees Pty Limited3,186,324 0.70 
11Westpac Financial Services Limited2,552,871 0.56 
12Australian Foundation Investment Company Limited2,438,414 0.53 
13AMP Life Limited2,424,837 0.53 
14UBS Wealth Management Australia Nominees Pty Ltd2,332,068 0.51 
15Citicorp Nominees Pty Limited2,125,342 0.47 
16RBC Dexia Investor Services Australia Nominees Pty Ltd1,793,472 0.39 
17Citicorp Nominees Pty Limited1,397,217 0.31 
18Argo Investments Limited1,298,920 0.28 
19RBC Dexia Investor Services Australia Nominees Pty Ltd1,277,964 0.28 
20Suncorp Custodian Services Pty Limited1,240,193 0.27 
 
    335,925,102 73.55 
 
Notes
1Tinto Holdings Australia Pty Limited is a wholly owned subsidiary of Rio Tinto plc.
2Other 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-F132

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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
Interim30.0 29.5 20.0 19.0 16.5
Final34.0 30.5 39.0 38.5 38.5
Total64.0 60.0 59.0 57.5 55.0
Rio Tinto Group – US cents per share2006 2005 2004 2003 2002 
 
Interim40.0 38.5 32.0 30.0 29.5 
Final64.0 41.5 45.0 34.0 30.5 
Special— 110.0 — — — 
 
Total104.0 190.0 77.0 64.0 60.0 
 
           
Rio Tinto plc – UK pence per share2006 2005 2004 2003 2002 
 
Interim21.42 21.75 17.54 18.45 18.87 
Final32.63 23.35 23.94 18.68 18.60 
Special— 61.89 — — — 
 
Total54.05 106.99 41.48 37.13 37.47 
 
           
Rio Tinto Limited – Australian cents per share2006 2005 2004 2003 2002 
 
Interim52.48 50.56 45.53 45.02 54.06 
Final82.84 54.86 58.29 44.68 51.87 
Special— 145.42 — — — 
 
Total135.32 250.84 103.82 89.70 105.93 
 

Rio Tinto 2006 Form 20-F133
Rio Tinto plc – UK pence per share
 2003 2002 2001 2000 1999
Interim18.45 18.87 14.03 12.66 10.39
Final18.68 18.60 27.65 26.21 23.84
Total37.13 37.47 41.68 38.87 34.23
          
          
Rio Tinto Limited – Australian cents per share       
 2003 2002 2001 2000 1999
Interim45.02 54.06 39.42 32.68 25.64
Final44.68 51.87 75.85 69.76 61.47
Total89.70 105.93 115.27 102.44 87.11
          
          
Rio Tinto plc and        
Rio Tinto Limited – US cents per ADS       
 2003 2002 2001 2000 1999
Interim120 118 80 76 66
Final136 122 156 154 154
Total256 240 236 230 220

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Rio Tinto plc and Rio Tinto Limited – US cents per ADS           
  2006 2005 2004 2003 2002 
 
Interim 160 154 128 120 118 
Final 256 166 180 136 122 
Special — 440 — — — 
 
Total 416 760 308 256 240 
 

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
        
 High Low High Low
19991,495 698 95.13 46.13
20001,478 900 96.56 55.13
20011,475 930 84.10 55.00
20021,492 981 85.93 62.00
20031,543 1,093 111.35 71.70
Aug 20031,407 1,270 90.30 82.30
Sept 20031,420 1,283 93.83 86.41
Oct 20031,474 1,290 100.34 86.85
Nov 20031,461 1,366 100.52 92.82
Dec 20031,543 1,421 111.35 98.50
Jan 20041,574 1,426 116.33 103.95
2002       
First quarter1,492 1,285 85.93 73.90
Second quarter1,411 1,168 81.85 71.99
Third quarter1,261 981 77.31 62.00
Fourth quarter1,324 1,016 83.23 64.00
2003       
First quarter1,298 1,093 83.80 71.70
Second quarter1,272 1,129 85.26 72.30
Third quarter1,420 1,132 93.83 75.31
Fourth quarter1,543 1,290 111.35 86.85

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

 


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 Pence per US$ per 
 Rio Tinto plc share Rio Tinto plc ADS 
 High Low High Low 
 
20021,492 981 85.93 62.00 
20031,543 1,093 111.35 71.70 
20041,574 1,212 119.39 86.42 
20052,657 1,472 183.29 111.57 
20063,322 2,352 253.33 176.09 
 
Aug 20062,807 2,640 216.11 198.01 
Sep 20062,824 2,352 214.50 176.09 
Oct 20062,897 2,401 221.87 178.70 
Nov 20063,015 2,658 231.15 200.67 
Dec 20062,850 2,649 225.93 205.23 
Jan 20072,760 2,505 218.99 193.60 
Feb20072,940 2,686 230.60 208.81 
Mar 20072,902 2,582 228.10 203.68 
Apr 20073,183 2,888 255.30 230.60 
May 20073,675 3,060 296.27 244.73 
 
2005        
First quarter1,851 1,472 142.80 111.57 
Second quarter1,762 1,557 130.75 115.80 
Third quarter2,346 1,724 166.90 122.98 
Fourth quarter2,657 2,073 183.29 148.81 
 
2006        
First quarter2,981 2,588 212.94 176.81 
Second quarter3,322 2,547 253.33 184.05 
Third quarter2,901 2,352 216.11 176.09 
Fourth quarter3,015 2,401 231.15 178.70 
 
2007        
First quarter2,940 2,505 230.60 193.60 
 

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
 High Low High Low
199932.76 18.71 87.00 39.25
200033.54 22.65 87.50 50.00
200138.62 28.40 80.55 54.00
200241.35 29.05 85.24 63.62
200337.54 28.17 112.42 73.85
Aug 200334.31 31.55 88.83 83.19
Sept 200335.31 32.87 94.00 88.34
Oct 200336.59 32.32 101.00 88.22
Nov 200335.96 33.68 102.56 97.52
Dec 200337.54 34.79 112.42 101.11
Jan 200438.41 35.36 118.35 107.75
2002       
First quarter41.35 36.42 85.24 74.96
Second quarter38.63 32.81 82.47 73.71
Third quarter36.00 29.32 81.77 63.62
Fourth quarter34.89 29.05 78.11 63.75
2003       
First quarter35.25 30.69 83.22 73.85
Second quarter33.26 29.21 84.00 74.53
Third quarter35.31 28.17 94.00 76.55
Fourth quarter37.54 32.32 112.42 88.22

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  A$ per 
  Rio Tinto Limited share 
  High Low 
 
200241.35 29.05 
200337.54 28.17 
200440.20 31.98 
200569.10 38.82 
200687.97 65.38 
 
Aug 200676.15 72.05 
Sep 200674.80 65.38 
Oct 200679.77 68.01 
Nov 200682.00 72.57 
Dec 200677.80 72.99 
Jan 200777.45 69.50 
Feb 200780.11 75.48 
Mar 200779.20 72.53 
Apr 200784.89 77.20 
May 200796.36 81.15 
 
2005      
First quarter47.93 38.82 
Second quarter45.90 41.40 
Third quarter60.01 45.12 
Fourth quarter69.10 54.27 
 
2006      
First quarter78.85 67.50 
Second quarter87.97 70.90 
Third quarter78.56 65.38 
Fourth quarter82.00 68.01 
 
2007      
First quarter80.11 69.50 
 

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 termLong term
Standard & Poor’s CorporationA-1A+
Moody’s Investors ServiceP-1Aa3
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


 

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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


76Rio 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.

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     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

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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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•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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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.

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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.

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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,

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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-F144
Quantitative

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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-F145

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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-F146

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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-F147

Back to ContentsCode of ethics

Item 16B.Code 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 submitto 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

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Contents

Item 16E.Page
Primary financial statements
ProfitPurchases of Equity Securities by the Issuer and loss account82
Cash flow statement83
Balance sheet84
Reconciliation with Australian GAAP85
Statement of total recognised gains and losses86
Reconciliation of movements in shareholders’ funds86
Outline of dual listed companies structure and
basis of financial statements87
Notes to the 2003 financial statements
Note 1 – Principal accounting policies88
Profit and loss account
Note 2 – Net operating costs90
Note 3 – Employee costs90
Note 4 – Exceptional items91
Note 5 – Net interest payable and similar charges91
Note 6 – Amortisation of discount91
Note 7 – Taxation charge for the year92
Note 8 – Dividends93
Note 9 – Earnings per ordinary share93
Assets
Note 10 – Goodwill94
Note 11 – Exploration and evaluation94
Note 12 – Property, plant and equipment95
Note 13 – Fixed asset investments96
Note 14 – Net debt of joint ventures and associates97
Note 15 – Inventories98
Note 16 – Accounts receivable and prepayments98
Note 17 – Current asset investments, cash and
liquid resources98
Liabilities
Note 18 – Short term borrowings99
Note 19 – Accounts payable and accruals99
Note 20 – Provisions for liabilities and charges100
Note 21 – Deferred taxation100
Note 22 – Medium and long term borrowings101
Note 23 – Net debt102
Shareholders’ funds
Note 24 – Share capital103
Note 25 – Share premium and reserves105
Additional disclosures
Note 26 – Product analysis106
Note 27 – Geographical analysis108
Note 28 – Financial instruments111
Note 29 – Contingent liabilities and commitments117
Note 30 – Average number of employees117
Note 31 – Principal subsidiaries118
Note 32 – Principal joint venture interests119
Note 33 – Principal associates119
Note 34 – Principal joint arrangements120
Note 35 – Purchases and sales of subsidiaries, joint
                arrangements, joint ventures and associates120
Note 36 – Directors’ remuneration121
Note 37 – Auditors’ remuneration121
Note 38 – Related party transactions122
Note 39 – Exchange rates in US$122
Note 40 – Bougainville Copper Limited (BCL)123
Note 41 – Post retirement benefits123
Note 42 – Parent company balance sheets129
Note 43 – Other parent company disclosures130
Note 44 – Rio Tinto Limited profit and loss account131
Note 45 – Rio Tinto Limited cash flow131
PageAffiliated Purchasers
  
Financial information by business unit132
Australian Corporations Act – summary of ASIC class order relief134
Directors’ Declaration134
Report of the Independent Auditors135

 Rio Tinto plc Rio Tinto Limited   
  
 
    
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 Jan1,965,000 48.41 1,965,000 118,728 53.69 — 528 
1 Feb to 28 Feb4,200,000 48.90 4,200,000 403,712 54.74 — 2,295 
1 Mar to 31 Mar3,710,000 47.06 3,710,000 348,943 52.61 — 2,120 
1 Apr to 30 Apr2,749,659 55.92 1,750,000 1,229,034 60.73 — 2,022 
1 May to 31 May4,750,000 55.54 4,750,000 74,764 63.64 — 1,758 
1 Jun to 30 Jun5,790,000 50.39 5,790,000 61,233 54.73 — 1,467 
1 Jul to 31 Jul4,325,000 51.76 4,325,000 7,611 58.38 — 1,243 
1 Aug to 31 Aug2,775,000 52.11 2,775,000 24,154 51.35 — 1,098 
1 Sep to 30 Sep7,484,059 47.57 7,300,000 253,734 55.48 — 752 
1 Oct to 31 Oct3,675,000 48.61 3,675,000 55,136 58.09 — 3,573 
1 Nov to 30 Nov4,050,000 53.81 4,050,000 17,951 62.53 — 3,355 
1 Dec to 31 Dec2,850,000 54.26 2,850,000 41,832 59.70 — 3,201 
 
Total48,323,718 50.80 47,140,000 2,636,832 57.71 —    
 

 

Rio Tinto 20032006 Annual report and financial statementsForm 20-F81148

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Profit and loss accountYears ended 31 December

     2003   2002 
 Note   US$m   US$m 
 
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)
 
Consolidated turnover    9,228   8,443 
Net operating costs2   (7,732)  (7,612)
 
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 associate35   126   - 
 
Profit on ordinary activities before interest    2,392   1,602 
           
Net interest payable5   (206)  (237)
Amortisation of discount6   (92)  (54)
 
Profit on ordinary activities before taxation    2,094   1,311 
           
Taxation7   (567)  (708)
 
Profit on ordinary activities after taxation    1,527   603 
           
Attributable to outside equity shareholders    (19)  48 
 
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   
 
Net exceptional items4 126  (879)  
 
Adjusted earnings  1,382   1,530   
           
           
Dividends to shareholders8   (882)  (826)
 
Retained profit/(loss) for the financial year    626   (175)
 
Earnings per ordinary share9   109.5c  47.3c
Adjusted earnings per ordinary share9   100.3c  111.2c
           
Dividends per share to Rio Tinto shareholders8         
   - Rio Tinto plc    64.0c  60.0c
   - Rio Tinto Limited    64.0c  60.0c
 
 
2007              
1 Jan to 31 Jan5,185,000 51.12 5,185,000 104,741 57.71 — 2,935 
1 Feb to 28 Feb6,600,000 54.45 6,600,000 231,101 60.82 — 2,576 
1 Mar to 31 Mar6,250,000 52.64 6,250,000 79,472 58.37 — 2,247 
1 Apr to 30 Apr2,150,000 60.99 2,150,000 554,049 69.30 — 2,116 
1 May to 31 May2,850,000 69.66 2,850,000 151,687 77.19 — 1,917 
1 Jun to 8 Jun300,000 73.47 300,000 8,223 80.80 — 1,895 
 
  
(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 
 
Revenues9,228   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 
 
 (7,732)  (7,612)
       
Non operating income/(expenses)      
Gain on sale of fixed asset investments126   - 
Interest expense & amortisation of discount on provisions(228)  (213)
 
Income before income tax, minority interest and equity income1,394   618 
       
Income tax expense(325)  (483)
Minority interest in income of consolidated subsidiaries(19)  48 
Equity income of unconsolidated joint ventures and affiliates458   468 
 
Net income1,508   651 
 
       
Earnings per ordinary share109.5c  47.3c
 
(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.
82Rio Tinto 2003Annual report and financial statements

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Cash flow statementYears ended 31 December      
       
       
     2003  2002  
NoteUS$mUS$m
 
       
Cash inflow from operating activities (see below)  2,888 3,134 
       
Dividends from joint ventures  470 513 
Dividends from associates  128 96 
 
Total cash flow from operations  3,486 3,743 
       
Interest received  30 80 
Interest paid  (231)(264)
Dividends paid to outside shareholders  (76)(117)
 
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 expenditure11 (130)(124)
Sale of property, plant and equipment  19 16 
Net sales/(purchases) of other investments  83 (323)
 
Capital expenditure and financial investment  (1,673)(1,870)
       
Purchase of subsidiaries and joint arrangements35  – (106)
Sale of subsidiaries, joint ventures and associates35 405 233 
 
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 resources23 (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 repaid23 (202)(409)
 
Management of liquid resources and financing  (274)(159)
 
Decrease in cash23 (83)(130)
 
       
       
Cash flow from operating activities      
Group operating profit  1,496 831 
Exceptional charges (all non cash items)  – 1,078 
 
   1,496 1,909 
Depreciation and amortisation2 1,006 954 
Exploration and evaluation charged against profit11 127 130 
Provisions20 154 58 
Utilisation of provisions20 (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 
 
Cash flow from operating activities  2,888 3,134 
 
       
       
Rio Tinto 2003 Annual report and financial statements83

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Balance sheetAt 31 December

2003  2002     2003  2002  
A$mA$mNoteUS$mUS$m
 
           
    Intangible fixed assets      
1,583 1,791 Goodwill10 1,185 1,015 
92 101 Exploration and evaluation11 69 57 
 
1,675 1,892    1,254 1,072 
    Tangible fixed assets      
20,294 21,503 Property, plant and equipment12 15,196 12,183 
           
    Investments      
4,318 5,487 Share of gross assets of joint ventures13 3,233 3,109 
(1,349)(2,097)Share of gross liabilities of joint ventures13 (1,010)(1,188)
 
2,969 3,390    2,223 1,921 
690 1,158 Investments in associates/other investments13 517 656 
 
3,659 4,548 Total investments  2,740 2,577 
 
           
25,628 27,943 Total fixed assets  19,190 15,832 
 
           
    Current assets      
2,381 2,651 Inventories15 1,783 1,502 
    Accounts receivable and prepayments      
2,236 2,820    Falling due within one year16 1,674 1,598 
1,080 1,131    Falling due after more than one year16 809 641 
 
3,316 3,951 Total accounts receivable  2,483 2,239 
307 540 Investments17 230 306 
528 574 Cash17 395 325 
 
6,532 7,716 Total current assets  4,891 4,372 
 
           
    Current liabilities      
(2,930)(5,941)Short term borrowings18 (2,194)(3,366)
(2,858)(3,484)Accounts payable and accruals19 (2,140)(1,974)
 
(5,788)(9,425)Total current liabilities  (4,334)(5,340)
 
           
744 (1,709)Net current assets/(liabilities)  557 (968)
 
           
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 borrowings22 (3,849)(2,708)
(430)(537)Accounts payable and accruals19 (322)(304)
           
(6,058)(6,375)Provisions for liabilities and charges20 (4,536)(3,612)
(1,340)(1,373)Outside shareholders’ interests (equity)  (1,003)(778)
 
13,404 13,169 Net assets  10,037 7,462 
 
           
    Capital and reserves      
    Share capital      
207 272 – Rio Tinto plc24 155 154 
1,449 1,440 – Rio Tinto Limited (excluding Rio Tinto plc interest)24 1,085 816 
2,176 2,842 Share premium account25 1,629 1,610 
446 535 Other reserves25 334 303 
9,126 8,080 Profit and loss account25 6,834 4,579 
 
13,404 13,169 Equity shareholders’ funds  10,037 7,462 
 

(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 SkinnerLeigh CliffordGuy Elliott
ChairmanChief executiveFinance director
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Reconciliation with Australian GAAP31 December

2003  2002    2003  2002  
      A$mA$mUS$mUS$m
 
2,133 2,818 Adjusted earnings reported under UK GAAP1,382 1,530 
194 (1,619)Exceptional items126 (879)
 
         
2,327 1,199 Net earnings under UK GAAP1,508 651 
    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    Other7  3  
 
         
2,077 838 Net earnings attributable to members under Australian GAAP1,346 455 
 
         
150.8c60.9cEarnings per ordinary share under Australian GAAP97.7c33.1c
 

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 
 
13,404 13,169 Shareholders’ funds under UK GAAP10,037 7,462 
    Increase/(decrease) net of tax in respect of:    
1,165 1,843    Goodwill872 1,044 
92 131    Taxation69 74 
626 –     Dividend469 –  
(32)(41)   Other(24)(23)
 
         
15,255 15,102 Shareholders’ funds under Australian GAAP11,423 8,557 
 

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.

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Statement of total recognised gains and lossesYears ended 31 December

 2003 2002 
US$mUS$m
 
Profit for the financial year    
Subsidiaries1,050 183 
Joint ventures360 339 
Associates98 129 
 
 1,508 651 
 
Adjustment on currency translation    
Subsidiaries1,864 560 
Joint ventures53 13 
Associates7 6 
 
 1,924 579 
 
Total recognised gains and losses relating to the financial year    
Subsidiaries2,914 743 
Joint ventures413 352 
Associates105 135 
 
 3,432 1,230 
 

Reconciliation of movements in shareholders’ fundsYears ended 31 December

     
 2003  2002 
US$mUS$m
 
Profit for the financial year1,508 651 
Dividends(882)(826)
 
 626 (175)
Adjustment on currency translation1,924 579 
Share capital issued25 15 
 
 2,575 419 
Opening shareholders’ funds7,462 7,043 
 
Closing shareholders’ funds10,037 7,462 
 

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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 NumberDescription
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)
–3.1provide 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)
3.2DLC 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)
3.3RTZ 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)
3.4CRA 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-F87149

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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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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)
4.02Supplementary 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   Determination4.03Letter 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)
4.04Letter 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.
4.05Service 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   Provisions4.06Memorandum 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)
Both4.07Service 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
4.09Service 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   Inventories4.10Supplemental 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 at4.11Memorandum 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)
4.12Memorandum 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
4.14Service 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 made4.15Memorandum 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)
–4.16Tax 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)
–4.17Deferred 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)
–4.18Deferred 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
4.20Mining 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 benefits4.21Share 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 24,4.22Medical 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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8.1*List of subsidiary companies.
12.1*Certifications pursuant to Rule 13a-14(a) of the Exchange Act.
13.1*Certifications furnished pursuant to Rule 13a-14(b) of the Exchange Act (such certificate is not deemed filed for purpose of Section 18 of the Exchange Act and not incorporated by reference with any filing under the Securities Act).
15.1*Consent of Independent Accountants to the incorporation of the audit report relating to the Rio Tinto Group by reference in registration statements on Form S-8.
15.2*Consent of Independent Accountants to the incorporation of the audit report relating to Minera Escondida Limitada by reference in registration statements on Form S-8.

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NotesSIGNATURE

2Rio Tinto plcNET OPERATING COSTSRio Tinto Limited
       
   2003 2002 
 Note US$m US$m 
 
Raw materials and consumables  2,975 2,591 
Depreciation and amortisation (a)  1,006 954 
Employment costs3 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 evaluation11 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)
 
Net operating costs before exceptional charges  7,732 6,534 
Exceptional charges (a)  – 1,078 
 
   7,732 7,612 
 
(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 LawlessName:EMPLOYEE COSTSAnette Lawless

   2003 2002 
 Note US$m US$m 
 
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 
 
   1,771 1,409 
Less: charged within provisions  (105)(72)
 
   1,666 1,337 
 
(a)Title: SecretaryThe 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 2007Date: 27 June 2007

 

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4EXCEPTIONAL ITEMS

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.

5NET INTEREST PAYABLE AND SIMILAR CHARGES152

    2003 2002 
Note US$m US$m 
 
Interest payable on      
– Bank borrowings  (56)(44)
– Other loans  (153)(189)
 
   (209)(233)
Amounts capitalised  39 22 
 
   (170)(211)
 
Interest receivable and similar income from fixed asset investments      
– Joint ventures  8 10 
– Associates  5 1 
– Other investments  4 9 
 
   17 20 
Other interest receivable  14 30 
 
   31 50 
 
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)
 
Net interest payable  (206)(237)
Amortisation of discount6 (92)(54)
 
Net interest payable and similar charges  (298)(291)
 
(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.

6AMORTISATION OF DISCOUNT

 2003 2002 
 US$m US$m 
 
Subsidiaries(97)(62)
Share of joint ventures(3)(2)
 
 (100)(64)
Amounts capitalised (b)8 10 
 
Amortisation of discount(92)(54)
 
(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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Notes to the 2003 financial statements continued

7TAXATION CHARGE FOR THE YEAR
     
 2003 2002 
 US$m US$m 
 
UK taxation    
Corporation tax at 30%    
– Current99 54 
– Deduct: relief for overseas taxes(96)(63)
 
 3 (9)
– Deferred(7)12 
 
 (4)3 
Australian taxation    
Corporation tax at 30%    
– Current300 345 
– Deferred9 21 
 
 309 366 
Other countries    
– Current47 163 
– Deferred(27)(7)
 
 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)
 
 567 708 
 
(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 taxation2,094 1,311 
 
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 Australia59 56 
Permanently disallowed amortisation/depreciation53 51 
Research, development and other investment allowances(5)(7)
Resource depletion allowances(54)(58)
Other (a)(24)24 
 
 29 66 
Other deferral of taxation    
Capital allowances in excess of other depreciation charges(48)(69)
Other timing differences14 – 
 
Total timing differences related to the current year(34)(69)
 
     
Current taxation charge for the year585 718 
 
     
Deferred tax recognised on timing differences34 27 
Deferred tax impact of changes in tax rates– (14)
Other deferred tax items (b)(52)(23)
 
Total taxation charge for the year567 708 
 
(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).
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8DIVIDENDS
  2003  2002  
US$mUS$m
 
     
Rio Tinto plc Ordinary Interim dividend320 314 
Rio Tinto plc Ordinary Final dividend363 325 
Rio Tinto Limited Ordinary Interim dividend (b)93 92 
Rio Tinto Limited Ordinary Final dividend (b)106 95 
 
 882 826 
 
     
    2003    2002    
NumberNumber
of sharesof shares
(millions)(millions)
 
Rio Tinto plc Interim1,066.1 1,065.4 
Rio Tinto plc Final1,066.7 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 
 
(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.
       
9EARNINGS PER ORDINARY SHARE     
 Note2003 2002 
US$mUS$m
 
Profit for the financial year 1,508 651 
Exceptional items4(126)879 
 
Adjusted earnings (a) 1,382 1,530 
 
Earnings per share 109.5c47.3c
Exceptional items per share (9.2)c63.9c
 
Adjusted earnings per share(a) 100.3c111.2c
 
(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.
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Notes to the 2003 financial statements continued

10GOODWILL
  2003  2002  
US$mUS$m
 
Cost    
At 1 January1,282 1,198 
Adjustment on currency translation260 76 
Additions (note 35)20 8 
 
At 31 December1,562 1,282 
 
Accumulated amortisation    
At 1 January(267)(176)
Adjustment on currency translation(30)(1)
Amortisation for the year(76)(90)
Other movements(4)– 
 
At 31 December(377)(267)
 
     
Net balance sheet amount1,185 1,015 
 
(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.
     
11EXPLORATION AND EVALUATION    
  2003  2002  
US$mUS$m
 
At cost less amounts written off    
At 1 January

694

 678 
Adjustment on currency translation119 25 
Expenditure in year130 124 
Charged against profit for the year(47)(50)
Disposals, transfers and other movements(62)(83)
 
At 31 December834 694 
 
Provision    
At 1 January(637)(623)
Adjustment on currency translation(104)(22)
Charged against profit for the year(80)(80)
Disposals, transfers and other movements56 88 
 
At 31 December(765)(637)
 
     
Net balance sheet amount69 57 
 
(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).
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12PROPERTY, PLANT AND EQUIPMENT
             
   Mining   Land   Plant   Capital   2003   2002   
propertiesandandworks inTotalTotal
and leasesbuildingsequipmentprogressUS$mUS$m
 
Cost            
At 1 January4,002 2,867 14,567 1,891 
23,327
 20,777 
Adjustment on currency translation947 438 2,480 408 4,273 1,261 
Capitalisation of additional closure costs (note 20)167 – – –  167 55 
Other additions124 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 
 
At 31 December5,392 3,523 17,942 1,739 28,596 23,327 
 
             
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)
Disposals47 123 249 –  419 522 
Subsidiaries acquired– – – –  – (34)
Subsidiaries sold67 7 74 – 148 –  
Transfers and other movements (c)17 (53)28 1  (7)9  
 
At 31 December(1,409)(1,540)(10,317)(134)(13,400)(11,144)
 
             
Net balance sheet amount at 31 December 20033,983 1,983 7,625 1,605 15,196   
 
             
Net balance sheet amount at 31 December 20022,926 1,570 5,931 1,756   12,183 
 
(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$4.64).
(h)Details of deferred stripping costs, which have been included in ‘Mining properties and leases’, are set out in the following table:
 2003 2003 2003 2002 2002 2002 
Sub-ShareTotalSub-ShareTotal
sidiariesof joint sidiariesof joint 
 ventures  ventures 
 and  and 
 associates  associates 
US$mUS$mUS$mUS$mUS$mUS$m
   restatedrestatedrestated
 
Carrying values            
At 1 January326 198 524 292 175 467 
Adjustment on currency translation17 3 20 – – – 
Net deferral of stripping costs during year77 32 109 29 27 56 
Other21 (3)18 5 (4)1 
 
Deferred stripping balance carried forward at 31 December441 230 671 326 198 524 
 

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Notes to the 2003 financial statements continued

13FIXED ASSET INVESTMENTS
 Investments   Loans to   Investments   Loans to   2003   2002 
in jointjointin associatesassociatesTotalTotal
venturesventures/other US$mUS$m
 
             
At 1 January1,744 177 580 76 2,577 2,290 
Adjustment on currency translation255 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 
 
At 31 December2,051 172 515 2 2,740 2,577 
 
(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$55 million in relation to the revision to fair values relating to assets held for resale.
(c)The cash flow statement analyses additions to joint ventures and associates between the following:
–‘Funding of Group share of joint ventures’ and associates’ capital expenditure’, which reports cash supplied by the Group for the formation of new operating assets whose benefits will be attributable to the Group, and
–‘Other funding of joint ventures and associates’ which includes any financial investment in joint ventures and associates that does not have the above characteristics, and all loan repayments.
(d)Further details of investments in joint ventures and associates are set out below and in notes 14, 32 and 33.
 2003 2002 
US$mUS$m
 
Joint ventures    
Rio Tinto’s share of assets    
Fixed assets2,768 2,758 
Current assets465 351 
 
 3,233 3,109 
 
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)
 
 (1,010)(1,188)
 
     
Rio Tinto’s share of net assets2,223 1,921 
 
(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.

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13FIXED ASSET INVESTMENTS CONTINUED
 2003 2002 
US$mUS$m
 
Associates    
Rio Tinto’s share of assets    
   Fixed assets
1,083
 
1,512
 
   Current assets327 297 
 
 1,410 1,809 
 
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)
 
 (947)(1,134)
Non-equity capital and outside shareholders’interests(42)(105)
 
Rio Tinto’s share of net assets421 570 
 
(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$216 million after five years.
 2003 2002 
US$mUS$m
 
Investments in and loans to associates/other    
Investments in and loans to associates421 570 
Other investments (a)96 86 
 
 517 656 
 
(a)Other investments include listed investments with a market value of US$92 million (2002: US$70 million). The Group owns 20.3 per cent of the Labrador Iron Ore Royalty Income Fund which itself owns 15.1 per cent of Iron Ore Company of Canada Inc. Further information on the net debt of joint ventures and associates is shown in note 14.
14NET DEBT OF JOINT VENTURES AND ASSOCIATES
 Rio Tinto Rio Tinto Rio Tinto Rio Tinto 
percentageshare ofpercentageshare of
 net debt net debt
2003200320022002
%US$m%US$m
 
Joint Ventures        
Minera Escondida Limitada30.0 414 30.0 464 
P.T. Kaltim Prima Coal– – 50.0 79 
Leichhardt44.7 31 44.7 40 
Colowyo20.0 32 20.0 35 
Warkworth42.1 34 42.1 26 
         
Associates        
Freeport-McMoRan Copper & Gold Inc.13.1 236 16.5 405 
Minera Alumbrera Limited– – 25.0 47 
Tisand (Pty) Limited50.0 121 50.0 62 
Port Waratah Coal Services27.6 114 27.6 103 
Sociedade Mineira de Neves-Corvo SA (Somincor)49.0 37 49.0 28 
Other  (15)  20 
 
   1,004   1,309 
 
(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.

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Notes to the 2003 financial statements continued    
     
     
15 INVENTORIES    
     
  2003  2002  
US$mUS$m
 
Raw materials and purchased components347 347 
Consumable stores290 248 
Work in progress382 245 
Finished goods and goods for resale764 662 
 
 1,783 1,502 
 
Comprising:    
Inventories expected to be sold or used within 12 months1,746 1,463 
Inventories not expected to be sold nor used within 12 months37 39 
 
 1,783 1,502 
 
(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$mUS$m
 
Trade debtors1,266 1,176 
Bills receivable19 17 
Amounts owed by joint ventures– 5 
Amounts owed by associates4 17 
Other debtors261 217 
Current tax recoverable232 62 
Deferred tax assets17 44 
Pension prepayments620 634 
Other prepayments64 67 
 
 2,483 2,239 
 
(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  
NoteUS$mUS$m
 
Liquid resources     
Time deposits 206 85 
Other 2 2 
 
Total liquid resources23208 87 
Deduct: investments qualifying as cash (206)(85)
 
  2 2 
Other current asset investments     
US Treasury bonds 228 304 
 
Investments per balance sheet (unlisted) 230 306 
 
      
Cash     
Cash as defined in FRS 1 Revised (‘FRS 1 cash’)2341 79 
Add back bank borrowings repayable on demand included in FRS 1 cash18148 161 
Investments qualifying as cash 206 85 
 
Cash per balance sheet 395 325 
 
(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.

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18

SHORT TERM BORROWINGS

  2003  2002  
US$mUS$m
 
Secured    
Bank loans repayable within 12 months52 16 
Other loans repayable within 12 months59 90 
 111 106 
 
Unsecured    
Bank borrowings repayable on demand148 161 
Bank loans repayable within 12 months91 62 
Other loans repayable within 12 months157 1,288 
Commercial paper1,687 1,749 
 
 2,083 3,260 
 
Total short term borrowings per balance sheet2,194 3,366 
 
(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$1,100 million would be grouped within non current borrowings at 31 December 2003. Further details of available facilities are given in note 28.
19ACCOUNTS PAYABLE AND ACCRUALS
 2003 2002 
US$mUS$m
 
Due within one year    
Trade creditors737 584 
Amounts owed to joint ventures9 – 
Amounts owed to associates44 23 
Other creditors (a)226 202 
Tax on profits250 371 
Employee entitlements125 121 
Royalties and mining taxes133 130 
Accruals and deferred income123 109 
Dividends payable to outside shareholders of subsidiaries1 4 
Dividends payable to Rio Tinto shareholders492 430 
 
 2,140 1,974 
 
Due in more than one year    
Other creditors (a)194 276 
Accruals and deferred income29 28 
Tax on profits99 – 
 
 322 304 
 
(a)Other creditors’ include deferred consideration of US$219 million (2002: US$287 million) relating to certain assets acquired during 2002. The deferred consideration is included at its net present value. The amortisation of the discount applied in establishing the net present value is treated as a finance cost.
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Notes to the 2003 financial statements continued
20PROVISIONS FOR LIABILITIES AND CHARGES
 Post Other Close down & Other 2003 2002 
 retirement employee restoration/   Total Total 
 health care entitlements environmental   US$m US$m 
 
At 1 January466 240 1,662 194 2,562 2,279 
Adjustment on currency translation20 56 219 40 335 100 
Capitalisation of additional closure costs (note 12)– – 167 – 167 55 
Charged to profit for the year34 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  
 
 498 337 2,092 211 3,138 2,562 
 
Provision for deferred taxation (see note 21)        1,398 1,050 
 
Provisions for liabilities and charges per balance sheet        4,536 3,612 
 
(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$44 million relating to payments received from employees for accommodation at some sites which are refundable in certain circumstances.
21DEFERRED TAXATION
 2003 2002 
US$mUS$m
 
At 1 January1,006 915 
Adjustment on currency translation197 79 
Reported in the STRGL162 13 
Adjustment related to subsidiary sold6  –  
Credited to profit for the year on reversal of timing differences(25)(16)
Other movements (a)35 15 
 
 1,381 1,006 
 
Included in provisions for liabilities and charges1,398 1,050 
Included in accounts receivable(17)(44)
 
 1,381 1,006 
 
(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.
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21DEFERRED TAXATION CONTINUED
 UK Australian Other 2003 2002 
taxtaxcountries’TotalTotal
  taxUS$mUS$m
 
Provided in the accounts          
Deferred tax assets12 311 1,046 1,369 1,491 
Deferred tax liabilities(134)(988)(1,628)(2,750)(2,497)
 
Balance as shown above(122)(677)(582)(1,381)(1,006)
 
Comprising:          
Accelerated capital allowances(6)(630)(938)(1,574)(1,439)
Other timing differences(130)(66)107 (89)225 
Tax losses14 19 249 282 208 
 
Balance as shown above(122)(677)(582)(1,381)(1,006)
 
(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$20 million) of tax losses which have been recognised as deferred tax assets in the accounts.
22MEDIUM AND LONG TERM BORROWINGS
 2003 2002 
US$mUS$m
 
At 1 January5,913 6,252 
Adjustment on currency translation184 70 
Loans drawn down1,817 1,572 
Loan repayments(2,019)(1,981)
 
At 31 December5,895 5,913 
Deduct: short term(2,046)(3,205)
 
Medium and long term borrowings3,849 2,708 
 
Borrowings at 31 December    
Commercial paper1,687 1,749 
 
Bank loans    
Secured150 262 
Unsecured435 203 
 
 585 465 
 
Other loans    
Secured    
   Loans47 90 
   Finance leases119 119 
Unsecured    
   Rio Tinto Canada Inc 6% guaranteed bonds 2003–  300  
   Rio Tinto Finance (USA) Limited Bonds 5.75% 2006500 500 
   Rio Tinto Finance (USA) Limited Bonds 2.625% 2008600 –  
   Rio Tinto Finance (USA) Limited Bonds 6.5% 2003–  200 
   Rio Tinto Finance (USA) Limited Bonds 7.125% 2013100 100 
   Eurobond 2007 (b)781 716 
   European Medium Term Notes (b)837 1,117 
   North Finance (Bermuda) Limited 7% 2005200 200 
   Other unsecured loans439 357 
 
 3,623 3,699 
 
Total5,895 5,913 
 
(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.
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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		   
 
Analysis of changes in consolidated net debt          
At 1 January79 (5,913)87 (5,747)(5,711)
Adjustment on currency translation45 (184)16 (123)(102)
Per cash flow statement(83)202 105 224 66 
 
At 31 December41 (5,895)208 (5,646)(5,747)
 
(a)A reconciliation of these figures to their respective balance sheet categories is shown in note 17.          
           
       2003
US$m		  2002
US$m		 
 
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)
 
Decrease in net debt      224 66 
 
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)
 
Net cash outflow/(inflow)      105 (213)
 
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24   SHARE CAPITAL– RIO TINTO PLC        
         
 2003 2002 2003 2002 
 Number (m) Number (m) US$m US$m 
 
Share capital account        
At 1 January1,065.48 1,064.59 154 154 
Ordinary shares issued1.19 0.89 1 – 
 
At 31 December1,066.67 1,065.48 155 154 
 
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 
 
Total issued share capital    155 154 
 
Unissued share capital        
Ordinary shares of 10p each353.36 354.55 51 52 
Equalisation share of 10p (d)1 only 1 only – – 
 
Total authorised share capital1,420.03 1,420.03 206 206 
 
Options outstanding        
Options outstanding at 1 January9.34 7.93     
– granted2.70 2.61     
– exercised(1.43)(0.89)    
– cancelled(1.00)(0.31)    
 
Options outstanding at 31 December (b)9.61 9.34     
 
(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).
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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 
 
Share capital account        
At 1 January311.38 311.02 816 732 
Adjustment on currency translation    264 79 
Share issues0.24 0.36 5 5 
 
At 31 December311.62 311.38 1,085 816 
 
Share capital held by Rio Tinto plc187.44 187.44     
 
Total share capital (c)499.06 498.82     
 
Options outstanding        
Options outstanding at 1 January4.69 3.08     
– granted1.63 2.25     
– exercised(0.07)(0.21)    
– cancelled(0.25)(0.43)    
 
Options outstanding at 31 December (d)6.00 4.69     
 
(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).
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25SHARE PREMIUM AND RESERVES
      
 2003 2002 
 US$m US$m 
 
Share Premium account    
At 1 January1,610 1,600 
Premium on issues of ordinary shares19 10 
 
At 31 December1,629 1,610 
 
     
 2003 2002 
 US$m US$m 
 
Parent and subsidiary companies’profit and loss account    
At 1 January3,968 3,676 
Adjustment on currency translation (b)1,569 472 
Retained profit/(loss) for the year614 (180)
Transfers and other movements (c)115 – 
 
At 31 December6,266 3,968 
 
     
Joint ventures’profit and loss account    
At 1 January504 531 
Adjustment on currency translation (b)53 13 
Retained profit/(loss) for the year15 (40)
Transfers and other movements (c)(46)– 
 
At 31 December526 504 
 
     
Associates’profit and loss account    
At 1 January107 56 
Adjustment on currency translation (b)7 6 
Retained (loss)/profit for the year(3)45 
Transfers and other movements (c)(69)– 
 
At 31 December42 107 
 
     
Total profit and loss account6,834 4,579 
 
     
Other reserves    
At 1 January303 294 
Adjustment on currency translation (b)31 9 
 
At 31 December334 303 
 
     
Total reserves    
–Parent and subsidiary companies6,585 4,256 
–Joint ventures526 504 
–Associated companies57 122 
 
 7,168 4,882 
 
(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.

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Notes to the 2003 financial statements continued

26PRODUCT ANALYSIS
         
 2003 2002 2003 2002 
 % % US$m US$m 
 
Operating assets(b)        
Copper, gold and by-products18.2 23.0 2,877 3,109 
Iron ore25.0 20.7 3,951 2,803 
Coal14.1 13.9 2,234 1,879 
Aluminium20.6 17.5 3,261 2,365 
Industrial minerals12.9 15.5 2,044 2,100 
Diamonds8.0 7.1 1,261 968 
Other products1.2 2.3 181 320 
 
Total100.0 100.0 15,809 13,544 
Unallocated items    (126)(335)
Less: net debt    (5,646)(5,747)
 
Net assets    10,037 7,462 
 
Gross turnover        
Copper12.7 12.4 1,495 1,348 
Gold (all sources)9.1 9.7 1,068 1,046 
Iron ore18.4 16.4 2,165 1,772 
Coal18.1 20.3 2,125 2,203 
Aluminium15.7 15.4 1,847 1,663 
Industrial minerals15.7 17.5 1,849 1,898 
Diamonds4.7 3.4 556 372 
Other products5.6 4.9 650 526 
 
Total100.0 100.0 11,755 10,828 
 
Profit before tax        
Copper, gold and by-products27.3 19.0 680 536 
Iron ore30.1 24.2 748 680 
Coal10.2 18.5 255 520 
Aluminium11.5 13.0 287 365 
Industrial minerals11.5 19.9 286 559 
Diamonds7.5 3.4 187 96 
Other products1.9 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-products27.1 20.8 429 369 
Iron ore31.6 25.6 500 455 
Coal10.3 17.9 163 318 
Aluminium11.9 14.5 189 257 
Industrial minerals10.0 16.4 159 292 
Diamonds7.0 3.5 111 63 
Other products2.1 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.
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26PRODUCT 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-products1,072 1,027 
Coal1,080 828 
Other71 66 
 
Total2,223 1,921 
 
Gross turnover    
Copper625 419 
Gold283 236 
Coal836 956 
Other76 51 
 
Total1,820 1,662 
 
Profit before tax    
Copper, gold and by-products378 232 
Coal139 285 
Other3 3 
 
 520 520 
Exceptional items– (16)
 
Total520 504 
 
Net earnings    
Copper, gold and by-products256 155 
Coal102 198 
Other2 2 
 
 360 355 
Exceptional items– (16)
 
Total360 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-products362 505 
Other59 65 
 
Total421 570 
 
Gross turnover    
Copper185 259 
Gold411 355 
Other111 109 
 
Total707 723 
 
Profit before tax    
Copper, gold and by-products147 130 
Other33 59 
 
Total180 189 
 
Net earnings    
Copper, gold and by-products77 93 
Other21 36 
 
Total98 129 
 
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Notes to the 2003 financial statements continued        
         
         
27   GEOGRAPHICAL ANALYSIS        
         
By location        
 2003  2002  2003  2002  
%%US$mUS$m
 
Operating assets        
North America30.7 36.5 4,846 4,949 
Australia and New Zealand55.7 47.6 8,799 6,446 
South America4.1 5.2 652 703 
Africa3.6 3.5 577 477 
Indonesia3.5 4.4 554 599 
Europe and other countries2.4 2.8 381 370 
 
Total100.0 100.0 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 America30.3 31.2 3,567 3,377 
Australia and New Zealand43.8 41.6 5,152 4,500 
South America5.8 4.8 682 525 
Africa5.6 7.2 662 783 
Indonesia8.8 9.6 1,037 1,039 
Europe and other countries5.7 5.6 655 604 
 
Total100.0 100.0 11,755 10,828 
 
Profit before tax        
North America18.9 17.1 399 439 
Australia and New Zealand53.7 57.1 1,131 1,464 
South America11.1 3.4 234 86 
Africa3.1 11.8 65 303 
Indonesia16.5 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 America25.2 20.1 363 326 
Australia and New Zealand52.3 57.8 754 939 
South America10.8 4.0 156 65 
Africa0.8 7.1 12 115 
Indonesia12.6 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.
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27   GEOGRAPHICAL ANALYSIS CONTINUED    
     
By location    
The Group figures shown on page 108 include the following amounts for joint ventures:    
 2003 2002 
US$mUS$m
 
Net investment    
Australia and New Zealand1,108 834 
South America552 498 
Indonesia523 567 
Other40 22 
 
Total2,223 1,921 
 
Turnover by country of origin    
Australia and New Zealand550 587 
South America502 283 
Indonesia539 565 
Other229 227 
 
Total1,820 1,662 
 
Profit before tax    
Australia and New Zealand57 214 
South America183 49 
Indonesia241 231 
Other39 26 
 
 520 520 
Exceptional items– (16)
 
Total520 504 
 
Net earnings    
Australia and New Zealand46 151 
South America122 32 
Indonesia155 149 
Other37 23 
 
 360 355 
Exceptional items– (16)
 
Total360 339 
 
     
     
By location    
The Group figures shown on page 108 include the following amounts for associates:    
  2003  2002  
US$mUS$m
 
Net investment    
North America53 71 
Indonesia143 127 
Other225 372 
 
Total421 570 
 
Turnover by country of origin    
North America155 131 
Indonesia344 306 
Other208 286 
 
Total707 723 
 
Profit before tax    
North America67 42 
Indonesia72 54 
Other41 93 
 
Total180 189 
 
Net earnings    
North America49 33 
Indonesia23 19 
Other26 77 
 
Total98 129 
 
     
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Notes to the 2003 financial statements continued        
         
         
27   GEOGRAPHICAL ANALYSIS CONTINUED        
         
By destination        
 2003  2002  2003  2002  
%%US$mUS$m
 
Turnover by destination        
North America25.7 29.0 3,024 3,143 
Europe23.3 21.6 2,742 2,340 
Japan18.0 17.9 2,119 1,943 
Other Asia21.5 19.2 2,527 2,083 
Australia and New Zealand7.2 8.2 845 887 
Other4.3 4.1 498 432 
 
Total100.0 100.0 11,755 10,828 
 
         
         
The Group figures shown above include the following amounts for joint ventures:        
          2003  2002  
US$mUS$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$mUS$m
 
Turnover by destination        
North America    172 157 
Europe    220 248 
Other    315 318 
 
Total    707 723 
 
         
110Rio Tinto 2003 Annual report and financial statements

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28FINANCIAL 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 
currencycurrencyaverage fair
amountamountexchange value
  rate  
Buy Australian dollar: sell US dollarA$m US$m A$/US$ US$m US$m 
 
Less than 1 year257 156 0.61 32   
1 to 5 years657 399 0.61 56   
More than 5 years111 67 0.60 7   
 
Total1,025 622 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 dollarNZ$m US$m NZ$/US$ US$m   
 
Less than 1 year130 65 0.50 19   
1 to 5 years485 220 0.45 69   
More than 5 years260 117 0.45 29   
 
Total875 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 year18 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 
 

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Notes to the 2003 financial statements continued
28FINANCIAL 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$57 million of these sold puts were knocked out and the remainder were knocked out in January 2004.
 Buy    Sell    Weighted    Fair    Total 
currencycurrencyaveragevaluefair
amountamountstrike value
  rate  
Bought A$ call optionsA$m US$m A$/US$ US$m US$m 
 
Less than 1 year94 66 0.70 4   
1 to 5 years340 239 0.70 13   
 
Total434 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            
currencycurrencyaverageaveragevalue
amountamountstrike ratebarrier 
   rate 
Sold ‘knock out’ A$ put optionsA$m US$m A$/US$ A$/US$ US$m   
 
Less than 1 year76 54 0.70 0.77 (1)  
1 to 5 years275 194 0.70 0.77 (6)  
 
Total351 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 
currencycurrencyaveragevaluefair
amountamountexchange 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 
currencycurrencyaveragevalue (a)fair
amountamountexchange value
 US$m rate US$m
 
Less than myearEuro 40m 46 0.88 5   
1 to 5 yearsEuro 975m 934 1.04 292   
 
      980 1.04 297   
 
Buy Japanese yen: sell US dollars            
 
1 to 5 yearsYen 21 billion 177 119 20   
 
              
Buy sterling: sell US dollars            
 
1 to 5 years  £175m251 0.70 61   
 
              
Buy Swiss francs: sell US dollars            
 
1 to 5 years  CHF70m48 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. 

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28FINANCIAL 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 
 
 United Other 2003 United Other 2002 
StatescurrenciesTotalStatescurrenciesTotal
dollar  dollar  
US$mUS$mUS$mUS$mUS$mUS$m
 
Functional currency of business unit:            
United States dollar– 30 30 – 32 32 
Australian dollar385 (16)369 346 35 381 
Canadian dollar51 (1)50 56 – 56 
South African rand47 6 53 105 26 131 
Other currencies20 15 35 28 (1)27 
 
Total503 34 537 535 92 627 
 
             
The table below shows the Rio Tinto share of the above currency exposures after tax and outside interests:
             
 Currency of exposure Currency of exposure 
 
 United Other 2003 United Other 2002 
StatescurrenciesTotalStatescurrenciesTotal
dollar  dollar  
US$mUS$mUS$mUS$mUS$mUS$m
 
Functional currency of business unit:            
United States dollar– 20 20 – 22 22 
Australian dollar251 (11)240 224 24 248 
Canadian dollar19 (1)18 21 – 21 
South African rand16 2 18 37 9   
Other currencies14 9 23 17 (1)16 
             
Total300 19 319 299 54 353 
 
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     
UnitedAustralianSterlingSouthOtherTotalTotal
Statesdollar Africancurrenciescarryingcarrying
dollar  rand valuevalue
US$mUS$mUS$mUS$mUS$mUS$mUS$m
 
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)
 
 (5,601)(339)(15)(233)(74)(6,262)(6,361)
Financial assets(f)              
Fixed rate239 – – – – 239 304 
Floating rate (including loans to joint ventures and associates)368 92 21 3   571 580 
 
 (4,994)(247)6 (230)13 (5,452)(5,477)
 
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)
 
Net debt(note 23)          (5,646)(5,747)
 

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Notes to the 2003 financial statements continued

28FINANCIAL 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 
MaturityUS$m % p.a. US$m US$m % p.a. US$m 
 
Less than 1 year– – – 621 5.4 (17)
1 to 5 years1,350 4.6 (33)750 6.1 (66)
More than 5 years100 7.2 (17)100 7.2 (18)
 
US$ fixed rate liabilities1,450 4.8 (50)1,471 5.9 (101)
 
Less than 1 year46 2.3 – 
–
 – 
–
 
1 to 5 years1,220 4.5 (62)1,068 4.7 (46)
 
Non US dollar fixed rate liabilities (a)1,266 4.4 (62)1,068 4.7 (46)
 
Fixed rate liabilities before interest rate swaps2,716   (112)2,539   (147)
 
             
Interest rate swapsPrincipal Average 2003 Principal Average 2002 
   fixed Fair   fixed Fair 
   rate value(i)   rate value 
MaturityUS$m % p.a. US$m US$m  % p.a. US$m  
 
Less than 1 year– – – 321 4.7 9 
1 to 5 years1,050 5.1 41 750 6.1 74 
 
Interest rate swaps to US$ floating rates1,050 5.1 41 1,071 5.7 83 
 
Less than 1 year46 2.3 – 
–
 – 
–
 
1 to 5 years1,220 4.5 55 1,068 4.7 48 
 
Interest rate swaps from non US$ fixed rates to US$ floating rates (a)1,266 4.4 55 1,068 4.7 48 
 
Less than 1 year20 7.5 (1)
–
 – 
–
 
1 to 5 years225 7.0 (19)245 7.1 (28)
More than 5 years76 5.6 (8)40 5.6 (9)
 
Interest rate swaps to US$ fixed rates (b)321 6.7 (28)285 6.9 (37)
 
Interest rate swaps (net impact)1,995   68 1,854   94 
 
             
Total fixed rate financial liabilities after interest rate swaps(b), (d)721   (44)685   (53)
 
(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 
 
Less than 1 year239 1.0 (1)304 1.7 4
 
Total fixed rate financial assets239 1.0 (1)304 1.7 4 
 
(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.

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28FINANCIAL INSTRUMENTS CONTINUED
      
C)Commodities    
The Group’s material commodity derivatives are itemised below:2003 2002 
  Fair value Fair value 
  US$m US$m 
 
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)
 
Fair value not recognised(22)3 
 
      
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 
 
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)
 
  (6,262)(6,361)
Financial assets    
 Within 1 year, or on demand670 668 
 Between 1 and 2 years10 10 
 Between 2 and 3 years14 10 
 Between 3 and 4 years15 14 
 Between 4 and 5 years14 14 
 After 5 years87 168 
 
Total per currency/interest rate analysis(5,452)(5,477)
 

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 
 
Unutilised standby credit facilities    
Within 1 year1,650 1,050 
Between 1 and 2 years– 1,650 
After 2 years1,100 100 
 
 2,750 2,800 
 

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115

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Notes to the 2003 financial statements continued

28FINANCIAL 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 
 
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)
 
  (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 
 
  (5,354)(5,062)(5,415)(5,533)
 
Less: mark to market provision at acquisition/other provisions47   60   
‘other’ financial assets(145)  (122)  
 
Total per liquidity analysis(5,452)  (5,477)  
 
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 
 
Unrecognised gains and losses on hedges at 1 January202 (177)25 (349)
Gains and losses arising in previous years recognised in the year(61)26 (35)88 
 
Gains and losses arising before 1 January that were not recognised in the year141 (151)(10)(261)
Gains and losses arising in the year that were not recognised in the year330 85 415 286 
 
Unrecognised gains and losses on hedges at 31 December471 (66)405 25 
 
Of which:        
Gains and losses expected to be recognised within one year161 (18)143 35 
Gains and losses expected to be recognised in more than one year310 (48)262 (10)
 
 471 (66)405 25 
 

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29CONTINGENT LIABILITIES AND COMMITMENTS

  
2003
US$m
  
2002
US$m
 
 
Commitments    
Contracted capital expenditure at 31 December612 350 
Operating lease commitments131 102 
Other commitments67 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
 
 
Within 1 year268 209 
Between 1 and 2 years278 213 
Between 2 and 3 years275 215 
Between 3 and 4 years243 187 
Between 4 and 5 years234 193 
After 5 years1,712 1,522 
 
 3,010 2,539 
 

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.

30AVERAGE 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 
 
The principal locations of employment were:            
Australia and New Zealand9,274 8,721 983 995 10,257 9,716 
North America8,478 8,906 1,034 873 9,512 9,779 
Africa5,661 6,012 422 450 6,083 6,462 
Europe3,059 2,765 386 433 3,445 3,198 
South America1,794 1,708 773 940 2,567 2,648 
Indonesia569 908 3,234 4,154 3,803 5,062 
Other countries205 150 144 158 349 308 
 
 29,040 29,170 6,976 8,003 36,016 37,173 
 
(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.
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Notes to the 2003 financial statements continued

31PRINCIPAL SUBSIDIARIES
At 31 December 2003       
        
Company and country of incorporationPrincipal activities
Class of
shares held
 
Proportion
of class held
 
Group
interest
 
    % % 
 
Australia       
Argyle Diamond Mines (g)Mining and processing of diamonds(g)    100 
Coal & Allied Industries LimitedCoal miningOrdinary 75.71 75.71 
Comalco LimitedBauxite mining; alumina production;Ordinary 100 100 
 primary aluminium smelting      
Dampier Salt LimitedSalt productionOrdinary 64.94 64.94 
Energy Resources of Australia LimitedUranium miningClass A 68.39 68.39 
Hamersley Iron Pty LimitedIron ore miningOrdinary 100 100 
Rio Tinto Coal Australia Pty LimitedCoal miningOrdinary 100 100 
 
Brazil       
Rio Paracatu Mineração S.A.Gold miningCommon 51 51 
Mineração Serra da Fortaleza LimitadaNickel miningCommon 99.9 99.9 
 
Canada       
Iron Ore Company of Canada Inc (c)Iron ore mining; iron ore pelletsSeries A & E 58.72 58.72 
QIT-Fer et Titane IncTitanium dioxide feedstock; high purityCommon shares 100 100 
 iron and steelPreferred shares 100 100 
 
France       
Talc de Luzenac S.A.Mining, refining and marketing of talcE 15.25 99.94 99.94 
 
Indonesia       
P.T. Kelian Equatorial MiningGold miningOrdinary US$1 90 90 
 
Namibia       
Rössing Uranium Limited (d)Uranium mining‘B’N$1 71.16)68.58 
  ‘C’N10c 70.59)  
 
Papua New Guinea       
Bougainville Copper Limited (e)Copper and gold miningOrdinary 1 Kina 53.58 53.58 
 
South Africa       
Palabora Mining Company LimitedCopper mining, smelting and refiningR1  75.2 49.2 
Richards Bay Iron and Titanium (Pty) LimitedTitanium dioxide feedstock; high purity ironR1  50.5 50 
 
Sweden       
Zinkgruvan ABZinc, lead and silver miningOrdinary 100 100 
 
United Kingdom       
Anglesey Aluminium Metal LimitedAluminium smeltingOrdinary £1 51 51 
 
United States of America       
Kennecott Holdings CorporationCopper and gold mining, smeltingCommon US$0.01 100 100 
(including Kennecott Utah Copper,and refining, land development      
Kennecott Minerals and Kennecott       
Land Company)       
Kennecott Energy and Coal CompanyCoal miningCommon US$1 100 100 
U.S. Borax Inc.Mining, refining and marketing of boratesCommon US$1 100 100 
 
Zimbabwe       
Rio Tinto Zimbabwe LimitedGold mining and metal refiningOrdinary Z40c 56.04 56.04 
 
(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.
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32PRINCIPAL JOINT VENTURE INTERESTS
At 31 December 2003
Name and country of incorporation/operation
Principal activities
Class of
shares held
Group
interest
Australia
Blair Athol CoalCoal mining(b)71.2
KestrelCoal mining(b)80.0
Hail CreekCoal mining(b)92.0
Mount ThorleyCoal mining(b)60.6
BengallaCoal mining(b)30.3
WarkworthCoal mining(b)42.1
Chile
Minera Escondida LimitadaCopper mining and refining30
Indonesia
Grasberg expansionCopper and gold mining(b)40
United States of America
DeckerCoal mining(b)50.0
Greens CreekSilver, gold, zinc and lead mining(b)70.3
RawhideGold mining(b)51.0

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.

33PRINCIPAL 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
%
 
 
Papua New Guinea         
Lihir Gold Limited (d)Gold mining185,758,126 Ordinary Kina 0.1 14.49 14.49 
 
Portugal         
Sociedade Mineira de Neves-Corvo S.A. (Somincor)Copper mining7,178,500 E 5  49 49 
 
South Africa         
Tisand (Pty) LimitedRutile and zircon mining7,353,675 R1  49.5 50 
 
United States of America         
CortezGold mining  (b)    40.0 
Freeport-McMoRan Copper & Gold Inc. (d)Copper and gold mining in Indonesia23,931,100  Class ‘B’ Common US$0.10 13.1 13.1  
          
 
The references above are explained at the foot of note 34.        
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Notes to the 2003 financial statements continued        
          
          
34 PRINCIPAL JOINT ARRANGEMENTS         
          
At 31 December 2003         
Name and country of incorporation/operationPrincipal activitiesNumber of Class of Proportion Group 
  shares heldshares heldof class heldinterest
  by the Group %%
 
Australia         
Boyne Smelters LimitedAluminium smelting153,679,560 Ordinary 59.4 59.4 
Gladstone Power StationPower generation  (b)   42.1 
Northparkes MineCopper/gold mining and processing  (b)   80 
Queensland Alumina LimitedAlumina production854,078 Ordinary 38.6 38.6 
Robe River Iron AssociatesIron ore mining  (b)   53 
HIsmelt®KwinanaIron technology  (b)   60 
Bao-HI Ranges Joint VentureIron ore mining  (b)   50 
 
Canada         
DiavikMining and processing of diamonds  (b)   60 
 
New Zealand         
New Zealand Aluminium Smelters LimitedAluminium smelting24,998,400 Ordinary 79.36 79.36 
 
(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.

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36 DIRECTORS’ REMUNERATION    
     
Aggregate remuneration of the directors of the parent companies was as follows:    
 2003 2002 
US$’000US$’000
 
Emoluments9,571 9,541 
Long term incentive plans3,278 8,443 
 
 12,849 17,984 
 
Pension contributions424 65 
 
Gains made on exercise of share options2,029 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$mUS$m
 
Group Auditors’ remuneration    
Audit services    
   Statutory audit5.2 4.1 
   Audit-related regulatory reporting0.5 0.5 
Further assurance services0.1 – 
Tax services (d)2.5 2.3 
Other Services    
   Financial information technology0.1 – 
   Internal audit (e)0.1 0.3 
   Other services not covered above1.6 1.5 
 
 10.1 8.7 
Remuneration payable to other accounting firms    
   Statutory audit0.4 0.3 
   Tax services2.5 0.8 
   Internal audit2.3 1.0 
   Other services6.9 3.7 
 
 12.1 5.8 
 
 22.2 14.5 
 
(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.
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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 20022003 2002
 
Sterling1.63 1.50 1.78 1.60 
Australian dollar0.65 0.54 0.75 0.57 
Canadian dollar0.71 0.64 0.77 0.63 
South African rand0.13 0.09 0.15 0.12 
 
(a)The Australian dollar exchange rates, given above, are based on the Hedge Settlement Rate set by the Australian Financial Markets Association.
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40BOUGAINVILLE 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.

41POST 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) 
 
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 pensions2.8% 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 pensions2.3% 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 – 
 
(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.

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Notes to the 2003 financial statements continued

41POST RETIREMENT BENEFITS CONTINUED

Profit and loss account – effect of pension costs, pre tax and minorities

 2003 2002 
 US$m US$m 
 
Regular cost(102)(98)
Variation cost(90)(2)
Interest on prepayment under SSAP 2442 46 
 
Net post retirement cost(150)(54)
 

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 
 
Prepayment under SSAP 24620 634 
Provisions(77)(44)
 
Net post retirement asset543 590 
 

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 
 
Regular cost(9)(8)
Amortisation4 6 
Interest(29)(23)
 
Net post retirement cost(34)(25)
 
     
Balance sheet – effect of post retirement healthcare liabilities, pre tax and minorities    
 2003 2002 
 US$m US$m 
 
Provisions(498)(466)
 
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41POST 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) 
 
Main assumptions for FRS 17 purposes          
At 31 December 2003          
Rate of increase in salaries4.8% 4.0% 4.0% 4.0% 6.5% 
Rate of increase in pensions2.8% 2.5% – – 4.5% 
Discount rate5.4% 6.0% 5.9% 6.1% 9.0% 
Inflation2.8% 2.5% 2.5% 2.3% 4.5% 
           
At 31 December 2002          
Rate of increase in salaries4.8% 4.0% 3.2% 3.7% 10.5% 
Rate of increase in pensions2.3% 2.5% – – 7.0% 
Discount rate5.6% 6.2% 6.2% 6.5% 11.5% 
Inflation2.3% 2.5% 2.2% 2.2% 7.0% 
           
At 31 December 2001          
Rate of increase in salaries5.5% 4.0% 3.5% 4.0% 10.5% 
Rate of increase in pensions2.5% 2.5% – – 5.8% 
Discount rate6.0% 6.5% 7.0% 7.0% 11.5% 
Inflation2.5% 2.5% 2.5% 2.5% 5.8% 
 

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) 
 
Long term rate of return expected at 31 December 2003          
Equities7.8% 7.0% 7.5% 7.3% 9.5% 
Fixed interest bonds5.0% 5.1% 5.4% 5.2% 8.5% 
Index linked bonds5.0% 5.1% 5.4% 5.2% 8.5% 
Other4.6% 5.1% 5.1% 3.3% 5.6% 
           
Long term rate of return expected at 31 December 2002          
Equities7.3% 7.0% 7.2% 7.2% 12.5% 
Fixed interest bonds5.0% 5.5% 5.6% 6.0% 11.0% 
Index linked bonds5.0% 5.5% 5.6% 6.0% 11.0% 
Other4.6% 5.9% 6.4% 5.0% 10.2% 
           
Long term rate of return expected at 31 December 2001          
Equities7.5% 7.0% 7.5% 7.5% 12.5% 
Fixed interest bonds5.5% 6.0% 6.5% 6.5% 11.0% 
Index linked bonds5.5% 6.0% 6.5% 6.5% 11.0% 
Other5.3% 6.3% 6.8% 5.1% 9.7% 
 
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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$mUS$mUS$mUS$mUS$mUS$m
 
Value at 31 December 2003            
Equities1,094 646 401 451 82 2,674 
Fixed interest bonds300 229 126 193 15 863 
Index linked bonds127 7 12 44 – 190 
Other54 88 74 21 97 334 
 
 1,575 970 613 709 194 4,061 
 
Value at 31 December 2002            
Equities823 377 342 271 93 1,906 
Fixed interest bonds294 160 139 148 18 759 
Index linked bonds95 5 11 32 – 143 
Other60 65 39 64 190 418 
 
 1,272 607 531 515 301 3,226 
 
Value at 31 December 2001            
Equities965 416 441 375 161 2,358 
Fixed interest bonds244 132 122 153 45 696 
Index linked bonds81 5 13 36 – 135 
Other66 64 56 17 30 233 
 
 1,356 617 632 581 236 3,422 
 
Employer contributions made during 2003*6 45 4 43 5 103 
Employer contributions made during 2002*– 10 4 15 4 33 
 
*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.
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41 POST RETIREMENT BENEFITS CONTINUED

Surpluses/(deficits) in the plans
The following amounts were measured in accordance with FRS 17:

At 31 December 2003UK Australia US Canada Other Healthcare Total 
 US$mUS$mUS$mUS$mUS$mUS$mUS$m
 
Total market value of plan assets1,575 970 613 709 194 – 4,061 
Present value of plan liabilities(1,477)(963)(768)(877)(213)(561)(4,859)
 
Surplus/(deficit) in the plans98 7 (155)(168)(19)(561)(798)
 
Related deferred tax            123 
Related outside shareholders’ interest            92 
 
Net post retirement liability            (583)
 
Surplus/(deficit) in the plans comprises:              
Surplus121 7 12 2 – – 142 
Deficit(23)– (167)(170)(19)(561)(940)
 
 98 7 (155)(168)(19)(561)(798)
 
               
At 31 December 2002UK Australia US Canada Other Healthcare Total 
 US$mUS$mUS$mUS$mUS$mUS$mUS$m
 
Total market value of plan assets1,272 607 531 515 301 – 3,226 
Present value of plan liabilities(1,178)(594)(721)(670)(312)(417)(3,892)
 
Surplus/(deficit) in the plans94 13 (190)(155)(11)(417)(666)
 
Related deferred tax            113 
Related outside shareholders’ interest            47 
 
Net post retirement liability            (506)
 
Surplus/(deficit) in the plans comprises:              
Surplus108 13 45 2 – – 168 
Deficit(14)– (235)(157)(11)(417)(834)
 
               
 94 13 (190)(155)(11)(417)(666)
 

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$mUS$m
 
Shareholders’ funds including SSAP 24 post retirement net asset10,037 7,462 
Deduct: SSAP 24 post retirement net asset67 96 
 
Shareholders’ funds excluding SSAP 24 post retirement net asset9,970 7,366 
Add: FRS 17 post retirement net liability(583)(506)
 
Shareholders’ funds including FRS 17 post retirement net liability9,387 6,860 
 

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 
PensionOtherTotalTotal
benefitsbenefitsUS$mUS$m
 
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 STRGL54 (104)(50)(719)
 
Net post retirement deficit at 31 December(237)(561)(798)(666)
 
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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   
PensionOtherTotalTotal
benefitsbenefitsUS$mUS$m
 
Employer current service cost(110)(12)(122)(103)
Past service cost(7)– (7)(11)
Curtailment and settlement cost– 3 3 (2)
 
Total operating charge(117)(9)(126)(116)
 

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   
PensionOtherTotalTotal
benefitsbenefitsUS$mUS$m
 
Expected return on pension scheme assets213 – 213 254 
Interest on post retirement liabilities(215)(28)(243)(231)
 
Net return(2)(28)(30)23 
 

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 
 
Difference between the expected and actual return on plan assets:    
Amount (US$m)354 (599)
As a percentage of plan assets9%–19%
 
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%
 
Change in assumptions:    
Amount (US$m)(286)(148)
 
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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42PARENT COMPANY BALANCE SHEETS
   Rio Tinto plc (a) Rio Tinto Limited (b) 
 
As at 31 December  2003 2002 2003 2002 
 Note US$m US$m A$m A$m 
 
Fixed assets/non current assets          
Investments43 3,590 4,777 8,586 8,159 
Deferred taxation (d)43 – – 392 18 
 
   3,590 4,777 8,978 8,177 
 
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 – – 
 
   2,552 1,539 1,284 2,573 
 
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)
 
   (1,126)(642)(643)(309)
 
Net current assets  1,426 897 641 2,264 
 
Total assets less current liabilities  5,016 5,674 9,619 10,441 
 
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)
 
Net assets  4,970 5,630 3,835 3,508 
 
Capital and reserves          
Called up share capital43 155 154 1,711 1,703 
Share premium account43 1,629 1,610 – – 
Other reserves43 211 211 536 536 
Profit and loss account43 2,975 3,655 1,588 1,269 
 
Shareholders’ funds  4,970 5,630 3,835 3,508 
 
           
(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
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Notes to the 2003 financial statements continued

43OTHER PARENT COMPANY DISCLOSURES
 Rio Tinto plc (a) Rio Tinto Limited (b) 
 
 2003 2002 2003 2002 
 US$m US$m A$m A$m 
 
Fixed asset investments        
Shares in Group companies and, for Rio Tinto Limited, other investments:        
At 1 January2,235 2,235 2,586 2,528 
Additions– – 126 58 
 
At 31 December2,235 2,235 2,712 2,586 
 
Loans to Group companies:        
At 1 January2,542 2,767 5,573 6,274 
(Repayments)/advances(1,187)(225)301 (701)
 
At 31 December1,355 2,542 5,874 5,573 
 
Total3,590 4,777 8,586 8,159 
 
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)– 
 
At 31 December (relating to timing differences)(46)(44)(585)23 
 
Share capital account        
At 1 January154 154 1,703 1,693 
Issue of shares1 – 8 10 
 
At 31 December155 154 1,711 1,703 
 
Share premium account        
At 1 January1,610 1,600     
Premium on issues of ordinary shares19 10     
 
At 31 December1,629 1,610     
 
Other reserves        
At 1 January and 31 December211 211 536 536 
 
Profit and loss account        
At 1 January3,655 4,252 1,269 793 
Retained (loss)/profit for year(680)(597)319 476 
 
At 31 December2,975 3,655 1,588 1,269 
 
Contingent liabilities        
Bank and other performance guarantees5,300 4,545 5,527 5,033 
 
         
(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.
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44RIO TINTO LIMITED PROFIT AND LOSS ACCOUNT
 Rio Tinto Limited (a) 
 
 2003 2002 
 A$m A$m 
 
Dividend income593 1,270 
(Increase)/decrease in provision against carrying value of investments177 (42)
Other operating costs(42)(45)
 
Operating profit728 1,183 
Interest receivable and similar charges126 173 
Interest payable and similar charges(38)(63)
 
Profit on ordinary activities before taxation816 1,293 
Taxation(14)(20)
 
Retained profit for the financial year802 1,273 
 
(a)Prepared under Australian GAAP (see note (b) on page 129).
45RIO TINTO LIMITED CASH FLOW STATEMENT
 Rio Tinto Limited (a)  
 
 2003 2002 
 A$m A$m 
 
Operating profit728 1,183 
Provisions(177)42 
 
Cash flow from operating activities551 1,225 
Interest received125 172 
Interest paid(59)(62)
 
Returns on investment and servicing of finance66 110 
Taxation(80)2 
Funding of related parties repaid/(advanced)2,266 (26)
Funding of other entities repaid15 6 
 
Capital expenditure and financial investment2,281 (20)
Purchase of investments(17)(103)
Sale of investments– 4 
 
Acquisitions less disposals(17)(99)
Equity dividends paid to Rio Tinto Limited shareholders(742)(917)
Cash inflow before management of liquid resources and financing2,059 301 
Ordinary shares in Rio Tinto Limited issued for cash7 10 
Loans (repaid) less received(2,066)(311)
 
Management of liquid resources and financing(2,059)(301)
 
     
 
Increase in cash– – 
 
(a)Prepared under Australian GAAP (see note (b) on page 129).
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Financial information by business unit

   Gross turnover (a) EBITDA (b) Net earnings (c) 
 
 Rio Tinto Interest 2003 2002 2003 2002 2003 2002 
 % US$m US$m US$ US$m US$m US$m 
 
Iron Ore              
Hamersley (inc. HIsmelt®)100.0 1,329 1,117 711 676 424 401 
Robe River53.0 374 240 213 160 68 54 
Iron Ore Company of Canada58.7 442 400 47 25 7 (3)
 
   2,145 1,757 971 861 499 452 
 
Energy              
Kennecott Energy100.0 955 949 236 267 88 90 
Rio Tinto Coal Australia100.0 433 417 157 233 70 134 
Kaltim Prima Coal(d) 142 216 74 79 31 26 
Coal & Allied75.7 597 623 52 207 (24)68 
Rössing68.6 86 112 (33)50 (19)23 
Energy Resources of Australia68.4 131 113 58 50 11 12 
 
   2,344 2,430 544 886 157 353 
 
Industrial Minerals  1,801 1,847 465 717 154 286 
 
Aluminium(e) 1,936 1,662 488 510 200 256 
 
Copper              
Kennecott Utah Copper100.0 722 755 230 236 88 86 
Escondida30.0 502 283 284 121 122 32 
Freeport13.1 344 306 169 139 23 19 
Freeport joint venture40.0 397 349 225 215 104 113 
Palabora49.2 206 201 20 53 1 12 
Kennecott Minerals100.0 239 205 122 93 60 38 
Rio Tinto Brasil(f) 139 115 48 40 48 16 
Other Copper(d) 176 254 51 100 (6)25 
 
   2,725 2,468 1,149 997 440 341 
 
Diamonds              
Argyle100.0 434 372 198 175 72 63 
Diavik60.0 122 – 106 – 41 – 
 
   556 372 304 175 113 63 
 
               
Other operations  184 208 77 81 21 25 
               
 
Product group total  11,691 10,744 3,998 4,227 1,584 1,776 
 
Other items  64 84 (233)(137)(45)(42)
Exploration and evaluation      (127)(130)(98)(109)
Net interest          (59)(95)
 
Adjusted earnings          1,382 1,530 
Exceptional items      126 (116)126 (879)
 
Total  11,755 10,828 3,764 3,844 1,508 651 
 
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)    
 
Profit on ordinary activities before interest and tax      2,392 1,602     
 
(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’.
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 Capital expenditure (j) Depreciation & Operating assets (l) Employees (m) 
     amortisation (k)           
 
 2003 2002 2003 2002 2003 2002 2003 2002 
 US$m US$m US$m US$m US$m US$m Number Number 
 
Iron Ore                
Hamersley (inc. HIsmelt®)298 79 110 94 1,543 923 2,169 2,006 
Robe River75 81 74 50 1,852 1,409 478 496 
Iron Ore Company of Canada37 39 29 35 489 416 1,884 1,936 
 
 410 199 213 179 3,884 2,748 4,531 4,438 
 
Energy                
Kennecott Energy168 152 105 128 561 486 1,776 1,710 
Rio Tinto Coal Australia92 126 52 37 649 406 755 679 
Kaltim Prima Coal2 5 16 21 – 46 2,108 2,760 
Coal & Allied34 58 91 69 787 626 1,338 1,375 
Rössing4 5 7 5 46 48 810 786 
Energy Resources of Australia5 4 30 23 178 140 238 262 
 
 305 350 301 283 2,221 1,752 7,025 7,572 
 
Industrial Minerals139 133 172 158 2,038 2,063 6,581 6,723 
 
Aluminium436 269 169 137 3,258 2,365 4,223 3,929 
 
Copper                
Kennecott Utah Copper83 97 92 129 1,277 1,378 1,406 1,596 
Escondida45 117 79 52 492 449 722 704 
Freeport33 23 54 50 144 128 1,165 1,445 
Freeport joint venture60 55 43 40 417 412     
Palabora66 64 17 13 426 287 2,043 2,176 
Kennecott Minerals9 21 42 43 136 155 672 763 
Rio Tinto Brasil19 14 (18)11 138 91 1,393 1,320 
Other Copper63 60 52 73 335 443 931 1,266 
 
 378 451 361 411 3,365 3,343 8,332 9,270 
 
Diamonds                
Argyle22 31 76 76 600 488 750 751 
Diavik78 206 34 – 674 484 298 250 
 
 100 237 110 76 1,274 972 1,048 1,001 
 
Other operations4 6 37 36 98 114 2,228 2,789 
                 
 
Product group total1,772 1,645 1,363 1,280 16,138 13,357 33,968 35,722 
 
Other items17 13 9 7 (455)(148)2,048 1,451 
Less: Joint ventures and associates (j) (k)(181)(241)(366)(333)        
 
Total1,608 1,417 1,006 954 15,683 13,209 36,016 37,173 
 
Less: net debt        (5,646)(5,747)    
 
Net assets        10,037 7,462     
 
(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.
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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 SkinnerLeigh CliffordGuy Elliott
ChairmanChief executiveFinance director
20 February 200420 February 200420 February 2004
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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 LLPPricewaterhouseCoopers
Chartered Accountants and Registered AuditorsChartered Accountants
London, United KingdomPerth, Australia
20 February 200420 February 2004
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Summary financial data in Australian dollars, sterling and US dollars

2003  2002  2003  2002    2003 2002 
A$mA$m£m£mUS$mUS$m
 
18,143 19,945 7,198 7,219 Gross turnover (including share of11,755 10,828 
        joint ventures and associates)    
             
3,232 2,415 1,282 874 Profit on ordinary activities before taxation2,094 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 
             
169.0c87.1c67.1p31.5pEarnings per ordinary share109.5c47.3c
154.8c204.7c61.4p74.1pAdjusted earnings per ordinary share (a)100.3c111.2c
             
        Dividends per share to Rio Tinto shareholders    
    37.13p37.47p–Rio Tinto plc64.0c60.0c
89.70c105.93c    –Rio Tinto Limited64.0c60.0c
 
5,380 6,896 2,135 2,496 Total cash flow from operations3,486 3,743 
             
(2,582)(3,444)(1,024)(1,246)Capital expenditure and financial investment(1,673)(1,870)
 
(7,540)(10,144)(3,170)(3,586)Net debt(5,646)(5,747)
             
13,404 13,169 5,636 4,656 Equity shareholders’funds10,037 7,462 
 
(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.
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Supplementary information for United States investors

RECONCILIATION WITH US GAAP2003 2002 
US$mUS$m
 
Net earnings under UK GAAP1,508 651 
Increase/(decrease) before tax in respect of:    
Amortisation of goodwill – subsidiaries and joint arrangements76 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 GAAP1,019 240 
Mark to market of certain derivative contracts287 157 
Adjustments to asset carrying values(32)(89)
Pensions/post retirement benefits59 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)
 
Income before cumulative effect of change in accounting principle2,155 581 
Cumulative effect of change in accounting principle for close down and restoration costs(178)– 
 
     
Net income under US GAAP1,977 581 
 
     
Basic earnings per ordinary share under US GAAP    
Before cumulative effect of change in accounting principle156.4c42.2c
After cumulative effect of change in accounting principle143.5c42.2c
 
Diluted earnings per ordinary share under US GAAP    
Before cumulative effect of change in accounting principle156.2c42.1c
After cumulative effect of change in accounting principle143.3c42.1c
 
     
 
Shareholders’ funds under UK GAAP10,037 7,462 
Increase/(decrease) before tax in respect of:    
Goodwill – subsidiaries and joint arrangements1,198 1,065 
Goodwill – equity accounted companies352 352 
Intangibles – subsidiaries and joint arrangements240 271 
Intangibles – equity accounted companies42 49 
Mark to market of derivative contracts381 (54)
Adjustments to asset carrying values505 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 costs53 287 
Start up costs(156)(110)
Proposed dividends469 430 
Other(111)(18)
Tax effect of above adjustments(102)(60)
Deferred tax on acquisitions:    
   Impact on mining property831 825 
   Impact on tax provisions(831)(825)
Other tax adjustments69 74 
Outside shareholders’ interests in the above adjustments(78)(101)
 
Shareholders’ funds under US GAAP12,044 9,517 
 

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.

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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.

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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.

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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$mUS$m
 
Net cash flow from operating activities2,292 2,720 
Net cash flow from investing activities(1,268)(1,743)
Net cash flow from financing activities(954)(1,151)
Increase/(decrease) in cash and cash equivalents per US GAAP70 (174)
Decrease in cash per UK GAAP(83)(130)
Decrease/(increase) in non qualifying liquid resources for US GAAP120 (27)
Increase/(decrease) in bank borrowings repayable on demand included in cash under UK GAAP33 (17)
Increase/(decrease) in cash and cash equivalents per US GAAP70 (174)
Cash per balance sheet under UK GAAP395 325 
Qualifying liquid resources less non qualifying deposits(36)(45)
Cash and cash equivalents under US GAAP359 280 
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$mUS$m
 
At 1 January(1,014)(1,436)
Movement in period1,301 422 
At 31 December287 (1,014)
 
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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 bookholdingholdingvalueunrealised
valuegainslosses holding
    gains
US$mUS$mUS$mUS$mUS$m
 
At 1 January 200370 5 (5)70 – 
Change in unrealised holding gains/(losses)– 14 (1)13 13 
Additions and other movements9 – – 9 – 
 
At 31 December 200379 19 (6)92 13 
 

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 lessin OCIin retained
liabilities earnings
US$mUS$m US$m 
 
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 
 
On balance sheet at 31 December 2003267 88 179 
 
(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$18 million of liabilities.
DEFERRED TAX CREDIT/(CHARGE)    
 2003 2002 
US$mUS$m
 
The credit/(charge) for deferred taxation arises as follows:    
– accelerated capital allowances(83)186 
– pension prepayments48 11 
– provisions(24)6 
– provision against AMT credits and US tax losses50 (228)
– other timing differences34 41 
 
 25 16 
 
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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$mUS$m
 
Profit and loss account:    
Sales revenue7,078 6,622 
Cost of sales(4,652)(4,384)
 
Operating profit2,426 2,238 
Net interest(317)(377)
 
Profit before tax2,109 1,861 
Taxation(714)(579)
Profit attributable to outside shareholders(48)(36)
 
Net profit on ordinary activities (100 per cent basis)1,347 1,246 
 
     
Balance sheet:    
Intangible fixed assets64 194 
Tangible fixed assets11,406 12,086 
Investments78 166 
Working capital775 593 
Net cash less current debt319 (835)
 
 12,642 12,204 
Long term debt(5,066)(5,406)
Provisions(1,462)(1,658)
Outside shareholders’ interests(321)(290)
 
Aggregate shareholders’ funds (100 per cent basis)5,793 4,850 
 
     
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 yearstripping ratio
 
 2003 2002 2003 2002 
 
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.

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ADDITIONAL SHARE CAPITAL INFORMATION  Rio Tinto plcRio Tinto plc   Rio Tinto plc 
Share SavingsExecutive ShareShare Option
PlanOption SchemePlan
 
   Weighted   Weighted   Weighted 
   average   average   average 
   exercise   exercise   exercise 
   price   price   price 
 Number £ Number £ Number £ 
 
Options outstanding at 1 January 20032,079,845 8.14 62,000 8.49 7,186,254 11.35 
Granted390,518 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 
 
Options outstanding at 31 December 20031,920,430 8.61 23,000 8.61 7,662,925 11.93 
 
             
    Rio Tinto Limited Rio Tinto Limited 
Share Savings PlanShare Option Plan
 
     Number Weighted
average
exercise
price
A$		 Number Weighted
average
exercise
price
A$		 
 
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 
 
Options outstanding at 31 December 2003    2,385,453 26.71 3,602,137 33.58 
 

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$mUS$m
 
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 
 
      (567)(708)
 
Property, plant and equipment by location         
  2003 2002 2003 2002 
%%US$mUS$m
 
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 
 
  100.0 100.0 15,196 12,183 
 

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.

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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 
 
Equities45%-85% 65%65%
Debt securities15%-45% 30%27%
Real estate– 5%3%
Other0%-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 costYear end benefit obligation
Discount rate5.8% to 12.0% (Average: 6.7%)5.4% to 9.5% (Average: 5.9%)
Long term rate of return on plan assets6.5% to 12.0% (Average: 7.2%)6.3% to 11.0% (Average: 6.6%)
Increase in compensation levels3.3% 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:

CostYear end benefit obligation

Discount rate

6.5% (2002: 6.5%)6.1% (2002: 6.5%)
Healthcare cost trend rate8.0% reducing to 5.0% by11.2% reducing to 4.7% by
2009 (2002: 8.5% reducing2011 (2002: 8.0% reducing
to 5.0% by 2009)to 5.0% by 2009)
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Components of net benefit expense        
 Pension benefits Other benefits 
 
 2003 2002 2003 2002 
 US$m US$m US$m US$m 
 
Defined benefit plans        
Service cost(123)(97)(9)(7)
Interest cost on benefit obligation(210)(207)(28)(25)
Expected return on plan assets252 258 – – 
Net amortisation and deferral:        
– transitional obligation10 10 – – 
– recognised (losses)/gains(6)10 5 8 
– prior service cost recognised(23)(22)1 1 
 
Total net amortisation and deferral(19)(2)6 9 
 
Net periodic benefit cost(100)(48)(31)(23)
Curtailment (charge)/credit– (8)3 (2)
 
Net benefit expense(100)(56)(28)(25)
 
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 
 
 2003 2002 2003 2002 
 US$m US$m US$m US$m 
 
Benefit obligation at end of year (see below)(4,161)(3,366)(563)(437)
Fair value of plan assets3,835 3,166 – – 
 
Benefit obligations in excess of plan assets(326)(200)(563)(437)
Unrecognised prior service cost144 159 (2)(2)
Unrecognised net loss/(gain)622 464 54 (40)
Unrecognised transitional asset(11)(29)– – 
Company contributions in fourth quarter29 7 5 – 
 
Net amount recognised at end of year458 401 (506)(479)
 
Comprising:        
– benefit prepayment414 346 – – 
– benefit provision(409)(319)(506)(479)
– intangible asset53 53 – – 
 
 58 80 (506)(479)
– amount recognised through accumulated other comprehensive income400 321 – – 
 
Net amount recognised in retained earnings458 401 (506)(479)
 
 2003 2002     
 US$m US$m     
 
Change in additional minimum liability before tax        
Accrued pension benefit expense79 221     
Increase in intangible asset– (21)    
 
Other comprehensive income before tax79 200     
 
 Pension benefits Other benefits 
 
 2003 2002 2003 2002 
 US$m US$m US$m US$m 
 
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 paid260 195 18 16 
Benefits bought out191 – – – 
Plan amendments(7)(16)5 (2)
Settlement, curtailment and other gain/(loss)10 – 3 – 
Currency and other adjustments(348)(225)(22)(9)
 
Benefit obligation at end of year(4,161)(3,366)(563)(437)
 
Rio Tinto 2003 Annual report and financial statements145

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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 
 
 2003 2002 2003 2002 
 US$m US$m US$m US$m 
 
Change in plan assets        
Fair value of plan assets at start of year3,166 3,188 – – 
Actual return/(loss) on plan assets689 (150)– – 
Contributions by plan participants26 9 – – 
Contributions by employer92 30 18 16 
Benefits paid(260)(195)(18)(16)
Benefits bought out(191)– – – 
Settlement, curtailment and other gain/(loss)(19)– – – 
Currency and other adjustments332 284 – – 
 
Fair value of plan assets at end of year3,835 3,166 – – 
 
Sensitivity to change in healthcare trend        
Changing the healthcare cost trend rates by 1% would result in the following effects:        
 1% increase 1% decrease 
 
 2003 2002 2003 2002 
 US$m US$m US$m US$m 
 
(Increase)/decrease in service cost plus interest cost(5)(5)4 4 
(Increase)/decrease in benefit obligation at 30 September(68)(48)60 40 
 

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.

146Rio Tinto 2003 Annual report and financial statements

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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  
   
 
 
  
 
   Tonnage Grade Tonnage Grade   Tonnage   Grade    SEC  JORC  
           
 
   Interest  Recover- Recover- 
           SEC JORC SEC JORC   % able able 
           2003 2003 2003 2003     metal metal 
 
   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 pitO/P 22.8 0.62 422 0.57 445 557 0.57 0.51 89 100.0 2.253 2.542 
– underground block caveU/G         – 321 – 0.70 91 100.0 – 2.022 
– underground skarn oresU/G         – 13.5 – 1.89 93 100.0 – 0.236 
Escondida (Chile)                          
– sulphideO/P 636 1.45 700 1.04 1,337 1,482 1.24 1.21 86 30.0 4.214 4.615 
– low grade floatO/P 103 0.63 227 0.63 330 565 0.63 0.60 81 30.0 0.501 0.827 
– oxideO/P 130 0.76 34.5 0.60 164 185 0.72 0.69 88 30.0 0.314 0.334 
– mixedO/P     31.0 1.36 31.0 50.0 1.36 1.04 39 30.0 0.049 0.061 
 
Total of operations listed above                      7.331 10.637 
 
Total of all Rio Tinto copper                          
operations                      20.209 23.514 
 
                           
   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 pitO/P 22.8 0.40 422 0.37 445 557 0.37 0.33 66 100.0 3.494 3.834 
– underground block caveU/G         – 321 – 0.27 68 100.0 – 1.856 
– underground skarn oresU/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 
 
Total of operations listed above                     6.009 8.475 
 
Total of all Rio Tinto gold                          
operations                      31.192 33.658 
 
   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 
 
Total of operations listed above                     0.123 0.146 
 
Total of all Rio Tinto lead                          
operations                      0.533 0.556 
 
                           
   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 pitO/P 22.8 0.038 422 0.042 445 557 0.041 0.037 55 100.0 0.102 0.114 
– underground block caveU/G         – 321 – 0.035 48 100.0 – 0.054 
 
Total of operations listed above                     0.102 0.168 
 
Total of all Rio Tinto                          
molybdenum operations                      0.102 0.168 
 
                           
   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 pitO/P 22.8 3.49 422 2.95 445 557 2.97 2.72 80 100.0 33.929 38.908 
– underground block caveU/G         – 321 – 2.69 71 100.0 – 19.682 
– underground skarn oresU/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 
 
Total of operations listed above                     84.081 118.260 
 
Total of all Rio Tinto silver                          
operations                      184.705 218.884 
 
                           
   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 
 
Total of operations listed above                     0.364 0.444 
Total of all Rio Tinto zinc                          
operations                      1.230 1.310 
 
(a)Likely mining method: O/P = open pit; U/G = underground.
Rio Tinto 2003 Annual report and financial statements147

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Financial summary 1993 – 2003

                       
US$m1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 
 
Consolidated turnover8,795 7,755 8,140 6,901 7,436 7,112 7,197 7,875 8,152 8,443 9,228 
 
Share of equity accounted entities1,079 961 1,194 1,808 1,998 2,109 2,113 2,097 2,286 2,385 2,527 
 
Gross turnover9,874 8,716 9,334 8,709 9,434 9,221 9,310 9,972 10,438 10,828 11,755 
 
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 
 
Exceptional items (b)(340)25 (215)– – (443)– – (715)(1,094)126 
 
Finance charges(113)(81)(59)(108)(184)(240)(298)(403)(404)(291)(298)
 
Profit before tax1,019 1,763 2,210 1,779 2,072 1,508 2,031 2,509 1,983 1,311 2,094 
 
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 
 
Tax (excl. exceptional items)(487)(496)(818)(566)(668)(664)(548)(819)(850)(750)(567)
 
Tax–exceptional items (b)229 29 60 – – 40 – – 132 42 – 
 
Outside shareholders’interests                      
including exceptional items (b)(81)(109)(189)(143)(184)(184)(201)(183)(186)48 (19)
 
Profit attributable to Rio Tinto680 1,187 1,263 1,070 1,220 700 1,282 1,507 1,079 651 1,508 
 
Adjusted earnings(a)791 1,133 1,418 1,070 1,220 1,103 1,282 1,507 1,662 1,530 1,382 
 
Earnings per share(d)49.0c85.0c90.5c76.5c87.1c50.4c93.6c109.8c78.5c47.3c109.5c
 
Adjusted earnings per share(a)57.0c81.3c101.6c76.5c87.1c79.4c93.6c109.8c120.9c111.2c100.3c
 
Dividends per share                      
 
Rio Tinto shareholders (US cents)n/a n/a n/a 51.00c52.00c52.00c55.00c57.50c59.00c60.00c64.00c
 
Rio Tinto plc (pence)20.50p27.50p31.50p31.71p31.92p31.99p34.23p38.87p41.68p37.47p37.13p
 
Rio Tinto Limited (Aus. cents) (d)65.12c55.81c60.47c65.05c75.94c83.52c87.11c102.44c115.27c105.93c89.70c
 
Net assets                      
 
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 
 
Investments (l)1,236 1,332 1,687 2,109 2,442 2,183 1,840 1,802 2,290 2,881 2,968 
 
Other assets less liabilities1,404 1,458 1,325 1,578 1,440 1,235 1,293 1,380 1,896 1,463 1,804 
 
Provisions(2,227)(2,593)(2,657)(2,795)(2,749)(2,790)(2,887)(3,299)(3,194)(3,612)(4,536)
 
Outside shareholders’interests(506)(653)(695)(770)(717)(673)(715)(864)(827)(778)(1,003)
 
Net debt(1,339)(1,349)(1,483)(2,546)(2,839)(3,258)(2,429)(5,050)(5,711)(5,747)(5,646)
 
Rio Tinto shareholders’funds5,791 6,746 6,737 7,258 6,911 6,286 6,963 7,211 7,043 7,462 10,037 
 
Capital expenditure(e)(693)(1,428)(1,345)(1,738)(1,638)(1,180)(771)(798)(1,405)(1,417)(1,608)
 
Acquisitions(1,431)(228)(532)(119)(112)(492)(326)(3,332)(958)(106)– 
 
Disposals1,951 628 432 107 393 3 47 141 299 233 405 
 
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 
 
Cash flow before financing(g)1,118 (23)(170)(784)(335)(37)825 (2,291)(590)29 191 
 
Ratios                      
 
Operating margin (h)15%21%27%22%24%24%25%29%30%25%19%
 
Net debt to total capital (i)18%15%17%24%27%32%24%38%42%41%34%
 
Adj. earnings: shareholders’funds (j)14%18%21%15%17%17%19%21%23%21%16%
 
Interest cover (k)17 26 30 17 15 12 12 11 11 13 11 
 
(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).
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Rio Tinto share ownershipAs at 6 February 2004

RIO TINTO PLC
Number of
shares
 
 
    
Percentage
of issued
share
capital
 
 
 
1 BNY (Nominees) Limited83,265,180 7.80 
2 Chase Nominees Limited54,818,722 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) Limited20,001,650 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 Limited15,096,818 1.41 
10 Chase Nominees Limited <BGILIFEL>13,839,987 1.29 
11 Nortust Nominees Limited13,226,673 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 Limited11,004,862 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 
 
   415,007,248 38.89 
 
RIO TINTO LIMITED
Number of
shares
 
Percentage
of issued
share
capital
 
 
1 Tinto Holdings Australia Pty Limited187,439,520 37.56 
2 JP Morgan Nominees Australia Limited57,318,055 11.49 
3 Westpac Custodian Nominees Limited46,285,925 9.27 
4 National Nominees Limited43,912,622 8.80 
5 Citicorp Nominees Pty Limited10,521,110 2.11 
6 Anz Nominees Limited8,865,088 1.78 
7 HSBC Custody Nominees (Australia) Limited7,137,052 1.43 
8 Queensland Investment Corporation6,620,543 1.33 
9 AMP Life Limited5,416,783 1.09 
10 Cogent Nominees Pty Limited4,347,544 0.87 
11 RBC Global Services Australia Nominees Pty Limited4,069,687 0.82 
12 RBC Global Services Australia2,710,975 0.54 
13 Citicorp Nominees Pty Limited2,626,730 0.53 
14 NRMA Nominees Pty Limited2,263,174 0.45 
15 Westpac Financial Services Limited1,976,866 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 Limited1,468,371 0.29 
20 Citicorp Nominees Pty Limited1,460,818 0.29 
   399,078,622 79.96 

Analysis of ordinary shareholdersAs at 6 February 2004

       Rio Tinto plc     Rio Tinto Limited 
 
 No of  %  Shares  %  No of  %  Shares  %  
accounts   accounts   
 
1 to 1,000 shares44,038 65.82 19,269,104 1.81 49,677 75.71 19,912,429 3.99 
1,001 to 5,000 shares18,982 28.37 38,653,410 3.62 13,844 21.10 27,256,302 5.46 
5,001 to 10,000 shares1,689 2.52 11,663,939 1.09 1,275 1.94 8,866,405 1.78 
10,001 to 25,000 shares861 1.29 13,496,406 1.26 543 0.83 8,008,168 1.60 
25,001 to 125,000 shares708 1.06 40,445,924 3.79 178 0.27 8,967,650 1.80 
125,001 to 250,000 shares213 0.32 38,435,214 3.60 37 0.06 6,559,141 1.31 
250,001 to 1,250,000 shares274 0.41 149,640,877 14.02 37 0.06 19,469,996 3.90 
1,250,001 to 2,500,00074 0.11 130,178,420 12.20 7 0.01 11,806,988 2.37 
2,500,001 and over67 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 
 
 66,906 100 1,067,364,277 100 65,611 100 499,059,812 100 
 
Number of holdings less than marketable parcel of A$500      1,642       
Rio Tinto 2003 Annual report and financial statements149

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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 earningsAn 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 ADSAn American Depositary Share representing the right to receive four Rio Tinto Limited shares.
Rio Tinto Limited groupRio 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 AgreementShareholder 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.

150Rio 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-F153

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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 statements151

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Definitions continued
Also known as coking coal.
Mineral resourceMaterial 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 reserveThat 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-F154

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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.

152Rio Tinto 2003 Annual report and financial statements
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Conversion of weights1 troy ounce = 31.1 grams
and measures1 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  
 endrate   endrate  
 
 
2004 (through 6 February)1.84 1.82 1.85 1.78 2004 (through 6 February) 0.769 0.769 0.780 0.751 
20031.78 1.63 1.79 1.55 2003 0.749 0.648 0.752 0.562 
20021.61 1.50 1.61 1.41 2002 0.563 0.544 0.575 0.506 
20011.45 1.44 1.50 1.37 2001 0.512 0.517 0.571 0.483 
20001.49 1.52 1.65 1.40 2000 0.556 0.579 0.672 0.511 
19991.62 1.62 1.67 1.55 1999 0.656 0.645 0.668 0.610 
19981.66 1.66 1.72 1.61 1998 0.612 0.629 0.687 0.555 
19971.64 1.64 1.70 1.58 1997 0.652 0.744 0.798 0.649 
 
 
Pounds sterling             Australian dollars             
Year ended 31 December Period Average High Low Year ended 31 December Period Average High Low 
   end rate          end rate       
 
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 
 
                    
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-F153155

Back to Contents2006 Financial statements

Financial calendarCONTENTS

Page
2 February 2004Primary financial statementsAnnouncement
Group income statementA-2
Group cash flow statementA-3
Group balance sheetA-4
Group statement of results for 2003recognised income and expense (SORIE)A-5
Reconciliation with Australian IFRSA-5
Outline of dual listed companies structure and basis of financial statementsA-6
  
10 March 2004Notes to the 2006 financial statementsRio Tinto plc and Rio Tinto Limited shares and ADRs quoted “ex-dividend” for 2003 final dividend
Note 1 - Principal accounting policiesA-7
  
12 March 2004Group income statementRecord date for 2003 final dividend for Rio Tinto plc shares
Note 2 -Reconciliation of net earnings to underlying earningsA-17
Note 3 -Net operating costsA-18
Note 4 -Employment costsA-18
Note 5 -Impairment reversals and ADRschargesA-19
Note 6 -Share of profit after tax of equity accounted unitsA-19
Note 7 -Interest receivable and payableA-20
Note 8 -Tax on profitA-20
Note 9 -Earnings per ordinary shareA-21
Note 10 -DividendsA-22
  
Group balance sheet
Note 11 -GoodwillA-23
Note 12-Intangible assetsA-24
Note 13 -Property, plant and equipmentA-25
Note 14 -Investments in equity accounted unitsA-26
Note 15 -Net debt of equity accounted units (excluding amounts due to Rio Tinto)A-27
Note 16 March 2004-Record date for 2003 final dividend for Rio Tinto Limited sharesInventoriesA-27
Note 17 -Trade and ADRsother receivablesA-31
Note 18 -Deferred taxationA-28
Note 19 -Other financial assetsA-29
Note 20 -Cash and cash equivalentsA-29
Note 21 -BorrowingsA-30
Note 22 -Capitalised finance leasesA-30
Note 23 -Consolidated net debtA-30
Note 24 -Trade and other payablesA-31
Note 25 -Other financial liabilitiesA-31
Note 26 -Provisions (not including taxation)A-32
  
16 March 2004Capital and reservesPlan notice date for election under the dividend reinvestment plan for the 2003 final dividend
Note 27 -Share capital – Rio Tinto plcA-33
Note 28 -Share capital– Rio Tinto LimitedA-34
Note 29 -Changes in equity, share premium and reservesA-35
  
6 April 2004Additional disclosuresPayment date for 2003 final dividend
Note 30 -Primary segmental analysis (by product group)A-37
Note 31 -Secondary segmental analysis (by geographical segment)A-40
Note 32 -Financial instrumentsA-41
Note 33 -Contingent liabilities and commitmentsA-50
Note 34 -Average number of employeesA-51
Note 35 -Principal subsidiariesA-52
Note 36 -Principal jointly controlled entitiesA-53
Note 37 -Principal associatesA-53
Note 38 -Principal jointly controlled assets and other proportionally consolidated unitsA-54
Note 39 -Sales and purchases of subsidiaries, joint ventures, associates and other interests in businessesA-55
Note 40 -Directors’ and key management remunerationA-56
Note 41 -Auditors’ remunerationA-57
Note 42 -Related party transactionsA-58
Note 43 -Exchange rates in US$A-58
Note 44 -Bougainville Copper Limited (BCL)A-58
Note 45 -Share based paymentsA-59
Note 46 -Post retirement benefitsA-63
Note 47 -Financial information by business unitA-67
Note 48 -Reconciliation to US Accounting PrinciplesA-69
  
7 April 2004Australian Corporations Act - Summary of ASIC reliefPayment date for 2003 final dividend for holders of ADRsA-87
  
7 April 2004Report of Independent Registered Public Accounting FirmsAnnual general meeting Rio Tinto plc
22 April 2004Annual general meeting Rio Tinto Limited
29 July 2004Announcement of half year results for 2004
11 August 2004Rio Tinto plc and Rio Tinto Limited shares and ADRs quoted “ex-dividend” for 2004 interim dividend
13 August 2004Record date for 2004 interim dividend for Rio Tinto plc shares and ADRs
17 August 2004Record date for 2004 interim dividend for Rio Tinto Limited shares and ADRs
19 August 2004Plan notice date for election under the dividend reinvestment plan for the 2004 interim dividend
10 September 2004Payment date for 2004 interim dividend
13 September 2004Payment date for 2004 interim dividend for holders of ADRs
February 2005Announcement of results for 2004A-88

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.

154Rio Tinto 2003 Annual report and financial statements

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Useful addresses

ShareholdersLow cost share dealing service &
Please contact the respective registrar if youIndividual Savings Account (ISA)
have any queries about your shareholding.(for Rio Tinto plc shareholders only)
Rio Tinto plcStocktrade
Computershare Investor Services PLCP O Box 1076
P O Box 8210 George Street
The PavilionsEdinburgh EH2 2PZ
Bridgwater Road
Bristol BS99 7NHLow cost share dealing service
Telephone: +44 (0) 131 240 0101
Telephone: +44 (0) 870 702 0000UK residents only: 0845 840 1532
Facsimile: +44 (0) 870 703 6119Website: www.stocktrade.co.uk
UK residents only,
Freephone: 0800 435021Individual Savings Account (ISA)
Website: www.computershare.comTelephone: +44 (0) 131 240 0623
Website: www.stocktrade.co.uk
Rio Tinto Limited
Computershare Investor Services Pty. LimitedRegistered offices
GPO Box 2975Rio Tinto plc
Melbourne6 St James’s Square
Victoria 3000London SW1Y 4LD
Registered in England
Until 19 March 2004No. 719885
Telephone: +61 (0) 3 9615 5970
Facsimile: +61 (0) 3 9611 5710Telephone: +44 (0) 20 7930 2399
Facsimile: +44 (0) 20 7930 3249
After 19 March 2004Website: www.riotinto.com
Telephone: +61 (0) 3 9415 4030
Facsimile: +61 (0) 3 9473 2500Rio Tinto Limited
Level 33
The toll free number for Australian residents55 Collins Street
remains the same,Melbourne, Victoria 3000
Toll free 1 800 813 292ACN: 004 458 404
Website: www.computershare.com
Telephone: +61 (0) 3 9283 3333
Holders of American DepositaryFacsimile: +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 statements155

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 LLPPricewaterhouseCoopers
Chartered Accountants and Registered AuditorsChartered Accountants
London, EnglandPerth, Australia
20 February 200420 February 2004
In respect of the members of Rio Tinto plcIn respect of the members of Rio Tinto Limited

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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 Grouppart of Rio Tinto Group Rio Tinto Group
2003   2002   20012003   2002   20012003   2002   2001
Note  US$mUS$mUS$mUS$mUS$mUS$mUS$mUS$mUS$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)
   
 
 
 
 
 
 
 
 
 
  Consolidated turnover4,032 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)
   
 
 
 
 
 
 
 
 
 
  Group operating profit368 (19)137 1,128 855 1,425 1,496 831 1,562 
  Share of operating profit of :                  
  Joint ventures419 258 268 117 274 286 536 532 554 
  Associates678 671 794 20 51 34 234 239 217 
  Profit on disposal of interests in subsidiary, joint                  
    ventures and associate47 - 54 126 - - 126  - 54 
   
 
 
 
 
 
 
 
 
 
  Profit on ordinary activities before interest1,512 910 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)
   
 
 
 
 
 
 
 
 
 
  Profit on ordinary activities before taxation1,305 715 983 1,255 1,033 1,536 2,094 1,311 1,983 
7 Taxation(341)(442)(378)(360)(423)(522)(567)(708)(718)
   
 
 
 
 
 
 
 
 
 
  Profit on ordinary activities after taxation964 273 605 895 610 1,014 1,527 603 1,265 
  Attributable to outside shareholders(8)(78)(114)(11)126 (72)(19)48 (186)
   
 
 
 
 
 
 
 
 
 
                     
  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  -  
   
 
 
 
 
 
 
 
 
 
    47 (739)(551)126 (225)(52)126 (879)(583)
  Adjusted Earnings909 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)
   
 
 
 
 
 
 
 
 
 
  Retained profit/(loss) for the financial year273 (444)(137)564 437 648 626 (175)267 
   
 
 
 
 
 
 
 
 
 
9 Earnings per ordinary share (US cents)89.7c 18.3c 46.1c177.2c 147.6c 189.0c109.5c47.3c78.5c
9 Adjusted earnings per ordinary share (US cents)85.3c 87.7c 97.9c151.9c 192.7c 199.4c100.3c111.2c120.9c
    Dividends per share                  
8 –– Rio Tinto plc (pence)37.13p37.47p41.68p      37.13p37.47p41.68p
8 –– Rio Tinto Limited (Australian cents)      89.70c105.93c115.27c89.70c105.93c115.27c
                     
(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 
 
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 charges5 396 3 (558)
Profits less losses on disposal of interests in businesses39 5 322 1,180 
 
Operating profit 8,974 6,922 3,327 
Share of profit after tax of equity accounted units6 1,378 776 523 
 
Profit before finance items and taxation  10,352 7,698 3,850 
     
Finance items     
Exchange gains/(losses) on external net debt and intragroup balances23 46 (128)204 
Gains/(losses) on currency and interest rate derivatives not qualifying for hedge accounting 35 (51)16 
Interest receivable and similar income7 106 82 28 
Interest payable and similar charges7 (160) (173)(148)
Amortisation of discount related to provisions (139) (116)(87)
 
  (112) (386)13 
 
Profit before taxation  10,240 7,312 3,863 
        
Taxation 8 (2,373) (1,814)(619)
 
Profit for the year  7,867 5,498 3,244 
 
– attributable to outside equity shareholders 429 283 (53)
– attributable to equity shareholders of Rio Tinto (Net earnings) 7,438 5,215 3,297 
 
Basic earnings per ordinary share9 557.8c 382.3c239.1c
Diluted earnings per ordinary share9 555.6c 381.1c238.7c
        
Dividends paid during the year (US$m) 2,573 1,141 910 
Dividends per share: paid during the year    
–ordinary dividend10 81.5c 83.5c66.0c
– special dividend10 110.0c — — 
Dividends per share: declared in the announcement of the results for the year    
– ordinary dividend10 64.0c 41.5c45.0c
– special dividend10 — 110.0c— 
 

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               
shareholdersother than Rio Tinto plcRio Tinto Group
2003 2002 20012003   2002   20012003 2002 2001
US$mUS$mUS$mUS$mUS$mUS$mUS$mUS$mUS$m
Economic interests in profit for the financial year1,167 504 835 341 147 244 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.

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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 Grouppart of Rio Tinto Group Rio Tinto Group  
2003   2002   20012003   2002   20012003   2002 2001
US$mUS$mUS$mUS$mUS$mUS$mUS$mUS$mUS$m
  Revenues4,032 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 
   
 
 
 
 
 
 
 
 
 
   (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)
   
 
 
 
 
 
 
 
 
 
  Income before income tax, minority                  
    interest and equity income271 (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 affiliates700 516 585 90 227 202 458 468 433 
   
 
 
 
 
 
 
 
 
 
  Net income956 195 491 884 736 942 1,508 651 1,079 
   
 
 
 
 
 
 
 
 
 
                     
  Earnings per ordinary share (US cents)89.7c 18.3c 46.1c177.2c 147.6c 189.0c109.5c47.3c78.5c

(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 
 
Cash flow from consolidated operations  9,196 7,431 3,787 
Dividends from equity accounted units 1,727 600 478 
 
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)
 
Cash flow from operating activities  7,803 6,717 3,193 
     
Cash used in investing activities     
(Acquisitions) / disposals of subsidiaries, joint ventures and associates39 (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 
 
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 
 
Cash used in financing activities  (5,389) (2,411)(2,705)
 
Effects of exchange rates on cash and cash equivalents 30 (8)(9)
 
Net (decrease)/increase in cash and cash equivalents  (1,645) 2,041 85 
 
Opening cash and cash equivalents 2,367 326 241 
 
Closing cash and cash equivalents20 722 2,367 326 
 
     
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 charges5 (396) (3)558 
   Provisions26 60 202 192 
Utilisation of provisions26 (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 
 
  9,196 7,431 3,787 
 

 

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)

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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 Grouppart of Rio Tinto GroupRio Tinto Group
2003 2002 20012003 2002 20012003 2002 2001
US$mUS$mUS$mUS$mUS$mUS$mUS$mUS$mUS$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 ventures338 228 288 132 285 255 470 513 543 
  Dividends from associates397 368 210 8 4  4 128 96 105 
   
 
 
 
 
 
 
 
 
 
  Total cash flow from operations1,710 1,976 1,532 2,053 2,043 1,992 3,486 3,743 3,415 
  Interest received48 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)
   
 
 
 
 
 
 
 
 
 
  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 equipment9 3 1 10 13 24 19 16 25 
  Purchases less sales of other investments67 (330)(54)16 7 - 83 (323)(54)
  Funding to Rio Tinto Limited5 (87)(399)- - -  -  -  - 
  Purchase of redeemable preference shares                  
    in Rio Tinto Limited subsidiaries by Rio Tinto                  
    plc subsidiaries(500) -  -  -  - -  -  -  - 
   
 
 
 
 
 
 
 
 
 
  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 Limited1,208 115 120  -   - -  -  -  - 
   
 
 
 
 
 
 
 
 
 
  Disposals less acquisitions1,209 104 (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 financing875 (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 cash20 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 - -  -  -  - 
   
 
 
 
 
 
 
 
 
 
  Management of liquid resources and                  
    financing(884)219 641 (103)(406)275 (274)(159)630 
   
 
 
 
 
 
 
 
 
 
23 (Decrease)/increase in cash per UK GAAP(9)(16)6 (74)(114)34 (83)(130)40 
   
 
 
 
 
 
 
 
 
 
  Cash flow from operating activities                  
  Group operating profit368 (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 
   
 
 
 
 
 
 
 
 
 
   368 626 781 1,128 1,288 1,496 1,496 1,909 2,277 
2 Depreciation and amortisation385 423 453 621 531 476 1,006 954 929 
11 Exploration & evaluation charged against profit90 94 97 37 36 33 127 130 130 
20 Provisions60 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 accruals180 81 (42)150 (116)(51)66 (57)(48)
  Other items91 3 (141)(4)7 21 87 15 (120)
   
 
 
 
 
 
 
 
 
 
  Cash flow from operating activities975 1,380 1,034 1,913 1,754 1,733 2,888 3,134 2,767 
   
 
 
 
 
 
 
 
 
 

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

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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 
   
 
 
 
   2003 2002 2003 2002 2003 2002 
Note  US$m US$m US$m US$m US$m US$m 
  
 
 
 
 
 
 
  Intangible fixed assets            
10 Goodwill253 272 932 743 1,185 1,015 
11 Exploration and evaluation2 5 67 52 69 57 
   
 
 
 
 
 
 
   255 277 999 795 1,254 1,072 
  Tangible fixed assets            
12 Property, plant and equipment6,095 5,563 9,095 6,614 15,196 12,183 
  Investments            
13 Share of gross assets of joint ventures1,845 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)
   
 
 
 
 
 
 
   1,114 1,042 1,109 879 2,223 1,921 
13 Investments in associates/other investments2,680 1,493 62 193 517 656 
   
 
 
 
 
 
 
  Total investments3,794 2,535 1,171 1,072 2,740 2,577 
   
 
 
 
 
 
 
  Total fixed assets10,144 8,375 11,265 8,481 19,190 15,832 
   
 
 
 
 
 
 
  Current assets            
15 Inventories968 814 815 688 1,783 1,502 
  Accounts receivable and prepayments            
16 Falling due within one year1,554 1,335 1,070 957 1,674 1,598 
16 Falling due after more than one year555 1,602 254 105 809 641 
   
 
 
 
 
 
 
  Total accounts receivable2,109 2,937 1,324 1,062 2,483 2,239 
17 Investments230 306 - - 230 306 
17 Cash257 174 138 151 395 325 
   
 
 
 
 
 
 
  Total current assets3,564 4,231 2,277 1,901 4,891 4,372 
   
 
 
 
 
 
 
  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)
   
 
 
 
 
 
 
  Total current liabilities(1,867)(2,548)(3,506)(3,563)(4,334)(5,340)
   
 
 
 
 
 
 
  Net current assets/(liabilities)1,697 1,683 (1,229)(1,662)557 (968)
   
 
 
 
 
 
 
  Total assets less current liabilities11,841 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)
   
 
 
 
 
 
 
  Net Assets7,343 5,899 4,324 2,510 10,037 7,462 
   
 
 
 
 
 
 
               
  Capital and reserves            
  Share capital            
24 - Rio Tinto plc155 154 - - 155 154 
24 - Rio Tinto Limited (excl. Rio Tinto plc interest)- - 1,280 964 1,085 816 
25 Share premium account1,629 1,610 - - 1,629 1,610 
25 Other reserves261 249 117 86 334 303 
25 Profit and loss account5,298 3,886 2,927 1,460 6,834 4,579 
   
 
 
 
 
 
 
  Equity shareholders' funds7,343 5,899 4,324 2,510 10,037 7,462 
   
 
 
 
 
 
 
  2006 2005 
  US$m US$m 
 
Non-current assets    
Goodwill11 841 1,020 
Intangible assets12 384 220 
Property, plant and equipment13 22,207 17,620 
Investments in equity accounted units14 2,235 1,829 
Loans to equity accounted units 136 159 
Inventories16 99 141 
Trade and other receivables17 983 703 
Deferred tax assets18 225 55 
Tax recoverable 135 122 
Other financial assets19 374 453 
 
  27,619 22,322 
Current assets    
Inventories16 2,540 2,048 
Trade and other receivables17 2,938 2,488 
Loans to equity accounted units 15 — 
Tax recoverable 79 30 
Other financial assets19 567 536 
Cash and cash equivalents20 736 2,379 
 
  6,875 7,481 
Current liabilities    
Bank overdrafts repayable on demand20 (14) (12)
Borrowings21 (1,490) (1,190)
Trade and other payables24 (2,693) (2,190)
Other financial liabilities25 (193) (86)
Tax payable (1,024) (987)
Provisions26 (366) (321)
 
  (5,780) (4,786)
 
Net current assets  1,095 2,695 
 
Non-current liabilities    
Borrowings21 (2,007) (2,783)
Trade and other payables24 (362) (269)
Other financial liabilities25 (233) (113)
Tax payable (86) (51)
Deferred tax liabilities18 (2,339) (2,197)
Provisions26 (4,302) (3,865)
 
  (9,329) (9,278)
 
Net assets  19,385 15,739 
 
Capital and reserves    
Share capital   
– Rio Tinto plc27 172 172 
– Rio Tinto Limited (excl. Rio Tinto plc interest)28 1,099 1,019 
Share premium account29 1,919 1,888 
Other reserves29 641 (24)
Retained earnings29 14,401 11,893 
 
Equity attributable to Rio Tinto shareholders 29 18,232 14,948 
Attributable to outside equity shareholders29 1,153 791 
 
Total equity  19,385 15,739 
 

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 
 
 
 
 
 2003 2002 2003 2002 2003 2002 
 US$m US$m US$m US$m US$m US$m 
Economic interests in consolidated shareholders' funds7,767 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

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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 
 
Currency translation adjustment820 42 862 
Cash flow hedge fair value (losses)(178) (200) (378) 
Gains on available for sale securities14 5 19 
Cash flow hedge losses transferred to the income statement63 74 137 
Gains on available for sale securities transferred to the income statement(4) — (4) 
Currency translation transferred to the income statement on disposals4 — 4 
Actuarial gains on post retirement benefit plans338 35 373 
Net tax recognised directly in equity19 83 102 
 
Net income recognised directly in equity 1,076 39 1,115 
       
Profit after tax for the year 7,438 429 7,867 
 
Total recognised income for the year 8,514 468 8,982 
 
 Attributable Outside Year to 31 
 to Interests December 
 shareholders  2005 
 of Rio Tinto  Total 
 US$m US$m US$m 
 
Currency translation adjustment(401)(44)(445)
Cash flow hedge fair value (losses)(116)(26)(142)
Gains on available for sale securities32 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 plans179 (1)178 
Net tax recognised directly in equity56 1 57 
 
Net expense recognised directly in equity (338)(64)(402)
       
Profit after tax for the year 5,215 283 5,498 
 
Total recognised income for the year 4,877 219 5,096 
 

 Attributable Outside Year to 31 
 to Interests December 
 shareholders  2004 
 of Rio Tinto  Total 
 US$m US$m US$m 
 
Currency translation adjustment365 45 410 
Actuarial losses on post retirement benefit plans(180)(23)(203)
Net tax recognised directly in equity50 (2)48 
 
Net income recognised directly in equity 235 20 255 
       
Profit / (loss) after tax for the year 3,297 (53)3,244 
 
Total recognised income / (loss) for the year 3,532 (33)3,499 
 


RECONCILIATION WITH AUSTRALIAN GAAP AT 31 DECEMBER 2003Reconciliation with Australian IFRS

 Rio Tinto Group 
 
 
 2003 2002 
 
 
 
 US$m US$m 
Adjusted earnings reported under UK GAAP1,382 1,530 
Exceptional items126 (879)
 
 
 
Net earnings under UK GAAP1,508 651 
Increase/(decrease) net of tax in respect of:    
   Goodwill amortisation(164)(167)
   Adjustment to asset carrying values- (19)
   Taxation(5)(13)
   Other7 3 
 
 
 
Net earnings attributable to members under Australian GAAP1,346 455 
 
 
 
Earnings per ordinary share under Australian GAAP97.7c33.1c
 
 
 

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 
 
 
 2003 2002 
 
 
 
 US$m US$m 
Shareholders' funds under UK GAAP10,037 7,462 
Increase/(decrease) net of tax in respect of:    
   Goodwill872 1,044 
   Taxation69 74 
   Dividend469 - 
   Other(24)(23)
 
 
 
Shareholders' funds under Australian GAAP11,423 8,557 
 
 
 


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

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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 
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m US$m US$m US$m 
Profit for the financial year                  
Subsidiaries256 (321)(94)794 509 740 1,050 183 646 
Joint ventures284 159 157 76 180 187 360 339 344 
Associates416 357 428 14 47 15 98 129 89 
 
 
 
 
 
 
 
 
 
 
 956 195 491 884 736 942 1,508 651 1,079 
Adjustment on currency translation                  
Subsidiaries553 198 (205)1,353 374 (223)1,864 560 (423)
Joint ventures- 3 (3)53 11 (19)53 13 (22)
Associates495 137 (91)3 1 1 7 6 (4)
 
 
 
 
 
 
 
 
 
 
 1,048 338 (299)1,409 386 (241)1,924 579 (449)
Total recognised gains and losses                  
relating to the financial year                  
Subsidiaries809 (123)(299)2,147 883 517 2,914 743 223 
Joint ventures284 162 154 129 191 168 413 352 322 
Associates911 494 337 17 48 16 105 135 85 
 
 
 
 
 
 
 
 
 
 
 2,004 533 192 2,293 1,122 701 3,432 1,230 630 
 
 
 
 
 
 
 
 
 
 
Prior year adjustment                  
   Subsidiaries  (149)    6     (143)  
   Associates  12     -     10   
   
     
     
   
   (137)    6     (133)  
   
     
     
   
Total gains and losses recognised in                  
2002                  
   Subsidiaries  (272)    889     600   
   Joint ventures  162     191     352   
   Associates  506     48     145   
   
     
     
   
   396     1,128     1,097   
   
     
     
   

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 
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m US$m US$m US$m 
Profit for the financial year956 195 491 884 736 942 1,508 651 1,079 
Dividends(683)(639)(628)(320)(299)(294)(882)(826)(812)
 
 
 
 
 
 
 
 
 
 
 273 (444)(137)564 437 648 626 (175)267 
                   
Adjustment on currency translation1,048 338 (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 Limited102 91 - (164)(146) -  -  -  - 
 
 
 
 
 
 
 
 
 
 
 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 
 
 
 
 
 
 
 
 
 
 
Closing shareholders' funds7,343 5,899 5,902 4,324 2,510 1,828 10,037 7,462 7,043 
 
 
 
 
 
 
 
 
 
 
                   
(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

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTSNotes to the 2006 financial statements

1PRINCIPAL 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

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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.

-1Deferred 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.

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Notes to the 2006 financial statements

1PRINCIPAL 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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Notes to the 2006 financial statements

1PRINCIPAL 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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Notes to the 2006 financial statements

1PRINCIPAL 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:
Buildings10 to 40 years
Plant and equipment3 to 35 years
LandNot depreciated

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Notes to the 2006 financial statements

1PRINCIPAL 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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Notes to the 2006 financial statements

1PRINCIPAL 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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Notes to the 2006 financial statements

1PRINCIPAL 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)

2Net operating costs
   Rio Tinto plc - Rio Tinto Limited -       
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
2003 2002 20012003 2002 20012003 2002 2001
 
 
 
 
 
 
Note US$m US$m US$mUS$m US$m US$mUS$m US$m US$m
  Operating costs from continuing operations                  
  Raw materials and consumables1,455 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 costs845 687 626 821 650 534 1,666 1,337 1,160 
  Royalties and other mining taxes220 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 evaluation90 94 97 37 36 33 127 130 130 
  Research and development17 17 18 6 8 21 23 25 39 
  Net exchange losses/(gains) on monetary items40 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)
   
 
 
 
 
 
 
 
 
 
  Net operating costs before exceptional                  
  charges3,664 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 
   
 
 
 
 
 
 
 
 
 
   3,664 3,948 3,586 4,068 3,659 3,004 7,732 7,612 6,590 
   
 
 
 
 
 
 
 
 
 
(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.
3Employee costs
   Rio Tinto plc -      Rio Tinto Limited -            
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
2003 2002 20012003 2002 20012003 2002 2001
 
 
 
 
 
 
US$m US$m US$mUS$m US$m US$mUS$m US$m US$m
                     
  Employment costs, excluding joint ventures and associates:                  
     - Wages and salaries730 647 678 785 615 524 1,515 1,262 1,202 
     - Social security costs59 55 54 13 13 11 72 68 65 
     - Net post retirement cost/(credit) (a)101 21 (79)83 58 34 184 79 (45)
   
 
 
 
 
 
 
 
 
 
   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)
   
 
 
 
 
 
 
 
 
 
   845 687 626 821 650 534 1,666 1,337 1,160 
   
 
 
 
 
 
 
 
 
 
   
(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.

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RIO TINTO PLC - RIO TINTO LIMITED


NOTES TO FINANCIAL STATEMENTS - (continued)

4Exceptional items
    Rio Tinto plc - Rio Tinto Limited -       
 part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
 
 2003 2002   20012003 2002   20012003 2002   2001
 
 US$mUS$mUS$mUS$mUS$mUS$mUS$mUS$mUS$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 associate47 - - 126 - - 126 - - 
      Taxation- - 113 - 42 19 - 42 132 
      Share of taxation of associates- 9 7 - - - - - - 
      Attributable to outside shareholders (equity)- 7 - - 166 - - 173 - 
    
 
 
 
 
 
 
 
 
 
    47 (739)(551)126 (225)(52)126 (879)(583)
    
 
 
 
 
 
 
 
 
 
(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.

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RIO TINTO PLC - RIO TINTO LIMITED


NOTES TO FINANCIAL STATEMENTS - (continued)

5Net interest payable and similar charges
  Rio Tinto plc - Rio Tinto Limited -   
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
2003 2002 20012003 2002 20012003 2002 2001
US$mUS$mUS$mUS$mUS$mUS$mUS$mUS$mUS$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)
   
 
 
 
 
 
 
 
 
 
   (100)(116)(133)(140)(135)(219)(209)(233)(352)
  Amounts capitalised12 14 9 27 8 12 39 22 21 
   
 
 
 
 
 
 
 
 
 
   (88)(102)(124)(113)(127)(207)(170)(211)(331)
   
 
 
 
 
 
 
 
 
 
  Interest receivable and similar income from fixed                  
     asset investments                  
     Joint ventures8 10 14 - - - 8 10 14 
     Associates31 18 - 5 1 6 5 1 6 
     Other investments4 9 3 - - - 4 9 3 
   
 
 
 
 
 
 
 
 
 
   43 37 17 5 1 6 17 20 23 
  Other interest receivable3 13 22 11 17 30 14 30 52 
   
 
 
 
 
 
 
 
 
 
   46 50 39 16 18 36 31 50 75 
   
 
 
 
 
 
 
 
 
 
  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)
   
 
 
 
 
 
 
 
 
 
  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)
   
 
 
 
 
 
 
 
 
 
  Net interest payable and similar charges(207)(195)(270)(136)(147)(209)(298)(291)(404)
   
 
 
 
 
 
 
 
 
 
   
(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 Grouppart of Rio Tinto GroupRio Tinto Group
2003 2002 20012003 2002 20012003 2002 2001
US$mUS$mUS$mUS$mUS$mUS$mUS$mUS$mUS$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)- - - - - - 
   
 
 
 
 
 
 
 
 
 
   (77)(49)(45)(36)(23)(19)(100)(64)(57)
  Amounts capitalised (b)8  10 - - - - 8  10 - 
   
 
 
 
 
 
 
 
 
 
  Amortisation of discount(69)(39)(45)(36)(23)(19)(92)(54)(57)
   
 
 
 
 
 
 
 
 
 
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.

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 financial statements

1PRINCIPAL 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

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.

–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.
 Rio Tinto plc - Rio Tinto Limited -       
 part of Rio Tinto Group part of Rio Tinto Group Rio Tinto Group 
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m US$m US$m US$m 
UK taxation                  
Corporation tax at 30%                  
      Current99 58 51 - (4)- 99 54 51 
      Deduct: relief for overseas taxes(96)(63)(63)- - - (96)(63)(63)
 
 
 
 
 
 
 
 
 
 
 3 (5)(12)- (4)- 3 (9)(12)
      Deferred(7)11 48 - 1 - (7)12 48 
 
 
 
 
 
 
 
 
 
 
 (4)6 36 - (3)- (4)3 36 
Australian taxation                  
Corporation tax at 30%                  
      Current3 3 - 297 342 364 300 345 364 
      Deferred(2)- - 11 21 28 9 21 28 
 
 
 
 
 
 
 
 
 
 
 1 3 - 308 363 392 309 366 392 
Other countries taxation                  
      Current20 123 119 27 40 34 47 163 153 
      Deferred(10)10 7 (17)(17)17 (27)(7)24 
 
 
 
 
 
 
 
 
 
 
 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)
 
 
 
 
 
 
 
 
 
 
 341 442 378 360 423 522 567 708 718 
 
 
 
 
 
 
 
 
 
 
Prima facie tax reconciliation                  
Profit on ordinary activities before taxation1,305 715 983 1,255 1,033 1,536 2,094 1,311 1,983 
 
 
 
 
 
 
 
 
 
 
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                  
      Australia49 55 87 14 1 10 59 56 95 
Permanently disallowed amortisation/depreciation22 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)
 
 
 
 
 
 
 
 
 
 
 (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 differences4  19  22 5 (4)(9)14 - 17 
 
 
 
 
 
 
 
 
 
 
Total timing differences related to the current year(26)(63)(92)(22)(16)(33)(34)(69)(114)
 
 
 
 
 
 
 
 
 
 
Current taxation charge for the year 347  418  397  371  466  497 585 718 720 
 
 
 
 
 
 
 
 
 
 
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 
 
 
 
 
 
 
 
 
 
 
Total taxation charge for the year 341  442  378  360  423  522 567 708 718 
 
 
 
 
 
 
 
 
 
 

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 financial statements

1PRINCIPAL 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

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Notes to the 2006 Financial statements

2RECONCILIATION 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 
 
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 — 
Total excluded from underlying earnings 521 (357)(64)100 260 1,025 
 
Net earnings 10,240 (2,373)(429)7,438 5,215 3,297 
 
Underlying earnings 9,719 (2,016)(365)7,338 4,955 2,272 
 

'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.

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Notes to the 2006 Financial statements

3NET OPERATING COSTS
   2006 2005 2004 
 Note  US$m US$m US$m 
 
Raw materials and consumables  3,207 2,860 2,157 
Amortisation of intangible assets12 27 19 19 
Depreciation of property, plant & equipment13 1,442 1,315 1,152 
Amortisation of deferred stripping costs  40 4 12 
Employment costs4 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 
Provisions26 60 202 192 
Exploration and evaluation12 237 250 190 
Research and development  15 20 16 
Costs included above qualifying for capitalisation  (69) (83)(89)
Other operating income  (262) (242)(161)
 
Net operating costs (excluding impairment (reversals)/charges)   13,892 12,436 10,249 
 
(a)Information on auditors' remuneration is included in note 41.

4EMPLOYMENT COSTS

   2006 2005 2004 
 Note  US$m US$m US$m 
 
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 
 
   2,641 2,392 1,959 
Less: charged within provisions  (182) (230)(142)
 
 3 2,459 2,162 1,817 
 
(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.

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Notes to the 2006 Financial statements

5IMPAIRMENT 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 
 
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 — 
 
 396 (276)(76)44 4 (321)
 

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.

6SHARE OF PROFIT AFTER TAX OF EQUITY ACCOUNTED UNITS

 2006 2005 2004 
 US$m US$m US$m 
 
Sales revenue (a)2,975 1,709 1,576 
Operating costs(771) (504)(739)
 
Profit before finance items and taxation2,204 1,205 837 
Exchange gains/(losses) on external net debt3 (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)
 
Profit before tax2,148 1,137 785 
 
Taxation(770) (361)(262)
 
Profit after tax (Rio Tinto share) 1,378 776 523 
 
(a)The sales revenue of equity accounted units excludes charges by jointly controlled entities to Rio Tinto Group subsidiaries.

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Notes to the 2006 Financial statements

7Taxation charge for the year INTEREST RECEIVABLE AND PAYABLE(continued)
   2006 2005 2004 
 Note  US$m US$m US$m 
 
Interest receivable and similar income from:    
   – Equity accounted units  27 19 18 
   – Other investments  69 55 7 
 
   96 74 25 
Other interest receivable  10 8 3 
 
Total interest receivable  106 82 28 
 
Interest payable and similar charges  (220)(201)(183)
Amounts capitalised13 60 28 35 
 
Total Interest payable  (160)(173)(148)
 

8TAX ON PROFIT
   2006 2005 2004 
   US$m US$m US$m 
 
UK taxation(a)    
Corporation tax at 30%    
– Current  86 137 17 
– Deduct: relief for overseas taxes  (72)(134)(15)
– Deferred  27 (22)— 
 
   41 (19)2 
 
Australian taxation    
Corporation tax at 30%    
– Current  1,517 1,026 508 
– Deferred  (97)30 (37)
 
   1,420 1,056 471 
 
Other countries taxation(a)    
– Current  896 684 169 
– Deferred  16 93 (23)
 
   912 777 146 
 
Total taxation charge  2,373 1,814 619 
 
– Current  2,427 1,713 679 
– Deferred18 (54)101 (60)
 
         
(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 
 
Prima facie tax reconciliation   
Profit before taxation10,240 7,312 3,863 
Deduct: share of profit after tax of equity accounted units(1,378)(776)(523)
 
Parent companies' and subsidiaries' profit before tax8,862 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 
 
Total taxation charge2,373 1,814 619 
 
       
(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.

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Notes to the 2006 Financial statements

8TAX 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 
 
Disposals of interests in businesses— (86)(336)
Impairment charges and reversals157 (1)50 
Adjustment to environmental remediation provision(11)(26)— 
Exchange gains / losses on external debt, intragroup balances and derivatives not designated as hedges55 11 (23)
 
 201 (102)(309)
 
(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)

9A 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 
 
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 
 
Diluted weighted average number of ordinary shares in issue (millions) (b)1,338.8 1,368.5 1,381.4 
 
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 
 
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 
 
(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 
   
   
   
 
   US$m   US$m   US$m 
Rio Tinto plc Ordinary Interim dividend  320   314   213 
Rio Tinto plc Ordinary Final dividend  363   325   415 
   
   
   
 
   683   639   628 
   
   
   
 
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)
   
   
   
 
Rio Tinto Limited dividends paid to public shareholders (b)  199   187   184 
   
   
   
 
Total dividends paid to public shareholders  882   826   812 
   
   
   
 
             
 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 Rates per share   Number of shares   
         (millions)   
Rio Tinto plc Interim (pence)18.45p18.87p14.03p1,066.1 1,065.4 1,064.5 
Rio Tinto plc Final (pence)18.68p18.60p27.65p1,066.7 1,065.5 1,064.6 
 
 
 
       
 37.13p37.47p41.68p      
 
 
 
       
             
Rio Tinto Limited Interim - fully franked at 30% (Australian Cents)45.02c54.06c39.42c499.0 498.8 498.3 
Less shares held by Rio Tinto plc      (187.4)(187.4)(187.4)
       
 
 
 
Shares held by public shareholders (b)      311.6 311.4 310.9 
       
 
 
 
Rio Tinto Limited Final - fully franked at 30% (Australian Cents)44.68c51.87c75.85c499.0 498.8 498.4 
Less shares held by Rio Tinto plc      (187.4)(187.4)(187.4)
 
 
 
 
 
 
 
 89.70c105.93c115.27c      
 
 
 
       
Shares held by public shareholders (b)      311.6 311.4 311.0 
       
 
 
 

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Notes to the 2006 Financial statements

10DIVIDENDS
 2006 2005 2004 
 US$m US$m US$m 
 
Rio Tinto plc previous year Final dividend paid442 481 363 
Rio Tinto plc previous year Special dividend paid1,171 — — 
Rio Tinto plc Interim dividend paid417 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 
 
Dividends paid during the year2,573 1,143 910 
 
 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) 
 
Rio Tinto plc previous year Finaland Special (b)85.24p23.94p18.68p1,063.9 1,068.0 1,066.7 
Rio Tinto plc Interim (b)21.42p21.75p17.54p1,042.7 1,069.3 1,067.5 
Rio Tinto Limited previous year Final and Special – fully franked at 30% (b)200.28c58.29c44.68c285.7 311.9 311.6 
Rio Tinto Limited Interim – fully franked at 30% (b)52.48c50.56c45.53c285.7 285.4 311.7 
 
             
(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.

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

11GOODWILL
 2006 2005 
 US$m US$m 
 
Net book value  
At 1 January1,020 1,075 
Adjustment on currency translation49 (46)
Additions— 5 
Disposals(5)— 
Impairment charges(223)(14)
 
At 31 December841 1,020 
 
– cost1,077 1,034 
– accumulated impairment(236)(14)
 
At 1 January 2005  
 
– cost 1,075 
– accumulated impairment — 
 

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 
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 
 
 
Average number of ordinary shares in issue                  
     (million) (b)1,066 1,065 1,064 499 499 498 1,378 1,377 1,375 
 
 
 
 
 
 
 
 
 
 
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 
 
 
 
 
 
 
 
 
 
 
Adjusted earnings (US$m)909 934 1,042 758 961 994 1,382 1,530 1,662 
 
 
 
 
 
 
 
 
 
 
Earnings per ordinary share (US cents)89.7c18.3c46.1c177.2c147.6c189.0c109.5c47.3c78.5c
 
 
 
 
 
 
 
 
 
 
Exceptional items per ordinary share (US cents)(4.4)c69.4c51.8c(25.3)c45.1c10.4c(9.2)c63.9c42.4c
 
 
 
 
 
 
 
 
 
 
Adjusted earnings per ordinary share (US cents)85.3c87.7c97.9c151.9c192.7c199.4c100.3c111.2c120.9c
 
 
 
 
 
 
 
 
 
 
                   
(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.
10Goodwill        
  Rio Tinto plc - Rio Tinto Limited -     
  part of Rio Tinto Group part of Rio Tinto Group Rio Tinto Group 
  
 
 
 
  2003 2002 2003 2002 2003 2002 
  
 
 
 
 
 
 
  US$m US$m US$m US$m US$m US$m 
 Cost            
 At 1 January463 465 819 733 1,282 1,198 
 Adjustment on currency translation(1)(2)261 78 260 76 
 Additions (note 35)20 - - 8 20 8 
  
 
 
 
 
 
 
 At 31 December482 463 1,080 819 1,562 1,282 
  
 
 
 
 
 
 
 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)- 
  
 
 
 
 
 
 
 At 31 December(229)(191)(148)(76)(377)(267)
  
 
 
 
 
 
 
 Net balance sheet amount253 272 932 743 1,185 1,015 
  
 
 
 
 
 
 
              
(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.

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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  		     
2003   20022003   20022003   2002
US$mUS$mUS$mUS$mUS$mUS$m
At cost less amounts written off            
At 1 January355 338 339 340 694 678 
Adjustment on currency translation1 (9)118 34 119 25 
Expenditure in year88 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)
 
 
 
 
 
 
 
At 31 December372 355 462 339 834 694 
 
 
 
 
 
 
 
             
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 movements22 19 34 69 56 88 
 
 
 
 
 
 
 
At 31 December(370)(350)(395)(287)(765)(637)
 
 
 
 
 
 
 
             
Net balance sheet amount2 5 67 52 69 57 
 
 
 
 
 
 
 
             
12INTANGIBLE ASSETS
 Exploration Other   
 and intangible Total 
Year ended 31 December 2006evaluation (a) assets (a) US$m 
 
Net book value   
At 1 January 2006113 107 220 
Adjustment on currency translation5 10 15 
Expenditure during year72 118 190 
Amortisation for the year— (27)(27)
Disposals, transfers and other movements6 (20)(14)
 
At 31 December 2006196 188 384 
 
– cost196 310 506 
– accumulated amortisation— (122)(122)
 
       
 Exploration Other   
 and intangible  Total 
Year ended 31 December 2005evaluation assets US$m 
 
Net book value   
At 1 January 200591 98 189 
Adjustment on currency translation(5)(4)(9)
Expenditure during year38 29 67 
Amortisation for the year— (19)(19)
Disposals, transfers and other movements(11)3 (8)
 
At 31 December 2005113 107 220 
 
– cost113 327 440 
– accumulated amortisation— (220)(220)
 
At 1 January 2005   
 
– cost91 305 396 
– accumulated amortisation— (207)(207)
 
(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		   
    US$mUS$m
Rio Tinto Group            
Cost            
At 1 January4,002 2,867 14,567 1,891 23,327 20,777 
Adjustment on currency translation947 438 2,480 408 4,273 1,261 
Capitalisation of additional closure costs (note 20)167 - - - 167 55 
Other additions124 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 movements284 292 836 (1,414)(2)45 
 
 
 
 
 
 
 
At 31 December5,392 3,523 17,942 1,739 28,596 23,327 
 
 
 
 
 
 
 
             
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)
Disposals47 123 249 - 419 522 
Subsidiaries acquired/newly consolidated- - - - - (34)
Subsidiaries sold67 7 74 - 148 - 
Transfers and other movements17 (53)28 1 (7)9 
 
 
 
 
 
 
 
At 31 December(1,409)(1,540)(10,317)(134)(13,400)(11,144)
 
 
 
 
 
 
 
Net balance sheet amount at 31 December 20033,983 1,983 7,625 1,605 15,196   
 
 
 
 
 
   
Net balance sheet amount at 31 December 20022,926 1,570 5,931 1,756   12,183 
 
 
 
 
   
 
 2006 2005 
 US$m US$m 
 
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)
 
Charge for year237 250 
 

A-18A-24

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements

1312PROPERTY, 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 
 
Net book value      
At 1 January 20065,224 2,019 8,678 1,699 17,620 
Adjustment on currency translation261 88 411 105 865 
Capitalisation of additional closure costs (note 26)619 — — — 619 
Interest capitalised (b)5 — 3 52 60 
Other additions436 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 
 
At 31 December 20066,127 2,540 10,839 2,701 22,207 
 
– cost9,166 4,454 21,553 2,835 38,008 
– accumulated depreciation(3,039)(1,914)(10,714)(134)(15,801) 
 
Fixed assets held under finance leases (d)— 39 38 — 77 
Other fixed assets pledged as security (e)35 — 1,154 — 1,189 
 
 Mining Land Plant Capital   
 properties and and works in Total 
Year ended 31 December 2005 and leases (a) buildings equipment progress (g) US$m 
 
Net book value      
At 1 January 20055,195 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 additions206 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 
 
At 31 December 20055,224 2,019 8,678 1,699 17,620 
 
– cost7,686 3,824 19,382 1,838 32,730 
– accumulated depreciation(2,462)(1,805)(10,704)(139)(15,110) 
 
At 1 January 2005     
 
– cost7,285 3,809 18,605 1,760 31,459 
– accumulated depreciation(2,090)(1,761)(10,751)(136)(14,738) 
 
Fixed assets held under finance leases (d)— 16 140 — 156 
Other fixed assets pledged as security (e)44 — 804 — 848 
 
(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		   
 
Rio Tinto plc - part of Rio Tinto Group    US$mUS$m
Cost            
At 1 January1,323 1,655 6,470 1,070 10,518 9,792 
Adjustment on currency translation78 46 291 128 543 152 
Capitalisation of additional closure costs (note 20)67 - - - 67 24 
Other additions93 48 234 110 485 964 
Disposals(47)(114)(160)- (321)(433)
Subsidiaries acquired/newly consolidated- - 3 - 3 - 
Transfers and other movements277 220 643 (1,148)(8)19 
 
 
 
 
 
 
 
At 31 December1,791 1,855 7,481 160 11,287 10,518 
 
 
 
 
 
 
 
             
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)
Disposals44 112 149 - 305 422 
Transfers and other movements15 (21)(2)- (8)(10)
 
 
 
 
 
 
 
At 31 December(345)(685)(4,162)- (5,192)(4,955)
 
 
 
 
 
 
 
Net balance sheet amount at 31 December 20031,446 1,170 3,319 160 6,095   
 
 
 
 
 
   
Net balance sheet amount at 31 December 2002982 944 2,567 1,070   5,563 
 
 
 
 
   
 
             
(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		   
 
Rio Tinto Limited - part of Rio Tinto Group    US$mUS$m
Cost            
At 1 January2,679 1,212 8,091 821 12,803 10,985 
Adjustment on currency translation869 392 2,189 280 3,730 1,109 
Capitalisation of additional closure costs (note 20)100 - - - 100 31 
Other additions31 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 movements7 72 193 (266)6 26 
 
 
 
 
 
 
 
At 31 December3,601 1,668 10,455 1,579 17,303 12,803 
 
 
 
 
 
 
 
             
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)
Disposals3 11 100 - 114 100 
Subsidiaries acquired/newly consolidated- - - - - (34)
Subsidiaries sold67 7 74 - 148 - 
Transfers and other movements2 (32)30 1 1 19 
 
 
 
 
 
 
 
At 31 December(1,064)(855)(6,155)(134)(8,208)(6,189)
 
 
 
 
 
 
 
Net balance sheet amount at 31 December 20032,537 813 4,300 1,445 9,095   
 
 
 
 
 
   
Net balance sheet amount at 31 December 20021,944 626 3,358 686   6,614 
 
 
 
 
   
 
             
(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 
 
 Freehold2,445 1,889 
 Long leasehold92 128 
 Short leasehold3 2 
 
  2,540 2,019 
 
(g)Accumulated depreciation on 'Capital works in progress' at 1 January 2005 relates to an impairment charge made in 2002.    

A-19A-25

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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		  
US$mUS$mUS$m
The 2003 net balance sheet amounts for land and buildings include:      
Freehold1,161 760 1,921 
Long leasehold6 49 55 
Short leasehold3 4 7 
 
 
 
 
 1,170 813 1,983 
 
 
 
 
       
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
US$mUS$mUS$m
At 1 January      
   Subsidiaries326 292 200 
   Equity accounted operations198 175 154 
 
 
 
 
 524 467 354 
 
 
 
 
Adjustment on currency translation      
   Subsidiaries17 - - 
   Equity accounted operations3 - - 
 
 
 
 
 20 - - 
 
 
 
 
Net deferral of stripping costs during the year      
   Subsidiaries77 29 86 
   Equity accounted operations32 27 33 
 
 
 
 
 109 56 119 
 
 
 
 
Other      
   Subsidiaries21 5 6 
   Equity accounted operations(3)(4)(12)
 
 
 
 
 18 1 (6)
 
 
 
 
Deferred stripping balance carried forward at 31 December      
   Subsidiaries441 326 292 
   Equity accounted operations230 198 175 
 
 
 
 
 671 524 467 
 
 
 
 
       
       Rio Tinto plc -
part of Rio Tinto Group   		       Rio Tinto Limited -
part of Rio Tinto Group   		     
2003   2002   20012003   2002   2001
US$mUS$mUS$mUS$mUS$mUS$m
At 1 January            
   Subsidiaries260 242 175 66 50 25 
   Equity accounted operations218 191 162 8 4 2 
 
 
 
 
 
 
 
 478 433 337 74 54 27 
 
 
 
 
 
 
 
Adjustment on currency translation            
   Subsidiaries2 - - 15 - - 
   Equity accounted operations7 - - 3 - - 
 
 
 
 
 
 
 
 9 - - 18 - - 
 
 
 
 
 
 
 
Net deferral of stripping costs during the year            
   Subsidiaries66 13 61 11 16 25 
   Equity accounted operations29 31 41 12 4 2 
 
 
 
 
 
 
 
 95 44 102 23 20 27 
 
 
 
 
 
 
 
Other            
   Subsidiaries27 5 6 (6)- - 
   Equity accounted operations(3)(4)(12)(3)- - 
 
 
 
 
 
 
 
 24 1 (6)(9)- - 
 
 
 
 
 
 
 
Deferred stripping balance carried forward at            
31 December            
   Subsidiaries355 260 242 86 66 50 
   Equity accounted operations251 218 191 20 8 4 
 
 
 
 
 
 
 
 606 478 433 106 74 54 
 
 
 
 
 
 
 

A-20

BackNotes to Contents

RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

13Fixed asset investments
 
Investments
in joint
ventures
Loans to
joint
ventures
Investments
in associates/
other
Loans
to
associates
 
2003
Total
 
2002
Total
 
 
 
 
 
 
 
 
         US$m US$m 
Rio Tinto Group          
At 1 January1,744 177 580 76 2,577 2,290 
Adjustment on currency translation255 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 
 
 
 
 
 
 
 
At 31 December2,051 172 515 2 2,740 2,577 
 
 
 
 
 
 
 
             
 
Investments
in joint
ventures
Loans to
joint
ventures
Investments
in associates/
other
Loans
to
associates
2003
Total
2002
Total
 
 
 
 
 
 
 
         US$m US$m
Rio Tinto plc - part of Rio Tinto Group            
At 1 January881 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)
 
 
 
 
 
 
 
At 31 December963 151 2,589 91 3,794 2,535 
 
 
 
 
 
 
 
             
 
Investments
in joint
ventures
Loans to
joint
ventures
Investments
in associates/
other
Loans
to
associates
2003
Total
2002
Total
 
 
 
 
 
 
 
 
         US$m US$m 
Rio Tinto Limited - part of Rio Tinto Group            
At 1 January863 16 126 67 1,072  824 
Adjustment on currency translation255 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 
 
 
 
 
 
 
 
At 31 December1,088 21 62 - 1,171 1,072 
 
 
 
 
 
 
 
             
(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

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

13Fixed asset investments (continued)
Rio Tinto plc - Rio Tinto Limited -     
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
2003 20022003 20022003 2002
US$mUS$mUS$mUS$mUS$mUS$m
Joint Ventures      
Rio Tinto's share of assets            
Fixed assets1,573 1,640 1,195 1,118 2,768 2,758 
Current assets272 117 193 234 465 351 
 
 
 
 
 
 
 
 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)
 
 
 
 
 
 
 
 (731)(715)(279)(473)(1,010)(1,188)
 
 		 
 		 
 		 
 		 
 		 
 		 
Rio Tinto's share of net assets1,114 1,042 1,109 879 2,223 1,921 
 
 
 
 
 
 
 
             
(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$16 million after five years.
 Rio Tinto plc - Rio Tinto Limited -   
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
2003 20022003 20022003 2002
US$mUS$mUS$mUS$mUS$mUS$m
Associates       
Rio Tinto's share of assets            
Fixed assets5,132 4,352 182 349 1,083 1,512 
Current assets/(liabilities)1,197 944 (15)66 327 297 
 
 
 
 
 
 
 
 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)
 
 
 
 
 
 
 
 (3,723)(3,568)(124)(240)(947)(1,134)
Non equity capital and outside shareholders' interests(515)(314) - - (42)(105)
 
 
 
 
 
 
 
Rio Tinto's share of net assets2,091 1,414 43 175 421 570 
 
 
 
 
 
 
 
             
(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$216 million after 5 years.
 Rio Tinto plc -    Rio Tinto Limited -       
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
2003  20022003  20022003  2002
US$mUS$mUS$mUS$mUS$mUS$m
Investments in and loans to associates/other            
Investments in and loans to associates2,091 1,414 43 175 421 570 
Other investments589 79 19 18 96 86 
 
 
 
 
 
 
 
 2,680 1,493 62 193 517 656 
 
 
 
 
 
 
 
             
(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

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)the 2006 Financial statements

14Net debt of joint ventures and associatesINVESTMENTS IN EQUITY ACCOUNTED UNITS
 2006 2005 
Summary balance sheet (Rio Tinto share) US$m US$m 
 
Rio Tinto's share of assets  
     Non-current assets3,654 3,248 
     Current assets1,029 929 
 
 4,683 4,177 
 
Rio Tinto's share of liabilities  
     Current liabilities(763) (706)
     Non-current liabilities and provisions(1,685) (1,642)
 
 (2,448) (2,348)
 
Rio Tinto's share of net assets2,235 1,829 
 
(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 Tintoshare ofRio Tintoshare of
interestnet debtinterestnet debt
2003200320022002
 
 
%US$m%US$m
Joint ventures        
Minera Escondida Limitada30.0 414 30.0 464 
PT Kaltim Prima Coal- - 50.0 79  
Leichhardt44.7 31  44.7 40  
Colowyo20.0 32  20.0 35  
Warkworth42.1 34  42.1 26  
         
Associates        
Freeport-McMoRan Copper & Gold Inc.13.1 236 16.5 405 
Minera Alumbrera Limited- - 25.0 47  
Tisand (Pty) Limited50.0 121 50.0 62  
Port Waratah Coal Services27.6 114 27.6 103 
Sociedade Mineira de Neves-Corvo SA (Somincor)49.0 37  49.0 28  
         
Other  (15)  20  
   
   
 
   1,004   1,309 
   
   
 
         

15NET 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 
 
Jointly controlled entities       
Minera Escondida Limitada30.0  300 30.0 260 
Queensland Alumina Limited (QAL)38.6  44 38.6 106 
Associates       
Tisand (Pty) Limited49.0  100 49.0 119 
Port Waratah Coal Services27.6  122 27.6 91 
Other equity accounted units  (107)   (40)
 
   459   536 
 
(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$6 million of its share of Somincor's debt.
15     Inventories          
     Rio Tinto plc - Rio Tinto Limited-  
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
2003 20022003 20022003 2002
 US$mUS$mUS$mUS$mUS$mUS$m
Raw material and purchased components205 179 142 168 347 347 
Consumable stores124 108 166 140 290 248 
Work in progress219 148 163 97 382 245 
Finished goods and goods for resale420 379 344 283 764 662 
 
 
 
 
 
 
 
 968 814 815 688 1,783 1,502 
 
 
 
 
 
 
 
Comprising:            
Inventories expected to be sold or used within 12 months968 814 778 649 1,746 1,463 
Inventories expected to be neither sold nor used within 12 months- - 37 39 37 39 
 
 
 
 
 
 
 
 968 814 815 688 1,783 1,502 
 
 
 
 
 
 
 
             
(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

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements

16Accounts receivable and prepaymentsINVENTORIES
 Rio Tinto plc -      Rio Tinto Limited -               
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
2003   20022003   20022003   2002
US$mUS$mUS$mUS$mUS$mUS$m
Falling due within one year            
Trade debtors569 589 740 603 1,309 1,192 
Provision for doubtful debts(33)(6)(10)(10)(43)(16)
Bills receivable3 6 10 11 13 17 
Amounts owed by joint ventures- - - 5 - 5 
Amounts owed by associates811 577 1 7 4 17 
Other debtors99 66 268 242 225 181 
Current tax recoverable93 43 9 9 102 52 
Pension prepayments- 36 5 47 5 83 
Other prepayments12 24 47 43 59 67 
 
 
 
 
 
 
 
 1,554 1,335 1,070 957 1,674 1,598 
 
 
 
 
 
 
 
Falling due after more than one year            
Pension prepayments530 521 85 30 615 551 
Other debtors1 8 35 28 36 36 
Current tax recoverable- 5 130 5 130 10 
Deferred tax assets22 2 (5)42 17 44 
Bills receivable2 - 4 - 6 - 
Other prepayments- - 5 - 5 - 
Amounts due from Rio Tinto Limited- 1,066 - - - - 
 
 
 
 
 
 
 
 555 1,602 254 105 809 641 
 
 
 
 
 
 
 
             
 2006 2005 
 US$m US$m 
 
Raw materials and purchased components448  277 
Consumable stores581  428 
Work in progress459  553 
Finished goods and goods for resale1,151  931 
 
 2,639  2,189 
 
Comprising:    
Expected to be used within one year2,540  2,048 
Expected to be used after more than one year99  141 
 
 2,639  2,189 
 
(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.

17Current asset investments, cash and liquid resourcesTRADE AND OTHER RECEIVABLES
 Rio Tinto plc -      Rio Tinto Limited -               
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
2003   20022003   20022003   2002
US$mUS$mUS$mUS$mUS$mUS$m
Liquid resources            
   Time deposits147 32 59 53 206 85 
   Other2  2 - - 2 2 
 
 
 
 
 
 
 
Total liquid resources149 34 59 53 208 87 
Deduct: investments qualifying as cash(147)(32)(59)(53)(206)(85)
 
 
 
 
 
 
 
 2 2 - - 2 2 
Other current asset investments            
US Treasury bonds (a)228 304 - - 228 304 
 
 
 
 
 
 
 
Investments per balance sheet (unlisted)230 306 - - 230 306 
 
 
 
 
 
 
 
Cash            
Cash as defined in FRS1 Revised ('FRS1 cash')36 70 5 9 41 79 
Investments qualifying as cash147 32 59 53 206 85 
Add back Bank borrowings repayable on demand included in FRS 1 cash74 72 74 89 148 161 
 
 
 
 
 
 
 
Cash per balance sheet257 174 138 151 395 325 
 
 
 
 
 
 
 
             
 Non-current Current Non-current Current 
 2006 2006 2005 2005 
 US$m US$m US$m US$m 
 
Trade debtors56 2,133 4 1,730 
Amounts due from equity accounted units— 156 1 95 
Other debtors35 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 income91 145 79 108 
Provision for doubtful debts(20) (6) (3)(24)
 
 983 2,938 703 2,488 
 
(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.

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Notes to the 2006 Financial statements

18DEFERRED TAXATION
 2006 2005 
 US$m US$m 
 
At 1 January2,142 2,107 
Adjustment on currency translation97 (69)
(Credited)/charged to the income statement(54) 101 
Credited to SORIE (a)(94) (60)
Other movements (b)23 63 
 
At 31 December2,114 2,142 
 
Comprising:  
– deferred tax liabilities (c)2,339 2,197 
– deferred tax (assets) (c)(225) (55)
 

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 
 
Deferred tax liabilities arising from:      
Accelerated capital allowances2 1,422 1,757 3,181 2,096 
Post retirement benefits83 9 2 94 48 
Unremitted earnings— — 226 226 219 
Other temporary differences3 118 — 121 388 
 
 88 1,549 1,985 3,622 2,751 
 
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)
 
 (55)(149)(1,304)(1,508) (609)
 
(Credited)/charged to the income statement      
Accelerated capital allowances— (63)343 280 191 
Provisions(1)9 (13)(5) (78)
Post retirement benefits2 (1)15 16 3 
Tax losses33 3 (316)(280) — 
Tax on unremitted earnings— (2)— (2) (1)
Other temporary differences(7)(43)(13)(63) (14)
 
 27 (97)16 (54) 101 
 
(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.

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Notes to the 2006 Financial statements

19OTHER FINANCIAL ASSETS
 Non-current  Current  Non-current  Current  
 2006  2006  2005  2005  
 US$m  US$m  US$m  US$m  
 
Currency and commodity contracts: hedges42  36  46 28 
Derivatives and embedded derivatives not related to net        
debt: non-hedge (a)—  122  — 138 
Derivatives related to net debt3  352  254 62 
US Treasury bonds20  —  19 90 
Equity shares and quoted funds125  51  42 30 
Other investments, including loans184  —  92 183 
Other liquid resources (non-cash equivalent)—  6  — 5 
 
 374  567  453 536 
 
(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.

20CASH AND CASH EQUIVALENTS
 2006 2005 
 US$m US$m 
 
Cash at bank and in hand555 348 
Short term bank deposits181 2,031 
 
 736 2,379 
 
Bank overdrafts repayable on demand (unsecured)(14) (12)
 
Balance per Group cash flow statement 722 2,367 
 
(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.

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements

1821Short term borrowingsBORROWINGS
 Rio Tinto plc -Rio Tinto Limited -          
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
   
   
2003   20022003   20022003   2002
US$mUS$mUS$mUS$mUS$mUS$m
Secured            
Bank loans repayable within 12 months36 2 16 14 52 16 
Other loans repayable within 12 months21 20 38 70 59 90 
 
 
 
 
 
 
 
 57 22 54 84 111 106 
Unsecured            
Bank borrowings repayable on demand74 72 74 89 148 161 
Bank loans repayable within 12 months91 - - 62 91 62 
Other loans repayable within 12 months44 566 113 722 157 1,288 
Commercial paper276 699 1,411 1,050 1,687 1,749 
 
 
 
 
 
 
 
 485 1,337 1,598 1,923 2,083 3,260 
 
 
 
 
 
 
 
Total short term borrowings per balance sheet542 1,359 1,652 2,007 2,194 3,366 
 
 
 
 
 
 
 
             
   Non-current Current Non-current Current 
   2006 2006 2005 2005 
 Note US$m US$m US$m US$m 
 
Borrowings at 31 December          
Bank loans  157 156 162 148 
Other loans          
   Finance leases22 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 
 
Total borrowings  2,007 1,490 2,783 1,190 
 
(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.

22CAPITALISED FINANCE LEASES
 2006 2005 
 US$m US$m 
 
Present value of minimum lease payments  
Total minimum lease payments141 118 
Effect of discounting(20)(6)
 
 121 112 
 
Maturity of capitalised finance leases  
Due within one year25 19 
Between 1 year and 5 years52 54 
More than 5 years44 39 
 
 121 112 
 

23CONSOLIDATED NET DEBT
 2006 2005 
 Net debt Net debt 
 US$m US$m 
 
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 statement38 13 
Gains/(losses) on derivatives related to net debt44 (85)
Cash flows excluding exchange movements(1,146)2,546 
Other movements(4)(64)
 
Closing balance(2,437)(1,313)
 

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Notes to the 2006 Financial statements

23CONSOLIDATED NET DEBT CONTINUED
 2006 2005 
 Net debt Net debt 
 US$m US$m 
 
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 
 
Balances per above(2,437)(1,313)
 

 2006 2005 
 US$m US$m 
 
Exchange gains/(losses) on external net debt and intragroup balances  
Exchange gains on external net debt38 13 
Exchange (losses) on intragroup balances(5)(145)
Exchange gain on settlement of dividend13 4 
 
Credited/(charged) to income statement46 (128)
 
(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.

1924Accounts payable and accrualsTRADE AND OTHER PAYABLES
 Rio Tinto plc -Rio Tinto Limited -               
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
   
2003   20022003   20022003 2002
US$mUS$mUS$mUS$mUS$mUS$m
Due within one year            
Trade creditors365 258 372 326 737 584 
Amounts owed to joint ventures3 - 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 profits40 63 210 308 250 371 
Employee entitlements83 88 42 33 125 121 
Royalties and mining taxes82 83 51 47 133 130 
Accruals and deferred income59 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 shareholders367 329 189 158 492 430 
 
 
 
 
 
 
 
 1,325 1,189 1,854 1,556 2,140 1,974 
 
 
 
 
 
 
 
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 profits13 - 86 - 99 - 
 
 
 
 
 
 
 
 156 235 166 1,135 322 304 
 
 
 
 
 
 
 
             
 Non-current Current Non-current Current 
 2006 2006 2005 2005 
 US$m US$m US$m US$m 
 
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 income107 595 106 268 
Government grants deferred65 1 40 2 
 
 362 2,693 269 2,190 
 
(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.

25OTHER FINANCIAL LIABILITIES
 Non-current Current Non-current Current 
 2006 2006 2005 2005 
 US$m US$m US$m US$m 
 
Forward commodity contracts: hedges214 162 93 57 
Derivatives related to net debt19 4 20 8 
Other derivatives and embedded derivatives: non-hedge— 27 — 21 
 
 233 193 113 86 
 
(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.

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements

2026Provisions for liabilities and chargesPROVISIONS (NOT INCLUDING TAXATION)
 Post   Other   Close down &               
retirementemployeerestoration/ 20032002
health careentitlementsenvironmentalOtherTotalTotal
Rio Tinto Group    US$mUS$m
At 1 January466 240 1,662 194 2,562 2,279 
Adjustment on currency translation20 56 219 40 335 100 
Capitalisation of additional closure costs (note 12)- - 167 - 167 55 
Charged to profit for the year34 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 
 
 
 
 
 
 
 
 498 337 2,092 211 3,138 2,562 
 
 
 
 
     
Provision for deferred taxation (note 21)        1,398 1,050 
         
 
 
Provisions for liabilities and charges per balance sheet        4,536 3,612 
         
 
 
             
 Post Other Close down &       
retirementemployeerestoration/ 20032002
health careentitlementsenvironmentalOtherTotalTotal
Rio Tinto plc - part of Rio Tinto Group    US$mUS$m
At 1 January425 64 1,084 48 1,621 1,432 
Adjustment on currency translation10 6 42 1 59 12 
Capitalisation of additional closure costs (note 12)    67   67 24 
Charged/(released) to profit for the year29 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 
 
 
 
 
 
 
 
 444 84 1,215 60 1,803 1,621 
 
 
 
 
     
Provision for deferred taxation (note 21)        740 640 
         
 
 
Provisions for liabilities and charges per balance sheet        2,543 2,261 
         
 
 
             
 Post     Other     Close down &                       
retirementemployeerestoration/ 20032002
health careentitlementsenvironmentalOtherTotalTotal
Rio Tinto Limited - part of Rio Tinto Group    US$mUS$m
At 1 January41 176 578 146 941 847 
Adjustment on currency translation10 50 177 39 276 88 
Capitalisation of additional closure costs (note 12)- - 100 - 100 31 
Charged/(released) to profit for the year5 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 
 
 
 
 
 
 
 
 54 253 877 151 1,335 941 
 
 
 
 
     
Provision for deferred taxation (note 21)        658 410 
         
 
 
Provision for liabilities and charges per balance sheet        1,993 1,351 
         
 
 

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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 
 
At 1 January996 328 2,693 169 4,186 3,943 
Adjustment on currency translation1 21 82 9 113 (86)
Amounts capitalised— — 619 — 619 346 
Charged to profit:      
   – new provisions— 17 — 8 25 72 
   – increases to existing provisions97 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)
 
At 31 December770 393 3,359 146 4,668 4,186 
 
Balance sheet analysis:      
Current    366 321 
Non-current    4,302 3,865 
 
Total    4,668 4,186 
 
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'.

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements

2127Deferred taxationSHARE CAPITAL - RIO TINTO PLC
             
Rio Tinto plc -Rio Tinto Limited -  
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
2003 20022003 20022003 2002
US$mUS$mUS$mUS$mUS$mUS$m
At 1 January (as restated)638 573 368 342 1,006 915 
Adjustment on currency translation52 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 
 
 
 
 
 
 
 
 718 638 663 368 1,381 1,006 
 
 
 
 
 
 
 
Included in provisions for liabilities and charges740 640 658 410 1,398 1,050 
Included in accounts receivable(22)(2) 5 (42)(17)(44)
 
 
 
 
 
 
 
 718 638 663 368 1,381 1,006 
 
 
 
 
 
 
 
 2006 2005 2006 2005 
 Number (m) Number (m) US$m US$m 
 
Issued and fully paid up share capital       
At 1 January1,071.02 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 — — 
 
At 31 December1,071.49 1,071.02 172 172 
 
– shares repurchased and held in treasury (b)47.82 2.60 — — 
– shares held by public1,023.67 1,068.42 — — 
 
Unissued share capital       
Ordinary shares of 10p each349.74 350.21 51 51 
Equalisation share of 10p (d)1 only 1 only — — 
 
Total authorised share capital1,421.23 1,421.23 223 223 
 
(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 GroupUKAustraliancountries'20032002
taxtaxtaxTotalTotal
Provided in the accounts
    US$mUS$m
Deferred tax assets12 311 1,046 1,369 1,491 
Deferred tax liabilities(134)(988)(1,628)(2,750)(2,497)
 
 
 
 
 
 
Balance as shown above(122)(677)(582)(1,381)(1,006)
 
 
 
 
 
 
Comprising:          
Accelerated capital allowances(6)(630)(938)(1,574)(1,439)
Other timing differences(130)(66)107 (89)225 
Tax losses14 19 249 282 208 
 
 
 
 
 
 
Balance as shown above(122)(677)(582)(1,381)(1,006)
 
 
 
 
 
 
           
Rio Tinto plc - part of Rio Tinto Group            Other                 
UKAustraliancountries'20032002
taxtaxtaxTotalTotal
Provided in the accounts
    US$mUS$m
Deferred tax assets12 3 871 886 1,107 
Deferred tax liabilities(134)- (1,470)(1,604)(1,745)
 
 
 
 
 
 
Balance as shown above(122)3 (599)(718)(638)
 
 
 
 
 
 
Comprising:          
Accelerated capital allowances(6)3 (890)(893)(917)
Other timing differences(130)- 72 (58)89 
Tax losses14 - 219 233 190 
 
 
 
 
 
 
Balance as shown above(122)3 (599)(718)(638)
 
 
 
 
 
 
           
Rio Tinto Limited - part of Rio Tinto Group            Other                 
UKAustraliancountries'20032002
taxtaxtaxTotalTotal
Provided in the accounts
    US$mUS$m
Deferred tax assets- 308 175 483 384 
Deferred tax liabilities- (988)(158)(1,146)(752)
 
 
 
 
 
 
Balance as shown above- (680)17 (663)(368)
 
 
 
 
 
 
Comprising:          
Accelerated capital allowances- (633)(48)(681)(522)
Other timing differences- (66)35 (31)136 
Tax losses- 19 30 49 18 
 
 
 
 
 
 
Balance as shown above- (680)17 (663)(368)
 
 
 
 
 
 
(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.

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

22Medium and long term borrowings
 Rio Tinto plc - Rio Tinto Limited -     
part of Rio Tinto Grouppart of Rio Tinto GroupRio Tinto Group
2003 20022003 20022003 2002
US$mUS$mUS$mUS$mUS$mUS$m
At 1 January2,729 2,629 3,184 3,623 5,913 6,252 
Adjustment on currency translation92 33 92 37 184 70 
Loans drawn down602 1,012 1,215 560 1,817 1,572 
Loan repayments(1,396)(945)(623)(1,036)(2,019)(1,981)
 
 
 
 
 
 
 
At 31 December2,027 2,729 3,868 3,184 5,895 5,913 
Deduct: short term(468)(1,287)(1,578)(1,918)(2,046)(3,205)
 
 
 
 
 
 
 
Medium and long term borrowings1,559 1,442 2,290 1,266 3,849 2,708 
 
 
 
 
 
 
 
Borrowings at 31 December            
Commercial paper (b)276 699 1,411 1,050 1,687 1,749 
Bank loans            
Secured41 8 109 254 150 262 
Unsecured173 82 262 121 435 203 
 
 
 
 
 
 
 
 214 90 371 375 585 465 
Other loans            
Secured            
   Loans12 22 35 68 47 90 
   Finance leases99 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 loans189 159 250 198 439 357 
 
 
 
 
 
 
 
 1,537 1,940 2,086 1,759 3,623 3,699 
 
 
 
 
 
 
 
Total2,027 2,729 3,868 3,184 5,895 5,913 
 
 
 
 
 
 
 
(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.

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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 
 
 
 
 
 
US$m US$m US$m US$m US$m 
           
At 1 January79 (5,913)87 (5,747)(5,711)
Adjustment on currency translation45 (184)16 (123)(102)
Per cash flow statement(83)202 105 224 66 
 
 
 
 
 
 
At 31 December41 (5,895)208 (5,646)(5,747)
 
 
 
 
 
 
           
           
 FRS 1   Liquid 2003 2002 
 cash (a) Borrowings resources (a) Net debt Net debt 
Rio Tinto plc - part of Rio Tinto Group
 
 
 
 
 
US$m US$m US$m US$m US$m 
           
At 1 January70 (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)
 
 
 
 
 
 
At 31 December36 (2,027)149 (1,842)(2,625)
 
 
 
 
 
 
           
           
 FRS 1   Liquid 2003 2002 
 cash (a) Borrowings resources (a) Net debt Net debt 
Rio Tinto Limited - part of Rio Tinto Group
 
 
 
 
 
US$m US$m US$m US$m US$m 
           
At 1 January9  (3,184)53 (3,122)(3,400)
Adjustment on currency translation70 (92)11 (11)(13)
Per cash flow statement(74)(592)(5)(671)291 
 
 
 
 
 
 
At 31 December5  (3,868)59 (3,804)(3,122)
 
 
 
 
 
 
           
(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 
 
 
 
 
 2003 2002 2003 2002 2003 2002 
 
 
 
 
 
 
 
 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 borrowings794 (67)(592)476 202 409 
Increase/(decrease) in liquid resources110 (142)(5)(71)105 (213)
 
 
 
 
 
 
 
Decrease/(Increase) in net debt895 (225)(671)291 224 66 
 
 
 
 
 
 
 
             
Net cash flow from movement in liquid resources comprises:            
Increase/(Decrease) in time deposits110 (195)3 (9)113 (204)
(Decrease) in certificates of deposit- (2)- (5)- (7)
Increase/(Decrease) in other liquid investments- 55 (8)(57)(8)(2)
 
 
 
 
 
 
 
Net cash outflow/(inflow)110 (142)(5)(71)105 (213)
 
 
 
 
 
 
 
             
(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.

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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 
 
 
 
 
 
 Number(m) Number(m) US$mUS$m 
Share capital account        
At 1 January1,065.48 1,064.59 154 154 
Ordinary shares issued1.19 0.89  1 - 
 
 
 
 
 
At 31 December1,066.67 1,065.48 155 154 
 
 
 
 
 
         
         
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 
     
 
 
Total issued share capital    155 154 
     
 
 
         
         
Unissued share capital        
Ordinary shares of 10p each353.36 354.55 51 52 
Equalisation share of 10p (d)1 only 1 only - - 
 
 
 
 
 
Total authorised share capital1,420.03 1,420.03 206 206 
 
 
 
 
 
         
Options outstanding        
Options outstanding at 1 January9.34 7.93     
   - granted2.70 2.61     
   - exercised(1.43)(0.89)    
   - cancelled(1.00)(0.31)    
 
 
     
Options outstanding at 31 December (b)9.61 9.34     
 
 
     
         
(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.

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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 
 
 
 
 
 
 Number(m) Number(m) US$mUS$m
Share capital account        
At 1 January498.82 498.46 964 865 
Adjustment on currency translation- - 311 94 
Share issues0.24 0.36 5 5  
 
 
 
 
 
At 31 December499.06 498.82 1,280 964 
 
 
 
 
 
         
Options outstanding        
Options outstanding at 1 January4.69 3.08     
   - granted1.63 2.25     
   - exercised(0.07)(0.21)    
   - cancelled(0.25)(0.43)    
 
 
     
Options outstanding at 31 December (d)6.00 4.69     
 
 
     
         
28SHARE CAPITAL - RIO TINTO LIMITED
 2006 2005 2006 2005 
 Number (m) Number (m) US$m US$m 
 
Share capital account    
At 1 January285.75 311.90 1,019 1,133 
Adjustment on currency translation  80 (65)
Own shares purchased (a)— (27.29)— (83)
Share issues (b)— 1.14 — 34 
 
At 31 December285.75 285.75 1,099 1,019 
 
Share capital held by Rio Tinto plc171.07 171.07   
 
Total share capital (c)456.82 456.82   
 
(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.

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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 
 
 
 
 
 2003 2002 2003 2002 2003 2002 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m 
Share premium account            
At 1 January1,610 1,600 - - 1,610 1,600 
Premium on issues of ordinary shares19 10 - - 19 10 
 
 
 
 
 
 
 
At 31 December1,629 1,610 - - 1,629 1,610 
 
 
 
 
 
 
 
             
Parent and subsidiary companies' profit and loss account            
At 1 January2,800 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 year80 (552)593 432 614 (180)
Transfers and other movements (c)96 93 (42) (146)115 - 
 
 
 
 
 
 
 
At 31 December3,529 2,800 2,716 1,156 6,266 3,968 
 
 
 
 
 
 
 
             
Joint ventures' profit and loss account            
At 1 January267 264 237 266 504 531 
Adjustment on currency translation (b)- 3 55 11 53 13 
Retained (loss)/profit for the year52 - (37)(40)15 (40)
Transfers and other movements (c)16 - (62)- (46)- 
 
 
 
 
 
 
 
At 31 December335 267 193 237 526 504 
 
 
 
 
 
 
 
             
Associates' profit and loss account            
At 1 January819 577 67 21 107 56 
Adjustment on currency translation (b)483 134 3 1 7 6 
Retained (loss)/profit for the year141 108 8 45 (3)45 
Transfers and other movements (c)(9)- (60)- (69)- 
 
 
 
 
 
 
 
At 31 December1,434 819 18 67 42 107 
 
 
 
 
 
 
 
             
 
 
 
 
 
 
 
Total profit and loss account5,298 3,886 2,927 1,460 6,834 4,579 
 
 
 
 
 
 
 
Other reserves            
At 1 January249 247 86 76 303 294 
Adjustment on currency translation12 2 31 10 31 9 
 
 
 
 
 
 
 
At 31 December261 249 117 86 334 303 
 
 
 
 
 
 
 
Total reserves            
   - Parent and subsidiary companies3,731 3,002 2,835 1,242 6,585 4,256 
   - Joint ventures335 267 191 237 526 504 
   - Associated companies1,493 866 18 67 57 122 
 
 
 
 
 
 
 
 5,559 4,135 3,044 1,546 7,168 4,882 
 
 
 
 
 
 
 
             
(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).

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

26Product analysis - Rio Tinto Group
 
2003
 
2002
 
2003
 
2002
 
%
%
US$m
US$m
Operating assets (a), (b)
 
 
 
 
Diamonds8.0 7.1 1,261 968 
Copper, gold and by-products18.2 23.0 2,877 3,109 
Iron ore25.0 20.7 3,951 2,803 
Coal14.1 13.9 2,234 1,879 
Aluminium20.6 17.5 3,261 2,365 
Industrial minerals12.9 15.5 2,044 2,100 
Other products1.2 2.3 181 320 
 
 
 
 
 
Total100.0 100.0 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      
Copper12.7 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 ore18.4 16.4 16.3 2,165 1,772 1,704 
Coal18.1 20.3 20.1 2,125 2,203 2,102 
Aluminium15.7 15.4 16.4 1,847 1,663 1,714 
Industrial minerals15.7 17.5 17.5 1,849 1,898 1,825 
Diamonds4.7 3.4 2.7 556 372 278 
Other products5.6 4.9 5.3 650 526 550 
 
 
 
 
 
 
 
Total100.0 100.0 100.0 11,755 10,828 10,438 
 
 
 
 
 
 
 
Profit before tax (a)            
Copper, gold and by-products27.3 19.0 15.1 680 536 474 
Iron ore30.1 24.2 24.3 748 680 761 
Coal10.2 18.5 17.9 255 520 560 
Aluminium11.5 13.0 16.0 287 365 500 
Industrial minerals11.5 19.9 20.8 286 559 651 
Diamonds7.5 3.4 2.8 187 96 89 
Other products1.9 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-products27.1 20.8 15.6 429 369 298 
Iron ore31.6 25.6 26.4 500 455 504 
Coal10.3 17.9 18.1 163 318 345 
Aluminium11.9 14.5 17.3 189 257 330 
Industrial minerals10.0 16.4 17.4 159 292 332 
Diamonds7.0 3.5 3.1 111 63 58 
Other products2.1 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

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements

2629Product 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 equityUS$m US$m US$m 
 
Opening balance14,948 791 15,739 
       
Total recognised income for the year8,514 468 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 issued31 — 31 
Subsidiary company share issue— 69 69 
Employee share options charged to the income statement23 — 23 
Other movements(4)18 14 
 
Closing balance18,232 1,153 19,385 
 
       
 Attributable Outside Total 
 to Interests Year ended 
 shareholders  31 December 
 of Rio Tinto  2005 
Summary statement of changes in equityUS$m US$m US$m 
 
Opening balance11,967 733 12,700 
       
Total recognised income for the year4,877 219 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 issued100 — 100 
Subsidiary company share issue— 4 4 
Employee share options charged to the income statement24 — 24 
Other movements— 4 4 
 
Closing balance14,948 791 15,739 
 
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   
Copper625 419 369 
Gold283 236 247 
Coal836 956 912 
Other76 51 84 
 
 
 
 
Total1,820 1,662 1,612 
 
 
 
 
Profit before tax      
Copper, gold and by-products378 232 220 
Coal139 285 297 
Other3 3 3 
Exceptional charges- (16)- 
 
 
 
 
Total520 504 520 
 
 
 
 
Net earnings      
Copper, gold and by-products256 155 141 
Coal102 198 201 
Other2 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   
Copper185 259 267 
Gold411 355 333 
Other111 109 74 
 
 
 
 
Total707 723 674 
 
 
 
 
Profit before tax      
Copper, gold and by-products147 130 97 
Other33 59 61 
 
 
 
 
Total180 189 158 
 
 
 
 
Net earnings      
Copper, gold and by-products77 93 51 
Other21 36 38 
 
 
 
 
Total98 129 89 
 
 
 
 

A-35

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements

2729Geographical 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 America30.7 36.5 4,846 4,949 
Australia and New Zealand55.7 47.6 8,799 6,446 
South America4.1 5.2 652 703 
Africa3.6 3.5 577 477 
Indonesia3.5 4.4 554 599 
Europe and other countries2.4 2.8 381 370 
 
 
 
 
 
Total100.0 100.0 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$mUS$mUS$m
Gross turnover by country of origin      
North America30.3 31.2 30.1 3,567 3,377 3,143 
Australia and New Zealand43.8 41.6 42.0 5,152 4,500 4,386 
South America5.8 4.8 5.0 682 525 524 
Africa5.6 7.2 8.2 662 783 857 
Indonesia8.8 9.6 9.1 1,037 1,039 951 
Europe and other countries5.7 5.6 5.6 655 604 577 
 
 
 
 
 
 
 
Total100.0 100.0 100.0 11,755 10,828 10,438 
 
 
 
 
 
 
 
             
 2003   2002   2001   2003   2002   2001   
%%%US$mUS$mUS$m
Profit before tax      
North America18.9 17.1 15.2 399 439 449 
Australia and New Zealand53.7 57.1 56.4 1,131 1,464 1,666 
South America11.1 3.4 2.9 234 86 85 
Africa3.1 11.8 14.2 65 303 420 
Indonesia16.5 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$mUS$mUS$m
Net earnings      
North America25.2 20.1 19.6 363 326 359 
Australia and New Zealand52.3 57.8 57.5 754 939 1,052 
South America10.8 4.0 3.1 156 65 56 
Africa0.8 7.1 7.8 12 115 143 
Indonesia12.6 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 January1,888 1,822 
Premium on issues of ordinary shares31 66 
 
At 31 December1,919 1,888 
 
Retained earnings  
At 1 January11,893 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 gains338 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 statement12 13 
Tax recognised directly in SORIE(45)35 
Other movements(4)— 
 
At 31 December14,401 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 statement63 (18)
Equity accounted units' cash flow hedge losses transferred to the income statement— 18 
Tax on the above59 10 
 
At 31 December(133)(77)
   
Available for sale revaluation reserves(c)  
At 1 January20 70 
Gains on available for sale securities14 32 
(Gains) on available for sale securities transferred to the income statement(4)(88)
Tax on the above1 6 
 
At 31 December31 20 
   
Other reserves(d)  
At 1 January42 31 
Own shares purchased from Rio Tinto shareholders to satisfy share options(49)— 
Employee share options: value of services11 11 
Tax on the above4 — 
 
At 31 December8 42 
   
Foreign currency translation reserve(e)  
At 1 January(9)322 
Currency translation adjustments748 (411)
Exchange (losses)/gains(8)75 
Currency translation reclassified on disposal4 — 
Tax on exchange adjustments— 5 
 
At 31 December735 (9)
 
Total other reserves per balance sheet641 (24)
 
(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

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements

2730Geographical analysis - Rio Tinto Group (continued)PRIMARY SEGMENTAL ANALYSIS (BY PRODUCT GROUP)
 
 2006 2005 2004 2006 2005 2004 
 % % % US$m US$m US$m 
 
Sales revenue      
Iron ore30.9 28.9 23.2 6,938 5,497 3,009 
Energy18.1 19.4 21.8 4,070 3,693 2,826 
Industrial minerals11.1 12.5 15.8 2,501 2,374 2,052 
Aluminium15.5 14.4 18.2 3,493 2,744 2,356 
Copper19.6 18.0 13.6 4,396 3,433 1,756 
Diamonds3.7 5.7 5.7 838 1,076 744 
Other1.1 1.1 1.7 229 216 211 
 
Consolidated sales revenue100.0 100.0 100.0 22,465 19,033 12,954 
 
       
 
Consolidated profit before finance items and taxation      
Iron ore43.2 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 
Aluminium11.9 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)
 
Operating profit (segment result)100.0 100.0 100.0 8,974 6,922 3,327 
 
       
Share of profit after tax of equity accounted units      
Copper   1,271 660 495 
Other   107 116 28 
 
Profit before finance items and taxation   10,352 7,698 3,850 
 
      
 
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 
Aluminium9.7 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 evaluation0.2 0.2 0.1 3 3 2 
Other2.0 3.3 2.8 29 43 47 
 
Product group total100.0 100.0 100.0 1,469 1,334 1,719 
 
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 
US$mUS$m
Net investment by origin  
Australia and New Zealand1,108 834 
South America552 498 
Indonesia523 567 
Other40 22 
 
 
 
Total2,223 1,921 
 
 
 
     
 2003   2002    2001   
US$mUS$mUS$m
Gross turnover by origin   
Australia and New Zealand550 587 545 
South America502 283 289 
Indonesia539 565 528 
Other229 227 250 
 
 
 
 
Total1,820 1,662 1,612 
 
 
 
 
Profit before tax by origin      
Australia and New Zealand57 214 207 
South America183 49 64 
Indonesia241 231 228 
Other39 26 21 
Exceptional items- (16)- 
 
 
 
 
Total520 504 520 
 
 
 
 
Net earnings by origin      
Australia and New Zealand46 151 145 
South America122 32 41 
Indonesia155 149 142 
Other37 23 16 
Exceptional items- (16)- 
 
 
 
 
Total360 339 344 
 
 
 
 
        
  2006 2005 2004 
  Total Total Total 
  US$m US$m US$m 
 
 
 Impairment reversals less charges by product group   
 Iron Ore298 — — 
 Energy(188)(13)(160)
 Industrial Minerals(7)16 — 
 Copper610 — (398)
 Diamonds(317)— — 
 
 
  396 3 (558)
 
 
(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

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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:

         
2003
2002
 
         
 
 
         
US$m
US$m
 
Net investment by origin            
North America        53 71 
Indonesia        143 127 
Other        225 372 
         
 
 
Total        421 570 
         
 
 
             
2003
2002
2001
US$m
US$m
US$m
Gross turnover by origin            
North America      155 131 128 
Indonesia      344 306 296 
Other      208 286 250 
       
 
 
 
Total      707 723 674 
       
 
 
 
             
Profit before tax by origin            
North America      67 42 45 
Indonesia      72 54 35 
Other      41 93 78 
       
 
 
 
Total      180 189 158 
       
 
 
 
             
Net earnings by origin            
North America      49 33 36 
Indonesia      23 19 1 
Other      26 77 52 
       
 
 
 
Total      98 129 89 
       
 
 
 
             
By destination            
    
2003
2002
2001
2003
2002
2001
%
%
%
US$m
US$m
US$m
Turnover by destination            
North America25.7 29.0 28.1 3,024 3,143 2,936 
Europe23.3 21.6 22.4 2,742 2,340 2,338 
Japan18 17.9 19.3 2,119 1,943 2,012 
Other Asia21.5 19.2 18.9 2,527 2,083 1,974 
Australia and New Zealand7.2 8.2 7.1 845 887 740 
Other4.3 4.1 4.2 498 432 438 
 
 
 
 
 
 
 
Total100.0 100.0 100.0 11,755 10,828 10,438 
 
 
 
 
 
 
 

The Group figures shown above include the following amounts for joint ventures:

2003
2002
2001
US$m
US$m
US$m
Turnover by destination      
North America191 214 225 
Europe300 303 304 
Japan543 575 506 
Other786 570 577 
 
 
 
 
Total1,820 1,662 1,612 
 
 
 
 
       
The Group figures shown above include the following amounts for associates:      
2003
2002
2001
US$m
US$m
US$m
Turnover by destination   
North America172157159 
Europe220248251 
Other315318264 
 
 
 
 
Total707723674 
 
 
 
 
30PRIMARY SEGMENTAL ANALYSIS (BY PRODUCT GROUP) CONTINUED
 
 2006 2005 2006 2005 
 % % US$m US$m 
 
Segment Assets (subsidiaries and proportionally consolidated units)        
Iron ore33.8 29.5 10,151 7,228 
Energy16.5 18.5 4,965 4,542 
Industrial minerals12.0 13.1 3,589 3,216 
Aluminium12.9 13.6 3,863 3,341 
Copper16.0 14.7 4,814 3,597 
Diamonds5.6 7.0 1,671 1,703 
Other3.2 3.6 959 869 
 
Product group total100.0 100.0 30,012 24,496 
 
Equity accounted units (a)        
Copper58.0 53.5 1,385 1,063 
Aluminium36.8 42.7 878 849 
Other5.2 3.8 123 76 
 
Total100.0 100.0 2,386 1,988 
 
Deferred tax assets    225 55 
Current tax recoverable    214 152 
Pension surpluses    360 200 
Derivative assets    555 528 
Cash and liquid resources    742 2,384 
 
Total assets    34,494 29,803 
 
(a)AnThe analysis of Property, Plant and Equipment by location is includedthe Group's investment in note 42 'Reconciliationequity accounted units includes loans to US Accounting Principles'.equity accounted units, which are shown separately on the face of the balance sheet.
         
 2006 2005 2006 2005 
 % % US$m US$m 
 
Segment Liabilities (subsidiaries and proportionally consolidated units)     
Iron ore21.1 20.0 (1,467)(1,130)
Energy21.3 25.9 (1,480)(1,463)
Industrial minerals8.0 9.6 (558)(544)
Aluminium10.7 10.9 (745)(617)
Copper23.8 21.4 (1,653)(1,209)
Diamonds4.6 4.4 (320)(248)
Other10.5 7.8 (730)(438)
 
Total100.0 100.0 (6,953)(5,649)
 
Borrowings and bank overdrafts    (3,511)(3,985)
Current tax payable    (1,110)(1,038)
Deferred tax liabilities    (2,339)(2,197)
Derivative liabilities    (426)(199)
Post retirement benefit liabilities    (770)(996)
 
Total liabilities    (15,109)(14,064)
 

A-38

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

30PRIMARY SEGMENTAL ANALYSIS (BY PRODUCT GROUP) CONTINUED
 2006 2005 2004 2006 2005 2004 
 % % % US$m US$m US$m 
 
Capital additions (a)          
Iron ore48.4 44.0 37.3 2,303 1,291 1,039 
Energy12.4 20.6 11.5 591 604 321 
Industrial minerals8.4 8.5 8.8 400 249 245 
Aluminium5.3 5.0 22.9 253 147 640 
Copper15.9 11.5 9.3 758 337 259 
Diamonds6.0 6.5 8.5 288 192 236 
Other3.6 3.9 1.7 170 114 49 
 
Total capital additions100.0 100.0 100.0 4,763 2,934 2,789 
 
           
     Note     
 
Analysis of capital additions          
Property, plant & equipment - cash expenditure      3,800 2,523 2,246 
Capitalised closure costs and other provisions    13 619 346 268 
Capitalised interest    13 60 28 35 
Intangible assets - cash expenditure      192 67 13 
Finance leases taken out      2 64 — 
Movement in payables for capital expenditure      90 (94)227 
 
Capital additions per above      4,763 2,934 2,789 
 
(a)Capital additions represent the total cost incurred during the period to acquire the non-current assets shown above, measured on an accruals basis, in accordance with IAS 14. These figures exclude capital additions of equity accounted units.

A-39

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NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements

31SECONDARY SEGMENTAL ANALYSIS (BY GEOGRAPHICAL SEGMENT)

By destination

 2006 2005 2004 2006 2005 2004 
 % % % US$m US$m US$m 
 
Gross sales revenue by destination (including share of equity accounted units)        
North America (a)21.9 21.7 24.7 5,575 4,499 3,588 
Europe17.2 20.5 20.6 4,378 4,260 2,991 
Japan19.6 19.1 17.9 4,986 3,954 2,597 
China16.0 15.0 10.1 4,062 3,112 1,471 
Other Asia13.5 12.8 13.1 3,438 2,663 1,906 
Australia and New Zealand5.8 6.7 8.5 1,477 1,400 1,235 
Other6.0 4.2 5.1 1,524 854 742 
 
 100.0 100.0 100.0 25,440 20,742 14,530 
 
Less: share of equity accounted units' sales revenue      (2,975)(1,709)(1,576)
 
Consolidated sales revenue      22,465 19,033 12,954 
 
         
Consolidated sales revenue by destination        
North America (a)23.9 22.3 25.6 5,358 4,235 3,314 
Europe17.5 20.8 20.1 3,929 3,968 2,607 
Japan19.6 19.0 17.9 4,402 3,620 2,319 
China16.2 15.4 10.7 3,648 2,932 1,389 
Other Asia12.0 12.4 12.9 2,691 2,366 1,676 
Australia and New Zealand6.3 7.0 9.0 1,412 1,336 1,170 
Other4.5 3.1 3.8 1,025 576 479 
 
Total100.0 100.0 100.0 22,465 19,033 12,954 
 
         
Gross sales revenue by country of origin (including share of equity accounted units) 
North America (a)29.6 30.8 31.5 7,529 6,397 4,571 
Australia and New Zealand49.9 51.2 48.3 12,703 10,613 7,023 
South America10.5 6.3 7.8 2,679 1,302 1,131 
Africa5.7 5.5 5.8 1,461 1,149 850 
Indonesia1.6 3.4 2.2 396 702 314 
Europe and other countries2.7 2.8 4.4 672 579 641 
 
Total100.0 100.0 100.0 25,440 20,742 14,530 
 
Less: share of equity accounted units' sales revenue      (2,975)(1,709)(1,576)
 
Consolidated sales revenue      22,465 19,033 12,954 
 

 
Segment assets
 
Capital additions
 
 2006 2005 2006 2005 2004 
 US$m US$m US$m US$m US$m 
 
Assets and capital additions by location (excluding equity accounted units)
North America (a)10,302 8,254 1,430 830 613 
Australia and New Zealand17,097 13,850 2,993 1,914 1,985 
South America151 126 19 37 21 
Africa1,168 1,014 204 62 54 
Indonesia605 679 49 68 59 
Europe and other countries1,049 773 68 23 57 
 
 30,372 24,696 4,763 2,934 2,789 
           
Investments in equity accounted units (b)          
North America (a)408 61       
Australia and New Zealand937 893       
South America993 1,000       
Other countries48 34       
 
 2,386 1,988       
           
Deferred tax assets225 55       
Current tax recoverable214 152       
Derivative assets555 528       
Cash and liquid resources742 2,384       
 
Total assets34,494 29,803       
 
(a)The United States of America and Canada have been combined to form the 'North America' Geographical segment, having regard to the similarity of economic and political conditions in these countries.
(b)This analysis of investments in equity accounted units represents the Group's share of net assets plus loans to equity accounted units, which are shown separately on the face of the balance sheet.

28A-40

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Notes to the 2006 Financial Instrumentsstatements

32FINANCIAL INSTRUMENTS

Financial risk management

The Group'sGroup’s policies with regard to currency,risk management are clearly defined and consistently applied. They are a fundamental tenet 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, obviating the need to use derivatives or other forms of synthetic hedging for this purpose. Such hedging is therefore undertaken to a strictly limited degree, as described below.
     The Group has a diverse 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 addition, the Group’s policy of borrowing at floating US dollar interest raterates helps to counteract the effect of economic and commodity price exposures, and the use ofcycles.
     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 discussedused 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 following sectionscapital markets to achieve a floating rate obligation which is consistent with the Group’s interest rate policy. Currency swaps are used to convert debt or investments into currencies, primarily the US dollar, which are consistent with the Group’s policy on pages 34currency exposure management.

Foreign exchange risk
Rio Tinto’s shareholders' equity, earnings and 35cash flows are influenced by a wide variety of currencies due to the geographic diversity of the Financial review includedGroup’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 (apart from the US dollar) influencing costs.
     Details of the derivative financial instruments entered into to manage the Group's exposure to currencies other than the US dollar are provided in note A below.
     Given the dominant role of the US currency in the Annual reportGroup’s affairs, the US dollar is the currency in which financial results are presented both internally and financial statements: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.
- Exchange     The Group finances its operations primarily in US dollars, either directly or using currency swaps, and a substantial part of the Group's US dollar debt is located in subsidiaries having functional currencies other than the US dollar.
     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 A below, as at 31 December 2006 there were forward contracts to sell US$581 million (2005: US$512 million) in respect of future trading transactions. A significant part of the above hedge book was acquired with North Ltd. North held a substantial hedge book on acquisition which has been retained but is not being renewed as maturities occur.

Interest rate risk
Rio Tinto’s interest rate management policy is generally to borrow and invest cash at floating rates. Short term US dollar rates reporting currenciesare normally lower than long term rates, resulting in lower interest costs to the Group. Furthermore, cyclical movements 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 (2005: US$1.1 billion) of the Group’s debt was at fixed rates after taking into account interest rate swaps and currencyfinance leases. 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 (2005: US$4 million).

Commodity price risk
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 is diversified by virtue of its broad commodity spread and the Group does not generally believe commodity price hedging would provide long term benefit to shareholders. During 2005, forward contracts to sell 509 million pounds of copper at a fixed rand price per pound were entered into as a condition of the refinancing of Palabora, for which cash flow hedge accounting is achieved (of which 420 million pounds remain at 31 December 2006).

Credit risk
No material exposure is considered to exist by virtue of the possible non-performance of the counterparties to financial instruments, other than trade and other receivables held by the Group.
- Interest rates     Given the large number of internationally dispersed customers the Group has limited concentration of credit risk, with regard to its trade and other receivables, which is closely monitored.

A-41

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Notes to the 2006 Financial statements

32FINANCIAL INSTRUMENTS CONTINUED

Implementation of IAS 32 'Financial instruments: presentation and disclosure'
The Group implemented IAS 32 at 1 January 2005 without restatement of comparatives.

Implementation of IAS 39 'Financial instruments: recognition and measurement'
The Group implemented IAS 39 at 1 January 2005 without restatement of comparatives. For 2004, financial instruments were not marked to market except in the case of exchange rate derivatives that did not qualify as hedges under IAS 21.
- Commodity prices     The adoption of IAS 39 resulted in a US$90 million increase in equity attributable to Rio Tinto shareholders at 1 January 2005. This was net of consequential increases in deferred tax liabilities of US$24 million, and outside equity shareholders' interests of US$19 million. This represented the net gain on the marking to market of qualifying hedges, embedded derivatives, available for sale investments and certain derivatives that did not qualify as hedges.
- Treasury management     The major balance sheet line items affected were financial assets: increase of US$287 million, financial liabilities: increase of US$66 million, and financial instrumentsborrowings: increase of US$69 million. The net impact on other balance sheet items was a reduction in total assets of US$19 million.

Financial instrument disclosures
Except where stated, the information given below relates to the financial instruments of the parent companies and their subsidiaries and proportionally consolidated units, and excludes joint venturesthose of equity accounted units.
     Trade and associates. The information provided is as at the end of the financial year. Short term debtors and creditorsother receivables/payables 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 are shown The information is grouped in the disclosures below.

A) Currencyfollowing sections:

A– Derivative financial instruments
B– Reporting currencies and currency exposures
C– Interest rates
D– Liquidity
E– Fair values
A)DERIVATIVE FINANCIAL INSTRUMENTS
The Group's derivatives, including embedded derivatives, as at 31 December 2006, are summarised below:
a)Forward contracts relating to trading transactions: designated as cash flow hedges
           
Assets (note 19)Buy currency Sell Weighted Total fair Total fair 
 amount currency average value value 
   amount rate 2006 2005 
Buy Australian dollar; sell US dollarA$m US$m A$/US$ US$m US$m 
 
Less than 1 year151 92 0.61 26 19 
1 to 5 years246 148 0.60 36 39 
 
 397 240 0.60 62 58 
Commodity contracts      4 6 
 
Total      66 64 
 

The Group's materialabove currency derivatives are itemised below:

a) Forwardforward contracts hedging trading transactions

      
Weighted
Fair value
      
Total fair
Buy
Sell
average
value
currency
currency
exchange
amount
amount
rate
Buy Australian dollar: sell US dollar
A$m
US$m
A$/US$
US$m
US$m
Less than 1 year257 156 0.61 32   
1 to 5 years657 399 0.61 56   
More than 5 years111 67 0.60 7   
 
 
 
 
   
Total1,025 622 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 waswere 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 year130 650.5019
1 to 5 years485 2200.4569
More than 5 years260 1170.4529
 
 
Total875 4020.46117
 
 
 
     

Buy Canadian dollar: sellthose companies in order to reduce their exposure to the US dollar (allthrough forecast sales. The above commodity contracts have been entered into in order to reduce exposure to movements in the coal price.

Liabilities (note 25)Sell Sales Total fair Total fair 
 million price value value 
 lbs of Cu Rand/lb 2006 2005 
Sell Copper    US$m US$m 
 
Less than 1 year99.25 9.52 (149)(45)
1 to 5 years238.27 7.41 (184)(57)
More than 5 years82.60 7.14 (18)(29)
 
     (351)(131)
Other commodity contracts    (25)(19)
 
Total    (376)(150)
 

The above copper forward contracts were entered into as a condition of whichthe refinancing of Palabora in 2005, and result in a reduction in the Group's exposure to movements in the copper price. Other commodity contracts have been entered into in order to reduce exposure to movements in the coal price.

A-42

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Notes to the 2006 Financial statements

32FINANCIAL INSTRUMENTS CONTINUED
b)Options relating to trading transactions: designated as cash flow hedges
           
Assets (note 19)Buy Sell Weighted Total Total 
 currency currency average fair value fair value 
 amount amount strike 2006 2005 
     rate     
Bought A$ call optionsA$m US$m A$/US$ US$m US$m 
 
Less than 1 year94 66 0.70 8 3 
1 to 5 years59 42 0.71 4 7 
 
 153 108 0.71 12 10 
 

The above currency option contracts were acquired with companies purchased in 2000)2000 and were entered into by those companies in order to reduce their exposure to the US dollar forecast sales.

 
C$m
 
US$m
C$/US$
US$m
 
 
 
 
Less than 1 year18120.6822
           
Other currency forward contracts        (7)
         
 
Total fair value        207 
Adjust: Fair value recognised on acquisition in respect of these contracts        22 
(of which US$14 million was recognised on acquisition)          
         
 
Fair value not recognised        229 
         
 
Reconciliation to Balance Sheet categories  
 
– non-current assets (note 19)42 46 
– current assets (note 19)36 28 
 
– current liabilities (note 25)(162)(57)
– non-current liabilities (note 25)(214)(93)
 
Total derivatives designated as cash flow hedges, detailed above(298)(76)
 

c)Forward contracts relating to trading transactions: not designated as hedges
           
AssetsBuy Sell Weighted Total fair Total fair 
 currency currency average value value 
 amount amount rate 2006 2005 
Buy New Zealand dollar; sell US dollarNZ$m US$m NZ$/US$ US$m US$m 
 
Less than 1 year130 58 0.45 32 29 
1 to 5 years390 175 0.45 75 89 
 
 520 233 0.45 107 118 
 
Commodity contracts      1 2 
Embedded currency derivatives      10 13 
Other currency forward contracts      4 5 
 
Total assets relating to non hedge derivatives (note 19)      122 138 
 
        
Liabilities       
 
Commodity contracts      (1)(9)
Embedded currency derivatives      (26)(11)
Interest rate derivatives      — (1)
 
Total liabilities relating to non hedge derivatives (note 25)      (27)(21)
 

The above New Zealand dollar currency forward contracts were taken out to manage exposure on operating costs. These contracts are not designated as hedges as they are not located in the entities with the exposure.

A-39A-43

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO 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' i.e. cancelled. During 2003, US$57 million of these sold puts were knocked out and the remainder were knocked out in January 2004.

Weighted
Fair value
     
Total fair
Buy
Sell
average
value
currency
currency
strike
amount
amount
rate
Bought A$ call options
A$m
US$m
A$/US$
US$m
US$m
 
 
 
 
 
 
Less than 1 year94660.704  
1 to 5 years3402390.7013  
 
  
Total4343050.70 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:

    
Weighted
Weighted
 
Fair value
   
 
Buy
 
Sell
average
average
     
 
currency
 
currency
strike
barrier
     
 
amount
 
amount
 
rate
 
rate
     
Sold 'knock-out' A$ put options
A$m
 
US$m
A$/US$
A$/US$
 
US$m
   
 
 
 
Less than 1 year76 54 0.70 0.77 (1)  
1 to 5 years275 194 0.70 0.77 (6)  
 
 
 
 
 
   
Total351 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

 
 
 
 
 
     
Weighted
 
Fair value 
 
Total 
 
Buy
Sell
average
   
fair value 
 
currency
currency
exchange
     
amount
amount
rate
     
Buy Australian dollar: sell US dollar
A$m
US$m
A$/US$
 
US$m 
 
US$m 
 
  
 
 
Less than 1 year393 198 0.5093   
             
Fair value not recognised         93 
           
 
            
d) Currency swaps hedging non US dollar debt 
 
 
 
 
     
 
Buy
currency
amount
     
 
Sell
currency
amount
US$m
     
Weighted
average
exchange
rate
     
Fair value  
 
 
 
 
 
Total 
fair value 
 
 
US$m 
 
 
 
 
 
  
 
 
 
Buy Euro: sell US dollars            
Less than 1 yearEuro 40m 46 0.88 5   
1 to 5 yearsEuro 975m 934 1.04 292   
   
 
 
   
     980 1.04 297   
     
 
 
   
Buy Japanese yen: sell US dollars            
1 to 5 yearsYen 21 billion 177 119 20   
             
Buy sterling: sell US dollars            
1 to 5 years  £175m 251 0.70 61   
             
Buy Swiss francs: sell US dollars            
1 to 5 yearsCHF70m 48 1.47 9   
   
   
   
Total currency swaps    1,456    387 
             
Fair value recognised within carrying value of debt (a)         (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.

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

32FINANCIAL INSTRUMENTS CONTINUED
d)Currency and interest contracts relating to non US dollar borrowings
           
 Buy Sell Weighted Total fair Total fair 
 currency currency average value value 
 amount amount exchange 2006 2005 
Assets   rate US$m US$m 
 
Buy Euro: sell US dollars US$m    
Less than 1 yearEuro 850m 781 1.09 338 229 
Buy Japanese yen: sell US dollars      
Less than 1 yearYen 5 billion 41 122 1 2 
1 to 5 years — — — 4 
Buy Sterling: sell US dollars      
Less than 1 year£15m23 0.65 6 47 
1 to 5 years£200m390 0.51 3 3 
Buy Swiss francs: sell US dollars      
Less than 1 year — — — 3 
       
Liabilities      
 
Buy Japanese yen: sell US dollars      
1 to 5 yearsYen 5 billion 46 109 (4)(3)
 
Total currency swaps 1,281   344 285 
– designated as hedges 1,171   341 229 
– not designated as hedges 110   3 56 
 
Interest contracts relating to borrowings: assets     7 28 
Interest contracts relating to borrowings: liabilities     (19)(25)
 
Total derivatives related to net debt     332 288 
 
– non-current assets (note 19)     3 254 
– current assets (note 19)     352 62 
– current liabilities (note 25)     (4)(8)
– non-current liabilities (note 25)     (19)(20)
 
      332 288 
 

NOTES TO FINANCIAL STATEMENTS - (continued)

28   Financial Instruments (continued)
e) Currency exposures arising fromThese currency and interest rate contracts are used to fix the Group's net monetary assets/(liabilities)

After takingUS dollar value of non US dollar denominated external debt and to convert certain fixed rate obligations to a floating rate. Contracts are not designated as fair value hedges where the financial instrument swaps the debt into account the effect of relevant derivative instruments, almost all the Group's net debt is either denominated in US dollars or ina currency other than the functional currency of the individual entity holdingthat holds 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 
US
Other
2003
US
Other
2002
dollar
currencies
Total
dollar
currencies
Total
US$m
US$m
US$m
US$m
US$m
US$m
Functional currency of business unit :            
   United States dollar- 30 30 - 32 32 
   Australian dollar385 (16)369 346 35 381 
   Canadian dollar51 (1)50 56 - 56 
   South African rand47 6 53 105 26 131 
   Other currencies20 15 35 28 (1)27 
 
 
 
 
 
 
 
Total503 34 537 535 92 627 
 
 
 
 
 
 
 

The table below shows the Rio Tinto share of the above currency exposures after tax and outside interests:

Currency of exposure Currency of exposure 
US
Other
2003
US
Other
2002
dollar
currencies
Total
dollar
currencies
Total
US$m
US$m
US$m
US$m
US$m
US$m
 
 
 
 
 
 
 
Functional currency of business unit :            
   United States dollar- 20 20 - 22 22 
   Australian dollar251 (11)240 224 24 248 
   Canadian dollar19 (1)18 21 - 21 
   South African rand16 2 18 37 9 46 
   Other currencies14 9 23 17 (1)16 
 
 
 
 
 
 
 
Total300 19 319 299 54 353 
 
 
 
 
 
 
 

B) Interest ratesA-44

(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
 
 
 
 
 
 
 
 
Financial liabilities (page A-42 note (f))              
Fixed rate(721)- - --(721)(685)
Floating rate(4,661)(339)(15)(233)(74)(5,322)(5,389)
Non interest bearing (page A-42 note (g))(219)----(219)(287)
 
 (5,601)(339)(15)(233)(74)(6,262)(6,361)
Financial assets (page A-42 note (f))
Fixed rate239----239304
Floating rate (including loans to joint ventures and associates)3689221387571580
 
(4,994)(247)6(230)13(5,452)(5,477)
 
 
 
 
 
 
 
Adjusted to exclude:              
US Treasury bonds (fixed rate)          (239)(304)
Deferred consideration payable (non interest bearing)          219287 
Loans to joint ventures and associates (floating rate)          (174)(253)
           
 
 
Net debt (note 23)          (5,646)(5,747)
           
 
 

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements

28Financial 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 gross liabilities of US$2,716 million (2002: US$2,539 million) less the interest rate swaps of US$1,995 million (2002: US$1,854 million) shown below:

       2003       2002 
       Excess of       Excess of 
Gross liabilities     Average fair value     Average fair value 
    fixed over     fixed over 
Principal rate principal Principal rate principal 
 US$m % p.a. US$m US$m % p.a. US$m 
Maturity
 
 
 
 
 
 
Less than 1 year- - - 621 5.4 (17)
1 to 5 years1,350 4.6 (33)750 6.1 (66)
More than 5 years100 7.2 (17)100 7.2 (18)
 
 
 
 
 
 
 
US$ fixed rate liabilities1,450 4.8 (50)1,471 5.9 (101)
 
 
 
 
 
 
 
Less than 1 year46 2 - - - - 
1 to 5 years1,220 4.5 (62)1,068   4.7 (46)
 
 
 
 
 
 
 
Non US dollar fixed rate liabilities (a)1,266 4.4 (62)1,068   4.7 (46)
 
 
 
 
 
 
 
Fixed rate liabilities before interest rate swaps2,716   (112)2,539   (147)
 
   
 
   
 
             
 Interest rate swaps    Average        Average    
    fixed 2003     fixed 2002 
 MaturityPrincipal rate Fair value(i) Principal rate Fair value 
US$m % p.a. US$m US$m % p.a. US$m 
 
 
 
 
 
 
 
Less than 1 year- - - 321 4.7 9 
1 to 5 years1,050 5.1 41 750 6.1 74 
 
 
 
 
 
 
 
Interest rate swaps to US$ floating rates1,050 5.1 41 1,071 5.7 83 
 
 
 
 
 
 
 
Less than 1 year46 2.3 - - - - 
1 to 5 years1,220 4.5 55 1,068 4.7 48 
 
 
 
 
 
 
 
Interest rate swaps from non US$ fixed rates to US$ floating rates (a)1,266 4.4 55 1,068 4.7 48 
 
 
 
 
 
 
 
Less than 1 year20 7.5 (1)- - - 
1 to 5 years225 7.0 (19)245 7.1 (28)
More than 5 years76 5.6 (8)40 5.6 (9)
 
 
 
 
 
 
 
Interest rate swaps to US$ fixed rates (b)321 6.7 (28)285 6.9 (37)
 
 
 
 
 
 
 
Interest rate swaps (net impact)1,995   68 1,854   94 
 
   
 
 
 
 
                   
Total fixed rate financial liabilities after interest rate                  
   swaps (b), (d)721   (44)685   (53)
 
   
 
   
 
(i)32These fair values includeFINANCIAL INSTRUMENTS CONTINUED
B)CURRENCY EXPOSURES
a)Currency exposures arising from the interest elementGroup's financial assets and liabilities (excluding non debt derivatives)
Certain financial assets and liabilities are not held in the functional currency of the relevant subsidiary. This results in an accounting exposure to exchange gains and losses as the financial assets and liabilities are translated into the functional currency of the subsidiary that accounts for those assets and liabilities. These gains and losses are recorded in the Group income statement except to the extent that they can be taken to equity under the Group's accounting policy which is explained in note 1.
After taking into account relevant derivative instruments, almost all of the Group's net debt is either denominated in US dollars or in the functional currency of the entity holding the debt. 
The tables below set out the currency exposures arising from each of net debt, intragroup balances and other financial assets and liabilities. These currency exposures are after taking into account the effect of currency swaps described earlier..

     2003     2002 
     Excess of     Excess of 
 Gross assets  Average fair value   Average fair value 
  fixed over   fixed over 
 MaturityPrincipal rate principal Principal rate principal 
US$m % p.a. US$m US$m % p.a. US$m 
 
 
 
 
 
 
 
Less than 1 year239 1.0 (1)304 1.7 4 
 
 
 
 
 
 
 
Total fixed rate financial assets239 1.0 (1)304 1.7 4 
 
 
 
 
 
 
 
 Net debt:    Net debt: 
 (before tax and minority interests)    (net of tax and minority interests) 
 Currency of exposure     Currency of exposure   
 United Other  2006  2005  United Other  2006  
 States currencies Total Total States currencies Total 
 dollar       dollar     
 US$m US$m US$m US$m US$m US$m US$m 
 
Functional currency of entity:              
   United States dollar— (7)(7)11 — (5)(5)
   Australian dollar (a)(746)9 (737)(1,279)(516)6 (510)
   Canadian dollar (a)(237)2 (235)(590)(106)1 (105)
   South African rand(48)1 (47)(62)(19)— (19)
   Other currencies24 6 30 15 17 4 21 
 
 (1,007)11 (996)(1,905)(624)6 (618)
 
Net debt denominated in subsidiaries' functional currencies    (1,441)592       
 
Net debt(note 23)    (2,437)(1,313)      
 
(a)Of the US$746 million of US dollar denominated net debt in Australian functional currency companies, US$46 million has been swapped to US$. The underlying currency is 5 billion yen. Similarly, of the US$237 million of US dollar denominated net debt in Canadian functional currency companies, US$64 million has been swapped to US$. The underlying currencies are: £15 million and 5 billion yen.
  
(a) All
 Intragroup debt:    Intragroup debt: 
 (before tax and minority interests)    (net of tax and minority interests) 
 Currency of exposure     Currency of exposure   
 United Other  2006  2005 United Other  2006  
 States currencies Total Total States currencies Total 
 dollar       dollar     
 US$m US$m US$m US$m US$m US$m US$m 
 
Functional currency of entity:              
   United States dollar— 2,739*2,739 220 — 2,747*2,747 
   Australian dollar(2,254)46 (2,208)(2,157)(1,522)31 (1,491)
   Canadian dollar(355)— (355)(432)(245)— (245)
   South African rand(116)(8)(124)(131)(38)(4)(42)
   Other currencies(54)29 (25)(110)(38)20 (18)
 
Total(2,779)2,806 27 (2,610)(1,843)2,794 951 
 
The above table deals with intragroup balances that give rise to exchange differences in the income statement. Other intragroup balances are in the functional currency of the above non US$entity or they are quasi-equity
*These amounts relate to intragroup debt 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 subsidiaries.

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Notes to the 2006 Financial statements

32FINANCIAL INSTRUMENTS CONTINUED
b)Currency exposures arising from the Group's net receivables and payables
The table below sets out the currency exposures arising from the Group's net receivables and payables, that are swapped to US$. not denominated in the functional currency of the relevant subsidiary. Gains and losses resulting from such exposures are recorded in the income statement.
 Net receivables less payables    Net receivables less payables 
 (before tax and minority interests)    (net of tax and minority interests) 
 Currency of exposure     Currency of exposure   
  United Other  2006  2005  United Other  2006  
 States currencies Total Total States currencies Total 
 dollar      dollar   
 US$m US$m US$m US$m US$m US$m US$m 
 
Functional currency of entity:              
   Australian dollar793 1 794 592 487 1 488 
   Canadian dollar179 12 191 162 86 8 94 
   South African rand72 17 89 74 26 5 31 
   Other currencies135 27 162 101 95 19 114 
 
 1,179 57 1,236 929 694 33 727 
 
Denominated in functional currencies of subsidiaries    (364)(277)      
               
Reconciliation to balance sheet categories              
 
Net receivables less payables per above    872 652       
 
– trade debtors (net of provision): non-current (note 17)    36 1       
– trade debtors (net of provision): current (note 17)    2,127 1,706       
– trade creditors: current (note 24)    (1,291)(1,055)      
 
               
C)INTEREST RATES
i)Interest bearing financial assets and financial liabilities
The interest rate composition of the Group's interest bearing financial assets and liabilities is shown below. This table deals with the carrying values of the financial instruments in the balance sheet, with the values of derivatives shown separately
At 31 December 2006
 Floating Fixed interest rates   Amounts falling due in:   
 rate               
 
   1 year or         5 years Total 
   less 1-2 years 2-3 years 3-4 years 4-5 years or more 2006 
   US$m US$m US$m US$m US$m US$m US$m 
 
Financial liabilities                
Borrowings(580)(1,230)(641)(40)(414)(38)(554)(3,497)
Bank overdrafts(14)— — — — — — (14)
Interest rate swaps (a)(1,753)1,193 292 (122)390 — — — 
Derivatives related to net debt(21)— — (2)— — — (23)
 
 (2,368)(37)(349)(164)(24)(38)(554)(3,534)
 
Financial assets                
Loans to jointly controlled entities (b)379 — — — — — — 379 
US Treasury bonds— 20 — — — — — 20 
Other investments184 — — — — — — 184 
Derivatives related to net debt355 — — — — — — 355 
Cash and cash equivalents and liquid resources742 — — — — — — 742 
 
 1,660 20 — — — — — 1,680 
 
(a)These are the notional principal amounts shown above reflectwhich swap the currency elementfixed rate liabilities into floating rate, and certain floating rate swaps into fixed rate.
(b)Loans to jointly controlled entities include amounts of US$228 million (2005: US$225 million), which are not expected to be repaid and so form part of the related currency swaps.Group's net investment in the jointly controlled entity.
(b)As a consequence of acquisitions during 2000, the Group holds a number of interest rate swaps to receive US$ 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 1.25.36 per cent.cent (2005: 4.5 per cent).
(f)(d)The above table does not include the remainingexcludes US$39176 million (2002:(2005: US$6072 million) net provision for the mark to market valuation of the hedge books held by companies acquired in 2000equity shares and 2001 and other financial assets of US$145 million (2002: US$122 million), all ofquoted funds, which are nonnot 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.

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

28Financial Instruments (continued)

C) Commodities

The Group's material commodity derivatives are itemised below:

  2003 2002 
  Fair value Fair value 
  US$m US$m 
  
 
 
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)
  
 
 
Fair value not recognised (22)3 
  
 
 

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 of the Annual report and financial statements.

Financial assets and liabilities are repayable as follows:

 2003 2002 
 
 
 
 US$m US$m 
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)
 
 
 
 (6,262)(6,361)
Financial assets    
   Within 1 year, or on demand670 668 
   Between 1 and 2 years10 10 
   Between 2 and 3 years14 10 
   Between 3 and 4 years15 14 
   Between 4 and 5 years14 14 
   After 5 years87 168 
 
 
 
Total per currency/interest rate analysis(5,452)(5,477)
 
 
 

In addition, of the remaining US$39 million net provision for the mark to market of the hedge books held by companies acquired 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 which 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-up support for the Group’s commercial paper programmes and for general corporate purposes:

 2003 2002 
 
 
 
 US$m US$m 
Within 1 year1,650 1,050 
Between 1 and 2 years- 1,650 
After 2 years1,100 100 
 
 
 
 2,750 2,800 
 
 
 

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

32FINANCIAL INSTRUMENTS CONTINUED
At 31 December 2005
 Floating Fixed interest rates   Amounts falling due in: 
 rate               
 
   1 year or 1-2 years   2-3 years   3-4 years   4-5 years   5 years Total 
   less         or more 2005 
   US$m US$m US$m US$m US$m US$m US$m 
 
Financial liabilities                
Borrowings(679)(909)(1,152)(635)(27)(13)(558)(3,973)
Bank overdrafts(12)— — — — — — (12)
Interest rate swaps (a)(2,213)886 1,138 265 (76)— — — 
Derivatives related to net debt(24)— — (1)(3)— — (28)
 
 (2,928)(23)(14)(371)(106)(13)(558)(4,013)
 
Financial assets                
Loans to jointly controlled entities (b)384 — — — — — — 384 
US Treasury bonds— 109 — — — — — 109 
Other investments275 — — — — — — 275 
Derivatives related to net debt316 — — — — — — 316 
Cash and cash equivalents and liquid resources2,384 — — — — — — 2,384 
 
 3,359 109 — — — — — 3,468 
 
                 
(ii)Fixed rate liabilities after swaps
Fixed rate liabilities not converted to floating rate by means of interest rate swaps are summarised below.
 Principal  Average  2006 Principal  Average  2005 
   fixed  (Excess) of   fixed  Excess of 
   rate fair value   rate fair value 
     over    over 
   principal   principal 
MaturityUS$m % p.a. US$m US$m % p.a. US$m 
 
Less than 1 year(37)7.3 (3)(23)7.4 (3)
1 to 5 years(575)4.3 11 (504)4.0 16 
More than 5 years(554)6.0 (29)(558)6.3 (32)
 
Fixed rate liabilities(1,166)5.3 (21)(1,085)5.3 (19)
 
(a)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 rate which have been included in the total of fixed rate liabilities shown above.
(b)The Group has US$121 million of finance leases (2005: US$112 million), the largest of which has a principal of US$52 million, a maturity of 2018 and a floating interest rate.
(c)The Group's fixed rate debt after interest rate swaps has a weighted average time to maturity of six years (2005: seven years).
(iii)Fixed rate assets
Total fixed rate financial assets for the Group at 31 December 2006 were US$20 million, with a fair value of US$20 million (2005: US$109 million with a fair value of US$108 million). The average fixed rate per annum for 2006 was 5.1 per cent (2005: 3.5 per cent).

NOTES TO 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   
  
 
 
US$mCarrying Fair Carrying Fair 
value value value value 
  
 
 
 
 
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)/assets(63)(63)(165)(165)
  
 
 
 
 
  (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 
  
 
 
 
 
  (5,354)(5,062)(5,415)(5,533)
  
 
 
 
 
Less: mark to market provision at acquisition/other provisions47   60   
Other financial assets(145)  (122)  
  
   
   
Total per liquidity analysis(5,452)  (5,477)  
  
   
   

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 
     Total net Total net 
US$m    gains/ gains/ 
Gains Losses (losses) (losses) 
 
 
 
 
 
         
Unrecognised gains and losses on hedges at 1 January202 (177)25 (349)
Gains and losses arising in previous years recognised in the year(61)26 (35)88 
 
 
 
 
 
Gains and losses arising before 1 January that were not recognised in the year141 (151)(10)(261)
Gains and losses arising in the year that were not recognised in the year330 85 415 286 
 
 
 
 
 
Unrecognised gains and losses on hedges at 31 December471 (66)405 25 
 
 
 
 
 
          
Of which:        
Gains and losses expected to be recognised within one year161 (18)143 35 
Gains and losses expected to be recognised in more than one year310 (48)262 (10)
 
 
 
 
 
  471 (66)405 25 
  
 
 
 
 

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

32FINANCIAL INSTRUMENTS CONTINUED
D)LIQUIDITY
The maturity profile of the Group's financial liabilities and financial assets, other than trade and other receivables and payables, is as follows:
 Borrowings Derivatives Other Total Total 
 before related to financial 2006 2005 
 swaps net debt liabilities US$m US$m 
 
Financial liabilities          
   Within 1 year, or on demand(1,504)(3)(213)(1,720)(1,373)
   Between 1 and 2 years(723)(15)(182)(920)(1,298)
   Between 2 and 3 years(107)(2)(79)(188)(762)
   Between 3 and 4 years(478)(3)(27)(508)(140)
   Between 4 and 5 years(68)— (25)(93)(80)
   After 5 years(631)— (56)(687)(710)
 
 (3,511)(23)(582)(4,116)(4,363)
 
           
 Cash and Derivatives Other Total  Total  
 liquid related to financial   
 resources net debt assets US$m US$m 
 
Financial assets          
   Within 1 year, or on demand742 350 142 1,234 2,814 
   Between 1 and 2 years— — 152 152 411 
   Between 2 and 3 years— — 54 54 54 
   Between 3 and 4 years— 5 42 47 44 
   Between 4 and 5 years— — 13 13 36 
   After 5 years— — 556 556 393 
 
 742 355 959 2,056 3,752 
 
As at 31 December 2006, a total of US$1,281 million after swaps (2005: US$1,255 million) is outstanding under the US$3 billion European Medium Term Notes facility, of which US$845 million after swaps (2005: US$331 million) is repayable within one year.
As at 31 December 2006, the Group had unutilised standby credit facilities totalling US$2.3 billion. These facilities, which are summarised below, are for back-up support for the Group’s commercial paper programmes and for general corporate purposes:

NOTES TO FINANCIAL STATEMENTS - (continued)A-48

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29   Contingent liabilities and commitmentsNotes to the 2006 Financial statements

 Rio Tinto plc - Rio Tinto Limited -     
 part of Rio Tinto Group part of Rio Tinto Group Rio Tinto Group 
 
 
 
 
 
 
 
 2003 2002 2003 2002 2003 2002 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m 
Commitments            
Contracted capital expenditure at 31 December56 68 556 282 612 350 
Operating lease commitments35 13 96 89 131 102 
Other commitments- - 67 51 67 51 
32FINANCIAL INSTRUMENTS CONTINUED
Unutilised standby credit facilities2006 2005 
 US$m US$m 
 
Between 4 and 5 years2,300 2,300 
 
E)FAIR VALUES
The carrying values and the fair values of Rio Tinto's financial instruments, other than trade and other receivables and payables, a31 December are shown in the following table. Fair value is the amount at which a financial instrument could be exchanged in anarm's length transaction between informed and willing parties. Where available, market values have been used to determine fairvalues. In other cases, fair values have been calculated using quotations from independent financial institutions, or by discountingexpected cash flows at prevailing market rates. The fair values of cash, short term borrowings and loans to equity accounted unitsapproximate to their carrying values, as a result of their short maturity or because they carry floating rates of interest
 2006 2005 
 
 
 
 Carrying Fair Carrying Fair 
 value value value value 
 US$m US$m US$m US$m 
 
Primary financial instruments held or issued to finance the Group's operations:        
US Treasury bonds (note 19)20 20 109 108 
Equity shares and quoted funds (note 19)176 176 72 72 
Other investments (note 19)184 184 275 275 
Cash and cash equivalent assets (note 20)736 736 2,379 2,379 
Other liquid resources6 6 5 5 
Short term borrowings and bank overdrafts(1,504)(1,507)(1,202)(1,205)
Medium and long term borrowings (note 21)(2,007)(2,025)(2,783)(2,799)
Loans to jointly controlled entities (Section C (i))379 379 384 384 
Deferred consideration (note 24)(179)(179)(179)(179)
 
 (2,189)(2,210)(940)(960)
         
Derivative financial instruments held to manage interest rate and currency profile (excludes embedded derivatives):        
   Forward contracts: cash flow hedge (Section A (a))(310)(310)(86)(86)
   Option contracts: cash flow hedge (Section A (b))12 12 10 10 
   Forward contracts and embedded derivatives (Section A (c))95 95 117 117 
   Currency swaps hedging non US dollar debt (Section A (d))344 344 285 285 
Interest rate swap agreements and options (Section A (d))(12)(12)3 3 
 
 (2,060)(2,081)(611)(631)
 
Total per liquidity analysis (D)        
– financial liabilities(4,116)  (4,363)  
– financial assets2,056   3,752   
 
 (2,060)  (611)  
 

Included above

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Notes to the 2006 Financial statements

33CONTINGENT LIABILITIES AND COMMITMENTS
 2006 2005 
 US$m US$m 
 
Capital commitments (excluding those related to joint ventures and associates)    
Contracted capital expenditure: property, plant and equipment1,912 1,004 
Other commitments163 93 
 
Capital commitments relating to joint ventures and associates(a)    
Capital commitments incurred by the Group155 7 
Capital commitments incurred jointly with other venturers (Rio Tinto share)183 218 
 

Operating leases
The aggregate amount of minimum lease payments under non-cancellable operating leases are operating lease commitments falling due within one year of US$38 million (2002: US$26 million).as follows:

 2006 2005 
 US$m US$m 
 
Within 1 year62 74 
Between 1 and 5 years123 95 
After 5 years242 29 
 
 427 198 
 

Unconditional purchase obligations


The aggregate amount of future payment commitments under unconditional purchase obligations outstanding at 31 December was:

Rio Tinto plc - Rio Tinto Limited - 
part of Rio Tinto Group part of Rio Tinto Group Rio Tinto Group 
 
 
 
2003 2002 2003 2002 2003 2002 2006 2005 
 
 
 
 
 
 US$m US$m 
US$m US$m US$m US$m US$m US$m 
 
Within 1 year38 38 230 171 268 209 903 935 
Between 1 and 2 years38 38 240 175 278 213 713 691 
Between 2 and 3 years38 38 237 177 275 215 498 575 
Between 3 and 4 years8 8 235 179 243 187 343 438 
Between 4 and 5 years8 8 226 185 234 193 317 329 
After 5 years56 64 1,656 1,458 1,712 1,522 826 1,096 
 
 
 
 
 
 
 
186 194 2,824 2,345 3,010 2,539 3,600 4,064 
 
 
 
 
 
 
 

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 set out above 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.

 Rio Tinto plc - Rio Tinto Limited -     
 part of Rio Tinto Group part of Rio Tinto Group Rio Tinto Group 
 
 
 
 
 2003 2002 2003 2002 2003 2002 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m 
Contingent liabilities            
Indemnities and other performance guarantees on            
which no material loss is expected- 16 266 129 266 145 
 2006 2005 
 US$m US$m 
 
Contingent liabilities (excluding those relating to joint ventures and associates)    
Indemnities and other performance guarantees79 61 
 
 
Contingent liabilities relating to joint ventures and associates(a)    
Share of contingent liabilities of joint ventures5 4 
Incurred in relation to interests in joint ventures372 284 
Incurred in relation to other venturers' contingent liabilities45 35 
 
(a)Amounts disclosed include those arising as a result of the Group's investments in both jointly controlled assets and jointly controlled entities.
(a)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, to the extent guaranteed by the other, any person. The amounts shown above for Rio Tinto plc and Rio Tinto Limited do not reflect these deed poll guarantees.
(b)In 2002, the Australian Tax Office 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 Australian Tax Office (‘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.
(c)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.

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

NOTES TO FINANCIAL STATEMENTS - (continued)

30Average number of employees

 Subsidiaries and joint arrangements (a) 
 
 
 2003 2002 2001 
 
 
 
 
The principal locations of employment were :      
Australia and New Zealand9,274 8,721 8,876 
North America8,478 8,906 9,143 
Africa5,661 6,012 6,273 
Europe3,059 2,765 2,864 
South America1,794 1,708 1,614 
Indonesia569 908 1,065 
Other countries205 150 188 
 
 
 
 
 29,040 29,170 30,023 
 
 
 
 
       
 Joint ventures and associates (a) 
 (Rio Tinto share) 
 
 
 2003 2002 2001 
 
 
 
 
The principal locations of employment were :  restated restated 
Australia and New Zealand983 995 881 
North America1,034 873 922 
Africa422 450 468 
Europe386 433 473 
South America773 940 823 
Indonesia3,234 4,154 4,119 
Other countries144 158 155 
 
 
 
 
 6,976 8,003 7,841 
 
 
 
 
       
 Group total   
 
 
 2003 2002 2001 
 
 
 
 
The principal locations of employment were :  restated restated 
Australia and New Zealand10,257 9,716 9,757 
North America9,512 9,779 10,065 
Africa6,083 6,462 6,741 
Europe3,445 3,198 3,337 
South America2,567 2,648 2,437 
Indonesia3,803 5,062 5,184 
Other countries349 308 343 
 
 
 
 
 36,016 37,173 37,864 
 
 
 
 
34AVERAGE NUMBER OF EMPLOYEES
   Subsidiaries and proportionally 
   consolidated units 
 2006 2005 2004 
 
The principal locations of employment were:      
Australia and New Zealand11,636 9,927 9,065 
North America10,201 9,375 8,742 
Africa4,269 3,958 4,724 
Europe1,468 1,504 1,848 
South America874 834 1,361 
Indonesia1,969 1,920 2,265 
Other countries225 306 195 
 
 30,642 27,824 28,200 
 
     
   Equity accounted units 
   (Rio Tinto share) (a) 
 2006 2005 2004 
 
The principal locations of employment were:      
Australia and New Zealand2,192 1,910 1,862 
North America311 257 246 
Africa521 494 441 
Europe507 529 671 
South America1,072 840 851 
Indonesia— — — 
Other countries— — 155 
 
 4,603 4,030 4,226 
 
       
     Group Total 
 2006 2005 2004 
 
The principal locations of employment were:      
Australia and New Zealand13,828 11,837 10,927 
North America10,512 9,632 8,988 
Africa4,790 4,452 5,165 
Europe1,975 2,033 2,519 
South America1,946 1,674 2,212 
Indonesia1,969 1,920 2,265 
Other countries225 306 350 
 
 35,245 31,854 32,426 
 
(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 venturesproportionally consolidated and associatesequity accounted units are proportional to the Group's equity interest. Average employee numbers include a part year effect for companies acquired or disposed of during the year.
(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.

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

NOTES TO FINANCIAL STATEMENTS - (continued)

31Principal subsidiaries at 31 December 2003

   Class of Proportion Group Ultimate
Company and country  shares of class interest parent
of incorporationPrincipal activities held held % % company
Australia         
Argyle Diamond Mines (g)Mining and processing of diamonds (g)   100 Rio Tinto Limited
Coal & Allied Industries LimitedCoal mining Ordinary 75.71 75.71 Rio Tinto Limited
Comalco LimitedBauxite mining; alumina production; Ordinary 100 100 Rio Tinto Limited
 primary aluminium smelting        
Dampier Salt LimitedSalt production Ordinary 64.94 64.94 Rio Tinto Limited
Energy Resources of Australia LtdUranium mining Class A 68.39 68.39 Rio Tinto Limited
Hamersley Iron Pty LimitedIron ore mining Ordinary 100 100 Rio Tinto Limited
Rio Tinto Coal Australia Pty LimitedCoal mining Ordinary 100 100 Rio Tinto Limited
Brazil         
Rio Paracatu Mineracao S.A.Gold mining Common 51 51 Rio Tinto plc
Mineracao Serra da FortalezaNickel mining Common 99.9 99.9 Rio Tinto plc
Limitada         
Canada         
Iron Ore of Company of Canada Inc (c)Iron ore mining; iron ore pellets Series A & E 58.72 58.72 Rio Tinto Limited
QIT-Fer et Titane IncTitanium dioxide feedstock; high Common shares 100 100 Rio Tinto plc
 purity iron and steel Preferred shares 100 100  
France         
Talc de Luzenac S.A.Mining, refining and marketing of talc E15.25 99.94 99.94 Rio Tinto plc
Indonesia         
P.T. Kelian Equatorial MiningGold mining Ordinary US$1 90 90 Rio Tinto Limited
Namibia         
Rossing Uranium Limited (d)Uranium mining 'B'N$1 71.16}  68.58 Rio Tinto plc
   'C'N10c 70.59   
Papua New Guinea         
Bougainville Copper Limited (e)Copper and gold mining Ordinary 1 Kina 53.58 53.58 Rio Tinto Limited
South Africa         
Palabora Mining Company LimitedCopper mining, smelting and refining R1 75.2 49.2 Rio Tinto plc
Richards Bay Iron and TitaniumTitanium dioxide feedstock; R1 50.5 50 Rio Tinto plc
(Pty) Limitedhigh purity iron        
Sweden         
Zinkgruvan ABZinc, lead and silver mining Ordinary 100 100 Rio Tinto Limited
United Kingdom         
Anglesey Aluminium Metal LimitedAluminium smelting Ordinary £1 51 51 Rio Tinto plc
United States of America         
Kennecott Holdings CorporationCopper and gold mining, smelting Common US$0.01 100 100 Rio Tinto plc
(including Kennecott Utah Copper,and refining, land development        
Kennecott Minerals and Kennecott         
Land Company)         
Kennecott Energy & Coal CompanyCoal mining Common US$1 100 100 Rio Tinto plc
U.S. Borax Inc.Mining, refining and marketing of borates Common US$1 100 100 Rio Tinto plc
Zimbabwe         
Rio Tinto Zimbabwe LimitedGold mining and metal refining Ordinary Z40c 56.04 56.04 Rio Tinto plc
35PRINCIPAL SUBSIDIARIES
          
At 31 December 2006         
          
Company and country of Principal activities Class of Proportion Group 
incorporation   shares held of class held interest 
      % % 
 
Australia         
Argyle Diamond Mines Mining and processing of diamonds (a)   100 
Coal & Allied Industries Limited Coal mining Ordinary 75.71 75.71 
Rio Tinto Aluminium (Holdings) Limited Bauxite mining; alumina production; primary aluminium smelting Ordinary 100 100 
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 
Queensland Coal Pty Limited (b) Coal mining Ordinary 100 100 
 
Canada         
Iron Ore Company of Canada Inc Iron ore mining; iron ore pellets Series A & E 58.72 58.72 
QIT-Fer et Titane Inc Titanium dioxide feedstock; highpurity iron and steel Common shares 100 100 
    Class B preference shares 100 100 
 
France         
Talc de Luzenac S.A. Mining, refining and marketing of talc E 15.25 100 100 
 
Indonesia         
P.T. Kelian Equatorial Mining Gold mining Ordinary US$1 90 90 
 
Namibia         
Rössing Uranium Limited (c) Uranium mining ‘B’N$1 71.16 }68.58 
    ‘C’N10c 70.59  
 
Papua New Guinea         
Bougainville Copper Limited (d) Copper and gold mining Ordinary 1 Kina 53.58 53.58 
 
South Africa         
Palabora Mining Company Limited Copper mining, smelting and refining R1 72.03 57.67 
Richards Bay Iron and Titanium Titanium dioxide feedstock; high purity R1 50.5 50 
(Pty) Limited iron       
 
United States of America         
Kennecott Holdings Corporation(including Kennecott Utah Copper,Kennecott Minerals, Kennecott Landand Kennecott Exploration) Copper and gold mining,smelting and refining, landdevelopment and explorationactivities Common US$0.01 100 100 
Rio Tinto Energy America Inc. Coal mining Common US$0.01 100 100 
U.S. Borax Inc. Mining, refining and marketing of borates Common US$1 100 100 
 
(a)This entity is unincorporated.
(b)Queensland Coal Pty Limited is the main legal entity that owns the assets of the Tarong mine and also owns the shares shown in note 38 of Hail Creek, Blair Athol and Kestrel.
(c)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.
(d)The results of Bougainville Copper Limited are not consolidated, see note 44.
(e)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 shareholding in Rossing Uranium Limited carries 35.54 per cent of the total voting rights. Rossing is consolidated by virtue of Board control.
(e)The results of Bougainville Copper Limited are not consolidated - refer to note 39.
(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.All companies operate mainly in the countries in which they are incorporated.

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

36PRINCIPAL JOINTLY CONTROLLED ENTITIES

At 31 December 2006

Name and countryof incorporation/operation Principal activities Number of Class of Proportion Group 
shares held shares held of class held interest 
by the Group   % % 
 
Australia           
Boyne Smelters Limited Aluminium smelting 153,679,560 Ordinary 59.4 59.4 
Leichhardt Coal Pty. Limited (b) Coal mining 20,115,000 Ordinary 44.7 44.7 
Queensland Alumina Limited Alumina production 854,078 Ordinary 38.6 38.6 
 
Chile           
Minera Escondida Limitada (c) Copper mining and refining     30 30 
 
New Zealand           
New Zealand Aluminium Smelters Limited Aluminium smelting 24,998,400 Ordinary 79.36 79.36 
 
United Kingdom           
Anglesey Aluminium Metal Limited Aluminium smelting   Ordinary £1 51 51 
 
United States of America           
Decker Coal mining   (d)   50 
 
(a)The Group has joint control of the above operations which, except as disclosed in note (d) below, are independent legal entities. It therefore includes them in its accounts using the equity accounting technique.
(b)Leichhardt has a 31.4 per cent interest in the Blair Athol joint venture. As a result, the Group has a further beneficial interest of 14 per cent in addition to its direct interest of 57.2 per cent, which is owned via a subsidiary of Rio Tinto Limited. The Blair Athol joint venture is disclosed as a jointly controlled asset in note 38.
(c)The year end of Minera Escondida is 30 June. However, the amounts included in the consolidated financial statements of Rio Tinto are based on accounts of Minera Escondida that are coterminous with those of the Group.
(d)This operation is unincorporated. The joint venture agreement creates an arrangement that is similar in form to a partnership, and is therefore classified as a jointly controlled entity.
(e)The Group comprises a large number of operations and it is not practical to include all of them in this list. The list therefore only includes those entities that have a more significant impact on the profit or operating assets of the Group.
(f)The Group's principal jointly controlled entities are held by intermediate holding companies and not directly by Rio Tinto plc or Rio Tinto Limited.
(g)All jointly controlled entities operate mainly in the countries in which they are incorporated.

37PRINCIPAL ASSOCIATES

At 31 December 2006

Name and country Principal activities Number of Class of Proportion Group 
of incorporation/operation   shares held shares held of class held interest 
    by the Group   % % 
 
Canada           
Ivanhoe Mines Ltd (a) Copper and gold mining 37,089,883 Common 9.95 9.95 
 
South Africa           
Tisand (Pty) Limited Ilmenite, rutile and zircon mining 7,353,675 R1 49.0 50.0 
 
United States of America           
Cortez Gold mining   (b)   40 
 
(a)Ivanhoe Mines Ltd is accounted for as an associated company having regard to Rio Tinto's representation on its Board of Directors and on the technical committee that will be responsible for its Oyu Tolgoi project.
(b)This operation is unincorporated.
(c)The Group's principal associates are held by intermediate holding companies and not directly by Rio Tinto plc or Rio Tinto Limited.
(d)The Group comprises a large number of operations and it is not practical to include all of them in this list. The list therefore only includes those entities that have a more significant impact on the profit or operating assets of the Group.
(e)With the exception of Ivanhoe Mines Ltd, the core assets of which are located in Mongolia, all associates operate mainly in the countries in which they are incorporated.

NOTES TO FINANCIAL STATEMENTS - (continued)A-53

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32Principal joint venture interests at 31 December 2003Notes to the 2006 Financial statements

38PRINCIPAL JOINTLY CONTROLLED ASSETS AND OTHER PROPORTIONALLY CONSOLIDATED UNITS
     Class ofGroupUltimate
Name and countryAt 31 December 2006    
sharesName and country interestPrincipal activities parentGroup
of incorporation/operationPrincipal activities   heldinterest %company
Australia     
BengallaCoal mining (b)30.3 Rio Tinto Limited
Blair Athol Coal (b)Coal mining (b)71.2 Rio Tinto Limited
Hail CreekCoal mining 82 (b)92.0Rio Tinto Limited
KestrelCoal mining 80 (b)80.0Rio Tinto Limited
Mount ThorleyCoal mining (b)60.6 Rio Tinto Limited
WarkworthCoal mining 42.1
Northparkes Mine (b)Copper/gold mining and processing80
Gladstone Power StationPower generation 42.1 
Rio Tinto LimitedRobe River Iron AssociatesIron ore mining53
Hope Downs Joint VentureIron ore mining50
HIsmelt®Iron technology60
ChileCanada     
Minera Escondida LimitadaCopper mining and refiningDiavik Mining and processing of diamonds 60 30Rio Tinto plc
Indonesia     
Grasberg expansionCopper and gold mining (b)40 Rio Tinto plc
United States of America     
DeckerCoal mining(b)50.0Rio Tinto plc
Greens CreekSilver, gold, zinc and lead mining (b)70.3 Rio Tinto plc
RawhideGold mining(b)51.0Rio Tinto plc
The Group has joint control of the above ventures and therefore includes them in its accounts using the gross equity accounting technique.

33Principal associates at 31 December 2003

     Class of Proportion Group Ultimate
Name and country  Number of shares shares of class interest parent
of incorporation/operationPrincipal activities held by the Group held held % % company
Papua New Guinea           
Lihir Gold Limited (d)Gold mining 185,758,126 Ordinary Kina 0.1 14.49 14.49 Rio Tinto plc
Portugal           
Sociedade Mineira de Neves-Corvo S.A.Copper mining 7,178,500 E5 49 49 Rio Tinto plc
(Somincor)           
South Africa           
Tisand (Pty) LimitedRutile and zircon mining 7,353,675 R1 49.5 50 Rio Tinto plc
United States of America           
CortezGold mining   (b)   40.0 Rio Tinto plc
Freeport-McMoRanCopper & gold mining 23,931,100 Class 'B' 13.1 13.1 Rio Tinto plc
Copper & Gold Inc. (d)in Indonesia  Common US$ 0.10      

34Principal joint arrangements at 31 December 2003

     Class of Proportion Group Ultimate
Name and country  Number of shares shares of class interest parent
of incorporation/operationPrincipal activities held by the Group held held % % company
Australia           
Boyne Smelters LimitedAluminium smelting 153,679,560 Ordinary 59.4 59.4 Rio Tinto Limited
Gladstone Power StationPower generation   (b)   42.1 Rio Tinto Limited
Northparkes MineCopper/gold mining and processing   (b)   80 Rio Tinto Limited
Queensland Alumina LimitedAlumina production 854,078 Ordinary 38.6 38.6 Rio Tinto Limited
Robe River Iron AssociatesIron ore mining   (b)   53 Rio Tinto Limited
Hlsmelt KwinanaIron technology   (b)   60 Rio Tinto Limited
Bao-HI Ranges Joint VentureIron ore mining   (b)   54 Rio Tinto Limited
Canada           
DiavikMining and processing of diamonds   (b)   60 Rio Tinto plc
New Zealand           
New Zealand Aluminium Smelters LimitedAluminium smelting 24,998,400 Ordinary 79.36 79.36 Rio Tinto Limited
(a)The Group comprises a large number of companiesoperations, and it is not practical to include all of them in notes 32 to 34.this list. The list therefore only includes those companiesproportionally consolidated units that have a more significant impact on the profit or operating assets of the Group.
(b)Those joint ventures, associatesThe Group has a direct interest of 57.2 per cent in Blair Athol Coal, and joint arrangements marked (b) are unincorporated entities.an additional 14 per cent interest through its investment in Leichhardt Coal Pty Limited, which is disclosed as a jointly controlled entity in note 36.
(c)All entities operate mainly in the countries in which they are incorporated except where stated.
(d)The Group continued to have significant influence over the activities of Freeport-McMoRan Copper & Gold Inc. and Lihir Gold Limited during 2003, including Board representation; consequently the Group equity accounted for its interests in these companies.
(e)The Group's principal joint ventures, associates and joint arrangementsproportionally consolidated units are held by intermediate holding companies and not directly by Rio Tinto plc or Rio Tinto Limited.

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

39SALES AND PURCHASES OF SUBSIDIARIES, JOINT VENTURES, ASSOCIATES AND OTHER INTERESTS IN BUSINESSES
2006 Acquisitions
Name of operationLocationPrincipal activitiesOwnership
acquiredDate of
%acquisition
Associates
Ivanhoe MinesCanadaCopper and gold mining9.9518 October 2006
Proportionally consolidated units
Hope Downs Joint VentureAustraliaIron ore mining5016 March 2006
2006 Disposals
Name of operationLocationPrincipal activitiesOwnershipDate of
disposeddisposal
Jointly Controlled Entities
Eurallumina SpAItalyAlumina production56.162 November 2006
(a)The aggregate profit on disposal of interests in businesses in 2006 was US$5 million (US$3 million net of tax). These gains have been excluded from Underlying earnings, as shown in note 2.
(b)The Cash flow statement includes the following relating to acquisitions and disposals of interests in businesses:
–US$279 million in '(Acquisitions) / disposals of subsidiaries, joint ventures and associates', comprising US$303 million paid for acquisitions, net of US$24 million of disposal proceeds. In accordance with IAS 7, these proceeds were stated net of US$17 million cash and cash equivalents transferred on sale of subsidiaries.
–US$167 million included in 'purchase of financial assets'.
(c)Non-cash disposal proceeds of US$23 million were received during the year.

2005 Disposals
Name of operationLocationPrincipal activitiesOwnership
disposedDate of
%disposal
Associates
Lihir Gold LimitedPapua New GuineaGold mining14.4630 November 2005
Other investments
Labrador Iron Ore Royalty
Income FundCanadaInvesting1930 March 2005
(a)The aggregate profit on disposal of interests in businesses in 2005 was US$322 million (US$311 million net of tax). These gains were excluded from underlying earnings.
(b)The Cash flow statement included proceeds from disposals of interests in businesses as follows:
–US$323 million included in 'Disposals of subsidiaries, joint ventures and associates (less acquisitions)' which comprised
US$295 million in respect of associates and US$28 million in respect of subsidiaries.
–US$133 million included in 'sales of other financial assets'.

NOTES TO FINANCIAL STATEMENTS - (continued)A-55

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35   Purchases and sales of subsidiaries, joint arrangements, joint ventures and associatesNotes to the 2006 Financial statements

40DIRECTORS' AND KEY MANAGEMENT REMUNERATION
Aggregate remuneration, calculated in accordance with the Companies Act 1985, of the directors of the parent companies was as follows:
 200620052004 
  US$’000 US$’000 US$’000 
 
Emoluments9,5697,5239,992 
Long term incentive plans2552,29857 
 
 9,8249,82110,049 
 
Pension contributions: defined contribution plans605887 
 
Gains made on exercise of share options1,2605,7632,414 

Disposals
The Rio Tinto Limited part of 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 within the profit and loss account. The entire sale proceeds of US$403 million have been included within 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 Rio Tinto Limited part of 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, an indirect subsidiary of Rio Tinto plc, 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 Rio Tinto Limited part of 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.

35    (a) Post balance sheet events (unaudited)
On 22 March 2004, Rio Tinto announced that it had reached agreement with Freeport McMoRan Copper & Gold Inc ("FCX") for FCX to acquire for cash all of Rio Tinto's 23,931,100 FCX shares. Futher information regarding this transaction, which is subject to a number of conditions, is set out in item 8 of Form 20-F. The sale of FCX shares does not affect the terms of Rio Tinto's joint venture interest in production from the Grasberg mine which is managed by FCX.

36     Directors' remuneration
Aggregate remuneration of the directors of the parent Companies was as follows:

  Rio Tinto Group 
  
 
  2003 2002 2001 
  
 
 
 
  US$'000 US$'000 US$'000 
Emoluments 9,571 9,541 8,402 
Long term incentive plans 3,278 8,443 4,439 
  
 
 
 
  12,849 17,984 12,841 
  
 
 
 
Pension contributions 424 65 4 
Gains made on exercise of share options 2,029 2,992 17 

For 2003,2006, a total of US$4,048,800 (2002:3,576,100 (2005: US$5,389,636)8,024,100; 2004: US$4,190,900) 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 lump sum entitlement for the highest paid director was US$1,158,700, (2002:12,124,400 (2005: US$984,000)712,100 annualised pension value; 2004: US$712,400 annualised pension value).


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 (2002:7,151,400 (2005: US$11,492,000)12,270,000; 2004: US$7,756,000). There were no pension contributions.

contributions made (2005 and 2004: 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 (2002:3,992,900 (2005: US$6,557,000)3,372,000; 2004: US$4,794,000). The aggregate pension contribution to defined contribution plans was US$423,938 (2002:60,000 (2005: US$64,730)58,000; 2004: US$87,000 to defined contribution plans).


During 2003, six2006, three directors (2002: seven)(2005: three; 2004: four) accrued retirement benefits under defined benefit arrangements.

Shares awarded last year in respect of the FTSE 1997arrangements, and MCCP 1999 performance period vested after the publication of the 2002 Annual Report and financial statements and 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 of the 2003 Annual report and financial statements.

one director (2005: one; 2004: two) accrued retirement benefits under defined contribution arrangements.
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 6,5, on pages 6595 to 69121.
Aggregate compensation, representing the expense recognised under EU IFRS, of the AnnualGroup's key management, including directors, was as follows:

 200620052004 
  US$’000 US$’000 US$’000 
 
Short-term employee benefits and costs20,38019,20422,501 
Post-employment benefits3,4442,3252,354 
Other long-term benefits7377371,325 
Termination benefits—1,129— 
Share-based payments1,63112,15410,134 
 
 26,19235,54936,314 
 

The figures for 2005 and 2004 have been restated to include compensation for 2005 and 2004 of an individual who became part of the Group's key management in 2006.
     More detailed information concerning remuneration of key management is shown in the Remuneration report, and financial statements.including Tables 1 to 5, on pages 95 to 121.

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

NOTES TO FINANCIAL STATEMENTS - (continued)

37    Auditors' remuneration

 Rio Tinto plc - Rio Tinto Limited -   
     part of Rio Tinto Group     part of Rio Tinto Group     Rio Tinto Group 
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m US$m US$m US$m 
Auditors' remuneration - Group Auditors                  
Audit services                  
- Statutory audit3.1 2.6 2.6 2.1 1.5 1.4 5.2 4.1 4.0 
- Audit-related regulatory reporting0.3 0.3 0.6 0.2 0.2 0.1 0.5 0.5 0.7 
Further assurance services0.1 - - - - - 0.1 - - 
Tax services0.7 0.6 0.9 1.8 1.7 0.9 2.5 2.3 1.8 
Other Services                  
- Financial information technology0.1 - - - - - 0.1 - - 
- Internal audit0.1 0.3 0.2 - - - 0.1 0.3 0.2 
- Other services not covered above0.8 0.8 1.4 0.8 0.7 1.2 1.6 1.5 2.6 
 
 
 
 
 
 
 
 
 
 
 5.2 4.6 5.7 4.9 4.1 3.6 10.1 8.7 9.3 
 
 
 
 
 
 
 
 
 
 
                   
Remuneration payable to other accounting firms                  
Statutory audit0.3 0.2 0.2 0.1 0.1 0.4 0.4 0.3 0.6 
Tax services0.3 0.2 0.2 2.2 0.6 0.8 2.5 0.8 1.0 
Internal audit1.2 0.3 0.2 1.1 0.7 0.6 2.3 1.0 0.8 
Other Services2.0 1.1 0.4 4.9 2.6 8.2 6.9 3.7 8.6 
 
 
 
 
 
 
 
 
 
 
 3.8 1.8 1.0 8.3 4.0 10.0 12.1 5.8 11.0 
 
 
 
 
 
 
 
 
 
 
 9.0 6.4 6.7 13.2 8.1 13.6 22.2 14.5 20.3 
 
 
 
 
 
 
 
 
 
 
                   
41AUDITORS' REMUNERATION
  2006 2005 2004 
  US$m US$m US$m 
 
Group Auditors' remuneration (a)       
Audit services pursuant to legislation – fees payable       
– the audit of the Group's annual accounts 2.8 2.0 1.5 
– the audit of the accounts of the Group's subsidiaries (b) 8.0 6.3 5.0 
 
  10.8 8.3 6.5 
Other services       
– other services supplied pursuant to legislation (c) 2.4 3.0 1.1 
– taxation services (d) 0.8 1.6 1.8 
– other services (e) 0.9 2.4 1.9 
 
  4.1 7.0 4.8 
Fees in respect of pension scheme audits 0.1 0.2 0.2 
 
  15.0 15.5 11.5 
 
Remuneration payable to other accounting firms (f)       
Non-Audit Services       
– the auditing of accounts of the Group's subsidiaries pursuant to legislation 0.3 0.2 0.4 
– taxation services 2.8 3.1 3.0 
– financial systems design and implementation 0.3 1.2 1.6 
– internal audit 4.2 3.3 3.7 
– litigation services 0.1 — — 
– other services (g) 7.1 9.7 2.4 
 
  14.8 17.5 11.1 
Fees in respect of pension scheme audits 0.2 — — 
 
  15.0 17.5 11.1 
 
  30.0 33.0 22.6 
 

Remuneration of auditors is required to be presented in accordance with the requirements of The Companies (Disclosure of Auditor Remuneration) Regulations 2005 ('the legislation') for the first time in 2006. Comparative amounts for 2005 and 2004 have been restated on this basis.

(a)The audit feesremuneration payable to PricewaterhouseCoopers, the Group Auditors, are reviewedis approved by the Audit Committee.committee. The committee sets the policy for regulating the award of non-audit work to the auditors and reviewsapproves 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 companiesCompanies and their subsidiaries.subsidiaries, together with the Group's share of the payments made by proportionally consolidated units.
(b)AmountsFees payable for the 'audit of the accounts of the Group's subsidiaries pursuant to PricewaterhouseCoopers for nonlegislation' includes the statutory audit of subsidiaries and other audit work forperformed to support the Group's UK companies were US$1.3million (2002: US$0.9 million) and foraudit of the Group's Australian companies were US$2.3 million (2002: US$1.7 million).Group financial statements.
(c)Remuneration'Other services supplied pursuant to legislation' primarily relates to preparatory work relating to compliance with the Sarbanes-Oxley Act.
(d)'Taxation services' includes tax compliance and advisory services, involving the preparation or review of returns for corporation, income, sales and excise taxes; advice on acquisitions; advice on transfer pricing and, in 2005 and 2004, dealing with tax returns for expatriates.
(e)'Other services' includes advice on accounting matters (including the IFRS restatement in 2005) and assurance services in relation to issues of loan notes.
(f)'Remuneration payable to other accounting firms' does not include fees for similar services payable to other suppliers of consultancy services.services other than accountancy firms.
(d)(g)Group Auditors' remuneration for tax services in 2003 comprise US$1.4 million'Other services' in respect of complianceother accounting firms includes pension fund and payroll administration, advice on accounting matters, secondments of accounting firms' staff, forensic audit, advisory services in connection with Section 404 of the Sarbanes-Oxley Act 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. The Group Auditors are no longer appointed to conduct internal audit work.other consultancy.

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

42RELATED PARTY TRANSACTIONS
Information about material related party transactions of the Rio Tinto Group is set out below:

NOTES TO FINANCIAL STATEMENTS - (continued)

38   Related party transactions

Information about material related party transactions of the Rio Tinto Group is set out below:

Subsidiary companies: companies and proportionally consolidated units
Details of investments in principal subsidiary companies are disclosed in note 31.35.

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 arrangementsproportionally consolidated units can be found in note 34 - Principal joint arrangements.38.

Equity accounted units
Transactions and balances with equity accounted units are summarised below. Purchases relate largely to amounts charged by jointly controlled entities for toll processing of bauxite and alumina. Sales relate largely to charges for supply of coal to jointly controlled marketing entities for onsale to third party customers.

  2006 2005 2004 
Income statement items US$m US$m US$m 
 
Purchases from equity accounted units (1,364)(1,259)(1,078)
Sales to equity accounted units 1,497 1,296 692 
 
        
Balance sheet items US$m US$m   
   
Investments in equity accounted units (note 14) 2,235 1,829   
Loans to equity accounted units 151 159   
Loans from equity accounted units (65)(14)  
Trade and other receivables: amounts due from equity accounted units (note 17) 648 530   
Trade and other payables: amounts due to equity accounted units (note 24) (143)(199)  
   
        
Cash flow statement items US$m US$m US$m 
 
(Funding of)/repayments from equity accounted units (47)17 9 
 

Pension funds: funds
Information relating to pension fund arrangements is disclosed in note 40.46.

Directors and key management
: Details of directors' and key management remuneration are set out in note 3640 and in the remuneration report on pages 60page xx to 69 of the 2003 Annual Report.

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.

Transactions between the Rio Tinto plc part of the Group and the Rio Tinto Limited part of the Group
These are eliminated on the consolidation of the Rio Tinto Group. Transactions during the year included the following:xx.

-43During 2003, a subsidiaryEXCHANGE RATES IN US$
The principal exchange rates used in the preparation of the Rio Tinto plc part of the Group acquired US$500 million of redeemable preference shares in a subsidiary of the Rio Tinto Limited part of the Group.2006 financial statements are:
  Annual average Year end 
  2006 2005 2004 2006 2005 2004 
 
Sterling 1.84 1.82 1.83 1.96 1.73 1.93 
Australian dollar 0.75 0.76 0.73 0.79 0.73 0.78 
Canadian dollar 0.88 0.83 0.77 0.86 0.86 0.83 
South African rand 0.148 0.157 0.155 0.143 0.158 0.177 
 
  
-44A paymentBOUGAINVILLE 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$1,2081 million (2002:for the financial year (2005: US$115nil; 2004: US$1 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 2006 was made by the Rio Tinto Limited partUS$129 million (2005: US$112 million). The Group owns 214,887,966 shares in BCL, representing 53.6 per cent of the Group toissued share capital. The investment of US$195 million was fully provided against in 1991. At 31 December 2006, the Rio Tinto plc part of the Group in respect of a number of shares which were bought back during 2000.in BCL held by the Group, multiplied by the share price, resulted in an amount of US$119 million.

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Notes to the 2006 Financial statements

45SHARE BASED PAYMENTS
 
-During 2003 a dividend of US$164 million (2002: US$146 million) was paid by Rio Tinto Limited on the DLC Dividend Share, which was issued to facilitate the efficient management of funds within the DLC structure. Of this, US$62 million (2002: US$55 million) was paid out of Rio Tinto plc's 37.6% share of the reserves of Rio Tinto Limited and, therefore, had no impact on the shareholders' funds of Rio Tinto plc. The remaining US$102 million (2002: $91 million) of this dividend gave rise to an increase in the shareholders' funds of the Rio Tinto plc part of the Group. This dividend, however, had no impact on the shareholders' funds of the Rio Tinto Group as the economic interests of shareholders both of Rio Tinto plc and Rio Tinto Limited have a number of share-based payment plans, which are described in detail in the combined net assetsRemuneration Report. These plans have been accounted for in accordance with the fair value recognition provisions of IFRS 2, 'Share-based Payments', which means that IFRS 2 has been applied to all grants of employee share-based payments that had not vested as at 1 January 2004.
     The compensation cost that has been recognised in income for Rio Tinto's share-based compensation plans, and related liabilities, are set out in the two dual listed companies.
-The ownership of Itallumina was transferred from a Rio Tinto Limited subsidiary to a Rio Tinto plc subsidiary during 2002 for a consideration of US$13 million. The Rio Tinto Limited part of the Group recognised a gain of US$5 million in respect of this disposal.
table below.

  Expense recognised for   
  the period Liability at end of period 
  2006 2005 2004 2006 2005 
  US$m US$m US$m US$m US$m 
 
Equity-settled plans 25 26 31     
Cash-settled plans 7 22 9 43 39 
 
Total 32 48 40 43 39 
 

39Lattice-based option valuation model
   Bougainville Copper Limited ('BCL')

The Panguna mine remains shut down. Accessfair value of share options is estimated as at the date of grant using a lattice-based option valuation model. The significant assumptions used in the valuation model are disclosed below. Expected volatilities are based on the historical volatility of Rio Tinto's share returns under the UK and Australian listings. Historical data were used to estimate employee turnover rates within the valuation model. Under the Share Option Plans, it is assumed that after options have vested, 20 per cent p.a. of participants will exercise their options when the market price is at least 20 per cent above the exercise price of the option. Participants in the Share Savings Plans are assumed to exercise their options immediately after vesting. The implied lifetime of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate used in the valuation model is equal to the mine site has not been possibleyield available on UK and an accurate assessmentAustralian zero-coupon government bonds (for plc and Limited options respectively) at the date of grant with a term equal to the expected term of the conditionoptions.

Summary of options outstanding
A summary of the assets cannot be determined. Considerable funding would be required to recommence operations to the level which applied at the timestatus 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, 2001: profit of US$3 million). This is based upon actual transactions for the financial year. The aggregate amount of capital and reserves reported by BCL asCompanies' fixed share option plans 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 of2006, and changes during the issued share capital. The investment of US$195 million was fully provided against in 1991. Atyear ended 31 December 2003,2006, is presented below.

  Number Weighted Weighted Aggregate Aggregate 
    average average intrinsic intrinsic 
    exercise remaining value value 
    price contractual     
      life 2006 2005 
Options outstanding at 31 December 2006     (years) US$'m US$'m 
 
Rio Tinto plc share savings plan £8 - £21 1,497,463 14.26 2.1 37 41 
Rio Tinto plc share option plan £8 - £27.25 5,185,847 16.33 6.8 110 142 
Rio Tinto Limited share savings plan A$25 - A$57 2,748,026 36.00 2.3 83 78 
Rio Tinto Limited share option plan A$23 - A$72 3,540,588 43.53 6.9 86 95 
 
        316 356 
 
Options exercisable at 31 December 2006           
 
Rio Tinto plc share savings plan £12 - £18 84,150 12.64 0.0 2 — 
Rio Tinto plc share option plan £8 - £18 2,363,000 12.84 5.3 67 62 
Rio Tinto Limited share option plan A$23 - A$40 1,531,393 34.02 5.2 49 36 
 
        118 98 
 

As at 31 December 2006 and 2005 there were no options exercisable under the marketRio Tinto Limited share savings plan.

Share Savings Plans
Awards under these plans are settled in equity and accounted for accordingly. The fair value of each award on the shareholdingday of grant was estimated using a lattice-based option valuation model, including allowance for the exercise price being at a discount to market price. The key assumptions used in BCL was US$39 million.the valuation are noted in the following table.

  Risk-free Expected Dividend Turnover Implied 
  interest volatility yield rates lifetime 
  rate         
  % % % % (years) 
 
Awards made in 2006           
– Rio Tinto plc 4.7-4.9 34.0 1.7 10.0 2.0-5.2 
– Rio Tinto Limited 5.6-5.7 27.0 1.5 10.0 3.2-5.2 
 

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

45SHARE BASED PAYMENTS CONTINUED
Rio Tinto plc – share savings plan
 2006 2006 2005 2005 2004 2004 
 Number Weighted Number Weighted Number Weighted 
  average  average  average 
  exercise  exercise  exercise 
  price  price  price 
  £  £  £ 
 
Options outstanding at 1 January1,624,492 11.84 1,709,069 10.11 1,995,504 8.63 
Granted323,256 20.72 393,275 16.64 412,785 11.40 
Forfeited(35,953)14.06 (32,350)10.25 (121,112)9.64 
Exercised(376,802)9.59 (334,750)9.32 (527,641)5.74 
Cancellations(25,097)12.38 (70,027)10.98 (15,773)10.09 
Expired(12,433)11.72 (40,725)9.13 (34,694)8.41 
 
Options outstanding at 31 December1,497,463 14.26 1,624,492 11.84 1,709,069 10.11 
 
Weighted average grant-date fair value of         
   options granted during the year (£) 7.93  8.09  5.48 
Share price at date of grant for options         
   granted during the year (£) 24.63  22.34  15.00 
Estimated weighted average share price of         
   options exercised during the year (£) 27.86  16.95  14.73 
          
Rio Tinto Limited – share savings plan         
 2006 2006 2005 2005 2004 2004 
 Number Weighted Number Weighted Number Weighted 
  average  average  average 
  exercise  exercise  exercise 
  price  price  price 
  A$  A$  A$ 
 
Options outstanding at 1 January2,786,301 30.56 2,680,986 27.18 2,415,421 26.71 
Granted494,141 56.80 707,144 40.92 547,052 29.04 
Forfeited(81,201)30.85 (49,532)27.31 (254,478)26.72 
Exercised(414,201)25.65 (407,195)27.82 (27,009)27.13 
Cancellations(36,936)30.94 (131,498)27.34 — — 
Expired(78)25.57 (13,604)27.86 — — 
 
Options outstanding at 31 December2,748,026 36.00 2,786,301 30.56 2,680,986 27.18 
 
Weighted average grant-date fair value of         
   options granted during the year (A$) 23.56  21.62  14.10 
Share price at date of grant for options         
   grant for options granted during the year (A$) 69.25  56.50  38.85 
Estimated weighted average share price of         
   options exercised during the year (A$) 74.16  43.83  36.32 

Share option plans
The Group has a policy of settling these awards in equity, although the directors at their discretion can offer a cash alternative. The awards are accounted for in accordance with the requirements applying to equity-settled share-based payment transactions. The performance conditions in relation to Total Shareholder Return have been incorporated in the measurement of fair value for these awards by modelling the correlation between Rio Tinto's TSR and that of the index. The relationship between Rio Tinto's TSR and the index was simulated many thousands of times to derive a distribution which, in conjunction with the lattice-based option valuation model, was used to determine the fair value of the options. The key assumptions are noted in the following table.

 Risk-free Expected Dividend Turnover Implied 
 interest volatility yield rates lifetime 
 rate         
 % % % % (years) 
 
Awards made in 2006          
– Rio Tinto plc4.3 33.0 1.7 3.0 5.8 
– Rio Tinto Limited5.4 26.0 1.5 3.0 6.8 
 
           

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NOTES TO FINANCIAL STATEMENTS - (continued)Notes to the 2006 Financial statements

45SHARE BASED PAYMENTS CONTINUED

A summary of the status of the Companies' performance-based share option plans at 31 December 2006, and changes during the year ended 31 December 2006, is presented below.

Rio Tinto plc – share option plan            
 2006 2006 2005 2005 2004 2004 
 Number Weighted Number Weighted Number Weighted 
  average  average  average 
  exercise  exercise  exercise 
  price  price  price 
  £  £  £ 
 
Options outstanding at 1 January6,290,155 13.45 8,053,292 12.33 7,662,925 11.93 
Granted931,418 27.11 979,593 18.26 1,134,053 13.29 
Forfeited(63,713)25.16 (71,312)14.96 (159,423)13.09 
Exercised(1,972,013)11.95 (2,671,418)11.80 (584,263)8.69 
 
Options outstanding at 31 December5,185,847 16.33 6,290,155 13.45 8,053,292 12.33 
 
Weighted average fair value of options         
   granted during the year (£) 7.40  4.09  2.81 
Share price at date of grant for options         
   granted during the year (£) 26.89  18.25  12.76 
Estimated weighted average share price         
   of options exercised during the year (£) 29.01  20.37  15.22 

In addition to the equity-settled share option plan grants shown above there were 118,125 cash-settled share option plan awards outstanding as at 31st December 2006. The total liability for these awards as at 31st December 2006 was US$1 million.

Rio Tinto Limited – share option plan            
 2006 2006 2005 2005 2004 2004 
 Number Weighted Number Weighted Number Weighted 
  average  average  average 
  exercise  exercise  exercise 
  price  price  price 
  A$  A$  A$ 
 
Options outstanding at 1 January3,959,472 36.17 4,073,599 34.24 3,602,137 33.58 
Granted716,318 71.06 669,731 47.04 796,683 34.41 
Forfeited(89,041)53.64 (48,880)37.60 (128,613)34.91 
Exercised(1,043,766)33.65 (734,978)35.30 (196,608)22.25 
Expired(2,395)39.87 — — — — 
 
Options outstanding at 31 December3,540,588 43.53 3,959,472 36.17 4,073,599 34.24 
 
Weighted average fair value of options         
   granted during the year (A$) 17.09  8.93  6.17 
Share price at date of grant for options         
   granted during the year (A$) 70.85  46.89  33.17 
Estimated weighted average share price         
   of options exercised during the year (A$) 76.64  49.86  38.28 

In addition to the equity-settled share option plan grants shown above there were 57,396 cash-settled share option plan awards outstanding as at 31st December 2006. The total liability for these awards as at 31st December 2006 was US$2 million.

40Share Ownership Plan
   Post retirement benefitsThe fair values of awards of Matching and Free Shares made by Rio Tinto are taken to be the market value of the shares on the date of purchase. These awards are settled in equity. The total fair value of shares awarded during the year was £988,000 (2005: £877,000; 2004: £873,000).

(a) SSAP 24Mining Companies Comparative Plan
Awards under this plan are accounted for in accordance with the requirements applying to cash-settled share-based payment transactions. If any awards are ultimately settled in shares, the liability is transferred direct to equity as the consideration for the equity instruments issued. 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 50 per cent for anticipated relative TSR performance. In addition, for the valuations after 2005 the market value is reduced for non-receipt of dividends between measurement date and date of vesting (excluding post-2003 awards for Executive Directors and Product Group CEOs). Forfeitures are assumed prior to vesting at three per cent p.a. of outstanding awards. In accordance with the method of accounting for cash settled awards, fair values are subsequently remeasured each year to reflect the number of awards expected to vest based on the current and disclosure
Pensionsanticipated TSR performance.

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Notes to the 2006 Financial statements

45SHARE BASED PAYMENTS CONTINUED

A summary of the status of the Companies' performance-based share plans at 31 December 2006, and changes during the year, is presented below.

Rio Tinto plc – mining companies comparative plan            
 2006 2006 2005 2005 2004 2004 
 Number Weighted Number Weighted Number Weighted 
  average  average  average 
  fair value  fair value  fair value 
  at grant  at grant  at grant 
  date  date  date 
  £  £  £ 
 
Nonvested shares at 1 January2,276,511 6.62 1,819,497 6.20 1,212,085 5.77 
Awarded850,126 9.02 891,010 7.03 922,534 6.45 
Forfeited(60,826)8.18 (21,532)6.78 (41,805)6.28 
Failed performance conditions(233,843)6.20 (343,731)5.59 (102,513)5.12 
Vested(54,594)6.22 (68,733)6.04 (170,804)5.12 
 
Nonvested shares at 31 December2,777,374 7.36 2,276,511 6.62 1,819,497 6.20 
 
Weighted-average share price at vesting (£) 28.67  17.59  14.41 
          
  £'000s  £'000s  £'000s 
 
Total fair value of shares issued in      
   settlement of shares vested during the year 529  134  208 
Total cash payments made in settlement      
   of shares vested during the year 1,035  258  2,252 
Total cash payments made in settlement      
   of shares vested during previous years 1,374  —  — 
 
             
Rio Tinto Limited – mining companies comparative plan            
 2006 2006 2005 2005 2004 2004 
 Number Weighted Number Weighted Number Weighted 
  average  average  average 
  fair value  fair value  fair value 
  at grant  at grant  at grant 
  date  date  date 
  A$  A$  A$ 
 
Nonvested shares at 1 January1,510,846 17.27 1,129,237 16.11 721,094 15.00 
Granted646,637 23.59 588,483 18.15 603,686 16.44 
Forfeited(83,092)19.90 (12,337)17.35 (25,270)16.44 
Failed performance conditions(146,738)16.84 (176,741)13.21 (63,869)12.51 
Vested(30,645)16.84 (17,796)13.41 (106,404)12.51 
 
Nonvested shares at 31 December1,897,008 19.35 1,510,846 17.27 1,129,237 16.11 
 
Weighted-average share price at vesting (A$) 71.65  43.89  35.83 
          
  A$000's  A$'000s  A$'000s 
 
Total fair value of shares issued in settlement      
   of shares vested during the year 1,136  342  2,032 
Total cash payments made in settlement      
   of shares vested during the year 1,060  394  1,780 
 

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Notes to the 2006 Financial statements

46POST RETIREMENT BENEFITS

Description of plans
The Group operates a number of pension and post-retirement healthcare plans around the world. Whilst someSome of these plans are defined contribution the majorityand some 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.

Summary of independent actuarial reviewsUK Australia US Canada Other (e) 
 
 
 
 
 
 
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 pensions2.8%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 pensions2.3%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 - 
(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 informationPension plans
A triennial actuarial valuationThe majority of the Group's pension obligations are in the UK, US, Canada and Australia.
In the UK, the main pension arrangement is the Rio Tinto Pension Fund, a funded tax-approved plan. The plan has defined benefit and defined contribution sections; the defined benefit section of the plan gives benefits related to final average pay and was made at 31 March 2003 usingclosed to new entrants on 1 April 2005. New employees are admitted to the projected unit method. defined contribution section.
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. ValuationsThe defined benefits are made at least every three years using the projected unit method, with the latest valuation being as at 30 June 2003. linked to final average pay and are typically paid in lump sum form.
A number of defined benefit pension plans are sponsored by the US and Canadian entities, typically with separate provision for salaried and hourly paid staff. ValuationsBenefits for salaried staff include benefits linked to final average pay and benefits determined according to an accumulated cash balance. Benefits for hourly paid staff are made annually at 1 January using the projected unit method. A number of defined benefit pension plans are sponsored by entitiesreviewed 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 10 to 17 yearsnegotiation 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 at 31 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. unions.
The Group also operates a number of unfunded defined benefit plans, which are included within the deficit and percentage coverage statistics above, measured on a basis consistent with both SSAP 24 and FRS 17.

Profit and loss account - effect of pension costs, pre-tax and minorities

 2003 2002 
 US$m US$m 
 
 
 
Regular cost(102)(98)
Variation cost(90)(2)
Interest on prepayment under SSAP 2442 46 
 
 
 
Net post retirement cost(150)(54)
 
 
 

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.figures below.

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

40   Post retirement benefits (continued)

Balance sheet - effect of pension assets and liabilities, pre-tax and minorities

 2003 2002 
 US$m US$m 
 
 
 
Prepayment under SSAP 24620 634 
Provisions(77)(44)
 
 
 
Net post retirement asset543 590 
 
 
 

Post retirement healthcare plans
Certain subsidiaries of the Group, mainly in the US and Canada, provide health and life insurance benefits to retired employees and in some cases to their beneficiaries and covered dependants. Eligibility for cover is dependent upon certain age and service criteria. These arrangements are unfunded.

On 30 September 2003,Plan assets
The proportions of the unfunded accumulated post retirement benefit obligation and annual costtotal fair value of accrual of benefits were determinedassets in the pension plans for each asset class at the balance sheet date were:

 2006 2005 
 
Equities67.2%66.4%
Bonds25.2%24.5%
Property4.3%2.8%
Other3.3%6.3%
 
 100.0%100.0%
 

     The plans do not invest directly in property occupied by independent actuaries using the projected unit method. Group or in the Group's own financial instruments.

Main assumptions (rates per annum)
The main financial assumptions were: discount rate 6.1 per cent (at 30 September 2002: 6.5 per cent), Medical Trend Rate 11.2 per cent reducing to 4.7 per cent byfor 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 
 
 
 
Regular cost(9)(8)
Amortisation4 6 
Interest(29)(23)
 
 
 
Net post retirement (cost)/credit(34)(25)
 
 
 
     
Balance sheet - effect of post retirement healthcare liabilities, pre-tax and minorities    
Provisions(498)(466)

b) FRS 17 Transitional disclosures

FRS 17 - 'Retirement Benefits', which deals with accounting for post retirement benefits, has not been adopted, but additional disclosures are required which 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 liabilitiesvaluations 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:

 Other     Other 
 (mainly     (mainly 
Main assumptions for FRS 17 purposesUK Australia US Canada Africa) 
 
 
 
 
 UK Australia (a) US Canada Africa) (b) 
At 31 December 2003 
 
At 31 December 2006     
Rate of increase in salaries4.8%4.0%4.0%4.0%6.5%5.1%5.1%3.9%3.8%6.8%
Rate of increase in pensions2.8%2.5%- - 4.5%3.1%3.1%— — 4.8%
Discount rate5.4%6.0%5.9%6.1%9.0%5.2%5.0%5.9%5.0%7.4%
Inflation2.8%2.5%2.5%2.3%4.5%3.1%3.1%2.4%2.3%4.8%
      
At 31 December 2002 
At 31 December 2005     
Rate of increase in salaries4.8%4.0%3.2%3.7%10.5%4.8%4.8%3.9%4.3%6.5%
Rate of increase in pensions2.3%2.5%- - 7.0%2.8%2.8%— — 4.5%
Discount rate5.6%6.2%6.2%6.5%11.5%4.8%4.4%5.6%4.8%7.3%
Inflation2.3%2.5%2.2%2.2%7.0%2.8%2.8%2.4%2.6%4.5%
           
At 31 December 2001 
Rate of increase in salaries5.5%4.0%3.5%4.0%10.5%
Rate of increase in pensions2.5%2.5%- - 5.8%
Discount rate6.0%6.5%7.0%7.0%11.5%
Inflation2.5%2.5%2.5%2.5%5.8%
(a)The discount rate assumed for Australia is after tax.
(b)The assumptions vary by location for the 'Other' plans. Assumptions shown are for Southern Africa.

The main financial assumptions used for the health care schemes,healthcare plans, which are predominantly in the US, were: discount rate: 5.9% (2002: 6.2%, 2001: 7%5.8%
(2005: 5.6%), Medical Trendmedical trend rate: 11.5%8.2% reducing to 5.0%5.2% by the year 2011 (2002: Medical Trend rate: 8%broadly on a straight line basis (2005: 9.4%, reducing to 5%4.9% by the year 2009, 2001: Medical Trend Rate 8.5% reducing to 5% by the year 2009)2011), claims cost based on individual company experience.

For both the pension and healthcare arrangements the post-retirement mortality assumptions allow for future improvements in mortality. The mortality tables used for the main arrangements imply that a male aged 60 at the balance sheet date has an expected future lifetime of 24 years (2005: 24 years).

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

46POST RETIREMENT BENEFITS CONTINUED
       
     Other 
     (mainly 
 UK Australia US Canada Africa) (a) 
 
Long term rate of return expected at 1 January 2006     
Equities7.3%6.8%6.9%7.1%9.0%
Bonds4.3%4.6%4.9%4.3%7.3%
Property5.7%5.6%5.7%5.6%8.2%
Other4.0%3.2%3.4%3.6%5.5%
Long term rate of return expected at 1 January 2005     
Equities7.9%7.2%7.7%7.7%9.0%
Bonds4.8%4.7%5.1%5.1%8.5%
Property6.2%5.9%6.3%6.3%8.8%
Other4.5%3.2%3.7%4.0%5.0%
           
(a)The assumptions vary by location for the 'Other' plans. Assumptions shown are for Southern Africa.

The expected rate of return on pension plan assets is determined as management's best estimate of the long term returns of the major asset classes – equities, bonds, property 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 expected rates of return shown have been reduced to allow for plan expenses including, where appropriate, taxes incurred within pension plans on investment returns.

     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.

Total expense recognised in the income statement

        
   2006 2005 2004 
 Pension Other Total Total Total 
 benefits benefits US$m US$m US$m 
 
Current employer service cost for Defined Benefits ("DB")(93)(9)(102)(90)(80)
Current employer service cost for Defined Contribution benefits within DB plans(74)— (74)(69)(53)
Current employer service cost for Defined Contribution plans(21)— (21)(13)(11)
Interest cost(288)(26)(314)(308)(286)
Expected return on assets326 — 326 306 263 
Past service cost(6)(1)(7)(1)(19)
Gains on curtailment and settlement3 — 3 8 35 
 
Total expense(153)(36)(189)(167)(151)
 

The above expense is included as an employee cost within net operating costs.

NOTES TO FINANCIAL STATEMENTS - (continued)Total amount recognised in the Statement of Recognised Income and Expense

 2006 2005 2004 
 US$m US$m US$m 
 
Actuarial gain/(loss)373 178 (203)
 
Cumulative amount recognised in the Statement of Recognised Income and Expense at 31 December348 (25)(203)
 

Surpluses/(deficits) in the plans
The following amounts were measured in accordance with IAS 19:

   2006 2005 2004 
 Pension Other Total Total Total 
 benefits benefits US$m US$m US$m 
 
Total fair value of plan assets6,031 — 6,031 5,115 4,777 
Present value of obligations – funded(5,847)— (5,847)(5,315)(5,118)
Present value of obligations – unfunded(136)(461)(597)(596)(649)
 
Present value of obligations – Total(5,983)(461)(6,444)(5,911)(5,767)
 
Unrecognised past service cost— 3 3 — — 
 
Aggregate surplus/(deficit) to be shown in the balance sheet48 (458)(410)(796)(990)
 
Comprising:     
– Deficits(312)(458)(770)(996)(1,069)
 
– Surpluses360 — 360 200 79 
 
Net surpluses/(deficits) on pension plans48  48 (324)(450)
Unfunded post retirement healthcare obligation (458)(458)(472)(540)
 

The surplus amounts shown above are included in the balance sheet as Trade and Other Receivables. Deficits are included within Provisions.

40   Post retirement benefits (continued)A-64

 
`
 
 
 
 
 
 
 
Other
 
  
 
 
 
 
 
 
 
 
 
(mainly
 
  
 UK
 
Australia
 
US
 
Canada
 
Africa)
 
  
 
 
 
 
 
   
Long term rate of return expected at 31 December 2003            
Equities7.8%7.0%7.5%7.3%9.5%  
Fixed interest bonds5.0%5.1%5.4%5.2%8.5%  
Index linked bonds5.0%5.1%5.4%5.2%8.5%  
Other4.6%5.1%5.1%3.3%5.6%  
             
Long term rate of return expected at 31 December 2002            
Equities7.3%7.0%7.2%7.2%12.5%  
Fixed interest bonds5.0%5.5%5.6%6.0%11.0%  
Index linked bonds5.0%5.5%5.6%6.0%11.0%  
Other4.6%5.9%6.4%5.0%10.2%  
             
Long term rate of return expected at 31 December 2001            
Equities7.5%7.0%7.5%7.5%12.5%  
Fixed interest bonds5.5%6.0%6.5%6.5%11.0%  
Index linked bonds5.5%6.0%6.5%6.5%11.0%  
Other5.3%6.3%6.8%5.1%9.7%  
             
Scheme assets            
The assets in the pension plans and the contributions made were:            
         Other   
 
 
 
 
 
 
 
 
 
(mainly
 
 
 
 UK
 
Australia
 
US 
 
Canada
 
Africa)
 
Total 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m 
Value at 31 December 2003            
Equities1,094 646 401 451 82 2,674 
Fixed interest bonds300 229 126 193 15 863 
Index linked bonds127 7 12 44 - 190 
Other54 88 74 21 97 334 
 
 
 
 
 
 
 
 1,575 970 613 709 194 4,061 
 
 
 
 
 
 
 
Value at 31 December 2002            
Equities823 377 342 271 93 1,906 
Fixed interest bonds294 160 139 148 18 759 
Index linked bonds95 5 11 32 - 143 
Other60 65 39 64 190 418 
 
 
 
 
 
 
 
 1,272 607 531 515 301 3,226 
 
 
 
 
 
 
 
Value at 31 December 2001            
Equities965 416 441 375 161 2,358 
Fixed interest bonds244 132 122 153 45 696 
Index linked bonds81 5 13 36 - 135 
Other66 64 56 17 30 233 
 
 
 
 
 
 
 
 1,356 617 632 581 236 3,422 
 
 
 
 
 
 
 
             
Employer contributions made during 2003 *6 45 4 43 5 103 
 
 
 
 
 
 
 
Employer contributions made during 2002 *- 10 4 15 4 33 
 
 
 
 
 
 
 

*TheBack to Contents

Notes to the 2006 Financial statements

46POST RETIREMENT BENEFITS CONTINUED

Contributions to plans
Contributions to pension plans totalled US$172 million (2005: US$192 million; 2004: US$162 million). These contributions include US$12 million (2005: US$8 million; 2004: US$7 million) for plans providing purely defined contribution benefits. These contributions are charged against profits, and are included in the figures for "current employer service cost" shown includeabove. In addition, contributions of US$14 million (2005: US$12 million; 2004: US$11 million) were made to 401k plans in the US.
In addition, contributions of US$9 million (2002:(2005: US$135 million; 2004: US$4 million) forwere made to an industry-wide arrangement that is principally defined contribution plans.

in nature.
In addition, there were contributions ofContributions for other benefits totalled US$1819 million (2002:(2005: US$1626 million; 2004: US$26 million) in respect of unfunded health care schemes in the year. Since these schemes.
Contributions to pension plans for 2007 are estimated to be around US$8 million higher than for 2006. Healthcare plans are unfunded and contributions for future years will be equal to benefit payments and therefore cannot be pre-determined.predetermined.

Movements in the present value of the defined benefit obligation and in the fair value of assets
In relation to pensions, it is currently expectedThe amounts shown below include, where appropriate, 100 per cent of the costs, contributions, gains and losses in respect of employees who participate in the plans and who are employed in operations that there will be no regular employerare proportionally consolidated or employeeequity accounted. Consequently, the costs, contributions, gains and losses do not correspond directly to the UK planamounts disclosed above in 2004. Contributions are made to the main Australian plan according to the recommendationrespect of the plan actuary and are primarily to a mixed defined benefit/Group. Pure defined contribution type arrangement (included inplans and industry-wide plans are excluded from 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 USmovements below.

     2006 2005 
 Pension Other Total Total 
 benefits benefits US$m US$m 
 
Change in present value of obligation:    
Present value of obligation at start of the year(5,439)(472)(5,911)(5,767)
Current employer service cost(197)(9)(206)(174)
Interest cost(288)(26)(314)(308)
Contributions by plan participants(113)— (113)(35)
Experience gain/(loss)(98)9 (89)139 
Changes in actuarial assumptions gain/(loss)105 19 124 (180)
Benefits paid342 19 361 348 
Inclusion/removal of arrangements42 — 42 — 
Past service cost(6)(4)(10)(1)
Settlement gains— — — 8 
Curtailment gains3 — 3 — 
Currency exchange rate (loss)/gain(334)3 (331)59 
 
Present value of obligation at end of the year(5,983)(461)(6,444)(5,911)
 

Gains 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$30-40 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.losses on obligations

 2006 2005 2004 
 
Experience gains and (losses): (i.e. variances between the estimate of obligations and the subsequent outcome) (Loss)/gain (US$m)(89)139 (148)
As a percentage of the present value of the obligations-1%2%-3%
 
Change in assumptions gain/(loss) (US$m)124 (180)(429)
 

     2006 2005 
 Pension Other Total Total 
 benefits benefits US$m US$m 
 
Change in plan assets:    
Fair value of plan assets at the start of the year5,115 — 5,115 4,777 
Expected return on plan assets326 — 326 306 
Actuarial gain on plan assets338 — 338 223 
Contributions by plan participants113 — 113 35 
Contributions by employer170 19 189 207 
Benefits paid(342)(19)(361)(348)
Inclusion/removal of arrangements(41)— (41)— 
Assets refunded to the employer— — — (12)
Currency exchange rate gain/(loss)352 — 352 (73)
 
Fair value of plan assets at the end of the year6,031 — 6,031 5,115 
 
Actual return on plan assets  664 529 

 2006 2005 2004 
 
Difference between the expected and actual return on plan assets:   
Gain (US$m)338 223 387 
As a percentage of plan assets6% 4% 8% 
 

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

46POST RETIREMENT BENEFITS CONTINUED

Post-retirement healthcare – sensitivity to changes in assumptions
An increase of 1 per cent in the assumed medical cost trend rates would increase the aggregate of the current service cost and interest cost components of the post-retirement healthcare expense by US$6m (2005 and 2004: US$6m), and increase the benefit obligation for these plans by US$73m (2005: US$67m; 2004: US$66m). A decrease of 1 per cent in the assumed medical cost trend rates would decrease the aggregate of the current service cost and interest cost components of the post-retirement healthcare expense by US$5m (2005 and 2004: US$5m), and decrease the benefit obligation for these plans by US$62m (2005: US$56m; 2004: US$54m).

NOTES TO FINANCIAL STATEMENTS - (continued)

40   Post retirement benefits (continued)

Surpluses/(deficits) in the plans
The following amounts were measured in accordance with FRS 17:

At 31 December 2003UK
 
Australia
 
US
 
Canada
 
Other
 
Healthcare
 
Total 
 US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m 
 
 
 
 
 
 
 
 
Total market value of plan assets1,575 970 613 709 194 - 4,061 
Present value of plan liabilities(1,477)(963)(768)(877)(213)(561)(4,859)
 
 
 
 
 
 
 
 
Surplus/(deficit) in the plans98 7 (155)(168)(19)(561)(798)
 
 
 
 
 
 
   
Related deferred tax            123 
Related outside shareholders' interest            92 
             
 
Net post retirement liability            (583)
             
 
               
Surplus/(deficit) in the plans comprises:              
Surplus121 7 12 2 - - 142 
Deficit(23)- (167)(170)(19)(561)(940)
 
 
 
 
 
 
 
 
 98 7 (155)(168)(19)(561)(798)
 
 
 
 
 
 
 
 
               
At 31 December 2002UK
 
Australia
 
US
 
Canada
 
Other
 
Healthcare
 
Total 
 US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m 
 
 
 
 
 
 
 
 
Total market value of plan assets1,272 607 531 515 301 - 3,226 
Present value of plan liabilities(1,178)(594)(721)(670)(312)(417)(3,892)
 
 
 
 
 
 
 
 
Surplus/(deficit) in the plans94 13 (190)(155)(11)(417)(666)
 
 
 
 
 
 
   
Related deferred tax            113 
Related outside shareholders' interest            47 
             
 
Net post retirement liability            (506)
             
 
               
Surplus/(deficit) in the plans comprises:              
Surplus108 13 45 2 - - 168 
Deficit(14)- (235)(157)(11)(417)(834)
 
 
 
 
 
 
 
 
 94 13 (190)(155)(11)(417)(666)
 
 
 
 
 
 
 
 

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 
 
 
 
Shareholders' funds including SSAP 24 post retirement net asset10,037 7,462 
Deduct: SSAP 24 post retirement net asset67 96 
 
 
 
Shareholders' funds excluding SSAP 24 post retirement net asset9,970 7,366 
Add: FRS 17 post retirement net liability(583)(506)
 
 
 
Shareholders' funds including FRS 17 post retirement net liability9,387 6,860 
 
 
 

Movements in surplus/(deficit) during the year
The net post retirement deficit under FRS 17 before defered tax and outside shareholders interests would have moved as follows during 2003:

     2003 2002 
   Other Total Total 
 Pension benefits US$m US$m 
 
 
 
 
 
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 STRGL54 (104)(50)(719)
 
 
 
 
 
Net post retirement deficit at 31 December(237)(561)(798)(666)
 
 
 
 
 

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

47RIO TINTO FINANCIAL INFORMATION BY BUSINESS UNIT

NOTES TO FINANCIAL STATEMENTS - (continued)

40   Post 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 
 
 
 
 
 
Employer current service cost(110)(12)(122)(103)
Past service cost(7)- (7)(11)
Curtailment and settlement cost- 3 3 (2)
 
 
 
 
 
Total operating charge(117)(9)(126)(116)
 
 
 
 
 

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 
 
 
 
 
 
Expected return on pension scheme assets213 - 213 254 
Interest on post retirement liabilities(215)(28)(243)(231)
 
 
 
 
 
Net return(2)(28)(30)23 
 
 
 
 
 

If the above amounts had been recognised in the financial statements instead of the SSAP24 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 Statement of Total Recognised Gains and Losses ('STRGL') under FRS 17:

 2003 2002 
 US$m US$m 
 
 
 
Difference between the expected and actual return on plan assets:    
Amount (US$m)354 (599)
As a percentage of plan assets9% -19% 
 
 
 
     
Experience gains and losses on plan liabilities:    
(i.e. 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% 
 
 
 
     
Change in assumptions:    
Amount (US$m)(286)(148)
 
 
 
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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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

41   Rio Tinto financial information by business unit

Rio TintoGross turnover (a)EBITDA (b) Net earnings (c) Rio TintoGross sales revenue EBITDA  Net earnings 
interest interest(a)  (b) (c) 
% 2003 2002 2001 2003 2002 2001 2003 2002 2001  2006 2005 2004 2006 2005 2004 2006 2005 2004 
 
 
 
 
 
 
 
 
 
 % US$m US$m US$m US$m US$m US$m US$m US$m US$m 
 US$m US$m US$m US$m US$m US$m US$m US$m US$m 
 
Iron Ore           
Hamersley (inc. HIsmelt®)100.0 1,329 1,117 1,118 711 676 733 424 401 441 100.0 4,416 3,387 1,858 2,594 1,924 772 1,660 1,219 430 
Robe River53.0 374 240 193 213 160 127 68 54 45 53.0 1,379 1,113 614 902 726 318 461 362 130 
Iron Ore Company of Canada58.7 442 400 380 47 25 67 7 (3)16 58.7 1,051 954 428 441 451 55 145 148 4 
Rio Tinto Brasil100.0 92 43 109 27 1 31 13 (7)1 
 
 
 
 
 
 
 
 
 
 
 
  2,145 1,757 1,691 971 861 927 499 452 502  6,938 5,497 3,009 3,964 3,102 1,176 2,279 1,722 565 
 
 
 
 
 
 
 
 
 
 
 
Energy           
Kennecott Energy100.0 955 949 882 236 267 223 88 90 84 
Rio Tinto Energy America100.0 1,428 1,197 1,125 302 257 298 177 135 180 
Rio Tinto Coal Australia100.0 433 417 362 157 233 201 70 134 117 (d)2,344 2,302 1,585 920 1,067 536 490 572 236 
Kaltim Prima Coal(d) 142 216 212 74 79 101 31 26 42 
Coal & Allied75.7 597 623 647 52 207 255 (24)68 102 
Rössing68.6 86 112 115 (33)50 68 (19)23 21 68.6 229 163 124 71 24 8 27 2 (4)
Energy Resources of Australia68.4 131 113 90 58 50 38 11 12 7 68.4 239 205 174 79 94 70 17 24 19 
 
 
 
 
 
 
 
 
 
 
 
  2,344 2,430 2,308 544 886 886 157 353 373  4,240 3,867 3,008 1,372 1,442 912 711 733 431 
 
 
 
 
 
 
 
 
 
 
 
Industrial Minerals  1,801 1,847 1,768 465 717 797 154 286 323  2,623 2,487 2,126 624 563 554 243 187 243 
 
 
 
 
 
 
 
 
 
 
Aluminium(e) 1,936 1,662 1,714 488 510 632 200 256 328 (e)3,493 2,744 2,356 1,365 855 688 746 392 331 
 
 
 
 
 
 
 
 
 
 
 
Copper           
Kennecott Utah Copper100.0 722 755 675 230 236 271 88 86 81 100.0 2,829 2,141 1,091 2,103 1,436 498 1,804 1,037 311 
Escondida30.0 502 283 289 284 121 142 122 32 41 30.0 2,575 1,239 1,003 2,105 1,014 699 1,250 602 406 
Freeport13.1 344 306 296 169 139 128 23 19 4 (h)— — 43 — — 7 — — (4)
Freeport joint venture40.0 397 349 316 225 215 186 104 113 88 
Grasberg joint venture(f)373 657 159 258 436 98 122 232 32 
Palabora49.2 206 201 233 20 53 66 1 12 14 57.7 588 371 305 203 77 (20)52 19 (21)
Kennecott Minerals100.0 239 205 196 122 93 83 60 38 33 100.0 277 256 263 139 119 130 105 73 82 
Rio Tinto Brasil(f) 139 115 111 48 40 46 48 16 26 
Other Copper(d) 176 254 268 51 100 116 (6)25 19 
Northparkes80.0 437 175 85 346 109 43 229 57 25 
Other copper — — 84 — — 48 — — 29 
 
 
 
 
 
 
 
 
 
 
 
  2,725 2,468 2,384 1,149 997 1,038 440 341 306  7,079 4,839 3,033 5,154 3,191 1,503 3,562 2,020 860 
 
 
 
 
 
 
 
 
 
 
 
Diamonds           
Argyle100.0 434 372 278 198 175 147 72 63 58 100.0 345 572 322 167 252 102 64 117 40 
Diavik60.0 122 - - 106 - - 41 - - 60.0 460 460 420 297 334 316 131 143 147 
 
 
 
 
 
 
 
 
 
 
Murowa77.8 33 44 2 19 31 1 10 21 1 
  556 372 278 304 175 147 113 63 58 
 
 
 
 
 
 
 
 
 
 
  838 1,076 744 483 617 419 205 281 188 
 
 
Other Operations  184 208 233 77 81 61 21 25 16  229 232 254 39 81 122 33 40 56 
 
 
 
 
 
 
 
 
 
 
 
Product Group Total  11,691 10,744 10,376 3,998 4,227 4,488 1,584 1,776 1,906 
 25,440 20,742 14,530 13,001 9,851 5,374 7,779 5,375 2,674 
 
 
 
 
 
 
 
 
 
 
 
Other items  64 84 62 (233)(137)(50)(45)(42)27     (289)(329)(291)(261)(202)(205)
Exploration and evaluation  (127)(130)(130)(98)(109)(104)    (188)(190)(142)(163)(174)(128)
Net interest (59)(95)(167)       (17)(44)(69)
 
 
 
 
 
Adjusted earnings 1,382 1,530 1,662 
Exceptional items  126 (116)- 126 (879)(583)
Underlying earnings    12,524 9,332 4,941 7,338 4,955 2,272 
Items excluded from Underlying earnings    42 407 1,170 100 260 1,025 
Less: share of equity accounted units sales revenue (2,975)(1,709)(1,576)      
 
 
 
 
 
 
 
 
 
 
 
Total  11,755 10,828 10,438 3,764 3,844 4,308 1,508 651 1,079  22,465 19,033 12,954 12,566 9,739 6,111 7,438 5,215 3,297 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortisation in subsidiaries (i)Depreciation and amortisation in subsidiaries (i)   (1,509)(1,334)(1,171)   
Impairment reversals less charges    396 3 (548)   
Depreciation and amortisation in equity accounted unitsDepreciation and amortisation in equity accounted units   (275)(281)(228)   
Taxation and finance items in equity accounted unitsTaxation and finance items in equity accounted units   (826)(429)(314)   
             
 
Depreciation & amortisation in subsidiaries  (1,006)(954)(929)      
Asset write-downs relating to subsidiaries & joint ventures  -(955)(701)      
Depreciation & amortisation in joint ventures and associates  (366)(333)(291)      
Profit on ordinary activities before finance costs and taxProfit on ordinary activities before finance costs and tax   10,352 7,698 3,850    
 
 
 
 
 
Profit on ordinary activities before interest and tax  2,392 1,602 2,387       
 
 
 
 
 
(a)Gross turnoversales revenue includes 100 per cent of subsidiaries' turnoversales revenue and the Group's share of the turnoversales revenue of joint ventures and associates.equity accounted units.
(b)EBITDA of subsidiaries joint ventures and associatesthe Group's share of equity accounted units represents profit before: tax, net interest payable,finance items, depreciation and amortisation.
(c)Net earnings represent profit after tax earningsfor the year attributable to the Rio Tinto Group. Earnings of subsidiaries are stated before interest chargesfinance items but after the amortisation of the discount related to provisions. Earnings attributable to joint ventures and associatesequity accounted units include interest charges.charges and amortisation of discount. Earnings attributed to business units exclude amounts that are excluded in arriving at Underlying earnings.
(d)During 2003,Includes Rio Tinto's 75.7 per cent interest in Coal & Allied, which is managed by Rio Tinto sold its interests in Kaltim Prima Coal Alumbrera and Peak.Australia, a 100 per cent subsidiary of Rio Tinto.
(e)Includes Rio Tinto's interestinterests in Anglesey Aluminium (51 per cent) and ComalcoRio Tinto Aluminium (100 per cent).
(f)Includes Morro do Ouro in whichUnder the terms of a joint venture agreement, Rio Tinto’s interestTinto is 51entitled to 40 per cent of additional material mined as a consequence of expansions and Fortaleza in which Rio Tinto's interest was 99.9 per cent at 31 December 2003.developments of the Grasberg facilities since 1998.
(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.exceptions exist. 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 and Gold' has been redesignated the 'Diamonds' group, with effect from 1 January 2003. Kennecott Minerals andOn 30 March 2004, Rio Tinto Brasil are now includedsold its 13.1 per cent shareholding in Freeport-McMoRan Copper & Gold Inc. The sale of the 'Copper' group. Kelian, Lihir, and Rio Tinto Zimbabwe are included in 'Other Operations'. In addition Rio Tinto Aluminium has been transferred from 'Copper' to 'Aluminium'.
(i)From 1 January 2003shares does not affect the way in which post retirement costs are attributed to business units , and consequently Product groups, has been revised. The regular cost componentterms 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. The analyses of 2001 Net earnings, EBITDA and Operating assets have not been restated.Grasberg joint venture.

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RIO TINTO PLC - RIO TINTO LIMITEDNotes to the 2006 Financial statements

NOTES TO FINANCIAL STATEMENTS - (continued)

41   Rio Tinto financial information by business unit (continued)

 
Capital expenditure (j)
 
Depreciation & amortisation (k)
 
Operating assets (l)
 
Employees (m)
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m 
Iron Ore                        
Hamersley (inc. HIsmelt®)298 79 58 110 94 90 1,543 923 762 2,169 2,006 2,070 
Robe River75 81 203 74 50 37 1,852 1,409 1,221 478 496 449 
Iron Ore Company of Canada37 39 242 29 35 36 489 416 612 1,884 1,936 2,099 
 
 
 
 
 
 
 
 
 
 
 
 
 
 410 199 503 213 179 163 3,884 2,748 2,595 4,531 4,438 4,618 
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy                        
Kennecott Energy168 152 54 105 128 110 561 486 439 1,776 1,710 1,656 
Rio Tinto Coal Australia92 126 20 52 37 31 649 406 275 755 679 526 
Kaltim Prima Coal2 5 4 16 21 22 - 46 59 2,108 2,760 2,696 
Coal & Allied34 58 31 91 69 44 787 626 786 1,338 1,375 1,379 
Rössing4 5 (1)7 5 5 46 48 25 810 786 794 
Energy Resources of Australia5 4 2 30 23 22 178 140 165 238 262 232 
 
 
 
 
 
 
 
 
 
 
 
 
 
 305 350 110 301 283 234 2,221 1,752 1,749 7,025 7,572 7,283 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial Minerals139 133 146 172 158 144 2,038 2,063 2,046 6,581 6,723 7,079 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aluminium436 269 103 169 137 123 3,258 2,365 1,921 4,223 3,929 3,972 
 
 
 
 
 
 
 
 
 
 
 
 
 
Copper                        
Kennecott Utah Copper83 97 115 92 129 167 1,277 1,378 1,838 1,406 1,596 1,926 
Escondida45 117 188 79 52 52 492 449 447 722 704 623 
Freeport33 23 25 54 50 54 144 128 109 1,165 1,445 1,475 
Freeport joint venture60 55 57 43 40 35 417 412 398       
Palabora66 64 83 17 13 21 426 287 207 2,043 2,176 2,269 
Kennecott Minerals9 21 21 42 43 41 136 155 166 672 763 814 
Rio Tinto Brasil19 14 22 (18)11 11 138 91 119 1,393 1,320 1,181 
Other Copper63 60 53 52 73 72 335 443 379 931 1,266 1,329 
 
 
 
 
 
 
 
 
 
 
 
 
 
 378 451 564 361 411 453 3,365 3,343 3,663 8,332 9,270 9,617 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diamonds                        
Argyle22 31 52 76 76 55 600 488 493 750 751 794 
Diavik78 206 182 34 - - 674 484 318 298 250 99 
 
 
 
 
 
 
 
 
 
 
 
 
 
 100 237 234 110 76 55 1,274 972 811 1,048 1,001 893 
 
 
 
 
 
 
 
 
 
 
 
 
 
                         
Other Operations4 6 13 37 36 38 98 114 168 2,228 2,789 2,984 
                         
 
 
 
 
 
 
 
 
 
 
 
 
 
Product Group Total1,772 1,645 1,673 1,363 1,280 1,210 16,138 13,357 12,953 33,968 35,722 36,446 
 
 
 
 
 
 
 
 
 
 
 
 
 
                         
Other items17 13 3 9 7 10 (455)(148)(199)2,048 1,451 1,418 
Less: Joint ventures and associates (j) (k)(181)(241)(271)(366)(333)(291)            
 
 
 
 
 
 
 
 
 
 
 
 
 
Total1,608 1,417 1,405 1,006 954 929 15,683 13,209 12,754 36,016 37,173 37,864 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less: net debt            (5,646)(5,747)(5,711)      
             
 
 
       
Net Assets            10,037 7,462 7,043       
             
 
 
       

(j)47RIO TINTO FINANCIAL INFORMATION BY BUSINESS UNIT CONTINUED
         
 Capital expenditure (i) Depreciation &amortisation (j) Operating assets(k) Employees 
 
 
 
 
 
 2006 2005 2004 2006 2005 2004 2006 2005 2004 2006 2005 2004 
 US$m US$m US$m US$m US$m US$m US$m US$m US$m       
 
Iron Ore               
Hamersley (inc. HIsmelt®)1,696 935 757 231 174 158 4,321 2,555 2,234 4,161 2,926 2,581 
Robe River104 160 109 90 89 83 1,593 1,487 1,640 678 553 527 
Iron Ore Company of Canada151 98 51 58 47 41 651 451 521 1,886 1,752 1,528 
Rio Tinto Brasil18 36 18 8 5 7 97 81 50 522 449 975 
 
 1,969 1,229 935 387 315 289 6,662 4,574 4,445 7,247 5,680 5,611 
 
Energy               
Rio Tinto Energy America262 204 162 116 85 86 1,097 908 810 2,297 1,958 1,771 
Rio Tinto Coal Australia251 171 73 170 164 167 1,397 1,147 1,282 2,462 2,228 1,999 
Rössing38 3 2 6 16 15 68 66 40 936 831 814 
Energy Resources of Australia31 34 7 32 40 35 201 180 179 366 330 273 
 
 582 412 244 324 305 303 2,763 2,301 2,311 6,061 5,347 4,857 
 
Industrial Minerals360 235 248 189 172 173 2,682 2,311 2,209 6,744 6,698 6,575 
 
Aluminium236 242 505 266 274 190 3,607 3,361 3,521 4,347 4,296 4,077 
 
Copper               
Kennecott Utah Copper295 164 69 151 136 90 1,789 1,144 1,075 1,744 1,571 1,418 
Escondida155 229 113 96 69 54 792 812 594 1,072 840 851 
Freeport— — — — — 3 — — — — — — 
Grasberg joint venture45 45 30 43 35 43 412 321 397 1,781 1,729 1,783 
Palabora18 17 30 40 32 41 104 226 360 1,811 1,796 1,734 
Kennecott Minerals111 34 36 26 32 27 198 129 135 409 388 372 
Northparkes16 12 34 48 33 10 89 152 177 182 174 193 
Other copper— — 14 — — 13 — — — — — 274 
 
 640 501 326 404 337 281 3,384 2,784 2,738 6,999 6,498 6,625 
 
 
 
Diamonds               
Argyle120 77 89 68 78 44 405 523 632 772 817 809 
Diavik105 121 49 109 79 64 639 548 574 430 362 377 
Murowa4 5 14 4 5 — 12 14 16 152 81 76 
 
 229 203 152 181 162 108 1,056 1,085 1,222 1,354 1,260 1,262 
 
Other Operations48 31 19 3 34 47 551 167 179 365 223 1,587 
 
 4,064 2,853 2,429 1,754 1,599 1,391 20,705 16,583 16,625 33,117 30,002 30,594 
 
Other items174 45 (1)30 16 556 (36)(322)(939)2,128 1,852 1,832 
Less: equity accounted units(322)(382)(213)(275)(281)(228)         
 
Total3,916 2,516 2,215 1,509 1,334 1,719 20,669 16,261 15,686 35,245 31,854 32,426 
 
Less: net debt      (2,437)(1,313)(3,809)      
 
Rio Tinto shareholders' equity      18,232 14,948 11,877       
 
(i)Capital expenditure comprises the net cash outflow on purchases less disposals of property, plant and equipment.equipment and intangible assets other than exploration. 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.equity accounted units. Amounts relating to joint ventures and associatesequity accounted units not specifically funded by Rio Tinto are deducted before arriving at total capital expenditure for the Group.
(k)(j)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.equity accounted units. Amounts relating to joint ventures and associatesequity accounted units are deducted before arriving at the total depreciation and amortisation charge.
(l)Depreciation and amortisation includes US$40 million relating to deferred stripping costs which are included in 'Other items' in the Group cash flow statement.
(k)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(i.e. net of such companies' debt). For joint ventures and associates,equity accounted units, 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 2001 and 2002 have been restated.

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

42    Reconciliation to US Accounting Principles

Reconciliation with US GAAP

 Rio Tinto plc - Rio Tinto Limited -   
 part of Rio Tinto Group part of Rio Tinto Group Rio Tinto Group 
 
 
 
 
  2003 2002 2001 2003 2002 2001 2003 2002 2001 
      Restated     Restated     Restated 
  
 
 
 
 
 
 
 
 
 
  US$m US$m US$m US$m US$m US$m US$m US$m US$m 
                    
Net earnings under UK GAAP 956 195 491 884 736 942 1,508 651 1,079 
Increase/(decrease) before tax in respect of:                   
Amortisation of goodwill - subsidiaries and joint arrangements   34    52    (88)  42    38    (9)  76    90    (97)
Amortisation of goodwill - equity accounted companies (excluding Rio Tinto Limited)
 - - (35)- - - - - (35)
Amortisation of intangibles - subsidiaries and joint arrangements (40)(59)- - - - (40)(59)- 
Amortisation of intangibles - equity accounted  companies (excluding Rio Tinto Limited) (7)(9)- - - - (7)(9)- 
Exchange differences included in earnings under US GAAP 52 (53)9 967 293 (225)1,019 240 (216)
Mark to market of certain derivative contracts (24)6 (6)311 151 (42)287 157 (48)
Adjustments to asset carrying values - subsidiaries and joint arrangements (32)(422)571 -  420 - (32)(2)571 
                    
Adjustments to asset carrying values - equity accounted companies (excluding Rio Tinto Limited) - (87)(103)- - - - (87)(103)
Pensions/post retirement benefits 55 8 (73)4 (7)- 59 1 (73)
Exploration and evaluation (8)- - (16)(17)(83)(24)(17)(83)
Share options (12)(12)(6)(9)(5)(2)(21)(17)(8)
Effect of historical average commodity prices in ore reserve determination (82)- - - - - (82)- - 
Other (44)(29)7 (112)(52)(58)(156)(81)(51)
                    
Taxation:                   
Tax effect of the above adjustments 16 11 (51)(412)(125)134 (396)(114)83 
Other tax adjustments (12)(13)3 7 - - (5)(13)3 
Outside shareholders' interests in the above adjustments 8 6 2 (39)(165) 14 (31)(159)16 
                    
Share of US GAAP adjustments of Rio Tinto Limited 279 200 (103)- - - - - - 
  
 
 
 
 
 
 
 
 
 
                    
Net income/(loss) under US GAAP before cumulative effect of change in accounting principle
 1,139 (206)618 1,627 1,267 671 2,155 581 1,038 
  
 
 
 
 
 
 
 
 
 
Cumulative effect of change in accounting principle for close down and restoration costs (198)- -  20 - - (178)- - 
                    
Share of US GAAP adjustment of Rio Tinto Limited 8 - - - - - - - - 
  
 
 
 
 
 
 
 
 
 
Net income/(loss) under US GAAP
 949  (206)618 1,647  1,267  671  1,977  581  1,038 
  
 
 
 
 
 
 
 
 
 
Basic earnings per ordinary share under US GAAP
                   
Before cumulative effect of change in accounting principle 106.8c (19.3)c58.1c  326.1c 254.0c134.6c 156.4c 42.2c75.5c
  
 
 
 
 
 
 
 
 
 
Cumulative effect of change in accounting principle (17.8)c - -  4.0c - -  (12.9)c - - 
  
 
 
 
 
 
 
 
 
 
After cumulative effect of change in accounting principle 89.0c(19.3)c58.1c  330.1c 254.0c134.6c 143.5c 42.2c75.5c
  
 
 
 
 
 
 
 
 
 
                    
Diluted earnings per ordinary shareunder US GAAP
                   
Before cumulative effect of change in accounting principle 106.7c  (19.3)c58.0c 326.0c 253.7c134.5c 156.2c 42.1c75.4c
  
 
 
 
 
 
 
 
 
 
Cumulative effect of change in accounting principle (17.8)c  - -  4.0c - -  (12.9)c - - 
  
 
 
 
 
 
 
 
 
 
After cumulative effect of change in accounting principle 88.9c (19.3)c58.0c 330.0c 253.7c134.5c 143.3c 42.1c75.4c
  
 
 
 
 
 
 
 
 
 

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RIO TINTO PLC - RIO TINTO LIMITEDGROUP

NOTES TO FINANCIAL STATEMENTS -– (continued)

42    Reconciliation to US Accounting Principles (continued) 
 Rio Tinto plc - Rio Tinto Limited -   
 part of Rio Tinto Group part of Rio Tinto Group Rio Tinto Group 
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 
     Restated     Restated     Restated 
 
 
 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m US$m US$m US$m 
                   
Shareholders' funds under UK GAAP (2001 as previously reported)7,343 5,899 6,039 4,324 2,510 1,822 10,037 7,462 7,176 
Prior year adjustment- - (137)- - 6 - - (133)
 
 
 
 
 
 
 
 
 
 
Shareholders' funds under UK GAAP (as restated)
7,343 5,899 5,902 4,324 2,510 1,828 10,037 7,462 7,043 
Increase/(decrease) before tax in respect of:                  
Goodwill - subsidiaries and joint arrangements896 862 1,110 302 203 160 1,198 1,065 1,270 
Goodwill - equity accounted companies (excluding Rio Tinto Limited)352 352 508 - - - 352 352 508 
Intangibles - subsidiaries and joint arrangements240 271 - - - - 240 271 - 
Intangibles - equity accounted companies (excluding Rio Tinto Limited)42 49 - - - - 42 49 - 
Mark to market of certain derivative contracts(65)(10)(2)446 (44)(331)381 (54)(332)
Adjustments to asset carrying values - subsidiaries and joint arrangements96 133 578 409 420 - 505 553 578 
Pensions/post retirement benefits(410)(454)(296)(59)(18)21 (469)(472)(275)
Exploration and evaluation(8)- - (172)(124)(102)(180)(124)(102)
Share options(38)(29)(17)(22)(9)(4)(60)(38)(21)
Effect of historical average commodity prices in ore reserve determination(82)- - - - - (82)- - 
Provision for close down and restoration costs(29)216 230 82 71 71 53 287 301 
Higher cost of sales resulting from acquisition accounting- - - (64)(49)(44)(64)(49)(44)
Start up costs(122)(81)(79)(34)(29)(21)(156)(110)(100)
Proposed dividends299 272 343 170 158 194 469 430 537 
Other29 15 2 (140)(33)(22)(111)(18)(20)
                   
Tax effect of the above adjustments55 (32)(30)(157)(28)138 (102)(60)107 
Deferred tax on acquisitions:                  
Impact on mining property- - - 831 825 853 831 825 853 
Impact on tax provisions- - - (831)(825)(853)(831)(825)(853)
Other tax adjustments68 80 93 1 (6)(6)69 74 87 
Outside shareholders' interests in the above adjustments12 (1)(4)(90)(100) 38 (78)(101)34 
                   
Share of US GAAP adjustments of Rio Tinto Limited253 155 33 - - - - - - 
 
 
 
 
 
 
 
 
 
 
Shareholders' funds under US GAAP
8,931 7,697 8,371 4,996 2,922 1,920 12,044 9,517 9,571 
 
 
 
 
 
 
 
 
 
 
48RECONCILIATION TO US ACCOUNTING PRINCIPLES

The Group’s financial statements have been prepared in accordance with generally accepted accounting principles in the United Kingdom (‘UK GAAP’),

  2006 2005 2004 
  US$m US$m US$m 
 
Profit for the period under IFRS 7,867 5,498 3,244 
   Less attributable to outside equity shareholders (429)(283)53 
 
Profit excluding amounts attributable to outside shareholders under IFRS 7,438 5,215 3,297 
Increase / (decrease) before tax in respect of:       
   Effect of purchase accounting for DLC combination - depreciation(c)(93)(140)(125)
   Amortisation of intangibles (30)(40)(44)
   Additional amounts attributed to assets on acquisition under US GAAP (41)(37)(30)
   Mark to market of derivative contracts (8)(4)(8)
   Adjustments to asset carrying values (769)— (5)
   Pensions / post retirement benefits (64)(68)(25)
   Evaluation costs capitalised under IFRS (91)(69)(62)
   Depreciation based on proven & probable ore reserves (119)(163)(68)
   Effect of price assumptions specified for determination of ore reserves on depreciation & amortisation 12 (5)(90)
   Effect of changes in functional currency (16)(32)— 
   Stripping costs deferred under IFRS (44)— — 
   Other (197)33 (110)
Taxation:       
   Tax effect of the above adjustments(c)511 130 124 
   Other tax adjustments 6 45 (119)
Outside shareholders' interests in the above adjustments(c)180 28 19 
Share of US GAAP adjustments of equity accounted units(a)(26)(19)(16)
 
Net income under US GAAP (revised for 2005 and 2004)(c)6,649 4,874 2,738 
 
        
Basic earnings per ordinary share under US GAAP (revised for 2005 and 2004)(c)498.6c357.3c198.5c
Diluted earnings per ordinary share under US GAAP (revised for 2005 and 2004)(c)496.6c356.2c198.2c
         
(a)'Share of US GAAP adjustments of equity accounted units' comprises:       
    Amortisation of intangibles (2)(4)(6)
    Additional amounts attributed to assets on acquisition under US GAAP (10)(5)(5)
    Effect of price assumptions specified for determination of ore reserves on depreciation & amortisation (1)(3)(4)
    Stripping costs deferred under IFRS (1)— — 
    Other (12)(7)(1)
 
 
 Share of US GAAP adjustments of equity accounted units (26)(19)(16)
 
 
(b)There are no differences between International Financial Reporting Standards (IFRS) and IFRS as adopted by the European Union (EU IFRS) that would impact on the financial statements of the Rio Tinto Group for the years ended 31 December 2004, 2005 and 2006.
(c)Net income under US GAAP and basic and diluted earnings per ordinary share under US GAAP have been revised to reflect the application of purchase accounting to the formation of the DLC structure in 1995. See pages A-71 and A-72 for further details.

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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
   2006 2005 
   US$m US$m 
 
Total equity under IFRS  19,385 15,739 
   Less attributable to outside equity shareholders  (1,153)(791)
 
Equity excluding amounts attributable to outside shareholders under IFRS  18,232 14,948 
Increase / (decrease) before tax in respect of:   
   Effect of purchase accounting for DLC combination(b)2,173 2,097 
   Goodwill  1,420 1,394 
   Intangibles  132 156 
   Additional amounts attributed to assets on acquisition under US GAAP  937 917 
   Mark to market of derivative contracts  (29)(17)
   Adjustments to asset carrying values  (387)387 
   Pensions / post retirement benefits  (107)376 
   Evaluation costs capitalised under IFRS  (385)(226)
   Depreciation based on proven and probable ore reserves  (503)(329)
   Effect of price assumptions specified for determination of ore reserves on depreciation & amortisation  (148)(173)
   Effect of changes in functional currency  139 157 
   Provision for closedown and restoration costs  (83)40 
   Stripping costs deferred under IFRS  (701)— 
   Provision, under IFRS, for shares to be repurchased  288 — 
   Other  (127)(109)
Taxation:   
   Tax effect of the above adjustments(b)(102)(918)
   Other tax adjustments  64 124 
Outside shareholders' interests in the above adjustments(b)(83)(286)
Share of US GAAP adjustments of equity accounted units(a)61 139 
 
Shareholders' funds under US GAAP (revised for 2005)(b)20,791 18,677 
 
(a)'Share of US GAAP adjustments of equity accounted units' comprises:      
    Goodwill  3 5 
    Intangibles  18 32 
    Additional amounts attributed to assets on acquisition under US GAAP  132 110 
    Mark to market of derivative contracts  6 5 
    Evaluation costs capitalised under IFRS  — (10)
    Effect of price assumptions specified for determination of ore reserves on depreciation & amortisation  (12)(11)
��   Provision for closedown and restoration costs  — 8 
    Stripping costs deferred under IFRS  (95)— 
    Other  9 — 
 
 Share of US GAAP adjustments of equity accounted units  61 139 
 
(b)Shareholders' funds under US GAAP have been revised to reflect the application of purchase accounting to the formation of the DLC structure in 1995. As of 31 December 2006, the adjustment, before the effects of taxation and outside shareholders' interests, would be allocated US$2,005 million to property, plant and equipment and US$168 million to goodwill. See pages A-71 and A-72 for further details.

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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
A.Differences Between IFRS and US GAAP
The Group’s financial statements have been prepared in accordance with the Standards and Interpretations included within International Financial Reporting Standards ('IFRS') as adopted by the European Union, 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 Rio Tinto shareholders' funds that would be required under US GAAP is set out on the preceding pages.

Effect of purchase accounting for DLC combination
As described in ‘Outline of Dual Listed Companies structure and basis of financial statements’ on page A-6, the Group has revised the presentation of its financial statements included in Form 20-F. The formation of the DLC is now accounted for as a business combination. Separate financial statements for Rio Tinto plc and Rio Tinto Limited are no longer presented. Instead, the financial statements consist of the Rio Tinto Group representing one combined economic entity.
Whereas merger accounting is applied in the Group’s IFRS financial statements, for the purposes of US GAAP reporting, the Group now accounts for the formation of the DLC using the purchase method. In so doing it follows the guidance that was applicable at the time of the formation of the DLC, which was APB Opinion No. 16 'Business Combinations'. Accordingly, the combined financial information under US GAAP has been restated for all periods presented.
The purchase price of the additional 51% of Rio Tinto Limited accounted for as acquired by Rio Tinto plc has been determined by reference to the average market price of the shares in the period from two days before until two days after October 9, 1995. This was the date that Rio Tinto plc and Rio Tinto Limited agreed to the terms and announced the formation of the DLC. The purchase price has been allocated to the assets and liabilities of Rio Tinto Limited based on their estimated fair values at that time, as follows (in US$ millions):

   Purchase   
 Book accounting Fair 
 value adjustment value 
 
Current assets934 — 934 
   Property, plant and equipment1,818 4,057 5,875 
   Other non current assets423 247 670 
   Goodwill159 184 343 
 
Total assets acquired3,334 4,488 7,822 
Current liabilities(381)— (381)
   Medium and long term borrowings(465)— (465)
   Other long term liabilities(148)— (148)
   Deferred tax liability(271)(1,458)(1,729)
   Attributable to outside equity shareholders(249)(441)(690)
 
Total liabilities assumed(1,514)(1,899)(3,413)
 
Net assets acquired1,820 2,589 4,409 
 

The increase in equity attributable to Rio Tinto shareholders represents the difference between the historical book value and fair value of 51% of Rio Tinto Limited. In prior years, the Group presented financial information on a combined basis with no adjustment for fair values. The increase in shareholders’ funds is set outattributable to the application of the purchase method of accounting. The information presented below reflects the incremental effect of this increase in net assets as a result of using the purchase method over the amounts that were presented in the combined financial statements using historical cost.
The properties would have been depreciated on thisa units of production basis over periods not exceeding 40 years and goodwill would have been amortised over a period of 40 years until December 31, 2001, when amortisation ceased on the preceding page.introduction of SFAS 141 'Business Combinations'.
From the date of the business combination in December 1995, through December 31, 2003, the Group would have recorded cumulative additional income statement amounts as follows:

US$m
Depreciation of property, plant and equipment(1,128)
Amortisation of goodwill(24)
Impairment charges(35)
Loss on sale of properties(273)
Deferred tax benefit580
Attributable to outside equity shareholders60
Total additional expense(820)

Excluding any impairment charges and gains/losses on sales of properties, the additional depreciation relating to property, plant and equipment before tax and outside shareholder interests related to each year ranged from US$96 million to US$230 million.
The adjustments to the combined income statement information previously reported are as follows:

 2005 2004 
 US$m US$m 
Depreciation of property, plant and equipment(140)(125)
Deferred tax benefit42 37 
Attributable to outside equity shareholders3 3 
Decrease in net income(95)(85)
Net income as previously reported4,969 2,823 
Net income as revised4,874 2,738 

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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
A.Differences Between IFRS and US GAAP Continued
 2005 2004 
 
Basic earnings per share  
As previously reported364.3c204.7c
Adjustment(7.0)c(6.2)c
 
As revised357.3c198.5c
 
Fully diluted earnings per share  
As previously reported363.1c204.4c
Adjustment(6.9)c(6.2)c
 
As revised356.2c198.2c
 

The adjustment to the combined balance sheet information previously reported at December 31, 2005 is determined as follows:

US$m
Increase in shareholders' funds on formation of the DLC2,589
Additional expense 1995 to 2003(820)
Additional expense 2004(85)
Additional expense 2005(95)
Currency translation adjustment(126)
Increase in shareholders’ funds at 31 December 20051,463
Shareholders’ funds as previously reported17,214
Shareholders’ funds as revised18,677

This adjustment would be allocated among the following assets and liabilities in the balance sheet at December 31, 2005:

US$m
Property, plant and equipment1,943
Goodwill154
Deferred tax liability(594)
Attributable to outside equity shareholders(40)
Increase in shareholders’ equity1,463

Goodwill and indefinite lived intangible assets
ForGoodwill included in the Group's opening IFRS balance sheet in respect of acquisitions made prior to 1 January 2004 is stated at its carrying amount on that date under UK GAAP ('previous GAAP'). Goodwill on acquisitions in 1997 and priorprevious years UKwas eliminated against reserves under the previous GAAP permitted the write off of purchased goodwilland was not reinstated on acquisition, directly against reserves. Fortransition to IFRS. Goodwill on acquisitions inbetween 1998 and subsequent years, goodwill is2003 inclusive was capitalised and amortised over its expected useful economic life and any amortisation charged up to 1 January 2004 was not reversed under UK GAAP.IFRS. From 2004, under IFRS, goodwill and indefinite lived intangible assets are capitalised and tested annually for impairment but are not subject to amortisation. 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 toeliminated against reserves in the UK GAAP financial statements wasunder IFRS is therefore reinstated and amortised,added back 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 FASSFAS 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. No impairment write-downs were required on the initial introduction of FAS 142.

Intangible assets under US GAAP
The implementation of FASSFAS 141 'Business Combinations' resulted in the reclassification of US$340 million from goodwill to finite lived intangible assets at 1 January 2002.2002 under US GAAP. The accumulated cost relating to these intangible assets at 31 December 20032006 was US$714701 million and accumulated amortisation was US$432539 million. This reclassification, which relates to acquisitions prior to 1 January 2004, has not been recognised under IFRS. The total amortisation expense for 20032006 in respect of the amounts reclassified under US GAAP was US$4732 million, of which US$1611 million is related to the amortisation of goodwill previously written off toeliminated against reserves under UK GAAP now reclassifiedand classified as finite lived intangible assets under US GAAP. The remaining US$3121 million relates to the amortisation of goodwill includedassets classified as an assetgoodwill on the UK GAAPIFRS balance sheet but now reclassifiedclassified as finite lived intangible assets under US GAAP.
The estimated incremental amortisation charge under US GAAP relating to intangible assets for each of the next five years is US$47 million.32 million per year.

Exchange differences included in earningsAdditional amounts attributed to assets on acquisition under US GAAP
IFRS requires the recognition of a provision for deferred tax on all fair value adjustments arising on acquisition other than those recorded as goodwill. On first application of IFRS, this resulted in an additional provision for deferred tax in respect of acquisitions prior to 1 January 2004 which was charged against retained earnings and gave rise to a reduction in IFRS shareholders' funds. For acquisitions post 1 January 2004, these deferred tax provisions give rise to a corresponding increase in amounts attributable to acquired assets and/or goodwill. Under US GAAP, provision for deferred tax on acquisitions produces a corresponding increase in the amounts attributed to acquired assets and/or goodwill and therefore has no effect on shareholders' funds. This results in an additional amount attributed to assets under US GAAP in respect of acquisitions prior to 1 January 2004. This also means that an additional charge arises under US GAAP in respect of depreciation of the amounts attributed to acquired assets.

Mark to market of derivative contracts
The Group finances its operations primarily in US dollarsis party to derivative contracts designed to reduce exposures related to assets and liabilities, firm commitments or anticipated transactions. From 1 January 2005, under IAS 39 'Financial Instruments: Recognition and Measurement', 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. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a significant proportionhedging instrument and, if so, the nature of the Group's US dollar debt is located in its Australian operations. Under UK GAAP, this debt is dealt with in the contextitem being hedged. The Group designates certain derivatives as either hedges of the currency statusfair value of the Group asrecognised assets or liabilities or 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 debtfirm commitment (fair value hedges) or hedges US dollar assets in the Australian Group. Exchange gains of the Rio Tinto Group of US$1,019 million pre-tax (2002: gains of US$240 million, 2001: losses of US$216 million), US$623 million net of tax and minorities (2002: US$177 million net of tax and minorities, 2001: US$148 million loss 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.highly probable forecast transactions (cash flow hedges).

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RIO TINTO PLC - RIO TINTO LIMITEDGROUP


NOTES TO FINANCIAL STATEMENTS -– (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED

42   Reconciliation toThe US Accounting Principles (continued)

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. Under FASstandard, SFAS 133 ' Accounting'Accounting for Derivative Instruments and Hedging Activities', which appliedis similar but not identical to Rio Tinto from IAS 39. In 2006 and 2005, respectively, additional losses of US$8 million (US$5 million after tax and minorities) and US$4 million (US$1 January 2001, all derivative instrumentsmillion gain after tax and minorities) were recognised in US GAAP earnings primarily as a result of the recognition at fair value of additional embedded derivatives for US GAAP. For IFRS, the currency exposures in these contracts are includednot recognised in the balance sheet as assets or liabilities measured at fair value. Certainbecause the currency of the Group's derivative contracts do not qualify for hedge accounting under FAS 133, principally because the hedgecontract is not locatedconsidered to be 'commonly used' in the entity with the relevant exposure. Unrealised pre-tax gains for the Rio Tinto Groupcounterparty's country 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.operation.

Adjustments to asset carrying values

Following the implementation of FRS 11 in 1998, impairmentImpairment of fixed assets under UK GAAPIFRS is recognised and measured by reference to the discounted cash flows expected to be generated by an income generating unit.a Cash Generating Unit or fair value less costs to sell if higher. Under US GAAP, impairment, other than that relating to goodwill and equity accounted investments, is recognised only when the anticipated undiscounted cash flows are insufficient to recover the carrying value of the income generating unit. Whereasset group.
However, where an asset group is found to be impaired under US GAAP, its carrying value is written down to fair value. Fair value is normally assessed by reference to the discounted cash flows expected to be generated from the asset group, generally using the same assumptions and bases as those applicable under IFRS. For example, the evaluation is on a pre-tax and pre-debt basis. The amount of such impairment is, therefore, generally similar under US GAAP to that computed under UK GAAP,IFRS, except where the US GAAP carrying value includesis different from that under IFRS. This may result from additional goodwill. goodwilll carried in the balance sheet under US GAAP.
Under UK GAAP,IFRS, impairment provisions, except those relating to goodwill, may be written back in a futuresubsequent year if the expected recoverable amount of the assetCash Generating Unit increases. Such write backs of provisions are not permitted under US GAAP. Therefore, anyAny credits to UK GAAPIFRS earnings resulting from such write backs are reversed in the reconciliation to US GAAP. The adjustment to asset carrying values forGAAP because the Rio Tinto Group in 2003writing back of impairment provisions is not permitted under US GAAP, of US$32 million, relates to the reversal of a credit made to UK GAAP earningsGAAP. For additional information on the writeamounts written back of an impairment provision.under IFRS during 2006, see note 5.

The asset write downs for the Rio Tinto Group in 2002, under US GAAP, include amounts recognised in 2001 under UK GAAP of US$445 million and excludes asset write downs recognised in 2002 under UK GAAP of US$235 million. The 2002 Rio Tinto Group US GAAP asset write downs also include an adjustment for goodwill. The 2002 US GAAP impairment write-down for the Rio Tinto Group was US$1,067 million pre-tax (US$1,060 million net of tax and minorities). This is US$89 million pre-tax (US$297 million net of tax and minorities) above the charge of US$978 million pre-tax (US$763 million net of tax and minorities) included under UK GAAP. The asset write downs for Rio Tinto plc in 2002, under US GAAP, include amounts recognised in 2001 under UK GAAP, of US$445 million. The 2002 Rio Tinto plc asset write downs also include an adjustment for goodwill. The 2002 US GAAP impairment write-down for Rio Tinto plc was US$1,059 million pre-tax (US$1,052 million net of tax and minorities). This is US$420 million pre-tax (US$429 million net of tax and minorities) above the charge of US$639 million pre-tax (US$623 million net of tax and minorities) included under UK GAAP.

The asset write downs for Rio Tinto Limited in 2002, under US GAAP, exclude asset write downs recognised in 2002 under UK GAAP of US$212 million. The 2002 US GAAP impairment write-down for Rio Tinto Limited was US$13 million pre-tax (US$13 million net of tax and minorities). This is US$420 million pre-tax (US$212 million net of tax and minorities) below the charge of US$433 million pre-tax (US$225 million net of tax and minorities) included under UK GAAP. The 2001 US GAAP impairment write-down is US$243 million pre tax for the Rio Tinto Group, US$199 million pre tax for Rio Tinto plc and US$71 million pre tax for Rio Tinto Limited (Rio Tinto Group: US$183 million net of tax and minorities). For the Rio Tinto Group and for Rio Tinto plc this is US$472 million pre-tax (Rio Tinto Group: US$400 million net of tax and minorities) below the charges of US$715 million and US$671 million pre-tax included under UK GAAP for the Rio Tinto Group and Rio Tinto plc respectively (Rio Tinto Group: US$583 million net of tax and minorities). The net difference of US$468 million related to asset write-downs for the Rio Tinto Group and Rio Tinto plc comprises the above US$472 million, offset by US$4 million (Rio Tinto Group: US$3 million net of tax and minorities) of additional current year amortisation related to US GAAP adjustments made in previous years.

Pensions/post retirement benefits
UnderFor UK GAAP,and Australian reporting, Rio Tinto reports pensions and post retirement benefits are accounted for in accordance with Statement of Standard Accounting Practice 24.IAS 19. 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 accruingaccrued during the period, plus the interest cost on the obligation less the expected return on plan assets, plus the full impact of any prior service costs, curtailments and settlements. Actuarial gains and losses are recognised immediately in the period adjusted forin which they occur but are taken through the amortisationStatement of Recognised Income and Expense ('SORIE'), not the surplus arising when FAS 87,Income Statement. For US GAAP reporting, following the adoption of SFAS 158 'Employers' Accounting for Pensions', was adopted.Defined Benefit Pension and Other Postretirement Plans' in 2006, actuarial gains and losses are recognised initially in the year in which they occur in other comprehensive income ('OCI'). However, unlike IFRS, US GAAP requires that these amounts recognised in OCI be amortised into the pension cost in profit and loss in subsequent years. The charge is further adjusted to reflectclosing balance sheet position under US GAAP differs from that under IFRS largely because the cost of benefit improvements and any surpluses/deficits that emergepension fund assets are valued as a result of variances from actuarial assumptions. Forat 30 September in each year for US GAAP purposes, only those surpluses/deficits outside a ten per cent fluctuation 'corridor'whereas for IFRS they are spread.
The reductions in shareholders' fundsvalued as at 31 December 2003, 2002 and 2001 also include the effectend of the US GAAP requirement to make immediate provision for pension fund deficits through other comprehensive income. The provision reflectsfinancial year. For further discussion of the reduction in equity values over recent years.
Mandatory implementationimpact of FRS 17, 'Retirement Benefits', has been delayed until 2005 but additional disclosures are required for 2001 onwards, which are included in note 14 to the financial statements.adopting SFAS 158 during 2006, see C. Post Retirement Benefits.

Exploration and evaluationEvaluation costs capitalised under IFRS
Under UK GAAP,IFRS, evaluation 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. Under 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 expenditure is expensed as incurred.

Depreciation based on proven & probable reserves
Under IFRS, mining assets are fully depreciated over their economic lives or the remaining life of the mine if shorter. In some cases, mineralised material that does not yet have the status of reserves is taken into account in prior years candetermining depreciation and amortisation charges, where there is a high degree of confidence that it will be reversed when the project proceeds to development, to the extent that the relevant costs are recoverable.mined economically. For US GAAP, does not allow such provisionsonly 'proven and probable reserves' are taken into account in the calculation of depreciation and amortisation charges. As a result, adjustments have been made to be reversed.

Share option plans
Under UKdepreciation and amortisation, which reduce US 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 plans is determined using an option pricing model.earnings.

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

42   Reconciliation to US Accounting Principles (continued)

Effect of historical average commodity prices inprice assumptions specified for determination of ore reserve determinationreserves for US GAAP depreciation & amortisation
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.used to test the determination of reserves. The application of historical prices hasto test the reserve estimates led to reduced ore reserve quantities for US reporting purposes for certain of the Group’s operations in previous years, which resultsresulted in lower earnings for US reporting, largely as a result of higher depreciation charges. The reduced ore reserves also had the effect of increasing the present value of provisions for closure obligations for certain of the provision for close down costs, which increasedGroup's operations.

Effect of change in functional currency
At 1 January 2005, the cumulative effectfunctional currency of two business units was determined to have changed from the US dollar to their local currencies. Under IFRS, the change in accounting principle recordedfunctional currency was recognised by converting the US dollar balances to the local currencies using the exchange rates at 1 January 2005. Under US GAAP, SFAS 52 'Foreign Currency Translation' requires that such a change in functional currency should be dealt with using values based on implementationthe historical cost of FAS 143the non-monetary assets, in local currency, at the date of acquisition. The cumulative adjustment attributable to translating the non-monetary assets of these business units at the historical rate rather than the current rate was reported in other comprehensive income. Additional charges/credits arise under US GAAP in respect of depreciation and other movements in the underlying assets because their carrying values under US GAAP reconciliation for 2003.
Detailsare different from IFRS as a consequence of the differences in ore reserves used for US reporting are set out on page A-75.different treatment described above.

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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
A.Differences Between IFRS and US GAAP Continued

Provisions for close down and restoration costs

FASIn accordance with SFAS 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 accountincome statement 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 UKIFRS with a few exceptions. In particular, the effect of price assumptions specified for the determination of ore reserves for US GAAP has had the impact of reducing the ore reserves for certain of the Group's operations and consequently increasing the present value of provisions for closure obligations.

Stripping costs deferred under IFRS
Under IFRS, stripping (i.e. overburden and other waste removal) costs incurred in the development of a mine or pit before production commences are capitalised as part of the cost of constructing the mine. Such pre-production stripping costs are subsequently amortised over the life of the operation.
     Under IFRS, the Group defers stripping costs incurred during a mine's (or pit's) production phase for those surface mines where deferral is considered the most appropriate basis for matching costs against the related economic benefits. Additional information is given in note 1, (h) Deferred stripping.
     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. Consequently,Under EITF 04-06, the pre tax adjustmentGroup includes as a component of production cost those stripping costs incurred during the production phase of a mine, except to the 'Provisionextent they can be attributed to inventory in accordance with normal inventory valuation principles.
     Under IFRS, where a mine operates several open pits and those pits are regarded as separate operations, the Group capitalises the pre-production stripping costs incurred in the development of second and subsequent pits where it is probable that the associated future economic benefits will flow to the Group and where the costs can be measured reliably. These stripping costs are pre-production mine development that is necessary to access ore from the second and subsequent pits and generate economic benefits over the lives of such pits. Such costs, therefore, are capitalised and amortised over the production from such pits under EITF 04-06 as well as under IFRS.
     If, however, the pits are highly integrated, the second and subsequent pits are regarded as extensions of the first pit in accounting for close downstripping costs. In such cases, the initial stripping of the second and restoration costs'subsequent pits is considered production phase stripping relating to the combined operation and would be deferred under IFRS if this is considered to be the most appropriate basis for matching costs against the related economic benefits. However, under US GAAP such costs are expensed because they are production phase stripping.
     The Group’s determination of whether multiple pit mines are considered separate or integrated operations depends on each mine’s specific circumstances and is the same for IFRS and US GAAP. The following factors would point towards the stripping costs for the individual pits being accounted for separately:

–If mining of the second and subsequent pits is conducted consecutively with that of the first pit, rather than concurrently.
–If separate investment decisions are made to develop each pit, rather than a single investment decision being made at the outset.
–If the pits are operated as separate units in terms of mine planning and the sequencing of overburden and ore mining, rather than as an integrated unit.
–If expenditures for additional infrastructure to support the second and subsequent pits are relatively large.
–If the pits extract ore from separate and distinct ore bodies, rather than from a single ore body.

     This additional factor would point to an integrated operation in accounting for stripping costs:

–If the designs of the second and subsequent pits are significantly influenced by opportunities to optimise output from the several pits combined, including the co-treatment or blending of the output from the pits.

     The relative importance of each of the above factors is considered in each case to determine whether, on balance, the stripping costs should be attributed to the individual pit or to the combined output from the several pits. As this analysis requires judgment, another company could make the determination that a mine is separate or integrated differently than the Group, even if the fact pattern appears to be similar. To the extent the determination is different, the resulting accounting would also be different.
     As of 31 December 2006 and 2005, the net book values of capitalised stripping costs incurred in the development of second and subsequent pits at multiple pit mines where pits are considered separate operations were US$53 million and US$57 million, respectively.
     On adoption of EITF 04-06 at 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. Both of these amounts are included in the aboveadjustments for deferred stripping, which form part of the reconciliation at 31 December 2002 has now been substantially reduced through the cumulative effect of this change in accounting principle.to Rio Tinto shareholders' funds.

Provision, under IFRS, for shares to be repurchased
Under IFRS, the Group is required to recognise a liability in respect of irrevocable commitments made to purchase Rio Tinto plc shares that a counterparty has been authorised to buy in the market at the counterparty's discretion during the period up to the preliminary announcement of the Group's results, when the Group is unable to purchase its own shares. A corresponding reduction in shareholders' funds is also recorded.
Under US GAAP, the commitment is not recorded as a liability where the counterparty has not purchased the shares at the balance sheet date as there is no fixed price or fixed number of shares.

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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
A.Differences Between IFRS and US GAAP Continued

Other
Other adjustments include amounts relating to differences between IFRS and US accounting principles in respect of profit on sale of operations, higher cost of sales resulting from acquisition accounting and restructuring costs.

Profit on sale of operations – The profit on sale of operations may be different under US GAAP when the book values under US GAAP include goodwill, which is not reinstated under IFRS, or other GAAP adjustments, which increase or decrease the carrying value of operations sold.

Higher cost of sales resulting from acquisition accounting –
Under UK GAAP,IFRS, 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. 2001

Retructuring costs –Under US GAAP, SFAS 146 'Accounting for Costs Associated with Exit or Disposal Activities' requires that the timing of recognition of a liability for one-time termination benefits depends on whether employees are required to render service until they leave the company in order to receive the termination benefits. In 2005 an adjustment was made to pre-tax earnings and shareholders' funds to reverse a US$20 million liability for one-time termination benefits recognised under IFRS which instead is being recognised over the future service period of the employees under US GAAP.

Share-based payment
The Group adopted the fair value recognition provisions of IFRS 2, 'Share-based Payments' with effect from 1 January 2004. As permitted by IFRS 2, on the basis that the fair value of the awards had been previously disclosed, the Group has applied IFRS 2 to all grants of employee share-based payments that had not vested as at 1 January 2004. A cumulative adjustment was recognised as at 1 January 2004 to reflect the compensation cost that would have been recognised had the recognition provisions of IFRS 2 been applied to such awards in prior periods. The fair values used for grants of awards in prior periods under IFRS are lowersimilar to those determined under US accounting standard SFAS 123 'Accounting for Stock-Based Compensation'. The Group adopted the fair value recognition provisions of SFAS 123 in 2002, and as a result, under US GAAP, all periods presented reflect the compensation cost recognised as a resultif SFAS 123 had been applied to all awards granted to employees after 1 January 1995.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), which requires all share-based payments to employees, including grants of the higher cost of sales relatingemployee stock options, to inventories that were held at the date of acquisition. There is no effect on 2003 or 2002 earnings.

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 arebe recognised in the financial yearstatements based on their fair values beginning with the first annual period after 15 June 2005. The Group has applied the provisions of SFAS 123R for 2006. The adoption of SFAS 123R has not had any impact on its financial position, results of operations or cash flows because since 1 January 2004 the provisions of SFAS 123 have been applied in a manner which is consistent with the new requirements of SFAS 123R.

Other tax adjustments
In 2004 a valuation allowance of US$114 million was recorded against a deferred tax asset that existed in the opening US GAAP balance sheet, resulting in a non-recurring charge against earnings. No such asset was recognised on transition to IFRS.
Under IFRS, no provision for deferred tax is recognised in respect of which theythe depreciation of capitalised amounts of asset retirement obligations except where such obligations are paid.recognised in accounting for a business combination. Under US GAAP, full provision is made for 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 totemporary 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 accountresulting in the calculationrecognition of depreciation, depletion and amortisation charges. As a result, adjustments have been made to depreciation reducing Rio Tinto Group US GAAP pre tax earnings by US$59 million (2002: US$10 million, 2001: US$6 million), reducing Rio Tinto Plc pre tax earnings by US$12 million (2002: US$3 million increase, 2001: US$3 million increase) and reducing Rio Tinto Limited pre tax earnings by US$75 million (2002: US$20 million, 2001: US$15 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,relief on 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 Rio Tinto Group US GAAP pre tax earnings of US$17 million (2002: US$4 million increase, 2001: US$5 million increase). The timing differences reduced Rio Tinto plc pre tax earnings by US$19 million (2002: US$2 million increase, 2001: US$4 million increase); and increased Rio Tinto Ltd's pre tax earnings by US$3 million (2002: US$4 million increase, 2001: US$1 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.

Taxationdepreciation.
Under UK GAAP, provision for taxes arising on remittancesFAS 123(R), the measurement 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 thatasset is based on an estimate at the time the options are granted of the future tax benefits arededuction, if any, for the amount of compensation cost recognised for book purposes. Changes in the share price do not included in earnings untilimpact 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 becauseasset. Under IFRS 2, the goodwill that gave rise to these tax benefits was capitalised and gives rise to amortisation charges against profit.

Profit contribution from equity accounted operations
Under US GAAP, investments in affiliates are accounted for using the equity method, and the reporting entity's sharemeasurement of the afterdeferred tax profits and lossesasset is based on an estimate of its affiliates is includedthe future tax deduction, if any, for the award updated at the end of each reporting period. Changes in the income statement as a single line item. Under UK GAAP,share price impact the reporting entity's share ofdeferred tax asset to the trading results of its associates and joint ventures is split inextent that they affect the profit and loss account between its share of their operating profits/losses, interest receivable/payable and taxation.
The Group's share of the afterexpected future tax profits and losses of associates and joint ventures is shown in its 'Statement of Total Recognised Gains and Losses'.deduction.

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

42Reconciliation to US Accounting Principles (continued)

Consolidated statement of cash flows
The consolidated statement of cash flows prepared in accordance with FRS 1 (revised)International Accounting Standard 7 (IAS 7) presents substantially the same information as that required under US GAAP. Under US GAAP, however, there are certain differences from UK GAAPIFRS 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. Similarly, deferred stripping costs which are shown as capital expenditure under UK GAAP are included in operating cash flow for the purposes of the US GAAP cash flow disclosure. Under UK GAAP,IFRS, cash for the purposes of the cash flow statement is defined ascomprises cash on hand, deposits held on call with banks, short-term, highly liquid investments that are readily convertible into known amounts of cash and that are subject to insignificant risk of changes in handvalue, and deposits repayable on demand with any qualifying financial institution, less bank borrowings from any qualifying financial institution repayableoverdrafts that are payable on demand. Deposits are repayable on demand if they can be withdrawn at any time without notice and without penaltyAn investment usually qualifies as a cash equivalent under IFRS when it has a short maturity of, say, three months or if a maturity or periodless from the date of notice of not more than 24 hours or one working day has been agreed.acquisition. Under US GAAP, cash equivalents comprise cash balances and current asset investments with an original maturity of less than three months and exclude bank borrowingsoverdrafts repayable on demand.

AdjustedUnderlying earnings
As permitted under UK GAAP, adjusted earnings and adjusted earnings per share haveIFRS, 'Underlying earnings' as defined in note 2 to the Financial statements, has been presented excluding the impact of exceptional items to provide a measure that reflectsgreater understanding of the underlying business performance of the operations of the Group. This is in addition to the presentation of earnings and earnings per share, which includeProfit for the exceptional items. In accordance withyear attributable to equity shareholders of Rio Tinto (Net earnings). US GAAP net earnings and earnings per share havehas been presented, based on US GAAPwith no additional measure of Underlying earnings without adjustment for the impact of exceptional items. Suchbecause such additional measures of underlying performance are not permitted under US GAAP.

Guarantor's Accountingaccounting

Under US GAAP there is a requirement for entities to recognise, upon issue of a guarantee, an initial liability for the fair value, or market value, of the associated obligation with disclosure of that information in its interim and annual financial statements. FIN 45 is effective, on a prospective basis, toMaterial guarantees issued or modified after 31 December 2002. The disclosure requirements of FIN 45 apply to these accounts and the following information is given in response to these.
Note 29 to the financial statements discloses indemnities and other performance guarantees totalling US$266 million on which no material loss is expected. This includes US$19 million relating to the Group's commitment to pay deferred consideration in relation to acquisitions of mining properties in 2002 and previous years. This does not include guarantees of payment of US$266 million entered into by the Group relatingrelate to deferred consideration arising from such acquisitions because the deferred consideration has been recognised as a liability within the Group's balance sheet. The disclosure in note 29 also includes guarantees for upits own future performance. These include counter-indemnities to US$140 million relatingfinancial institutions that have guaranteed to the costs of infrastructure financed by certain government authorities, which would be subject to reimbursement by the Group if the facilities are not completed or certain tests relating to the related project are not met. Of the remaining US$107 million disclosed in note 29, US$32 million would be subject to reimbursement by a third party in the eventparties that the Group was required to make payment under the guarantees.
In addition to the above, the Group has issued guarantees and indemnities totalling US$652 million relating to its close down,will perform certain obligations. Examples of such obligations include restoration and environmental remediation obligations. These are not disclosed as contingent liabilities because the obligations are included in the amounts recognisedactivities during mine and refinery operations and after mine closure, agreements to supply products to certain customers and agreements with certain governmental agencies to build processing facilities. Where appropriate, provisions already exist in the balance sheet as provisions for liabilities and charges.
A Group company has guaranteed that the quality of product from a joint venture in which it participates will be in accordance with agreed specifications. It has also undertaken to make up any shortfalls from minimum ore reserve quantities over the life of the joint venture. Currently, no shortfalls are anticipated.
As explained in note 14 to the financial statements, 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.obligations.

Variable Interest Entities
In January 2003, the FASB issued interpretation No. 46, 'ConsolidationUnder FIN 46(R) ‘Consolidation of Variable Interest Entities' (FIN 46). Under FIN 46, certain entities labelled “Variable Interest Entities”Entities’, a variable interest entity (VIE), must be is consolidated by the “primary beneficiary”'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 currently has a 20% general partnership interestVIEs that would be consolidated for US GAAP which are equity accounted under IFRS. Additional information on these VIEs is provided in the Colowyo limited partnership, which was acquired for US$25 million in December 1994. This joint venture may fall within the definitionsection F 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 at 31 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% and 10.19% 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.note 48.

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RIO TINTO PLC - RIO TINTO LIMITEDGROUP


NOTES TO FINANCIAL STATEMENTS -– (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
B.New US Accounting Standards

In June 2006, FASB Interpretation No. 48, 'Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109' ('FIN 48') was issued. FIN 48 prescribes bases for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires tax benefits from an uncertain position to be recognised only if it is 'more likely than not' that the position is sustainable upon audit, based on its technical merits. The interpretation also requires qualitative and quantitative disclosures, including discussion of reasonably possible changes that might occur in recognised tax benefits over the next 12 months, a description of open tax years by major jurisdiction and a roll-forward of all unrecognised tax benefits. FIN 48 first applies for the Group’s financial year beginning 1 January 2007. The Group is currently assessing the impact of adopting FIN 48.
     In February 2006, the FASB issued SFAS 155, 'Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140'. The Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, 'Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.' SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS 155 is effective for all financial instruments acquired or issued by the Group beginning 1 January 2007. The Group is currently assessing the impact of SFAS 155.
     In September 2006, the FASB issued SFAS 157, 'Fair Value Measurements', which defines fair value, establishes a framework for measuring fair value under US GAAP and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements; accordingly, it does not require any new fair value measurements but may change current practice. SFAS 157 is effective for the Group’s financial year beginning 1 January 2008. The Group is currently assessing the impact of adopting SFAS 157.
     In September 2006, the FASB issued SFAS 158. SFAS 158 requires companies that sponsor single-employer defined benefit plans to recognise their overfunded or underfunded status as an asset or liability in the statement of financial position and to recognise changes in that funded status in the year in which changes occur, as a component of other comprehensive income. The Statement also requires disclosure of additional information about certain effects on earnings for the subsequent fiscal year arising from the delayed recognition in earnings of amounts initially recognised as a component of other comprehensive income. The Group adopted the recognition and disclosure provisions of SFAS 158 as of the end of its fiscal year ending 31 December 2006. The Group is required to adopt the measurement provisions of SFAS 158 for the Group’s financial year ending 31 December 2008. The Group is currently assessing the impact of adopting the measurement provisions of SFAS 158.
     In February 2007, the FASB issued SFAS 159 'The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statement No. 115', which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for the Group as of 1 January 2008. The Group is currently assessing the impact of adopting SFAS 159.

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Reconciliation to US Accounting PrinciplesRIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
C.Post Retirement Benefits

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 87,10687, 88, 106, 132R and 132158 is given below.
The measurement date used to establish year end asset values and benefit obligations was 30 September 2003.2006. The previous measurement date, used to determine 20032006 costs, was 30 September 2002.

2005.
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 Canada and a description of the investment policies and strategies followed is set out below.


In the UK and the US,North America, the investment strategy is determined by the pension plan trustee and investment committeecommittees 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 company.


In Australia, the majority of investments are in respect of defined contribution funds. The investments reflect the various defined benefit and defined contribution liabilities and are primarily in Australian and overseas equities and fixed interest stocks.


     The Group's defined benefit plans do not invest directly in property occupied by the Group or in the Group's own financial instruments.
At 30 September 2003,2006, funded pension plans held assets invested in the following proportions:

 UK targetUS target* Group actual 
Equities45%-85%65% 65% 
Debt securities15%-45%30% 27% 
Real estate-5% 3% 
Other0%-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 A-54.

 UK target US target (a) Canada target Group Actual 
 
 
 
 
 
 2006 2005 2006 2005 2006 2005 2006 2005 
 
Equities45%-85%45%-85%65%65%65%65%67%65%
Debt securities10%-40%15%-45%30%30%35%35%26%25%
Real estate— — 5%5%— — 3%3%
Other0%–10%0% – 10%— — — — 4%7%
(a)plus or minus 5%.

The expected rate of return on pension plan assets is determined as management’s best estimate ofon the long term return of the major asset classes –equity,– equity, debt, real estate and other – weighted by the actual allocation of assets among the categories at the measurement date.


Pension plan contributions are determined through regular funding policyvaluations in line with local funding requirements. Contributions to be paid in 2007 are expected to be around US$8m higher than for 2006.
     A refund of US$26 million is based on annual contributions at a rate that is intendedexpected to fund benefitsbe received by the Group in 2007, as a level percentagepart of pay over the working lifetimedistribution of a plan’s participants, subjectsurplus to local statutory minimum contribution requirements. Details of anticipated contributions in 2004 are set out inmembers and the FRS17 transitional disclosures on page A-54.

employer relating to South African plans.
Assumptions used to determine the net periodic benefit cost and the end of year benefit obligation for the major pension plans varied betweenare within the limitsranges shown below. The average rate for each assumption has been weighted by the relevant benefit obligation. The assumptions used to determine the end of year benefit obligation are also used to calculate the following year’s cost.

 20032006 Cost (a) Year end benefit obligation
 
Discount rate5.8%4.8% to 12.0%8.0% (Average: 6.7%)5.1%)5.4%4.7% to 9.5%8.4% (Average: 5.9%5.3%)
Long term rate of return on plan assets6.5%5.9% to 12.0%7.6% (Average: 7.2%6.2%)6.4% to 10.5% (Average: 6.9%6.3% to 11.0% (Average: 6.6%)
Increase in compensation levels3.3%4.1% to 11.0%6.3% (Average: 4.8%4.6%)3.9% to 7.8% (Average: 4.6%)
 
3.7% to 6.5% (Average: 4.2%)(a)31 December 2005 year end benefit obligations were measured on the same assumptions as the 2006 cost.

The actuarial calculations in respect of the UK plans assume a rate of increase of pensions in payment of 2.63.0 percent per cent per annum.annum at the year end. This assumption is consistent with the inflation rate included in the expected rates of return and salary increase assumptions in the respective valuations. Appropriate assumptions were made for plans in other countries.


     Discount rates have been set based on the yields available on AA rated corporate bonds in the appropriate currency, or government bonds where there is no deep market in AA rated corporate bonds. The discount rate reflects the weighted average yield over the term of the liabilities.
     The expected average remaining service life in the major plans ranges from 6 to 15 years with an overall average of 11 years.
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.


     In the US, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 provides an employer subsidy, which began in 2006. The Group's post retirement medical plans are eligible for this employer subsidy.
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 shown below:

CostYear end benefit obligation
Discount rate6.5% (2002: 6.5%)6.1% (2002: 6.5%)
Healthcare cost trend rate8.0% reducing to 5.0% by 2009 (2002: 8.5% reducing to 5.0% by 2009)11.2% reducing to 4.7% by 2011 (2002: 8.0% reducing to 5.0% by 2009)

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

42    Reconciliation to US Accounting Principles (continued)

Components of net benefit expense      
 Rio Tinto plc - Rio Tinto Limited -   
 part of Rio Tinto Group part of Rio Tinto Group Rio Tinto Group 
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 
 
 
Pension BenefitsUS$m US$m US$m US$m US$m US$m US$m US$m US$m 
Service cost(55)(42)(45)(68)(55)(47)(123)(97)(92)
Interest cost on benefit obligation(140)(147)(138)(70)(60)(57)(210)(207)(195)
Expected return on plan assets182 197 210 70 61 69 252 258 279 
Net amortisation and deferral:                  
      - transitional obligation10 10 12  -  -  - 10 10 12 
      - recognised gains/(losses) 3 18  4 (9)(8)(4)(6)10  - 
      - prior service cost recognised(21)(21)(18)(2)(1)(1)(23)(22)(19)
 
 
 
 
 
 
 
 
 
 
Total net amortisation and deferral(8) 7  (2)(11)(9)(5)(19)(2)(7)
 
 
 
 
 
 
 
 
 
 
Net periodic benefit (cost)/credit(21)15 25 (79)(63)(40)(100)(48)(15)
Curtailment (charge)/credit - (8) (4) -  -  -  - (8)(4)
 
 
 
 
 
 
 
 
 
 
Net benefit credit/(expense)(21) 7 21 (79)(63)(40)(100)(56)(19)
 
 
 
 
 
 
 
 
 
 

The 2003 pension cost recognised for defined contribution plans, of US$9 million (2002: US$5 million), is included in the above.

  Rio Tinto plc -  Rio Tinto Limited -    
 part of Rio Tinto Group part of Rio Tinto Group  Rio Tinto Group    
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001   
 
 
 
 
 
 
 
 
 
 
Other BenefitsUS$m US$m  US$m  US$m  US$m  US$m US$m  US$m  US$m 
Service cost(8)(6) (6)(1)(1) -  (9)(7)(6) 
Interest cost on benefit obligation(25)(23)(21)(3)(2)(3)(28)(25)(24) 
Net amortisation and deferral:                           
      - recognised gains 5  8  8 - - 3 5   8  11 
      - prior service cost recognised 1  1  1 - - - 1  1   1 
 
 
 
 
 
 
 
 
 
 
Total net amortisation and deferral 6  9  9 - - 3 6  9  12 
 
 
 
 
 
 
 
 
 
 
Net periodic benefit cost(27)(20)(18)(4)(3) - (31)(23)(18)  
Curtailment (charge)/credit 3 (2) -   -   -   -  3   (2) -  
 
 
 
 
 
 
 
 
 
 
Net benefit expense(24)(22)(18)(4)(3) - (28)(25)(18)  
 
 
 
 
 
 
 
 
 
 
                   
Funded status of the Group's principal schemes                           
  Rio Tinto plc -    Rio Tinto Limited -             
 part of Rio Tinto Group  part of Rio Tinto Group     Rio Tinto Group    
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 
 
 
Pension benefitsUS$m US$m US$m US$m US$m US$m US$m US$m US$m 
Benefit obligation at end of year(2,680)(2,377)(1,903)(1,481)(989)(900)(4,161)(3,366)(2,803)
Fair value of plan assets2,488 2,256 2,271 1,347 910 917 3,835 3,166 3,188 
 
 
 
 
 
 
 
 
 
 
Plan assets (below)/in excess of benefit obligation(192)(121)368 (134)(79)17 (326)(200)385 
Unrecognised prior service cost140 155 149  4 4  4 144 159 153 
Unrecognised net (gain)/loss305 239 (252)317 225 158 622 464 (94)
Unrecognised transitional (asset)/obligation(9)(27)(35)(2)(2)(2)(11)(29)(37)
Company contributions in fourth quarter 4 2  1 25 5  3 29  7  4 
 
 
 
 
 
 
 
 
 
 
Net amount recognised at end of year248 248 231 210 153 180 458 401 411 
 
 
 
 
 
 
 
 
 
 
Comprising:                           
   - benefit prepayment243 212  270 171 134 187 414 346 457 
   - benefit (provision)(293)(236)(124)(116)(83)(75)(409)(319)(199)
   - Intangible asset52 53 32  1 -  - 53 53 32 
   - amount recognised through accumulated                  
    other comprehensive income246 219 53 154 102 68 400 321 121 
 
 
 
 
 
 
 
 
 
 
Net amount recognised248 248 231 210 153 180 458 401 411 
 
 
 
 
 
 
 
 
 
 
                   
  Rio Tinto plc -    Rio Tinto Limited -             
 part of Rio Tinto Group  part of Rio Tinto Group     Rio Tinto Group    
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 
 
 
Other benefitsUS$m US$m US$m US$m US$m US$m US$m US$m US$m 
Benefit obligation at end of year(501)(396)(323)(62)(41)(39)(563)(437)(362)
Fair value of plan assets - -  -  - -  -  -  -  - 
 
 
 
 
 
 
 
 
 
 
Plan assets (below)/in excess of benefit obligation(501)(396)(323)(62)(41)(39)(563)(437)(362)
Unrecognised prior service cost(2)(2) (2) - -  - (2)(2)(2)
Unrecognised net (gain)/loss45 (40)(96) 9 -  - 54 (40)(96)
Company contributions in fourth quarter 4 -  -  1 -  -  5  -  - 
 
 
 
 
 
 
 
 
 
 
Net amount recognised at end of year(454)(438)(421)(52)(41) - (506)(479)(460)
 
 
 
 
 
 
 
 
 
 
Comprising:                           
   - benefit (provision)(454)(438)(421)(52)(41)(39)(506)(479)(460)
 
 
 
 
 
 
 
 
 
 
Net amount recognised(454)(438)(421)(52)(41)(39)(506)(479)(460)
 
 
 
 
 
 
 
 
 
 

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

42    Reconciliation to US Accounting Principles (continued)

Change in additional minimum liability before tax

    Rio Tinto Group  
  
 
  2003 2002 2001 
  
 
 
 
Pension benefits US$m US$m US$m 
Accrued pension benefit expense 79 221 148 
Increase in intangible asset  - (21)(32)
  
 
 
 
Other comprehensive income before tax 79 200 116 
  
 
 
 

Change in benefit obligation

    Rio Tinto plc -  Rio Tinto Limited -    
 
 
part of Rio Tinto Group part of Rio Tinto Group  Rio Tinto Group   
  
 
 
 
  2003 2002 2001 2003 2002 2001 2003 2002 2001 
  
 
 
 
 
 
 
 
 
 
Pension benefits 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
Benefit obligation at start of year (2,377)(1,903)(2,033)(989)(900)(861)(3,366)(2,803)(2,894)
Service cost (50)(42)(45)(62)(55)(47)(112)(97)(92)
Interest cost (140)(147)(138)(70)(60)(57)(210)(207)(195)
Contributions by plan participants (3)(3)(2)(23)(6)(4)(26)(9)(6)
Actuarial gains and (losses) (381)(246)90 (172)42 1 (553)(204)91 
Benefits paid 151 141 125 109 54 70 260 195 195 
Benefits bought out 191 - - - - - 191 - - 
Plan amendments (6)(16)(12)(1)-  - (7)(16)(12)
Inclusion of DC liabilities  - - (2) - - (61) -  - (63)
Settlement, curtailment and other gain/(loss) (13)-  - 23 -  - 10  -  - 
Currency and other adjustments (52)(161)114 (296)(64)59 (348)(225)173 
  
 
 
 
 
 
 
 
 
 
Benefit obligation at end of year (2,680)(2,377)(1,903)(1,481)(989)(900)(4,161)(3,366)(2,803)
  
 
 
 
 
 
 
 
 
 

    Rio Tinto plc -  Rio Tinto Limited -    
 
 
part of Rio Tinto Group part of Rio Tinto Group  Rio Tinto Group   
  
 
 
 
  2003 2002 2001 2003 2002 2001 2003 2002 2001 
  
 
 
 
 
 
 
 
 
 
Other benefits 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
Benefit obligation at start of year (396)(323)(315)(41)(39)(40)(437)(362)(355)
Service cost (8)(6)(6)(1)(1) - (9)(7)(6)
Interest cost (25)(23)(21)(3)(2)(3)(28)(25)(24)
Actuarial (losses) (83)(48)(8)(10)-  - (93)(48)(8)
Benefits paid 16 14 11 2 2 2 18 16 13 
Plan amendments 5 (2) -  - -  - 5 (2) - 
Settlement, curtailment and other gain/(loss) 3 -  -  - -  - 3  -  - 
Currency and other adjustments (13)(8)16 (9)(1) 2 (22)(9)18 
  
 
 
 
 
 
 
 
 
 
Benefit obligation at end of year (501)(396)(323)(62)(41)(39)(563)(437)(362)
  
 
 
 
 
 
 
 
 
 

Change in plan assets

    Rio Tinto plc -  Rio Tinto Limited -    
 
 
part of Rio Tinto Group part of Rio Tinto Group  Rio Tinto Group   
  
 
 
 
  2003 2002 2001 2003 2002 2001 2003 2002 2001 
  
 
 
 
 
 
 
 
 
 
Pension benefits 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
Fair value of plan assets at start of year 2,256 2,271 2,840 910 917 1,024 3,166 3,188 3,864 
Actual return/(loss) on plan assets 486 (108)(296)203 (42)(44)689 (150)(340)
Contributions by plan participants 3 3 2 23 6 4 26 9 6 
Contributions by employer 25 13  9 67 17 13 92 30 22 
Benefits (paid) (151)(141)(125)(109)(54)(70)(260)(195)(195)
Benefits bought out (191)-  -  - -  - (191) -  - 
Settlement, curtailment and other gain/(loss) 4 -  - (23)-  - (19) -  - 
Currency and other adjustments 56 218 (159)276 66 (10)332 284 (169)
  
 
 
 
 
 
 
 
 
 
Fair value of plan assets at end of year 2,488 2,256 2,271 1,347 910 917 3,835 3,166 3,188 
  
 
 
 
 
 
 
 
 
 

    Rio Tinto plc -  Rio Tinto Limited -    
 
 
part of Rio Tinto Group part of Rio Tinto Group  Rio Tinto Group   
  
 
 
 
  2003 2002 2001 2003 2002 2001 2003 2002 2001 
  
 
 
 
 
 
 
 
 
 
Other benefits 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
Fair value of plan assets at start of year  - -  -  - -  -  -  -  - 
Contributions by employer 16 14 11 2 2 2 18 16 13 
Benefits (paid) (16)(14)(11)(2)(2)(2)(18)(16)(13)
  
 
 
 
 
 
 
 
 
 
Fair value of plan assets at end of year  - -  -  - -  -  -  -  - 
  
 
 
 
 
 
 
 
 
 

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RIO TINTO PLC - GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
C.Post Retirement Benefits Continued
2006 Cost (a)Year end benefit obligation
Discount rate4.8% to 8.0% (average 5.6%)4.7% to 8.4% (average 6.0%)
Average healthcare cost trend rate
– trend in first year6.3% to 9.6% (average 9.1%)5.5% to 10.8% (average 8.4%)
– reducing to long term rate by 2011 broadly on a straight-line basis5.1% to 6.8% (average 5.4%)4.9% to 8.3% (average 5.4%)
(a)31 December 2005 year end benefit obligations were measured on the same assumptions as the 2006 cost.
The components of net benefit expense under US GAAP are detailed in the table below.
       
 2006 2005 2004 
Pension benefitsUS$m US$m US$m 
 
Service cost(197)(152)(133)
Interest cost on benefit obligation(279)(274)(238)
Expected return on plan assets298 289 250 
Net amortisation and deferral:   
– transitional obligation1 1 5 
– recognised losses(42)(41)(32)
– prior service cost recognised(21)(24)(22)
 
Total net amortisation and deferral(62)(64)(49)
 
Net periodic benefit cost(240)(201)(170)
Curtailment and settlement credit/(charge)2 (1)37 
 
Net benefit expense(238)(202)(133)
 
The 2006 pension cost shown above includes US$21 million (2005: US$8 million; 2004: US$6 million) in relation to defined contribution plans. In addition, contributions of US$14 million (2005: US$12 million; 2004: US$11 million) were paid to 401k plans in the US.
       
 2006 2005 2004 
Other benefitsUS$m US$m US$m 
 
Service cost(10)(10)(10)
Interest cost on benefit obligation(26)(28)(32)
Net amortisation and deferral:   
– recognised gains5 4 1 
– prior service cost recognised— 1 (3)
 
Total net amortisation and deferral5 5 (2)
 
Net periodic benefit cost(31)(33)(44)
Curtailment and settlement credit— — 3 
 
Net benefit expense(31)(33)(41)
 
The funded status of the Group's principal schemes is summarised in the table below.
 2006 2005 
Pension benefitsUS$m US$m 
 
Benefit obligation at end of year(5,846)(5,109)
Fair value of plan assets5,808 4,978 
 
Funded status(38)(131)
 
Unrecognised prior service cost108 112 
Unrecognised net loss362 469 
Unrecognised transitional asset(3)(5)
Company contributions in fourth quarter16 22 
 
Net amount recognised at end of year (before implementation of SFAS 158)445 467 
 
Comprising (before implementation of SFAS 158):  
     – benefit prepayment407 394 
     – benefit provision(251)(327)
     – intangible asset40 45 
     – amount recognised through accumulated other comprehensive income249 355 
 
Net amount recognised (before implementation of SFAS 158)445 467 
 

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RIO TINTO LIMITEDGROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
C.Post Retirement Benefits Continued
In accordance with SFAS 158, all unrecognised amounts were recognised in OCI on 31 December 2006. The amounts recognised in the balance sheet are as follows:
2006
US$m
Non current assets287
Current liabilities(6)
Non current liabilities(319)
Total(38)
As of 31 December 2006, after implementation of SFAS 158, amounts recognised in accumulated OCI consist of:
2006
US$m
Net loss362
Prior service cost108
Transitional asset(3)
Adjustment in respect of contributions in fourth quarter16
Total483
The aggregate benefit obligations and aggregate fair values of plan assets for plans with benefit obligations in excess of plan assets as at 30 September 2006 are summarised in the table below. These benefit obligations include an allowance for future salary increases.
 2006 2005 
Pension benefitsUS$m US$m 
 
Benefit obligation at end of year(2,019)(2,006)
Fair value of plan assets1,694 1,588 
 
Benefit obligations in excess of plan assets(325)(418)
 
The aggregate accumulated benefit obligations and aggregate fair values of plan assets for plans with accumulated benefit obligations (i.e. with no allowance for future salary increases) in excess of plan assets as at 30 September 2006 are summarised in the table below.
 2006 2005 
Pension benefitsUS$m US$m 
 
Accumulated benefit obligation at end of year(1,536)(1,916)
Fair value of plan assets1,289 1,588 
 
Accumulated benefit obligations in excess of plan assets(247)(328)
 
The funded status of the Group's principal schemes other than pensions is summarised in the table below.
 2006 2005 
Other benefitsUS$m US$m 
 
Benefit obligation at end of year(491)(493)
Unrecognised prior service cost3 (1)
Unrecognised net gain(67)(54)
Company contributions in fourth quarter5 6 
 
Net amount recognised at end of year (before implementation of SFAS 158)(550)(542)
 
Comprising (before implementation of SFAS 158):  
   – benefit provision(550)(542)
 
Net amount recognised (before implementation of SFAS 158)(550)(542)
 
In accordance with SFAS 158, all unrecognised amounts were recognised in OCI on 31 December 2006. The amounts recognised in the balance sheet are as follows:
2006
US$m
Current liabilities(22)
Non current liabilities(469)
Total(491)
As of 31 December 2006, after implementation of SFAS 158, amounts recognised in accumulated OCI consist of:
2006
US$m
Net gain(67)
Prior service cost3
Adjustment in respect of contributions in fourth quarter5
Total(59)

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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
C.Post Retirement Benefits Continued

Change in benefit obligation
The amounts shown below include, where appropriate, 100 per cent of the costs, contributions, gains and losses in respect of employees who participate in the plans and who are employed in operations that are proportionally consolidated or equity accounted. Consequently, the costs, contributions, gains and losses do not correspond directly to the amounts disclosed above in respect of the Group. Pure defined contribution plans and industry-wide plans are excluded from the movements below.

     
 2006 2005 
Pension benefitsUS$m US$m 
 
Benefit obligation at start of year(5,109)(4,817)
Service cost(184)(151)
Interest cost(279)(274)
Contributions by plan participants(106)(36)
Actuarial losses(160)(213)
Benefits paid344 343 
Newly consolidated(13)— 
Plan amendments(8)(12)
Settlement loss— (1)
Curtailment gain3 — 
Currency adjustments(334)52 
 
Benefit obligation at end of year(5,846)(5,109)
 

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 2006 amounted to US$5,557 million (30 September 2005: US$4,921 million).

 2006 2005 
Other benefitsUS$m US$m 
 
Benefit obligation at start of year(493)(538)
Service cost(10)(10)
Interest cost(26)(28)
Actuarial gains19 60 
Benefits paid21 23 
Plan amendments(4)— 
Currency adjustments2 — 
 
Benefit obligation at end of year(491)(493)
 

Change in plan assets

     
 2006 2005 
Pension fund assetsUS$m US$m 
 
Fair value of plan assets at start of year4,978 4,515 
Actual return on plan assets551 658 
Contributions by plan participants106 36 
Contributions by employer159 182 
Benefits paid(344)(343)
Newly consolidated15 — 
Currency and other adjustments343 (70)
 
Fair value of plan assets at end of year5,808 4,978 
 
     
 2006 2005 
Other benefit plan assetsUS$m US$m 
 
Fair value of plan assets at start of year— — 
Contributions by employer21 23 
Benefits paid(21)(23)
 
Fair value of plan assets at end of year— — 
 

Change in additional minimum liability before tax (before application of SFAS158)

 2006 2005 
Pension benefitsUS$m US$m 
 
Accrued pension benefit expense(111)(11)
Decrease in intangible asset5 3 
 
Other comprehensive income before tax(106)(8)
 

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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS - (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
C.Post Retirement Benefits Continued

42Incremental effect of applying SFAS 158 on individual balance sheet line items
   ReconciliationAdoption of the recognition provisions of SFAS 158 required the recognition of the funded status of each single-employer defined benefit plan on the balance sheet as of 31 December 2006, with offsetting amounts recognised as components of accumulated OCI. Additional minimum pension liabilities (AML) and related intangible assets were also derecognised upon adoption of SFAS 158. The effect of the derecognition of the AML prior to US Accounting Principles (continued)the adoption of SFAS158 and the impact of the initial adoption of SFAS 158 on individual balance sheet accounts is as follows:

 Prior to   Post 
 adjustment for   adjustment for 
 AML and Adjust Adjust AML and 
 SFAS 158 AML SFAS 158 SFAS 158 
 
Prepaid post-retirement costs407 140 (260)287 
Post-retirement provision(801)149 (164)(816)
Intangible asset40 (40)— — 
Accumulated other comprehensive income249 (249)424 424 

The adoption of SFAS 158 also resulted in a decrease in the net deferred tax liability of US$54 million and a decrease in equity attributable to outside equity shareholders' of US$12 million.

Sensitivity to change in healthcare trend


Changing the healthcare cost trend rates by 1% would result in the following effects:

  
Rio Tinto plc -
 
Rio Tinto Limited -
   
  
part of Rio Tinto Group   
 
part of Rio Tinto Group   
 
Rio Tinto Group   
 
  
 
 
 
  1% Increase 1% Decrease 1% Increase 1% Decrease 1% Increase 1% Decrease 
  
 
 
 
 
 
 
2003 US$m US$m US$m US$m US$m US$m 
              
(Increase)/decrease in service cost plus interest cost (5)4 - - (5)4 
(Increase)/decrease in benefit obligation at September 30 (61)54 (7)6 (68)60 
              
2002             
              
(Increase)/decrease in service cost plus interest cost (5)4 - - (5)4 
(Increase)/decrease in benefit obligation at September 30 (43)35 (5)5 (48)40 
              
2001             
              
(Increase)/decrease in service cost plus interest cost (5)4 - - (5)4 
(Increase)/decrease in benefit obligation at September 30 (34)30 (5)4 (39)34 
 1% Increase 1% Decrease 
 US$m US$m 
 
2006   
(Increase)/decrease in service cost plus interest cost(6)5 
(Increase)/decrease in benefit obligation at 30 September(74)62 
    
2005   
(Increase)/decrease in service cost plus interest cost(6)5 
(Increase)/decrease in benefit obligation at 30 September(66)55 
    
2004   
(Increase)/decrease in service cost plus interest cost(6)5 

Expected benefit payments
US$m
Pension benefits
Expected benefit payments in 2007382
Expected benefit payments in 2008385
Expected benefit payments in 2009390
Expected benefit payments in 2010402
Expected benefit payments in 2011415
Expected benefit payments from 2012 to 20162,205
Other benefits
Expected benefit payments in 200722
Expected benefit payments in 200823
Expected benefit payments in 200924
Expected benefit payments in 201025
Expected benefit payments in 201126
Expected benefit payments from 2012 to 2016139

Effect of Medicare Prescription Drug, Improvement and Modernisation Act of 2003

In January 2004, the FASB issued FASB Staff Position (“FSP”) 106-1, Accounting and Disclosure Requirements RelatedThe amounts in accumulated other comprehensive income expected to Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). This FSP addresses the accounting implications of the newly issued Act to an entity that sponsors a postretirement health care plan that provides prescription drug benefits. This Act, signed into law on 8 December 2003be recognised in the United States, introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of certain retiree health care benefit plans. The FSP includes an election to defer accounting for the implications of this new law until specific authoritative guidance to address the accounting treatment has been issued. As such, as a result of the lack of the existence of such guidance, any measures included in these financial statements of the accumulated post retirement benefit obligation (APBO) or net periodic postretirement benefit cost in the financial statements or accompanying notes do not reflect the effects of the Act on the plan. Authoritative guidance, when issued, could require a change in previously reported information.2007 are as follows:

Pension benefitsUS$m
Amortisation of
     – transitional obligation2
     – recognised losses(37)
     – prior service cost recognised(20)
Total(55)
Other benefitsUS$m
Amortisation of
     – recognised gains6
Total6

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RIO TINTO PLC - RIO TINTO LIMITED

GROUP
NOTES TO FINANCIAL STATEMENTS - (continued)

42Reconciliation to US Accounting Principles (continued)

Accumulated foreign currency translation gains and (losses) recorded directly in shareholders' funds under US GAAP

  Rio Tinto plc - Rio Tinto Limited -   
  part of Rio Tinto Group part of Rio Tinto Group Rio Tinto Group 
  
 
 
 
  US$m US$m US$m 
  
 
 
 
At 1 January 2003 (871)(261)(1,014)
Current period change  784  829  1,301 
  
 
 
 
At 31 December 2003 (87) 568  287 
  
 
 
 
At 1 January 2002 (1,189)(428)(1,436)
Current period change  318  167  422 
  
 
 
 
At 31 December 2002 (871)(261)(1,014)
  
 
 
 
At 1 January 2001 (935)(313)(1,111)
Current period change (254)(115)(325)
  
 
 
 
At 31 December 2001 (1,189)(428)(1,436)
  
 
 
 

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:

    Rio Tinto plc -  Rio Tinto Limited -    
 
 
part of Rio Tinto Group part of Rio Tinto Group  Rio Tinto Group   
  
 
 
 
  2003 2002 2001 2003 2002 2001 2003 2002 2001 
  
 
 
 
 
 
 
 
 
 
  
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
Net cash flow from operating activities 1,413 1,536 1,108 1,156 1,379 1,327 2,292 2,640 2,326 
Net cash flow from investing activities 112 (1,042)(1,122)(667)(592)(1,277)(1,268)(1,663)(2,113)
Net cash flow from financing activities (1,439)(507)(17)(505)(948)(87)(954)(1,151)(281)
  
 
 
 
 
 
 
 
 
 
Increase/(decrease) in cash and cash equivalents per US GAAP 86 (13)(31)(16)(161)(37)70 (174)(68)
  
 
 
 
 
 
 
 
 
 
(Decrease)/increase in cash per UK GAAP (9)(16) 6 (74)(114)34 (83)(130)40 
Decrease/(Increase) in non qualifying liquid resources for US GAAP 110 (2)(31)10 (25)(26)120 (27)(57)
Increase/(decrease) in bank borrowings repayable on demand included in cash under UK GAAP (15)5 (6)48 (22)(45)33 (17)(51)
  
 
 
 
 
 
 
 
 
 
Increase/(decrease) in cash and cash equivalents per US GAAP 86 (13)(31)(16)(161)(37)70 (174)(68)
  
 
 
 
 
 
 
 
 
 
Cash per balance sheet under UK GAAP 257 174 364 138 151 315 395 325 679 
Qualifying liquid resources less non qualifying deposits - (1)(135)(36)(44)(48)(36)(45)(183)
  
 
 
 
 
 
 
 
 
 
Cash and cash equivalents under US GAAP 257 173 229 102 107 267 359 280 496 
  
 
 
 
 
 
 
 
 
 

The year end cash and cash equivalents position under US GAAP included in the above table reflects both the movement in cash and cash equivalents in the year and the impact of exchange gains and losses in the year.

Deferred tax credit/(charge)

    Rio Tinto plc -  Rio Tinto Limited -    
 
 
part of Rio Tinto Group part of Rio Tinto Group  Rio Tinto Group   
  
 
 
 
  2003 2002 2001 2003 2002 2001 2003 2002 2001 
  
 
 
 
 
 
 
 
 
 
  
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
US$m
 
The credit/(charge) for deferred taxation arises as follows:                   
   - accelerated capital allowances (80)158 168 (3)28  39 (83)186 207 
   - pension prepayments 47 (1)(39)1 12 9 48 11 (30)
   - provisions (26)20 68 2 (14)(27)(24) 6 41 
   - provision against AMT credits and US tax losses 50 (228)(144)- - - 50 (228)(144)
   - other timing differences 28 30 5  6 11 (47)34 41 (42)
  
 
 
 
 
 
 
 
 
 
  19 (21)58 6 37 (26)25 16 32 
  
 
 
 
 
 
 
 
 
 

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

42    Reconciliation to US Accounting Principles (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:

 Rio Tinto plc - Rio Tinto Limited -       
 part of Rio Tinto Group part of Rio Tinto Group Rio Tinto Group 
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m US$m US$m US$m 
Profit and loss account:                  
Sales revenue11,230 9,295 9,966 1,044 1,841 1,643 7,078 6,622 6,313 
Cost of sales(7,860)(6,826)(6,873)(860)(1,217)(1,066)(4,652)(4,384)(4,068)
 
 
 
 
 
 
 
 
 
 
Operating profit3,370 2,469 3,093 184 624 577 2,426 2,238 2,245 
Profit of equity accounted companies137 325 320 - - - - - - 
Profit on sale of fixed asset invesments126 - - - - - - - - 
Net interest(445)(475)(534)(8)(49)(67)(317)(377)(392)
 
 
 
 
 
 
 
 
 
 
Profit before tax3,188 2,319 2,879 176 575 510 2,109 1,861 1,853 
Taxation(1,070)(911)(963)(4)(91)(163)(714)(579)(604)
Profit attributable to outside shareholders(59)90 (115)- - - (48)(36)(43)
 
 
 
 
 
 
 
 
 
 
Net profit on ordinary activities (100 per cent basis)2,059 1,498 1,801 172 484 347 1,347 1,246 1,206 
 
 
 
 
 
 
 
 
 
 
                   
 Rio Tinto plc - Rio Tinto Limited -       
 part of Rio Tinto Group part of Rio Tinto Group Rio Tinto Group 
 
 
 
 
 2003 2002 2001 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m US$m US$m US$m US$m 
Balance sheet:                                  
Intangible fixed assets1,062 988 942   1 1   1 64 194 196 
Tangible fixed assets18,499 15,942 15,549 2,002 2,758 2,491 11,406 12,086 11,765 
Investments1,247 1,235 983   2 3   3 78 166 162 
Working capital1,040 (434)(363)17 86 194 775 593 516 
Net cash less current debt(1,182)(2,658)(2,031)(13)(33)(97)319 (835)(164)
Long term debt(6,954)(5,667)(6,098)(402)(1,005)(1,181)(5,066)(5,406)(5,838)
Provisions(3,457)(2,648)(2,853)(164)(361)(377)(1,462)(1,658)(1,949)
Outside shareholders' interests(1,580)(847)(902)(1)-   - (321)(290)(249)
 
 
 
 
 
 
 
 
 
 
Aggregate shareholders' funds (100 per cent basis)8,675 5,911 5,227 1,442 1,449 1,034 5,793 4,850 4,439 
 
 
 
 
 
 
 
 
 
 

For Rio Tinto plc the above disclosures include 100 per cent of the profit and loss account and balance sheet of Rio Tinto Limited.

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 ratio Life of mine stripping 
   for year     ratio   
 2003 2002 2001 2003 2002 2001 
 
 
 
 
 
 
 
             
Kennecott Utah Copper (2014)1.86 2.05 2.21 1.24 1.19 0.91 
Borax (2037)23.00 25.00 28.00 16.00 16.00 16.00 
Argyle Diamonds (2007)6.10 7.29 6.62 4.10 4.40 4.60 
Freeport Joint Venture (2014)2.84 2.35 2.11 1.93 1.77 1.60 

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 mined. The actual stripping ratio for 2003 was 0.1015 (2002: 0.1458, 2001: 0.1476). The life of mine stripping ratio for 2003 was 0.1103 (2002: 0.1094, 2001: 0.1094). The deferred stripping balance is expected to be fully amortised in 2039.

A-69

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

42Reconciliation to US Accounting Principles (continued)

Unrealised holding gains and losses
Under FAS 115, unrealised holding gains and losses on investments classified as 'available for sale' are excluded from earnings and reported within a separate component of shareholders' funds until realised.

The following tables show the investments in debt and equity securities which are held as 'available for sale' in accordance with FAS 115, for the Rio Tinto Group, Rio Tinto plc and Rio Tinto Limited.

   Unrealised Unrealised   Net unrealised 
Rio Tinto GroupNet book holding holding Market holding 
 value gains losses value gains/(losses) 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m 
At 1 January 200370 5 (5)70 - 
Change 9 14 (1)22 13 
 
 
 
 
 
 
At 31 December 200379 19 (6)92 13 
 
 
 
 
 
 
           
   Unrealised Unrealised   Net unrealised 
Rio Tinto plcNet book holding holding Market holding 
 value gains losses value gains/(losses) 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m 
At 1 January 200356  - (1)55 (1)
Change13 19 1 33 20 
 
 
 
 
 
 
At 31 December 200369 19  - 88 19 
 
 
 
 
 
 
           
   Unrealised Unrealised   Net unrealised 
Rio Tinto LimitedNet book holding holding Market holding 
 value gains losses value gains/(losses) 
 
 
 
 
 
 
 US$m US$m US$m US$m US$m 
At 1 January 200314  5 (4)15   1 
Change(4)(5)(2)(11)(7)
 
 
 
 
 
 
At 31 December 200310  - (6) 4 (6)
 
 
 
 
 
 

Share Option Plans
At 31 December 2003, Rio Tinto plc and Rio Tinto Limited have a number of share based option plans, which are described below. The Company accounts for the fair value of its grants under those plans in accordance with FASB Statement 123. The compensation cost that has been charged against income for those plans was US$8 million, US$17 million and US$21 million for 2001, 2002 and 2003 respectively.

Fixed Share Option Plans
Under these plans, the exercise price of each option equals the market price of the Company's shares on the date of grant less a 20% discount and the maximum term of the option is between 2 and 5 years.

The fair value of each option grant is estimated on the date of grant using an adjusted Black-Scholes option-pricing model prior to 2003 and an actuarial binomial option-pricing model for options granted during 2003, with the following weighted average assumptions for grants in 2001, 2002 and 2003:

 2003         
 
         
 Risk-free Expected Dividend Implied         
 interest rate volatility yield Lifetime         
 
 
 
 
         
 % % % years         
Rio Tinto plc4.42 30.00 2.60 3.7         
Rio Tinto Limited5.28 25.00 2.60 4.4         
                 
                 
 2002 2001 
 
 
 
 Risk-free Expected Dividend Implied Risk-free Expected Dividend Implied 
 interest rate volatility yield Lifetime interest rate volatility yield Lifetime 
 
 
 
 
 
 
 
 
 
 % % % years % % % years 
Rio Tinto plc4.41 31.82 4.48 4.2 4.60 42.57 2.98 3.6 
Rio Tinto Limited5.35 26.13 2.58 4.8 5.38 26.02 3.30 4.7 

A summary of the status of the Companies’ fixed share option plans as at 31 December 2001, 2002 and 2003, and changes during the years ending on those dates is presented below:

 Rio Tinto plc 
Share Savings Plan
 
 
 2003   2002   2001   
 
 
 
 
   Weighted   Weighted   Weighted 
   average   average   average 
 Number share price Number share price Number share price 
 
 
 
 
 
 
 
   £   £   £ 
Options outstanding at 1 January2,079,845 8.14 2,010,403 7.74 1,285,340 6.32 
Granted390,518 11.21 509,954 8.76 975,577 9.50 
Exercised(367,866)8.47 (278,134)5.96 (181,581)7.27 
Cancelled(182,067)9.06 (162,378)8.85 (68,933)7.59 
 
 
 
 
 
 
 
Options outstanding at 31 December1,920,430 8.61 2,079,845 8.14 2,010,403 7.74 
 
 
 
 
 
 
 
             
Weighted-average fair value of options granted during the year  4.20   2.78   3.98 
             

A-70

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS -– (continued)

4248Reconciliation toRECONCILIATION TO US Accounting Principles (continued)ACCOUNTING PRINCIPLES CONTINUED
D.Accumulated Foreign Currency Translation Gains and (Losses) Recorded Directly in Shareholders' Funds under US GAAP
   Rio Tinto Limited - Share Savings Plan       
 
 
   2003    2002    2001   
 
 
 
 
   Weighted   Weighted     Weighted 
   average   average     average 
 Number share price Number share price Number   share price 
 
 
 
 
 
   
 
   A$   A$     A$ 
Options outstanding at 1 January2,246,174 26.59 1,380,826 27.86 -   - 
Granted384,180 27.48 1,245,639 25.57 1,393,415   27.86 
Exercised(12,588)27.67 (2,130)27.86 -   - 
Cancelled(232,313)26.76 (378,161)27.86 (12,589)  27.86 
 
 
 
 
 
   
 
Options outstanding at 31 December2,385,453 26.71 2,246,174 26.59 1,380,826   27.86 
 
 
 
 
 
   
 
Weighted-average fair value of options granted during the year 10.90   7.59     11.34 
               
US$m
At 1 January 2006280
Current period change986
At 31 December 20061,266
At 1 January 2005814
Current period change(534)
At 31 December 2005280
At 1 January 2004200
Current period change614
At 31 December 2004814
(a)The amounts above for 2005 and 2004 have been revised to reflect the application of purchase accounting to the formation of the DLC structure in 1995. See pages A-71 and A-72 for a detailed discussion of the impact on amounts presented under US GAAP.
E.Deferred Stripping
Information about the stripping ratios of the Business Units, including equity accounted units, that account for the majority of the deferred stripping balance under IFRS at 31 December 2006, along with the year in which deferred stripping is expected to be fully amortised (as shown in brackets), is set out in the following table:
        
  Actual annual strip ratio Life of mine strip ratio 
 
 
 
 2006 2005 2004 2006 2005 2004 
 
Kennecott Utah Copper (2019) (a) (b)2.04 2.02 1.83 1.36 1.51 1.24 
Argyle Diamonds (2009) (a)4.00 6.60 6.70 4.40 4.40 4.91 
Grasberg Joint Venture (2015) (a)3.01 3.12 3.39 2.63 2.43 2.43 
Diavik (2008) (c)0.89 1.21 1.47 0.96 0.91 0.94 
Escondida (2042) (d)0.08 0.09 0.11 0.12 0.12 0.11 
(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.

  Rio Tinto plc - Share Savings Plan     
 As at 31 December 2003: 
 
 Options outstanding    Options exercisable 
  
 
 
     Weighted Weighted   Weighted 
 Range of exercise prices    average average   average 
 Number  remaining life ex price Number ex price 
  
  
 
 
 
 
     years £   £ 
£5.20 - £7.80 480,851  0.5 5.33 538 6.41 
£7.85 - £11.50 1,439,579  2.7 9.71 4,725 8.15 
  
  
 
 
 
 
£5.20 - £11.50 1,920,430  2.2 8.61 5,263 7.97 
  
  
 
 
 
 

At 31 December 2002 there were 3,554 (2001: nil) options exercisable withBorax capitalised stripping costs as part of a weighted average exercise pricedistinct period of £7.44.

  Rio Tinto Limited - Share Savings Plan     
 As at 31 December 2003: 
 
 Options outstanding Options exercisable 
  
 
 
     Weighted Weighted   Weighted 
 Range of exercise prices    average average   average 
 Number  remaining life ex price Number ex price 
  
  
 
 
 
 
     years A$   A$ 
A$25 - A$28 2,385,453  3.3 26.71 - - 
  
  
 
 
 
 

Performance Based Share Option Plan

Under its 1998 Executive Share Option Scheme and Share Option Plan,new development during the Company grants selected executives and other key employees share option awards vesting of which is contingent upon increases in the Company's earnings per share above certain predetermined target levels. The exercise price of each option, which has a 10-year life, is equal to the market priceproduction stage of the Company's shares on the date of grant.

mine. Capitalisation stopped in 2004. The fair value of each option grant is estimated on the date of grant using an adjusted Black-Scholes option-pricing model prior to 2003 and an actuarial binomial option-pricing model for options granted during 2003, with the following weighted average assumptions for grantscapitalised costs will be fully amortised in 2001, 2002 and 2003:2034.

 2003         
 
         
 Risk-free Expected Dividend Implied         
 interest rate volatility yield Lifetime         
 
 
 
 
         
 % % % years         
Rio Tinto plc4.30 30.00 3.10 7.4         
Rio Tinto Limited5.30 25.00 3.10 7.4         
                 
                 
   2002    2001 
 
 
 
 Risk-free Expected Dividend Implied Risk-free Expected Dividend Implied 
 interest rate volatility yield Lifetime interest rate volatility yield Lifetime 
 
 
 
 
 
 
 
 
 
 % % % years % % % years 
Rio Tinto plc5.22 30.84 2.83 10 4.76 30.04 3.18 10 
Rio Tinto Limited6.51 25.92 2.76 10 5.27 26.02 2.98 10 
F.Equity Method Investments (IFRS)
The aggregated profit and loss accounts and balance sheets on a 100 per cent basis for entities that are accounted for under IFRS using the equity method are as follows:
       
 2006 2005 2004 
 US$m US$m US$m 
 
Profit and loss account   
Sales revenue (a)11,562 7,103 6,655 
Cost of sales(4,474)(3,402)(3,836)
 
Operating profit7,088 3,701 2,819 
Profit of equity accounted companies— — 1 
Gains/(losses) on derivatives and debt5 (31)(8)
Net interest(136)(118)(157)
 
Profit before tax6,957 3,552 2,655 
Taxation(2,541)(1,160)(872)
 
Net profit on ordinary activities (100 per cent basis)4,416 2,392 1,783 
 
     
 2006 2005 
 US$m US$m 
 
Balance sheet  
Intangible fixed assets16 2 
Property, plant and equipment7,292 6,851 
Investments185 15 
Working capital1,010 1,604 
Net cash less current debt476 (351)
Long term debt(2,306)(2,072)
Provisions(1,349)(1,504)
Aggregate shareholders' funds (100 per cent basis)5,324 4,545 
(a)Sales revenue includes US$1,693 million (2005: US$1,712 million; 2004: US$1,444 million) charged by equity accounted companies to their investors.

A summary of the status of the Company's performance-based share option plan as of 31 December 2001, 2002 and 2003, and changes during the years ending on those dates is presented below:

      Rio Tinto plc - Share Option Plan      
 
 
   2003    2002 
2001 
 
 
 
 
 
    Weighted     Weighted     Weighted 
    average     average     average 
 Number  share price Number   share price Number   share price 
 
  
 
   
 
   
 
    £     £     £ 
Options outstanding at 1 January7,186,254  11.35 5,785,625   9.97 4,381,611   8.66 
Granted2,305,406  12.63 2,095,314   14.59 1,931,747   12.66 
Exercised(1,009,307) 8.50 (540,568)  8.16 (392,021)  8.20 
Cancelled(797,927) 13.05 (154,117)  14.72 (135,712)  10.86 
Expired(21,501) 12.98 -   - -   - 
 
  
 
   
 
   
 
Options outstanding at 31 December7,662,925  11.93 7,186,254   11.35 5,785,625   9.97 
 
  
 
   
 
   
 
Weighted-average fair value of options granted during the year  2.68     4.99     4.52 

A-71

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

42   Reconciliation to US Accounting Principles (continued) 
      Rio Tinto Limited - Share Option Plan      
 
 
   2003    2002 
  2001 
 
 
 
 
 
    Weighted     Weighted     Weighted 
    average     average     average 
 Number  share price Number   share price Number   share price 
 
  
 
   
 
   
 
    A$     A$     A$ 
Options outstanding at 1 January2,439,330  33.42 1,694,730   28.09 853,188   22.13 
Granted1,242,475  33.34 1,003,849   39.87 932,265   33.01 
Exercised(58,975) 22.04 (208,528)  20.15 (78,775)  21.15 
Cancelled(18,197) 33.76 (50,721)  37.65 (11,948)  32.53 
Expired(2,496) 33.01 -   - -   - 
 
  
 
   
 
   
 
Options outstanding at 31 December3,602,137  33.58 2,439,330   33.42 1,694,730   28.09 
 
  
 
   
 
   
 
Weighted-average fair value of options granted during the year  6.01     13.71     11.10 
                 
    Rio Tinto plc - Share Option Plan   
 As at 31 December 2003: 
 
 
    Options Outstanding  
 Options exercisable 
  
 
 
      Weighted Weighted   Weighted 
 Range of exercise prices     average average   average 
 Number   remaining life ex price Number ex price 
  
   
 
 
 
 
      years £   £ 
£8 - £10 2,332,738   5.5 8.89 2,332,738 8.89 
£12 - £15 5,330,187   8.2 13.26 - - 
  
   
 
 
 
 
£8 - £15 7,662,925   7.4 11.93 2,332,738 8.89 
  
   
 
 
 
 

At 31 December 2002 there were 1.9 million (2001: 1 million) options exercisable with a weighted average exercise price of £8.13 (2001: £8.20)

      Rio Tinto Limited - Share Option Plan   
 As at 31 December 2003:
 
 
   Options Outstanding   Options exercisable 
  
 
 
      Weighted Weighted   Weighted 
 Range of exercise prices
     average average   average 
 Number   remaining life ex price Number ex price 
  
   
 
 
 
 
      years A$   A$ 
A$20 - A$25 506,268   5.6 23.12 506,268 23.12 
A$30 - A$40 3,095,869   8.3 35.29 - - 
  
   
 
 
 
 
A$20 - A$40 3,602,137   7.9 33.58 506,268 23.12 
  
   
 
 
 
 

At 31 December 2002 there were 0.3 million (2001: 0.2 million) options exercisable with a weighted average exercise price of A$22.18 (2001: A$20.14)

A-72

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RIO TINTO PLC - RIO TINTO LIMITED

NOTES TO FINANCIAL STATEMENTS - (continued)

42Reconciliation to US Accounting Principles (continued)

    Rio Tinto plc - Executive Share Option Scheme   
  
 
    2003   2002   2001 
  
 
 
 
    Weighted   Weighted   Weighted 
    average   average   average 
  Number share price Number share price Number share price 
  
 
 
 
 
 
 
    £   £   £ 
Options outstanding at 1 January 62,000 8.49 130,786 8.09 238,336 7.89 
Exercised (39,000)8.41 (68,786)7.73 (107,550)7.65 
  
 
 
 
 
 
 
Options outstanding at 31 December 23,000 8.61 62,000 8.49 130,786 8.09 
  
 
 
 
 
 
 
Number of options exercisable at year end 23,000   62,000   130,786   
Weighted-average exercise price of options exercisable at year end   8.61   8.49   8.09 

As at 31 December 2003, Rio Tinto plc has 0.02 million performance options outstanding under the 1985 Executive Share Option Scheme with a exercise price of £8.61. These options have vested and have a weighted average remaining life of 0.3 years.

Employee Stock Purchase Plan

The Rio Tinto Share Ownership Plan is a UK 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 ("Partnership" shares). Rio Tinto matches these purchases on a one for one basis ("Matching" shares). In addition, eligible employees can 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 ("Free" Shares).

The fair value of each award is taken to be the market value of the share on the date of purchase. The compensation costs for stocks granted during 2002 and 2003 were $0.3 million and $1.4 million respectively.

A summary of the shares awarded under the Company's employee stock purchase plan during the years 2002 and 2003 is presented below:

  Rio Tinto Share Ownership Plan
  
 
  2003 2002 
  
 
 
  Number Weighted Number Weighted 
  of shares average of shares average 
  awarded share price awarded share price 
  
 
 
 
 
    £   £ 
Matching Shares 19,385 12.81 16,937 12.30 
Free Shares 50,942 11.96 - - 
  
 
 
 
 
Total 70,327 12.19 16,937 12.30 
  
 
 
 
 

Performance Based Stock Plan

The Mining Companies Comparative Plan is a long-term performance share incentive plan which was approved by shareholders at the 1998 annual general meeting. Under this plan, eligible senior executives are annually awarded a conditional right to receive shares. These rights only vest if the performance conditions approved by the committee are satisfied. The current performance condition compares Rio Tinto's total shareholder return against a comparator group of 15 other international mining companies over a four year period.

The fair value of the awards is taken to be the market value of the shares at the date of award.

A summary of the status of the Company's performance-based stock plan as of 31 December 2001, 2002 and 2003, and changes during the years ending on those dates is presented below:

    Rio Tinto plc - Mining Companies Comparative Plan   
  
 
    2003   2002   2001 
  
 
 
 
    Weighted   Weighted   Weighted 
    average   average   average 
   share price  share price  share price 
  Number at award Number at award Number at award 
  
 
 
 
 
 
 
    £   £   £ 
Options outstanding at 1 January 1,312,121 10.21 1,220,500 9.40 901,403 8.89 
Awarded 349,258 12.52 378,122 12.40 330,603 10.83 
Cancelled (113,985)11.86 (22,326)12.40 (11,506)10.83 
Vested (349,121)7.39 (264,175)9.39 - - 
  
 
 
 
 
 
 
Options outstanding at 31 December 1,198,273 11.55 1,312,121 10.21 1,220,500 9.40 
  
 
 
 
 
 
 

The compensation costs for stocks granted during 2001, 2002 and 2003 were £3.5 million, £4.7 million and £4.4 million respectively.

    Rio Tinto Ltd - Mining Companies Comparative Plan   
  
 
    2003   2002   2001 
  
 
 
 
    Weighted   Weighted   Weighted 
    average   average   average 
   share price  share price  share price 
  Number at award Number at award Number at award 
  
 
 
 
 
 
 
    £   £   £ 
Options outstanding at 1 January 774,606 25.56 804,920 22.22 635,243 20.95 
Awarded 183,997 34.95 182,060 33.68 207,584 26.38 
Cancelled (3,612)34.95 (5,002)33.38 (27,433)24.55 
Vested (243,308)19.32 (207,372)19.55 (10,474)21.57 
  
 
 
 
 
 
 
Options outstanding at 31 December 711,683 30.07 774,606 25.56 804,920 22.22 
  
 
 
 
 
 
 

The compensation costs for stocks granted during 2001, 2002 and 2003 were A$5.5 million, A$6.1 million and A$6.4 million respectively.

A-73A-82

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RIO TINTO PLC - RIO TINTO LIMITEDGROUP


NOTES TO FINANCIAL STATEMENTS -– (continued)

42Reconciliation to US Accounting Principles (continued)

The following supplements segmental information provided elsewhere in this report to provide additional information required under US GAAP.

Property, plant and equipment by location

      Rio Tinto Group       
  
 
  2003 2002 2001 2003 2002 2001 
  
 
 
 
 
 
 
  % % % US$m US$m US$m 
North America 36.2 42.7 48.3 5,504 5,204 5,566 
Australia and New Zealand 54.6 48.5 44.0 8,290 5,912 5,071 
South America 1.1 0.9 1.2 168 112 139 
Africa 5.6 5.0 3.6 851 608 420 
Indonesia 0.2 0.4 0.5 28 50 52 
Europe and other countries 2.3 2.5 2.4 355 297 264 
  
 
 
 
 
 
 
  100.0 100.0 100.0 15,196 12,183 11,512 
  
 
 
 
 
 
 

Tax charge by product group

  Rio Tinto Group 
  
 
  2003 2002 2001 
  
 
 
 
  US$m US$m US$m 
Iron Ore (226)(215)(239)
Energy (96)(197)(212)
Industrial Minerals (93)(200)(219)
Aluminium (106)(107)(168)
Copper (223)(126)(153)
Diamonds (76)(33)(31)
Other operations (13)(16)(5)
Tax on exploration 17 18 26 
Other items, including tax relief on asset write downs 249 168 283 
  
 
 
 
  (567)(708)(718)
  
 
 
 

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.

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 in 
  assets less Recorded in retained 
  liabilities OCI earnings 
  US$m US$m US$m 
  
 
 
 
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 
  
 
 
 
On balance sheet at 31 December 2003 267 88 179 
  
 
 
 

(a)48During 2003, net losses of US$9 million relating to derivatives designated as cash flow hedges under FAS 133 were transferred from accumulated OCI toRECONCILIATION TO US GAAP earnings on maturity of the contracts.ACCOUNTING PRINCIPLES CONTINUED
F.Equity Method Investments Continued
(b)During 2003, accrued gainsIncluded in the disclosures above are certain entities that have entered into sales arrangements with their shareholders wherein the pricesare designed to recover costs. Because of US$34 million relatingthese arrangements, the entities are considered to derivatives that were not designatedbe VIEs under FIN 46(R) and are consolidatedunder US GAAP. The full consolidation of these VIEs, whose principal activities are aluminium smelting, would affect the Group's US GAAPbalance sheet and profit and loss accounts as hedges under FAS 133 were realised on maturity of the contractsfollows:
     
 2006 2005 
 US$m US$m 
 
Balance sheet  
Increase in property, plant and equipment1,542 1,522 
Decrease in investments in equity accounted units(583)(588)
Decrease in other non-current assets(362)(375)
Increase in current assets224 220 
Increase in current liabilities(156)(60)
Increase in provisions and other non-current liabilities (c)(370)(457)
Increase in equity attributable to outside equity shareholders(295)(262)
 
Impact on Rio Tinto shareholders' funds— — 
 
       
 2006 2005 2004 
 US$m US$m US$m 
 
Profit and loss account   
Increase in sales revenue316 310 267 
Increase / (decrease) in share of profit after tax of equity accounted units3 (74)28 
(Decrease) / increase in share of profit after tax of subsidiaries(3)74 (28)
 
Impact on net earnings— — — 
 
(c)Includes amounts due to other shareholders; however, these entities have no other debt.
G.Joint Arrangements Equity Accounted for under US GAAP
The fair valueGroup accounts for two joint arrangements using proportional consolidation under IFRS for which the equity method of accounting would be applied under US GAAP. The difference in treatment between proportional consolidation and the equity method of accounting has no impact on shareholders' funds or net derivative liabilities designatedincome. Condensed financial information relating to the Group's proportionate interest in the joint arrangements that would be equity accounted under US GAAP is as cash flow hedgesfollows:
 2006 2005 2004 
 US$m US$m US$m 
 
Profit and loss account   
Operating (loss) / profit(69)3 5 
Net (loss) / income(46)(2)7 
    
Cash flow statement   
Net cash flow (used in)/from operating activities(36)(9)19 
Net cash flow from / (used in) investing activities4 (31)(97)
Net cash flow from financing activities23 48 80 
    
Balance sheet   
Current assets87 62  
Non-current assets514 459  
Current liabilities(27)(27) 
Non-current liabilities(661)(535) 
      
H.Property, plant and equipment by location (IFRS)
The following supplements segmental information provided elsewhere in this report to provide additional information required under FAS 133 reduced byUS GAAP:
         
 2006 2005 2006 2005 
 % % US$m US$m 
 
North America (a)35.7 35.1 7,924 6,192 
Australia and New Zealand58.2 57.1 12,923 10,056 
South America0.4 0.5 93 86 
Africa2.7 2.9 608 517 
Indonesia2.2 2.8 498 496 
Europe and other countries0.8 1.6 161 273 
 
 100.0 100.0 22,207 17,620 
 
(a)North American property, plant and equipment includes US$148 million during 2003 resulting in a closing asset balance related to cash flow hedging activities of US$884,972 million in OCI. These cash flow hedges hedge the Group's exposure to the US dollarUnited States (2005: US$3,720 million).
I.Additional Share Options Information

The related tax benefit recognised in income in relation to future trading transactions.share plans for 2006 was US$9 million (2005: US$8 million; 2004: US$4 million). The Group expects to reclassify US$43 millionactual tax benefit realised for the tax deductions from the exercise of this amount as increases in earnings over the next twelve months as these contractsoptions and the transactions which they hedge mature. As atvesting of shares totalled US$18 million, US$11 million and US$8 million for the years ended 31 December 2003,2006, 2005 and 2004, respectively. No compensation cost was capitalised as the Group had US$144 millioncost 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 atan asset.

     At 31 December 2003,2006, the Group hadtotal compensation cost related to the equity-settled share option plans not yet recognised was US$19742 million and that cost is expected to be recognised over a weighted-average period of assets relating2.3 years. At the same date, the total compensation cost related to derivatives which dothe cash-settled share option plans not qualifyyet recognised was US$49 million and that cost is expected to be recognised over a weighted-average period of 2.5 years. Cash received from the exercise of options under all share-based payment plans for hedge accounting under FAS 133,the years ended 31 December 2006, 2005 and 2004 was US$84 million, US$92 million and US$1819 million of liabilities.respectively.

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RIO TINTO PLC - RIO TINTO LIMITEDGROUP


NOTES TO FINANCIAL STATEMENTS -– (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
I.Additional Share Options Information Continued
Share option exercises under the Rio Tinto plc Share Option Plan are usually satisfied by the issue of shares from Treasury. Exercises under the Rio Tinto plc Share Savings Plan are satisfied by the issue of new shares. Exercises under the Rio Tinto Ltd Share Option Plan and Rio Tinto Ltd Share Savings Plan are satisfied by the purchase of shares in the market. As a result of this policy, the Group expects to purchase approximately 0.8 million shares during 2007 based upon the assumptions used for valuing the awards. The rules of the share option plans contain various restrictions on the number of shares that may be authorised for awards of share options. In particular, the number of shares that may be allocated for share option awards when added to shares allocated in the previous 10 years may not exceed 10% of ordinary share capital.

Share savings plans
The key assumptions used in the valuation of the 2004 and 2005 grants are noted in the following table.

 Risk-free Expected Dividend Employee Implied 
 interest volatility yield turnover option 
 rate     rate lifetime 
 % % % % (years) 
 
Year ended 31 December 2005          
– Rio Tinto plc4.2 32.0 1.9 10.0 2.0-5.2 
– Rio Tinto Limited5.3 26.0 1.8 10.0 3.2-5.2 
 
Year ended 31 December 2004          
– Rio Tinto plc4.7-4.8 32.0 2.3 10.0 2.2-5.4 
– Rio Tinto Limited5.3-5.4 26.0 2.3 10.0 3.4-5.4 

Share option plans
The key assumptions used in the valuation of the 2004 and 2005 grants are noted in the following table.

 Risk-free Expected Dividend Employee Implied 
 interest volatility yield turnover option 
 rate     rate lifetime 
 % % % % (years) 
 
Year ended 31 December 2005          
– Rio Tinto plc4.9 32.0 2.2 3.0 5.5 
– Rio Tinto Limited5.6 26.0 2.1 3.0 6.2 
 
Year ended 31 December 2004          
– Rio Tinto plc4.9 32.0 3.0 5.0 4.7 
– Rio Tinto Limited5.7 26.0 2.8 5.0 5.0 

The total intrinsic value of options exercised during the year

 2006 2005 2004 
 
Rio Tinto plc – share savings plan (£'000)6,885 2,554 4,743 
Rio Tinto plc – share option plan (£'000)33,637 22,894 3,815 
Rio Tinto plc – executive share option scheme (£'000)— — 128 
Rio Tinto Limited – share savings plan (A$'000)20,090 6,519 248 
Rio Tinto Limited – share option plan (A$'000)44,863 10,701 3,152 

Details as at 31 December 2006 for vested options and options expected to vest
Based on the number of outstanding awards and the assumptions used in the valuation of those awards, the number of awards vested or expected to vest is as follows:

 NumberWeightedWeightedAggregate 
 ofaverageaverageintrinsic 
 optionsexerciseremainingvalue 
  pricecontractual 
   life 
   (years) '000s 
 
Rio Tinto plc – share savings plan1,264,290 £13.952.0 £16,727 
Rio Tinto plc – share option plan3,725,556 £15.426.4 £43,813 
Rio Tinto plc – mining companies comparative plan995,925n/a2.1 £27,069 
Rio Tinto Limited – share savings plan2,293,235 A$34.762.1 A$90,675 
Rio Tinto Limited – share option plan2,409,571 A$40.716.3 A$80,937 
Rio Tinto Limited – mining companies comparative plan652,591n/a2.2 A$48,488 

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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
J.SFAS 131 Segmental Disclosures (IFRS)
             
 (a) (b) (d) (e) (f) (g) 
Year to 31 December 2006Gross Depreciation & Tax Underlying Capital Operating 
US$msales revenue amortisation charge earnings expenditure assets 
 
Iron Ore6,938 387 1,066 2,279 1,969 6,662 
Energy4,240 324 240 711 582 2,763 
Industrial Minerals2,623 189 85 243 360 2,682 
Aluminium3,493 266 319 746 236 3,607 
Copper7,079 404 309 3,562 640 3,384 
Diamonds838 181 86 205 229 1,056 
Other operations229 3 4 33 48 551 
Other items 27 (55)(261)169 (152)
Exploration and evaluation 3 (20)(163)77 116 
Net interest  (18)(17)  
 
Total before reconciling items25,440 1,784 2,016 7,338 4,310 20,669 
Reconciling items(2,975)(275)357 100 (318)(2,437)
 
Totals per the financial statements22,465 1,509 2,373 7,438 3,992 18,232 
 
             
 (a) (b) (d) (e) (f) (g) 
Year to 31 December 2005Gross Depreciation & Tax Underlying Capital Operating 
US$msales revenue amortisation charge earnings expenditure assets 
 
Iron Ore5,497 315 859 1,722 1,229 4,574 
Energy3,867 305 314 733 412 2,301 
Industrial Minerals2,487 172 115 187 235 2,311 
Aluminium2,744 274 156 392 242 3,361 
Copper4,839 337 403 2,020 501 2,784 
Diamonds1,076 162 160 281 203 1,085 
Other operations232 34 1 40 31 167 
Other items 13 (128)(202)41 (304)
Exploration and evaluation 3 (16)(174)42 (18)
Net interest  (17)(44)  
 
Total before reconciling items20,742 1,615 1,847 4,955 2,936 16,261 
Reconciling items(1,709)(281)(33)260 (346)(1,313)
 
Totals per the financial statements19,033 1,334 1,814 5,215 2,590 14,948 
 
             
 (a) (b) (d) (e) (f)   
Year to 31 December 2004Gross Depreciation & Tax Underlying Capital   
US$msales revenue amortisation charge earnings expenditure   
 
Iron Ore3,009 289 259 565 935   
Energy3,008 303 129 431 244   
Industrial Minerals2,126 173 84 243 248   
Aluminium2,356 190 139 331 505   
Copper3,033 281 77 860 326   
Diamonds744 108 117 188 152   
Other operations254 47 8 56 19   
Other items 6 (99)(205)2   
Exploration and evaluation 2 (8)(128)   
Net interest  (30)(69)   
 
Total before reconciling items14,530 1,399 676 2,272 2,431   
Reconciling items(1,576)(228)(57)1,025 (172)  
 
Totals per the financial statements12,954 1,171 619 3,297 2,259   
 

Rio Tinto's management structure is based on the principal product groups shown above. The product groups represent the Group's segments for the purposes of SFAS 131 'Disclosures about segments of an enterprise and related information'. The chief executive of each product group reports to the chief executive of Rio Tinto. Generally, business units are allocated to product groups based on their primary product. The Energy group includes both coal and uranium businesses. The main products of the industrial minerals group are borates, talc, salt and titanium dioxide feedstock. The Copper group includes certain gold operations in addition to copper operations.

a)Gross sales revenue
Product group gross sales revenue includes 100 per cent of subsidiaries' sales revenue and the Group's share of the sales revenue of equity accounted units. There are minimal sales between product groups. The reconciling item is Rio Tinto's share of the sales revenue of equity accounted units, which is deducted in arriving at consolidated sales revenue as shown on the income statement.
b)Depreciation and amortisation
Product group totals of depreciation include 100 per cent of subsidiaries' depreciation and amortisation and include Rio Tinto's share of the depreciation and amortisation of equity accounted units. The reconciling item is Rio Tinto's share of the depreciation and amortisation charge of equity accounted units. This is deducted in arriving at the depreciation and amortisation charge for the Group which is shown in note 3 to the financial statements. These figures exclude impairment charges, which are included in c), below.
c)Items excluded from Underlying earnings
Product group pre tax totals for significant non cash items excluded from Underlying earnings in 2006 comprise net impairment reversals of US$396 million and an exceptional reduction in environmental provisions of US$37 million. In 2005, product group pre tax totals for significant non cash items excluded from Underlying earnings comprise net impairment reversals of US$3 million and an exceptional reduction in environmental provisions of US$84 million. In 2004, there were net impairment charges of US$558 million, of which US$548 million related to accelerated depreciation. Other items excluded from Underlying earnings are gains on disposals of businesses.

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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
J.SFAS 131 Segmental Disclosures (IFRS) Continued
             
 Other   Other   Other   
 significant   significant   significant   
 non cash Other non cash Other  non cash Other 
 items exclusions Total items exclusions Total items exclusions Total 
 2006 2006 2006 2005 2005 2005 2004 2004 2004 
 US$m US$m US$m US$m US$m US$m US$m US$m US$m 
 
Iron Ore298   298  85 85    
Energy(188)  (188)(13) (13)(160)64 (96)
Industrial Minerals(7)  (7)16  16    
Aluminium 5 5  11 11  4 4 
Copper647   647 84 30 114 (398)976 578 
Diamonds(317)  (317)      
 
 433 5 438 87 126 213 (558)1,044 486 
Other gains on disposal    196 196  136 136 
          
Exchange gains and losses excluded from   Underlying earnings 83 83  (191)(191) 224 224 
 
Pre tax total excluded from Underlying earnings433 88 521 87 131 218 (558)1,404 846 
 
Tax on items excluded from Underlying earnings   (357)  33    57 
Outside interests on items excluded from         
  underlying earnings   (64)  9    122 
 
 
 
Total excluded from underlying earnings   100   260    1,025 
 
 
 
d)Tax charge
The reconciling item is the tax on amounts that are excluded in arriving at Underlying Earnings. These amounts excluded in arriving at Underlying Earnings are included in (c) above. Within product groups, tax of subsidiaries is stated before tax on finance items but after tax on the amortisation of the discount related to provisions. The tax charge excludes tax on the earnings of equity accounted units.
     Due to improved prospects for future earnings from the Group's US operations, the Group recongised in 2006 additional deferred tax assets of US$335 million, of which US$303 million was allocated to the copper product group and US$32 million was allocated to other product groups.
e)Underlying earnings
The reconciling items are the amounts shown in note c) above, post tax and minority interests. These amounts are excluded from Underlying earnings attributable to product groups. The total after reconciling items is ‘net earnings’, which is shown on the face of the income statement.
     Product group earnings include earnings of subsidiaries stated before finance items but after the amortisation of the discount related to provisions. Earnings attributable to equity accounted units include interest charges and amortisation of discount.
     Rio Tinto's share of the profit after tax of equity accounted units of US$1,378 million is shown on the income statement. This amount is attributable US$1,271 million to the copper product group and US$107 million to other product groups and is included in product group underlying earnings (2005: US$660 million to the copper group and US$116 million to other product groups; 2004: US$495 million to the copper group and US$28 million to other product groups).
f)Capital expenditure
Product Group capital expenditure comprises the net cash outflow on purchases less disposals of property, plant and equipment and intangible assets other than capitalised exploration, which is attributed to the exploration and evaluation product group. The product group totals include 100 per cent of subsidiaries' capital expenditure and Rio Tinto's share of the capital expenditure of equity accounted units. The reconciling item is the net of Rio Tinto’s share of the capital expenditure of equity accounted units, which is excluded in arriving at the outflow for purchase of property, plant & equipment and intangible assets in the cash flow statement, and US$37 million (2005: US$36 million; 2004: US$41 million) for the proceeds of disposals of property, plant and equipment and intangible assets which are shown separately in the cash flow statement.
g)Operating assets
Product group totals of operating assets include the net assets of subsidiaries before deducting net debt, less outside shareholders' interests, which are calculated by reference to the net assets of the relevant companies (i.e. net of such companies' debt). For equity accounted units, Rio Tinto's net investment is included. The reconciling item is the Group's net debt which is deducted in arriving at the net assets attributable to Rio Tinto shareholders in the balance sheet. In 2006, Rio Tinto's share of investment in equity accounted units is attributable US$1,385 million to the copper product group, US$878 million to the aluminium product group and US$123 million to other product groups (2005: US$1,063 million to the copper product group, US$849 million to the aluminium product group and US$76 million to other product groups).

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Australian Corporations Act— summary of ASIC relief

Pursuant to section 340 of the Corporations Act 2001 ("Corporations Act"), the Australian Securities and Investments Commission issued an ordered dated 27 January 2006 (as amended on 22 December 2006) that granted relief to Rio Tinto Limited from certain requirements of the Corporations Act in relation to the Company's financial statements and associated reports. The order essentially continues the relief that has applied to Rio Tinto Limited since the formation of the Group's Dual Listed Companies ("DLC") structure in 1995. The order applied to Rio Tinto Limited's financial reporting obligations for financial years and half-years ending between 31 December 2005 and 31 December 2009 (inclusive)
     In essence, instead of being required under the Corporations Act to prepare consolidated financial statements covering only itself and its controlled entities, the order allows Rio Tinto Limited to prepare consolidated financial statements in which it, Rio Tinto plc and their respective controlled entities are treated as a single economic entity. In addition, those consolidated financial statements are to be prepared:
–in accordance with the principles and requirements of International Financial Reporting Standards as adopted by the European Union ("EU IFRS") rather than the Australian equivalents of International Financial Reporting Standards ("AIFRS") (except for one limited instance in the case of any concise report), and in accordance with United Kingdom financial reporting obligations generally;
–on the basis that the transitional provisions of International Financial Reporting Standard 1 "First-time Adoption of International Financial Reporting Standards" should be applied using the combined financial statements previously prepared for Rio Tinto Limited, Rio Tinto plc and their respective controlled entities under Generally Accepted Accounting Principles in the United Kingdom, under which the DLC merger between Rio Tinto Limited and Rio Tinto plc was accounted for using "merger", rather than "acquisition", accounting (reflecting that neither Rio Tinto Limited nor Rio Tinto plc was acquired by, or is controlled by, the other, and meaning that the existing carrying amounts, rather than fair values, of assets and liabilities at the time of the DLC merger were used to measure those assets and liabilities at formation);
–on the basis that Rio Tinto Limited and Rio Tinto plc are a single company (with their respective shareholders being the shareholders in that single company); and
–with a reconciliation, from EU IFRS to AIFRS, of the following amounts: consolidated profit for the financial year, total consolidated recognised income for the financial year and total consolidated equity at the end of the financial year (see page A-5).
     Those consolidated 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), except that the order allows Rio Tinto Limited to prepare a separate Remuneration report that is merely cross-referenced in the directors' report, instead of including in the Directors' report the Remuneration report otherwise required by the Corporations Act. The separate Remuneration report (see pages 95 to 121) must include all the information required to be included in a remuneration report under the Corporations Act, as well as the information required by AIFRS (namely, AASB 124) dealing with compensation of directors and executives who are "key management personnel", and certain other disclosures.
     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 those consolidated financial statements (including any concise financial statements), the auditor's report and the directors' report. The separate Remuneration report is also required to be lodged with the Australian Securities and Investments Commission at the same time as the consolidated financial statements, and Rio Tinto Limited must not distribute or make available the Remuneration report without the consolidated financial statements and directors' report. At the Company's AGM, it is required to allow shareholders to vote on a non binding resolution to adopt the Remuneration report, on the same basis as would otherwise be required for a Remuneration report under the Corporations Act.
     Rio Tinto Limited is not required to prepare separate consolidated financial statements solely 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 AIFRS (other than in respect of key management personnel compensation disclosures under AASB 124, which as noted above are instead incorporated into the separate Remuneration report), and to have those statements audited. Those financial statements are not required to be laid before the Company's AGM or distributed to shareholders as a matter of course.
     However, Rio Tinto Limited must:
–include in the consolidated financial statements for the Group, as a note, Rio Tinto Limited's parent entity balance sheet, income statement, statement of changes in equity and statement of cashflows, prepared in accordance with AIFRS; and
–make available the full parent entity financial statements 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.

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Report of Independent Registered Public Accounting Firms

ALTERNATIVE ORE RESERVE ESTIMATES FOR US REPORTINGTo the Boards of Directors and Shareholders of Rio Tinto plc and Rio Tinto Limited:

As a consequence
We have completed an integrated audit of the US SecuritiesRio Tinto Group’s 31 December 2006 consolidated financial statements 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 of the Annual Report, the reserves at certain operations have been amended for SECits internal control over financial reporting purposes only. Material changes are shown below.

The ore reserve figures in the following tables are as of 31 December 2006 and an audit of its 31 December 2005 and 31 December 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements
In our opinion, the accompanying consolidated income statements and the related consolidated balance sheets, consolidated statements of cash flows and consolidated statements of recognised income and expense present fairly, in all material respects, the financial position of the Rio Tinto Group at 31 December 2006 and 31 December 2005 and the results of their operations and cash flows for each of the three years in the period ended 31 December 2006, in conformity with International Financial Reporting Standards (IFRS) as adopted by the European Union. These financial statements are the responsibility of Rio Tinto Group's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.
IFRS as adopted by the European Union vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 48 to the consolidated financial statements.
As discussed under the heading "Basis of preparation" on page A-7 in Note 1 to the consolidated financial statements, as a result of adopting IAS 21, IAS 39 and IFRS 5 on 1 January 2005, the Group changed its method of accounting for financial instruments and non-current assets held for sale. In line with the relevant transitional provisions, the prior period comparatives have not been re-stated.

Internal control over financial reporting
Also, in our opinion, management’s assessment, included in the accompanying "Management's Report on Internal Control over Financial Reporting” as set out in item 15 on page 147, that the Rio Tinto Group maintained effective internal control over financial reporting as of 31 December 2006 based on criteria established in ‘Internal Control– Integrated Framework’ issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Rio Tinto Group maintained, in all material respects, effective internal control over financial reporting as of 31 December 2006, based on criteria established in "Internal Control– Integrated Framework" issued by the COSO. The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Group’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting standards and principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting standards and principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (iii) 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 the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLPPricewaterhouseCoopers
Chartered AccountantsChartered Accountants
London, United KingdomPerth, Australia
27 June 200727 June 2007
In respect of the Board of Directors and Shareholders of Rio Tinto plcIn respect of the Board of Directors and Shareholders of Rio Tinto Limited

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MINERA ESCONDIDA LIMITADA

Financial Statements
June 30, 2006 and 2005

(With Independent Auditor’s Report Thereon)

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MINERA ESCONDIDA LIMITADA

CONTENTS

1.Independent Auditor’s ReportA-90
2.Balance SheetsA-91
3.Statements of Income and Retained EarningsA-93
4.Statements of EquityA-94
5.Statements of Cash FlowsA-95
6.Notes to Financial StatementsA-97

A-90

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Independent Auditors’ Report

The Owners
Minera Escondida Limitada:

We have audited the accompanying balance sheets of Minera Escondida Limitada as of June 30, 2006 and 2005, and the related statements of income, equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 financial statements referred to above present fairly, in all material respects, the financial position of Minera Escondida Limitada as of June 30, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG Ltda.

Santiago, Chile
15 October 2006

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MINERA ESCONDIDA LIMITADA

Balance Sheets
June 30, 2006 and 2005
(in thousands of USD)

 2006 2005 
 
Assets    
Current assets:    
Cash and cash equivalents12,400 153,166 
Trade accounts receivable1,450,018 524,196 
Due from related companies28,544 25,463 
Other receivables, including employee receivables7,125 14,098 
Production inventories107,129 70,347 
Supplies and spare parts, net50,601 34,522 
Other current assets152,758 26,539 
 
Total current assets1,808,575 848,331 
 
Property, plant and mine development, net3,378,681 2,922,449 
 
Other assets:    
Deferred stripping, net441,111 492,533 
Intangible assets, net56,969 62,554 
Other assets, net134,705 112,875 
 
Total other assets632,785 667,962 
 
Total assets5,820,041 4,438,742 
 
(Continued)    

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MINERA ESCONDIDA LIMITADA

Balance Sheets
June 30, 2006 and 2005
(in thousands of USD)

 2006 2005 
 
Liabilities and Owners’ Equity    
Current liabilities:    
Short-term debt190,000 133,000 
Short-term portion of senior unsecured debt85,000 85,000 
Short-term portion of subordinated owners’ debt48,000 40,500 
Short-term portion of bonds40,000 40,000 
Accounts payable to suppliers152,812 107,102 
Due to related companies29,518 24,019 
Accrued liabilities and withholdings87,015 104,158 
Sundry creditors4,061 3,752 
Income taxes payable255,088 100,887 
Deferred income taxes77,303 20,403 
Interest payable18,951 16,327 
Financial liabilities187,473 — 
 
Total current liabilities1,175,221 675,148 
 
Long-term liabilities:    
Senior unsecured debt827,500 912,500 
Subordinated owners’ debt362,000 410,000 
Bonds18,578 57,819 
Sundry creditors55,527 59,582 
Accrued employee severance indemnities56,360 47,046 
Deferred income taxes188,110 151,175 
Accruals and reclamation reserve96,668 72,475 
 
Total long-term liabilities1,604,743 1,710,597 
 
Owners’ equity:    
Paid-in capital597,902 547,902 
Retained earnings2,442,175 1,505,095 
 
Total owners’ equity3,040,077 2,052,997 
 
Total liabilities and owners’ equity5,820,041 4,438,742 
 

Accompanying notes from 1 to 24 are an integral part of these financial statements.

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MINERA ESCONDIDA LIMITADA

Statements of Income
June 30, 2006 and 2005
(in thousands of USD)

 2006 2005 
 
Operating revenues:  
Sales8,073,540 3,887,684 
Refining and treatment charges(762,021)(390,654)
Concentrate and cathode shipping charges(149,716)(117,264)
 
Net sales7,161,803 3,379,766 
Operating costs and expenses  
Cost of products sold(1,231,376)(970,391)
Sales commissions(14,209)(8,703)
 
Net operating income5,916,218 2,400,672 
 
Non-operating income (expense):  
Interest income10,500 5,245 
Interest expense(57,391)(68,550)
Realized fair value change – derivative(188,086)— 
Unrealized fair value change – derivative(95,746)— 
Exchange loss, net(14,270)(16,063)
Miscellaneous expenses, net(54,588)(48,089)
 
Non-operating expense(399,581)(127,457)
 
Income before income taxes5,516,637 2,273,215 
Income taxes(1,029,557)(389,713)
 
Net income for the year4,487,080 1,883,502 
 
Accompanying notes from 1 to 24 are an integral part of these financial statements.    

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MINERA ESCONDIDA LIMITADA

Statements of Equity
June 30, 2006 and 2005
(in thousands of USD)

      Total 
    Retained stockholders 
  Capitalearnings equity 
 
Balance at July 1, 2004 531,202 708,452 1,239,654 
Net income — 1,883,502 1,883,502 
Capitalization of retained earnings 16,700 (16,700)— 
Dividends declared — (1,070,159)(1,070,159)
 
Balance at June 30, 2005 547,902 1,505,095 2,052,997 
Net income — 4,487,080 4,487,080 
Capitalization of retained earnings 50,000 (50,000)— 
Dividends declared — (3,500,000)(3,500,000)
 
Balance at June 30, 2006 597,902 2,442,175 3,040,077 
 

Accompanying notes from 1 to 24 are an integral part of these financial statements.

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MINERA ESCONDIDA LIMITADA

Statements of Cash Flows
June 30, 2006 and 2005
(in thousands of USD)

  2006 2005 
 
Cash flows from operating activities:  
Cash received from customers 6,248,350 3,271,382 
Cash paid to suppliers and employees (727,807)(698,067)
Interest received 10,500 5,245 
Other payments (36,305)47,554 
Interest paid (92,615)(73,362)
Income taxes paid (780,212)(367,130)
Realized fair value change – derivative (188,086)— 
Other expenses paid (13,317)(44,423)
Deferred stripping costs (290,392)(261,422)
 
Net cash flows provided by operating activities 4,130,116 1,879,777 
 
Cash flow from investing activities:  
Proceeds from sale of equipment 1,250 2,071 
Exploration activities (9,410)(10,369)
Purchase of property, plant and equipment (650,478)(591,313)
 
Net cash flows used in investing activities (658,638)(599,611)
 
Cash flow from financing activities:  
Borrowing from banks and financial institutions 190,000 229,500 
Dividends paid (3,500,000)(1,070,159)
Principal payments on long-term debt (221,744)(365,500)
Interest payments on bonds (40,000)(40,000)
Repayments of loans from related parties (40,500)(33,000)
 
Net cash flows used in financing activities (3,612,244)(1,279,159)
 
Net cash flows for the year (140,766)1,007 
Cash and cash equivalents at beginning of year 153,166 152,159 
 
Cash and cash equivalents at end of year 12,400 153,166 
 
(Continued)  

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MINERA ESCONDIDA LIMITADA

Statements of Cash Flows
June 30, 2006 and 2005
(in thousands of USD)

  2006 2005 
 
Reconciliation of net income to net cash flows provided by operating activities  
Net income for the year 4,487,080 1,883,502 
Result on sale of assets-  
Gain from sale of equipment (1,250)671 
Debits/(credits) to net income not representing cash flows:  
Depreciation and amortization 280,324 209,040 
Net foreign exchange loss 14,270 16,063 
Deferred income taxes 106,499 31,289 
Amortization of post-production mine development expenditures 333,637 230,618 
Other debits not representing cash flows — 13,680 
(Increase)/decrease in current assets:  
Trade accounts receivable (916,412)(185,246)
Deferred stripping (290,392)(261,422)
Due from related companies (3,081)(25,142)
Other receivables (34,707)(739)
Production inventories (36,782)(12,226)
Supplies and spare parts, net (26,798)(3,949)
Recoverable taxes — — 
Other current assets (84,539)9,918 
Increase/(decrease) in current liabilities:  
Accounts payable to suppliers (47,939)(33,950)
Due to related companies 5,499 12,630 
Accrued liabilities and withholdings 10,535 2,672 
Sundry creditors 309 170 
Income taxes payable 143,766 (13,079)
Financial liabilities 187,473 — 
Other 2,624 5,277 
 
Net cash flows from operating activities 4,130,116 1,879,777 
 

Accompanying notes from 1 to 24 are an integral part of these financial statements.

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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(1)Description of Business
Minera Escondida Limitada (the “Company” or “Escondida”) is a mining company engaged in the exploration, extraction, processing, and marketing of mineral resources. The Company is currently exploiting the Escondida copper ore body located in the Second Region of the Republic of Chile, 170 kilometers southeast of the city of Antofagasta at an altitude of 3,100 meters above sea level. The Company produces copper concentrates and copper cathodes through an open-pit mining operation and cathode treatment plants at the mine site. The concentrate also includes gold and silver. The concentrate is transported by pipeline to the port facility in Coloso near Antofagasta where it is filtered and shipped to the customers. The copper cathodes are produced at an Oxide Plant, a heap leaching and SX/EW facility, located at the mine site. The copper cathodes are transported by rail to the port of Antofagasta for shipment to customers.
The Company was formed by public deed on August 14, 1985 as a partnership. As of June 30, 2006 and 2005, the Owners are as follows:

Percentage of
Equity %
BHP Escondida Inc.57.5
Rio Tinto Escondida Limited30.0
JECO Corporation10.0
International Finance Corporation2.5
Total100.0

The company has completed several expansions. The Phase I expansion was completed in 1993, Phase II in 1994 and Phase III in 1998. On December 1, 1998, Escondida commissioned its Oxide Leach Plant, a heap leaching operation and SX/EW plant. In January 1999, the Phase III.5 expansion was completed. The Phase IV expansion was completed in October 2002. On October 1, 2002, Minera Escondida Limitada merged with its related company Sociedad Contractual Minera Escondida, which until that date, held the mining rights over the Escondida copper ore body.

(Continued)

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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(2)Summary of Significant Accounting Policies and Practices
(a)General
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company maintains accounting records in United States dollars, the Company’s functional currency, as authorized by the Company’s Foreign Investment Contract with the Chilean government. Transactions in other currencies are recorded at actual rates realized. Year-end balances in Chilean pesos and other currencies are translated at the applicable closing exchange rates.
(b)Cash Equivalents
Cash equivalents of $12,077 and $152,140 at June 2006 and 2005, respectively, consist of short term investments with an initial term of less than one month in financial instruments issued by Commercial Banks and Central Bank of Chile Papers. For the purpose of the statement of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
(c)Trade Accounts Receivable
The accounts receivable balances at June 30, 2006 and 2005 include provisional invoices issued for copper concentrate and copper cathode shipments. Such invoices are based on the Company’s weights and assays, which are subject to review and final agreement by the customers. Under the terms of the sales contracts, the final prices to be received will also depend on the prices fixed for copper by independent metal exchanges, including the London Metal Exchange, during the future quotation periods applicable to each delivery. At June 30, 2006 and 2005, the sales under provisional invoicing arrangements have been valued based on forward price. Refining, treatment and shipping charges are netted against operating revenues in accordance with industry practices. Gold and silver revenues are deducted from the cost of products sold. The Company has not recorded an allowance for doubtful accounts, as management considers all accounts and notes receivable are collectible.
(d)Inventory
Minerals in process (including stockpile inventory), copper concentrate and copper cathodes are valued at the lower of cost or market value. Mining and milling costs and non cash costs are included in the value of the inventories, as well as the allocated costs of central maintenance and engineering and the on-site general and administrative costs including all essential infrastructure support. Materials and supplies are valued at the lower of average cost and estimated net realizable value.
(e)Financial Instruments
The Company accounts for derivatives and hedging activities in accordance with FASB Statement N° 133, Accounting for Derivative Instruments and Certain Hedging Activities as amended, which requires that all derivate instruments be recorded on the balance sheet at their respective fair value. Derivatives, including those embedded in other contractual arrangements but separated for accounting purposes because they are not clearly and closely related to the host contract, are initially recognized at fair value on the date the contract is entered into and are subsequently remeasured at their fair value. The resulting gain or loss on remeasurement is recognized in the income statement. The measurement of fair value is based on quoted market prices. Where no price information is available from a quoted market source, alternative market mechanisms or recent comparable transactions, fair value is estimated based on the Company’s views on relevant prices.
     The Company’s financial instrument policy is designed to achieve sales at the average annual LME price shifted forward by one month and three months, for cathodes and concentrates respectively, for all tonnes of copper shipped in a given calendar year. In the case where copper is sold with a different quotation period than our targeted standard price or shipments are not distributed evenly over the year, paper adjustments will be made.
     Financial instruments in revenue – see note 2(q). Financial instruments in treatment charges – see note 24.
     All derivatives are marked to market at year end.
     (Continued)

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MINERA ESCONDIDA LIMITADA
Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(f)Property, Plant and Equipment
Property, plant and equipment are stated at cost. Cost includes capitalized interest incurred during the construction and development period and during subsequent expansion periods.
     Plant and equipment with a useful life of less than the life of the mine are depreciated on a straight-line basis over the respective useful lives, ranging from 3 to 11 years. The remaining items of plant and equipment are depreciated on a units-of-production basis over the life of the proven and probable copper reserves.
     Mine development is depreciated on a units-of-production basis over the life of the proven and probable copper reserves. Land is not subject to depreciation.
     Changes in estimates are accounted for over the estimated remaining economic life or the remaining commercial reserves of the mine as applicable.
     Total depreciation and amortization for the years ended June 30, 2006 and 2005 was $280,324 and $209,040, respectively, and is included as a cost of the production of inventories.
     Expenditures for replacements and improvements are capitalized when the asset’s standard of performance is significantly enhanced or the expenditure represents a replacement of a component of an overall tangible fixed asset which has been separately depreciated.
(g)Mining Property
At June 30, 2006 and 2005, the Company has recognized certain costs relating to mining property as property, plant and equipment. These include:
i)Costs incurred in delineating and developing the Escondida copper ore body and neighboring mineral areas of interest (in areas which have been subject to feasibility studies), together with the cost of drilling programs aimed at determining the extent of the mineral body, obtaining other technical data, and related direct expenses.
ii)Other expenditure incurred in the pre-operating stage of the project.
(h)Exploration
Exploration expenditures incurred in search of mineral deposits and the determination of the commercial viability of such deposits are charged against income as incurred until project feasibility is attained, from which time onward such costs are capitalized.
     At June 30, 2006 and 2005 there where no capitalized exploration expenditure.
(i)IntangibleAssets
This corresponds to the fair value of the water right at the date of acquisition. This asset is amortized on a units-of-production basis over the life of proven and probable copper reserves.
(j)Other Assets
Other assets consist of medium-grade ore stockpile, deferred borrowing expenses, spare parts and other minor assets.
     The medium-grade ore stockpiled for future use is valued at the lower of average production cost or market value.
     Borrowing expenses corresponding to the issuance of debt are capitalized and amortized based on the interest method over the period of the debt.
     Spare parts are assets that will not be consumed within one year from balance sheet date, and are stated at cost and net of a provision for inventory obsolescence.
(Continued)

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MINERA ESCONDIDA LIMITADA
Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(k)Deferred Stripping
Deferred stripping includes waste removal costs which are necessary to access the mineral resources to obtain economic benefits over future periods.
     As of June 30, 2006 and 2005, the following costs have been recognized as deferred stripping:
i)Stripping costs through October 1990.
ii)Costs incurred in post-production mine development.
     Pre stripping costs through October 1990 are included as part of property, plant and mine development. Post-production mine development costs are recorded in a long term deferred stripping account which is debited by all the mining costs exclusively associated to the waste removal. Credits or amortization to the account is made based on a proportion of the specific period production in relation to the life of mine production. Inventory valuation is calculated under weighted average price. Tonnes extracted have been defined as the unit of measure.
     Amortization is calculated using the ratio of total estimated tonnes of waste to be removed to estimated tonnes of contained copper metal in the ore to be mined over the mine life (“the strip ratio”). The contained copper metal and waste is defined in base to Ore Reserve Policy under Life of Mine at least every year, with this the company determines the absorption ratio (Waste / Contained copper metal) which Deferred Stripped is translated to cost.
     Our accounting for stripping cost smoothes the cost of waste-rock removal over the life of the mine, rather than expensing the actual waste removal cost incurred in each period.
     Accounting practices in the mining industry vary for deferred stripping with some companies recognizing the total cost of waste removal expenditure in the period they occur. Such a policy, if followed, may result in greater volatility in the period to period results of operations.
     The waste to ore ratio for the mining activities in Escondida was 2.84 for the year 2005 and 2.89 for year 2006. These ratios were obtained from the life of mine plan for the respective year.
     The criteria for defining ore and waste is based on material moved every month. Waste is defined as the material below the cut-off copper grade and not commercially exploitable by the existing technology.
     Deferred stripping unamortized expenses are presented in the balance sheet as part of the “Other non current Assets”. Amortized expenses are reported as part of the cost of sales.
(l)Income Taxes
Pursuant to its Foreign Investment Agreement with the Chilean government, the Company has opted to pay income taxes based on the generally applicable rate in effect, instead of the fixed rate set forth in such agreement. As a result, current income taxes are calculated in accordance with existing Chilean tax legislation.
     Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(Continued)

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MINERA ESCONDIDA LIMITADA
Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(m)Reclamation and Environmental Costs
The Company provides for the costs of mine reclamation activities as required by various Chilean governmental agencies and Escondida owners regarding required minimum environmental business conduct. Certain reclamation costs are incurred and expensed as part of ongoing mining operations where no current or future benefit is discernible. For other reclamation costs the estimated future cost of decommissioning and restoration, discounted to its net present value, is provided and capitalized as part of the cost of each project. The capitalized cost is amortized over the life of the project and the increase in the net present value of the provision is treated as an operating expense.
     Liabilities for loss contingencies, including environmental remediation costs not within the scope of FASB Statement No. 143, Accounting for Asset Retirement Obligations, arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Recoveries of environmental remediation costs from third parties, which are probable of realization, are separately recorded as assets, and are not offset against the related environmental liability, in accordance with FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts.
(n)Severance Indemnities
The Company has an agreement with its employees to pay severance indemnities on termination of labor contracts. Provision has been made on the basis of one month’s remuneration per year of service, calculated on the latest month’s remunerations.
(o)Use of Estimates
The preparation of the financial statements requires the management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimation and assumptions include the carrying amount of property, plant and equipment, mining property, exploration and intangibles; valuation allowances for receivables, inventories and deferred income tax assets; environmental liabilities; and obligations related to employee benefits. Actual results could differ from those estimates.
(p)Impairment of Long-Lived Assets
In accordance with FASB Statement No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant, and equipment (including mining property and exploration), and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized being the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet.
(q)Revenue Recognition
Revenue is recognized when title to Copper Concentrate and Copper Cathode passes to the buyer when the ships depart from the loading port. The passing of title to the customer is based on the terms of the sales contract.
Under our copper concentrate sales contracts with smelters, final prices are set on a specified future quotational period, typically three months after the month of arrival. For copper cathode sales contracts, final prices are typically one month after the month of arrival. Revenues are recorded under these contracts at the time title passes to the buyer based on the forward price for the expected settlement period. The contracts, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. Final settlement is based on the average applicable price for a specified future period, and generally occurs from four to six months after shipment in copper concentrates and two months for copper cathodes. Final sales are settled using smelter weights, settlement assays (average of assays exchanged and/or umpire assay results) and are priced as specified in the smelter contract. The Company’s provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates measured at the forward price at the time of sale. The embedded derivative does not qualify for hedge accounting. The embedded derivative is recorded as a receivable on the balance sheet and is adjusted to fair value through revenue and cost of sales (for the smelting and refining charges of the sales) each period until the date of final copper settlement. The form of the material being sold, after deduction for smelting and refining is in an identical form to that sold on the London Bullion Market. The form of the product is metal in flotation concentrate, which is the final process for which the company is responsible.
(Continued)

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MINERA ESCONDIDA LIMITADA
Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(r)Recently Issued Accounting Standards
In March 2005, the Emerging Issues Task Force (EITF) of the FASB reached a consensus in Issue No. 04-6 Accounting for Stripping Costs Incurred During Production in the Mining Industry (EITF 04-6) that stripping costs incurred during the production phase of a mine are variable production costs. As such, stripping costs incurred during the production phase are treated differently to stripping costs incurred during the development stage. This consensus is applicable for the financial year beginning after 15 December 2005. The Company in adopting EITF 04-6 will retrospectively adjust the 2006 financial year to record a credit to the income statement of $51,422 and a reduction to retained earnings at 1 July 2005 of $492,533. For the 2007 year all ongoing stripping costs will be recorded as production costs.
     In March 2006, the EITF of the FASB reached a consensus in Issue No. 06-3 How Taxes Collected From Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That is, Gross versus Net Presentation) (EITF 06-3). The disclosure required by the consensus will be applicable for annual reporting periods after December 15, 2006. This permits companies to elect to present on either a gross or net basis based on their accounting policy. This applies to sales and other taxes that are imposed on and concurred with individual revenue producing transactions between a seller and a consensus would not apply to tax systems that are based on gross receipts or total revenues. The Company is currently assessing the impact of EITF 06-3.
     In June 2006, the FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109 (FIN 48) was issued. FIN 48 required tax benefits from an uncertain position to be recognized only if it is more likely than not that the position is sustainable, based on its technical merits. The interpretation also requires qualitative and quantitative disclosures, including discussion of reasonably possible changes that might occur in recognized tax benefits over the next 12 months, a description of open tax years by major jurisdiction, and a roll-forward of all unrecognized tax benefits. FIN 48 first applies for the Group’s financial year beginning 1 July 2007. The Company is currently assessing the impact of adopting FIN 48.
     In February 2006, the FASB issued Statement of Financial Accounting Standard No.155 Accounting for Certain Hybrid Financial Instrument (SFAS 155). SFAS 155 provides entities with relief from having to separately determine the fair value of an embedded derivate that would otherwise have to be bifurcated from its host contract in accordance with SFAS 133. SFAS 155 allows an entity to make an irrevocable election to measure such a hybrid financial instrument at fair value in its entirety, with changes in fair value recognized in earnings. Additionally, SFAS 155 requires that interest in securitized financial assets be evaluated to identify whether they are freestanding derivatives or hybrid financial instruments containing an embedded derivative that requires bifurcation (previously these were exempt from SFAS 133). SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring after the beginning of an entity’s first fiscal year that begins after 15 September 2006. The Company is currently assessing the impact of adopting SFAS 155.
     In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both an income statement (“rollover”) and balance sheet (“iron curtain”) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. If prior years are not restated, the cumulative effect adjustment is recorded in opening accumulated earnings (deficit) as of the beginning of the fiscal year of adoption. SAB 108 is effective for fiscal years ending on or after November 15, 2006, with earlier adoption encouraged. The Company is currently in the process of assessing the impact the adoption of SAB 108 will have on its financial statements.
     In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — An Amendment of FASB Statement No. 140” (“SFAS 156”). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective as of the beginning of the first fiscal year that begins after September 15, 2006, with earlier adoption permitted. The Company does not believe the adoption of SFAS 156 will have a significant effect on its financial statements.
     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently in the process of assessing the impact the adoption of SFAS 157 will have on its financial statements.
(Continued)

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MINERA ESCONDIDA LIMITADA
Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(3)Cash and Cash Equivalents
As of June 30, 2006 and 2005, cash and cash equivalents are summarized as follows:
 2006 2005 
Cash and bank deposits323 1,026 
Deposits12,077 — 
Deposits Chilean Central Bank— 152,140 
Total12,400 153,166 
(4)Trade Accounts Receivable
Trade accounts receivable at June 30, 2006 and 2005, consist of the following:
 2006 2005 
Domestic clients154,595 56,932 
Foreign clients1,295,423 467,264 
Total1,450,018 524,196 
(5)Other Receivables, including employee receivables
Other receivables are summarized as follows:
 2006 2005 
Accounts and notes receivable from employees3,011 7,243 
Other accounts receivables4,114 6,855 
Total7,125 14,098 
(6)Production Inventories
Production inventories are summarized as follows:
 2006 2005 
Work in progress – Ore stockpiles6,938 3,394 
Minerals in process56,570 28,047 
Finished Goods – Copper concentrate35,362 35,382 
Finished Goods – Copper cathode8,259 3,524 
Total107,129 70,347 
(7)Other Current Assets
Other current assets are summarized as follows:
 2006 2005 
Prepayment and deferred expenses (a)54,696 16,049 
Derivative asset50,298 — 
Deposit45,019 — 
Tax for recovery2,626 10,366 
Other assets119 124 
Total152,758 26,539 
(Continued)    

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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(7)Other Current Assets, Continued
(a)Prepayment and deferred expenses.
Details of this account include:
     
     
 2006 2005 
 
Prepayment for Power line9,834 10,493 
Prepayment for Mineral Rights1,551 1,297 
Deferred borrowing expenses1,881 4,259 
Derivative asset (price participation in refining)41,430 — 
 
Total54,696 16,049 
 
     
(8)Property, Plant and Mine Development
Property, plant and mine development is summarized as follows:
 2006 2005 
 
Land4,252 4,252 
Mining development costs (pre-production)238,379 238,379 
Machinery, vehicles and installations4,030,912 3,640,934 
Construction in progress1,070,663 736,223 
 
Sub total5,344,206 4,619,788 
Accumulated depreciation and amortization(1,965,525)(1,697,339)
 
Total3,378,681 2,922,449 
 

Depreciation and amortization expense amounted to $274,740 for the year ending June 30, 2006 and $204,290 for the year ending June 30, 2005.

Interest capitalized for the years ending June 30, 2006 and 2005 was $39,359 and $12,328, respectively.

The asset retirement obligation included in property, plant and mine development, net of accumulated amortization was $42,083 in 2006 and $19,679 for 2005.

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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(9)Deferred Stripping, net
Deferred stripping is summarized as follows:
 2006 2005 
 
Post-production mine development expenditures at beginning of year492,533 463,100 
Deferred expenditure incurred during the year340,342 301,758 
Charged to production cost during the year(391,764)(272,325)
 
Post-production mine development expenditures at end of year441,111 492,533 
 

The stripping waste/ore ratio according to life of mine applicable for year 2005 and 2006 was 2.84 and 2.89, respectively. The variance in year 2006 is due to changes to the new life of mine plan (LOM plan) which moves more waste to obtain the same level of ore tonnes.
      The deferred stripping absorption rate in line with the life of mine for year 2005 was 11.54%. This ratio was increased for year 2006 to 11.88% because of the new LOM plan.

(10)Intangible Assets, net
Intangible assets are summarized as follows:
 2006 2005 
 
Water rights – at cost75,886 75,886 
Accumulated amortization(18,917)(13,332)
 
Total intangible assets, net56,969 62,554 
 

The above water rights were acquired from Minera Zaldívar in November 2000 and are related to operations of Phase IV of the mining project.
      Aggregate amortization expense for amortizing intangible assets was $5,584 and $4,750 for the years ended June 30, 2006 and 2005, respectively. For each of the next 5 years amortization expenses for intangibles is expected to be $3,748 in 2007, $3,528 in 2008, $3,390 in 2009, $3,298 in 2010 and $3,298 in 2011 approx.

(11)Other Assets, net (Non current)
Other assets are summarized as follows:
 2006 2005 
 
Medium-grade ore stockpile (a)86,419 75,808 
Deferred borrowing expenses (b)832 2,553 
Spare parts (c)33,734 23,015 
Other assets (d)13,720 11,499 
 
Total134,705 112,875 
 
     
(a)Medium-grade ore stockpile
During mining operations the portion of ore mined below a specific copper grade is stockpiled in the medium-grade ore stockpile for future use. This ore is valued as described in note 2(j).
(b)Deferred borrowing expenses
The amortization expense for the periods ending June 30, 2006 and 2005 amounts to $1,721 and $2,975, respectively, calculated as described in note 2(j).
(c)Spare parts
Corresponds to spare parts that will not be consumed within one year from balance sheet date.
(d)Other assets
 2006 2005 
 
Recoverable withholding taxes (*)4,938 5,497 
Notes receivable – employee housing program and Other8,782 6,002 
 
Total other assets13,720 11,499 
 
(*)The Chilean Internal Revenue Service allows for the recovery of withholding taxes relating to technical service contracts over the tax life of the related asset. The non-current portion of recoverable withholding taxes has been included under other assets.
(Continued)

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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(12)Balances and Transactions with Related Companies
(a)Balances with related companies are summarized as follows:
(i)Due from – current
  2006 2005 
 
CompanyNature of relationship    
BHP Escondida Inc.Parent Company281 138 
BHP Billiton Marketing AGCommon ownership28,040 24,452 
OtherVarious223 873 
 
Total 28,544 25,463 
 
(ii)Due to – current
  2006 2005 
 
CompanyNature of relationship    
BHP Minerals International Inc.Common ownership600 1,248 
BHP Billiton Marketing AGCommon ownership11,523 17,710 
BHP Chile Inc.Common ownership15,123 2,440 
BHP International Finance CorporationCommon ownership926 822 
OtherVarious1,346 1,799 
 
Total 29,518 24,019 
 
      
(b)Transactions with related companies are summarized as follows:
     
   Revenue/(expense) 
   for the year ended 
   2006 2005 
CompanyNature of relationshipTransaction  
BHP Billiton Marketing AGCommon ownershipSales agency commissions(14,209)(8,703)
  Reimbursement of expatriate salaries(6,869)(5,985)
BHP Billiton Marketing AGCommon ownershipFreight(140,396)(110,806)
BHP Billiton Marketing AGCommon ownershipSales400,111 146,458 
BHP Chile Inc.Common ownershipFinancial service(4,797)(3,698)
 Common ownershipReimbursement of capital project(12,351)(9,729)

Payment conditions for all intercompany liabilities is 30 days from the date the transactions are received and accepted.

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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)


(13)Income Taxes
(a)Current income taxes payable
Income tax expense attributable to income from continuing operations of $1,029,557 and $389,713 for the years ended June 30, 2006 and 2005, respectively, differed from the amounts computed by applying the Chilean income tax rate of 18.09% (17% for period to 31 December; 18.66% for period 1 January to 30 June) in 2006, (tax rate for the year ended June 30 2005 is 17%), to pretax income from continuing operations as a result of the following:
 2006 2005 
 
Computed expected tax expense997,710 386,447 
Increase (reduction) in income taxes resulting from:   
Adjustment to deferred tax assets and liabilities from increase in tax rate36,692 — 
Other, net(4,845)3,266 
 
Computed effective tax expense1,029,557 389,713 
 
On 1 January 2006 the Chilean tax rate for the Company increased from 17% to 18.66% (Calendar year 2006 & 2007) and to 20.32% (from calendar year 2008 to 2018), following the introduction of a mining tax. The effect of this on current income tax from 1 January 2006 is included in “Computed expected tax expense”.
(b)Income tax charge for the year
The income tax charge for the year is summarized as follows:
 2006 2005 
 
Current income taxes provision935,722 361,050 
Deferred income taxes93,835 28,663 
 
Total1,029,557 389,713 
 

All income tax expense is domestic tax. There is no foreign income tax expense.
      In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of US$275,650. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.
      The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

(Continued)

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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)


(13)Income Taxes, Continued
(c)Deferred income taxes
Deferred income taxes are summarized as follows:
 2006 2005 
 
 
 Current Long-term Current Long-term 
 
Deferred tax assets:    
Obsolescence reserve— 4,654 — 4,254 
Price variance provision for provisional sales10,435 — — — 
Accrued employee annual leave1,393 — 1,022 — 
Accrued employee benefits— 11,314 — 7,537 
Accrued reclamation— 17,656 — 10,481 
Other6,864 2,961 — 2,300 
 
Gross deferred income tax assets18,692 36,585 1,022 24,572 
 
Deferred tax liability:    
Property, plant and equipment, net— (130,213)(15,214)(165,144)
Deferred stripping— (84,779)— — 
Post-production mine development— (5,931)— (9,445)
Capitalized interest— (3,772)— (1,158)
Price variance provision for provisional sales(95,995)— (5,840)— 
Debt issuance costs— — (371)— 
 
Gross deferred income tax liabilities(95,995)(224,695)(21,425)(175,747)
 
Net deferred tax liability(77,303)(188,110)(20,403)(151,175)
 

(Continued)

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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(14)Accrued Liabilities and Withholdings
Accrued liabilities and withholdings are summarized as follows:
  2006 2005 
 
Accrued liabilities and withholdings for employee compensation 36,888 29,871 
Accrued project and vendor costs 47,342 71,528 
Other 2,785 2,759 
 
Total 87,015 104,158 
 
(15)Accruals and Reclamation Reserve
Details of this account include:
  2006 2005 
 
Restoration and Rehabilitation (a) 86,892 61,654 
Deferred customs duties and other 9,776 10,821 
 
Total 96,668 72,475 
 
(a) Provision for restoration and rehabilitation movements are summarized:     
       
  2006 2005 
 
Opening balance 61,654 59,924 
Accretion 2,171 2,097 
Increases to the provision 24,161 — 
Payments (1,094)(367)
 
Closing balance 86,892 61,654 
 

The estimated undiscounted value of the restoration & rehabilitation provision is US$171,000 for the period ending 30 June 2005 and US$287,080 for June 2006. The discount rate applied to the cash flows is 3.5% and 3.72% respectively and it is not expected to have relevant payments in the next five years.
The provision for restoration & rehabilitation includes the dismantling of all the mine site facilities, including Los Colorados and Laguna Seca plant, the Cathode oxide plant, Cathode Sulphide Leach plant, a portion of the Coloso port facilities and the rehabilitation of the Salar de Punta Negra environment. Refer to note 8 for details of asset retirement obligation.

(16)Short Term Debt
At the close of 2006 and 2005, the Company records short term debt as follows:
 Current Rate Payment Date 2006 2005 
 
Banco Santander Santiago *L+0.035%31/07 70,000 133,000 
Banco Estado *L+0.05%21/07 70,000 — 
Banco BCI *L+0.05%13/07 50,000 — 
 
Total   190,000 133,000 
 
(*)L: LIBOR 30 days
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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(17)Long Term Debt
The balances of long-term debt outstanding are summarized as follows:
(a)Senior unsecured debt
The balances of the senior unsecured debt outstanding (including the short-term position) are summarized as follows:
  Current rate 2006 2005 
 
BNP Paribas (1998) **L +0.25%275,000 275,000 
The Bank of Tokyo - Mitsubishi Ltd. (2001) **L+0.175%87,500 112,500 
Japan Bank for International Cooperation (2001) **L +0.25%262,500 297,500 
Kreditanstalt für Wiederaufbau (2001) **L +0.275%137,500 162,500 
The Bank of Tokyo - Mitsubishi Ltd. (2005) **L +0.275%45,000 45,000 
Japan Bank for International Cooperation (2005) **L +0.20%105,000 105,000 
 
Sub total   912,500 997,500 
Less:    
Short term portion   (85,000)(85,000)
 
Total   827,500 912,500 
 
(**)L: LIBOR 30 days
On June 12, 1998 the Company entered into an unsecured loan agreement for the amount of $275 million with BNP Paribas. As at June 30, 2006 the interest rate is LIBOR + 0.25%. The loan is due for repayment in June 2008 (full amount).
     On September 14, 2001, the Company entered into a loan agreement for the amount of $500 million, of which $350 million is with Japan Bank for International Cooperation, and $150 million with a syndicate of banks, with The Bank of Tokyo-Mitsubishi Ltd. being the agent bank. At June 30, 2003, the total loan had been drawn down. The loan with Japan Bank for International Cooperation is payable in 20 semi-annual payments commencing March 1, 2004 and bears interest at LIBOR (180-day) plus 0.25%. The syndicate loan with The Bank of Tokyo-Mitsubishi Ltd. as lead bank is payable in 12 semi-annual payments commencing March 1, 2004, and at commencement bore interest at LIBOR (180-days) + 0.9%. On March 2006 the interest rate was renegotiated and decreased to LIBOR (180 days) + 0.175%. The outstanding balance as of June 30, 2006 was $350 million (June 30, 2005: $410 million).
     On January 31, 2005 the company entered into an unsecured loan agreement for the amount of $300 million of which $210 million is with Japan Bank for International Cooperation and $90 million with a syndicate of banks, with The Bank of Tokyo-Mitsubishi Ltd being the agent bank. The loan with Japan Bank for International Cooperation bears interest at LIBOR (180 days) + 0.20% and will mature after 12 years commencing 31 January 2010. The syndicate loan with The Bank of Tokyo-Mitsubishi Ltd as lead bank bears interest at LIBOR (180 days) + 0.275% and will mature in 5 years. The balance outstanding as of June 30 2006 was $150 million (June 30, 2005: $150 million).
     On September 14, 2001, the Company entered into a loan agreement for the amount of $ 200 million with Kreditanstalt für Wiederaufbau. The loan is payable in 16 semi-annual payments commencing April 1, 2004. At commencement the loan bore interest at LIBOR (180 days) + 0.75% . On December 2005 the interest rate was renegotiated and decreased to a rate of LIBOR (180 days) + 0.275% . The maturity of the loan did not change. The balance outstanding at June 30, 2006 was $137.5 million (June 30, 2005 –$162.5 million).
(b)At June 30, 2006, the Company maintains unused lines of credit with Banco de Chile, Banco Scotiabank, Banco Santander Santiago, Banco Bice, Banco del Estado and Banco BCI totaling $60 million. These lines of credit are not committed.
The above loans in (a) and (b) are subject to certain covenants, the most restrictive of which require that:
i)the total debt to Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) ratio be no greater than 2.75 to 1.0 at June 30, 2001, 3.50 to 1.0 at June 30, 2002, 3.00 to 1.0 at June 30, 2003 and 2.75 to 1.0 thereafter; and,
ii)the net worth of the Company may not be less than US$900 million.
     The senior unsecured debt ranks pari passu with any other senior unsecured debt.
     The Company was in compliance with all debt covenants as of June 30, 2006 and June 30, 2005.
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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(17)Long Term Debt, Continued
(c)Subordinated Owners’ debt
 2006 2005 
 
Lender  
International Finance Corporation10,250 11,262 
Rio Tinto Finance PLC123,000 135,150 
JECO Corporation41,000 45,050 
BHP International Finance Corporation235,750 259,038 
 
Sub total410,000 450,500 
Less:  
Short term portion(48,000)(40,500)
 
Total long-term portion362,000 410,000 
 

Drawdowns of subordinated Owners’ debt have been made as follows:

•US$295 million during December 1998, payable in 30 semi-annual payments commencing on June 15, 1999. Interest accrues at LIBOR plus 4% and is payable semi-annually on June 15 and December 15.
•US$200 million during May and June 2000, payable in 30 semi-annual payments commencing on December 15, 2000. Interest accrues at LIBOR plus 4% and is payable semi-annually on June 15 and December 15.
•US$150 million on May 11, 2001, grace period of 5 years for principal payable in 20 semi-annual payments commencing on June 15, 2006. Interest accrues at LIBOR plus 4% and is payable semi-annually on June 15 and December 15.

Under the terms of the subordinated loan agreement, the borrower can elect to capitalize interest due on each payment date to existing debt. Interest payable is shown as a current liability until such time as the election is made or until such interest ispaid. No interest was capitalized for the years ended June 30, 2006 and 2005.
The subordinated debt is unsecured.

(Continued)

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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(17)Long Term Debt, Continued
(d)Scheduled principal payments on long-term debt (including short-term portion) at June 30, 2006 are as follows:
        Senior Subordinated Total 
 Unsecured debt owner’s debt  
 
Principal payments during the year ending June 30      
200785,000 48,000 133,000 
2008360,000 48,000 408,000 
200985,000 48,000 133,000 
2010124,062 48,000 172,062 
201173,125 48,000 121,125 
2012 and after185,313 170,000 355,313 
 
Total912,500 410,000 1,322,500 
 
       
(18)Bonds
Bond obligations at June 30, 2006 and 2005 are as follows:
 2006 2005 
 
Total nominal value200,000 200,000 
Discount at issue(6,510)(6,510)
 
Net proceeds193,490 193,490 
Accumulated amortization of discount5,088 4,329 
 
Sub total198,578 197,819 
Less:  
Principal repaid as of June 30(140,000)(100,000)
Current portion of principal outstanding(40,000)(40,000)
 
Total long-term portion18,578 57,819 
 

        On October 22, 1999 the Company registered a Chilean bond issuance (N°218) with the Chilean Superintendence of Stock Corporations and Insurance Companies (SVS). The issuance was made as follows:

 Number of Bond value Total nominal Outstanding 
 Bonds   value at issue nominal value 
 
Series        
A11,000 10 10,000 3,000 
A2400 100 40,000 12,000 
A3100 500 50,000 15,000 
A4100 1,000 100,000 30,000 
 
 1,600   200,000 60,000 
 

 Each series of bonds is being amortized over 5 years in 10 semi-annual installments commencing May 15, 2003. Metric unitsInterest accrues at 7.5% and payments are made semi-annually on May 15 and November 15. The Company had accrued interest of $552 and $921 at June 30, 2006 and 2005, respectively. No guarantees have been given.
The bonds are subject to certain restrictive financial covenants:

i)The ratio of debt to Earnings Before Interest, Tax, Depreciation and Amortization (“EBITDA”) for the last twelve months must not exceed 6, based on the Chilean GAAP Financial Statements at December 31 of each year that the bonds are outstanding.
ii)The Company’s net worth must not be less than $800 million.
     The Company was in compliance with all bond covenants as of June 30, 2006 and June 30, 2005.
(Continued)

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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(19)Sundry Creditors Long-Term
Sundry Creditors are summarized as follows:
     
 2006 2005 
 
Liability outstanding for water rights acquired59,582 63,326 
Less:  
Short-term portion (included in Sundry creditors-current)(4,055)(3,744)
 
Total55,527 59,582 
 

The water rights purchased from Compania Minera Zaldivar is payable in 15 annual installments of $9,000 commencing July 1, 2001. Interest is calculated using the imputed interest method using a discount rate of 8.3%.

(20)Interest Expense
Interest expense is summarized as follows:
 2006 2005 
 
Interest incurred(96,750)(80,878)
Interest capitalized in fixed assets39,359 12,328 
 
Total(57,391)(68,550)
 
     
(21)Capital
Capital has been contributed as follows:
Initial capital (*)65,727
Capitalization of retained earnings by public deed dated:
July 27, 19881,497
October 7, 198822,877
February 6, 19896,110
April 7, 19896,013
March 30, 2001161,000
December 21, 2001196,700
December 19, 200254,578
December 30, 200316,700
December 30, 200416,700
Capital as of June 30, 2005547,902
Capitalization of retained earnings by public deed dated:
December 30, 200550,000
Capital as of June 30, 2006597,902
(*)The Company’s initial capital of $65,727 was contributed by the former partners Minera Utah de Chile Inc. and Getty Mining (Chile) Inc., and relates to property, plant and equipment, cash advances and exploration costs.
According to the Foreign Investment Contract between the state of Chile and the Minera Escondida Owners, the financial debt / equity ratio must not be lower of 75% - 25% by the end of every calendar year. The compliance by the Foreign Investors with the referred percentage is verified by the Executive Vice Presidency of the Foreign Investment Committee on December 31 of each year. To comply with this legal requirement, the company has capitalized the retained earnings mentioned above.
(Continued)

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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(22)Fair Value of Financial Instruments
The Company’s financial instruments are composed of cash and cash equivalents, other receivables, recoverable taxes, accounts payable, other payables, due to and from related companies and accrued expenses (non derivatives). In management’s opinion, the carrying amount approximate the fair value due to their short-term nature of this instrument. In addition, the long-term debt does not present a significant difference between its carrying amount and its fair value, based on the re-negotiation performed and the current market rates.
(23)Commitments and Contingencies
(1)At June 30, 2006, the Company had entered into long-term contracts for the sale of approximately 9.5 million dry metric tons of concentrates in total, in predetermined annual amounts through the year 2015. Under the terms of the contracts, annual prices are based upon prevailing market prices.
(2)Minera Escondida Limitada (MEL) entered into a Sales Agency Agreement for export tonnage with BHP Billiton Marketing A. G., a related party. This agreement, dated 1 January 2002, replaces the Sales Agency Agreement between MEL and BHP Billiton Minerals International Inc., originally signed in October 1985 between MEL and Utah International Inc., and amended in 1995. The sales commission is variable and can be up to 0.5% of monthly sale volumes. Shipping operations for export tonnage are covered by a Shipping Agency Agreement between Minera Escondida Limitada and BHP Billiton Marketing A.G. dated 1 January 2002, with a rate of US$68/wmt. Sales and shipping operations of Escondida within Chile are covered by a Domestic Marketing Services Agreement signed between Minera Escondida Limitada and BHP Chile Inc., dated 1 January 2002, with a rate of 0.125% of sales volumes.
(3)On October 2004, Minera Escondida Limitada was sued by Mr. Juan Cabezas who alleges that Escondida infringed his intellectual property rights and breached confidentiality in relation to the installation of certain acid fog collection devices at Escondida’s Oxide plant in Chile. The devices are being installed in the Oxide plant by contractor SAME Limited.
     The amount in dispute is approximately US$27 million.
     The trial is in its first instance, the discussion period has ended and now is in the evidentiary period. As at June 30, 2006 there is no provision recorded.
     On March 2005, Minera Escondida Limitada (MEL) was sued by Thai Copper Industries Public Company Limited (TCI) who alleges that MEL has breached its obligation to sell quantities of copper concentrates to TCI on a yearly basis. The marketing contract was entered into on 23 March 1998 for a term of 5 years, commencing 1 January 1999. TCI was to take delivery of the copper concentrate at its smelter (which was not yet built) in Thailand. The contract was amended on December 17, 1998 to delay the commencement date to January 1, 2000 as TCI’s smelter was not built and could not take any deliveries. The amendment provided that if TCI notified MEL that the completion of the smelter was to be later than January 1, 2001, MEL could elect to terminate the marketing contract. TCI notified MEL on February 5, 2003 that it expected production at its new smelter to commence in the 2nd quarter of 2004. MEL terminated the marketing contract by letter dated April 2, 2003. TCI alleges that MEL had no right to terminate the contract and seeks recovery of US$30 million in alleged damages.
     The dispute is being heard by the International Centre for Dispute Resolution in New York. The hearing will take place on December 11, 12 and 13, 2006. As at June 30, 2006 there is no provision recorded.
     MEL is currently in conversations with TCI in order to end this trial. The settlement will have no obligations for Escondida and merely entails TCI to withdraw the litigation.
(24)Financial Instruments
The Company is exposed to movements in the prices of the products it produces which are generally sold as commodities on the world market. Relevant information on the Company’s material cash-settled commodity contracts, which have been recognized at fair value in the income statement, is provided below:
 Buy fixed/sell Sell fixed/buy 
Forwardsfloating floating 
 
Volume (‘000 tonnes)70 125 
Average price of fixed contract (US$)7 7 
Term to maturity (years)0-1 0-1 
Notional amount of fixed contract (US$M)479 854 
Price participation clauses are part of the TC/RC (treatment and refining charges) element of concentrate sales contracts. These price participation clauses include an embedded derivative, and as such have been marked to fair value for the reporting period. The impact of this adjustment can be found in the income statement under “Unrealized fair value change –derivatives”, while the balance sheet impact is recorded under “Financial Liabilities”.
(Continued)

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MINERA ESCONDIDA LIMITADA

Supplementary Information – Unaudited
June 30, 2006 and 2005
(in thousands of USD)

Mining Operations Information
BHP Billiton owns 57.5% of Minera Escondida. The other 42.5% is owned by the affiliates of Rio Tinto plc (30%): JECO, a subsidiary of Mitsubishi Corporation (10%) a consortium represented by Mitsubishi Corporation (7%), Mitsubishi Materials Corporation (1%), Nippon Mining and Metals (2%) and the International Finance Corporation, (2.5%).
Minera Escondida Limitada holds a mining concession from the Chilean state that remains valid indefinitely (subject to payment of annual fees).
     The mine is accessible by public / private road.
     Original construction of the operation was completed in 1990. The project has since undergone four phases of expansions at an additional cost of $2,125 million plus $451 million for the construction of an oxide plant.
In October 2005, the Escondida Norte expansion was completed at a cost of $431 million.
In June 2006, the Escondida Sulphide Leach copper project achieved first production. The approved cost for the project was $870 million.
Escondida has two processing streams: two concentrator plants in which high quality copper concentrate is extracted from sulphide ore through a floatation extraction process; and a solvent extraction plant in which leaching, solvent extraction and electrowinning are used throughout. to produce copper cathode.
Nominal production capacity is 3.2 Mtpa of copper concentrate and 150,000 tonnes per annum of copper cathode.
     Escondida Sulphide Leach copper plant has the capacity to produce 180,000 tonnes per annum of copper cathode.
Separate transmission circuits provide power for the Escondida mine facilities. These transmission lines, which are connected to Chile’s northern power grid, are company-owned and are sufficient to supply Escondida post Phase IV. Electricity is purchased under contracts with local generating companies.

Ore Reserves
The ore reserves tabulated are all held within existing, fully permitted mining tenements. The Company’s minerals leases are of sufficient duration (or convey a legal right to renew for sufficient duration) to enable all reserves on the leased properties to be mined in accordance with current production schedules.
All of the ore reserve figures used to calculate Rio Tinto's share of reserves are often more precise than the rounded numbers shown in the tables,presented represent estimates at 30 June 2006. All tonnes and grade information presented have been rounded; hence small differences might resultmay be present in the totals. In addition, all reserve tonnages and grades include dilution and are quoted on a dry basis, unless otherwise stated.
No third party audits have been carried out specifically for the purpose of this disclosure.
The reported reserves contained in this annual report do not exceed the quantities that, it is estimated, could be extracted economically if future prices were at similar levels to the calculationsaverage historical prices for traded metals for the three years to 31 Dec 2005. Current operating costs have been matched to the average of historical or long term contract prices in accordance with Industry Guide 7.
The three year historical average prices used for each commodity to estimate, or test for impairment of, the reserves of traded metals contained in this annual report are repeated using the tabulated figures.as follows:

 Type ofProved ore reservesProbable ore reserves SEC ore reserves 2003 compared with Average 2003 Rio Tinto share   
 mineat end 2003at end 2003  JORC 2003          
  
 
 
 (a)        Tonnage Grade mill   SEC
Recover
- -able metal		 JORC
Recover
- -able metal		 
   Tonnage Grade Tonnage Grade SEC JORC SEC JORC recovery Interest   
           
      
           2003 2003 2003 2003 % %   
 
COPPER  millions   millions   millions millions         millions millions 
   of tonnes %Cu of tonnes %Cu of tonnes of tonnes %Cu %Cu     of tonnes of tonnes 
Bingham Canyon (US)                          
- open pitO/P 22.8 0.62 422 0.57 445 557 0.57 0.51 89 100.0 2.253 2.542 
- underground block caveU/G         - 321 - 0.70 91 100.0 - 2.022 
- underground skarn oresU/G         - 13.5 - 1.89 93 100.0 - 0.236 
Escondida (Chile)                          
- sulphideO/P 636 1.45 700 1.04 1,337 1,482 1.24 1.21 86 30.0 4.214 4.615 
- low grade floatO/P 103 0.63 227 0.63 330 565 0.63 0.60 81 30.0 0.501 0.827 
- oxideO/P 130 0.76 34.5 0.60 164 185 0.72 0.69 88 30.0 0.314 0.334 
- mixedO/P     31.0 1.36 31.0 50.0 1.36 1.04 39 30.0 0.049 0.061 
 
Total of operations listed above                      7.331 10.637 
 
Total of all Rio Tinto copper operations                     20.209 23.514 
 
GOLD  millions grammes millions grammes millions millions grammes grammes     millions millions 
   of tonnes per tonne of tonnes per tonne of tonnes of tonnes per tonne per tonne     of ounces of ounces 
Bingham Canyon (US)                          
- open pitO/P 22.8 0.40 422 0.37 445 557 0.37 0.33 66 100.0 3.494 3.834 
- underground block caveU/G         - 321 - 0.27 68 100.0 - 1.856 
- underground skarn oresU/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 
 
Total of operations listed above                      6.009 8.475 
 
Total of all Rio Tinto gold operations                      31.192 33.658 
 
LEAD  millions   millions   millions millions         millions millions 
   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 
 
Total of operations listed above                      0.123 0.146 
 
Total of all Rio Tinto lead operations                      0.533 0.556 
 
MOLYBDENUM  millions   millions   millions millions         millions millions 
   of tonnes %Mo of tonnes %Mo of tonnes of tonnes %Mo %Mo     of tonnes of tonnes 
Bingham Canyon (US)                          
- open pitO/P 22.8 0.038 422 0.042 445 557 0.041 0.037 55 100.0 0.102 0.114 
- underground block caveU/G         - 321 - 0.035 48 100.0 - 0.054 
 
Total of operations listed above                      0.102 0.168 
 
Total of all Rio Tinto molybdenum operations                     0.102 0.168 
 
SILVER  millions grammes millions grammes millions millions grammes grammes     millions millions 
   of tonnes per tonne of tonnes per tonne of tonnes of tonnes per tonne per tonne     of ounces of ounces 
Bingham Canyon (US)                          
- open pitO/P 22.8 3.49 422 2.95 445 557 2.97 2.72 80 100.0 33.929 38.908 
- underground block caveU/G         - 321 - 2.69 71 100.0 - 19.682 
- underground skarn oresU/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 
 
Total of operations listed above                      84.081 118.260 
 
Total of all Rio Tinto silver operations                      184.705 218.884 
 
ZINC  millions   millions   millions millions         millions millions 
   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 
 
Total of operations listed above                      0.364 0.444 
 
Total of all Rio Tinto zinc operations                      1.230 1.310 
 
                           
(a) Likely mining method: O/P = open pit; U/G = underground.                       
CommodityPrice US$
Copper1.26/lb
(Continued)

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MINERAESCONDIDALIMITADA

SupplementaryInformation -Unaudited June 30, 2006 and 2005 (inthousands of USD)

OreReserves

   Proven Ore Reserve Probable Ore Reserve Total Ore Reserve     
   
 
 
     
   Millions     Millions     Millions     Nominal Mine Life 
   of dry     of dry     of dry     Production based on 
Commodity  metric     metric     metric     Capacity Reserve 
Deposit (1,2,3)Ore type tonnes % TCu % SCu tonnes % TCu % SCu tonnes % TCu % SCu (Mtpa) (years) 
 
Copper                        
EscondidaOxide 69        0.74 0.67 15 0.77 0.55 85 0.75 0.65     
 Sulphide 555        1.18 — 846 1 — 1,401 1.07 —     
 Sulphide Leach 592        0.51 — 994 0.51 — 1,586 0.51 —     
Escondida NorteOxide 5        1.55 120 20 1.47 1.14 25 1.49 1.15     
 Sulphide 149        1.55 — 321 1.34 — 470 1.41 —     
 Sulphide Leach 59        0.55 — 549 0.61 — 608 0.6 —     
Total Escondida (4,5)Oxide 74        0.79 0.71 35 1.17 0.88 109 0.92 0.76 149 28 
 Sulphide 704        1.26 — 1,167 1.09 — 1,872 1.16 —     
 Sulphide Leach 651        0.51 — 1,543 0.55 — 2,194 0.53 —     
(Continued)                        

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MINERA ESCONDIDA LIMITADA

Supplementary Information - Unaudited
June 30, 2006 and 2005
(in thousands of USD)

Notes to previous table
1)% TCu – per cent total copper, %SCu – per cent soluble copper
2)Approximate drill hole spacing used to classify the reserves is:
DepositProven ReserveProbable Ore Reserve
EscondidaSulphide: 60m x 60mSulphide: 100m x 100m
Sulphide leach: 60m x 60mSulphide leach: 105m x 105m
Oxide: 45m x 45mOxide: 50m x 50m
Escondida NorteSulphide: 60m x 60mSulphide: 100m x 100m
Sulphide leach: 60m x 60mSulphide leach: 110m x 110m
Oxide: 45m x 45mOxide: 50m x 50m
3)Metallurgical recoveries for the operations are:
Deposit%Cu
Escondida:
Sulphide85% of TCu;
Sulphide Leach34% of TCu;
Oxide75% of TCu
Escondida Norte:
Sulphide85% of TCu;
Sulphide Leach34% of TCu;
Oxide75% of TCu
4)Changes in the Escondida and Escondida Norte reserves from 2005 include an updated geological model using new data, updated cost and price estimates, full valuation of sulphide leach ore in ultimate pit limits, and variable cut-off grade of sulphide mill ore. Oxide ore scheduled for mining after closure of oxide leach plant has been reclassified and reported as Sulphide Leach. Part of the Sulphide Leach stockpile has been removed from Reserve classification due to uncertainty in tonnage, grade and metallurgical properties, pending additional study. In future reserve reports, the two mines will be combined into a single reportable reserve. For this year’s reporting both mines are reported with the combined total. Economic and metallurgical studies are being conducted to evaluate optimal sulphide leach cut-off grades, which may lead to revision in the reserve. The price used for Escondida and Escondida Norte was Cu = US$1.26/lb.
5)Escondida production rate and mine life estimate is based on the current life-of-mine plan which uses a future variable production rate from both the Escondida and Escondida Norte pits. The current combined nominal production rate available to the operation is 216 million tonnes per annum.
Proven reserves in stockpiles
Proven reserves in stockpiles at June 30, 2006 are:
  Millions of dry   
 Escondida Coppermetric tonnes% TCu% SCu 
 
 Sulphide Ore16.31.12— 
 Sulphide Leach164.70.51— 
 Oxide Ore61.10.720.68 
 These reserves will be used as follow:   
 Sulphide Ore13 Years   
 Sulphide Leach13 Years   
 Oxide Ore8 Years   
No stockpiles existed at June 30, 2006 for Escondida Norte.   

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