SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 20-F

(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 20062007 
    
  or 
   
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
 For the transition period from:________________ 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’s5 Aldermanbury SquareLevel 33, 120 Collins Street
London, SW1Y 4LD,EC2V 7HR, United KingdomMelbourne, Victoria 3000, Australia
(Address of principal executive offices)(Address of principal executive offices)

     Roger Dowding, T: +44 (0)20 7781 1623, E: roger.dowding@riotinto.com
(Name, Telephone, E-mail and/or Facsimilie number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
       
Title of each className of each exchangeName of each exchangeTitle of each class
on which registeredon which registered
  on which registered on 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:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of each classTitle of each class
NoneShares

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:
NoneNone

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 1,071,488,203 456,815,943 Shares 1,071,799,661 456,815,943 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-seasonedwell-known 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.1934.

Yes No

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

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of “accelerated“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 basis of accounting the registrants have used to prepare the financial statements included in this filing:

US GAAP        International Financial Reporting Standards as issued by the International Accounting Standards Board         Other

If ‘Other’ has been checked in response to the previous question, indicate by check mark which financial statement item the registrants have elected to follow:

Item 17 Item 18
   

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

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

TABLE OF CONTENTS
   
  Page
  
PART I
Item 1.Identity of Directors, Senior Management and Advisers34
   
Item 2.Offer Statistics and Expected Timetable34
   
Item 3.Key Information34
   
Item 4.Information on the Company79
   
Item 4 A.4A.Unresolved Staff Comments3547
   
Item 5.Operating and Financial Review and Prospects3547
   
Item 6.Directors, Senior Management and Employees89114
   
Item 7.Major Shareholders and Related Party Transactions131153
   
Item 8.Financial Information133155
   
Item 9.The Offer and Listing134156
   
Item 10.Additional Information136158
   
Item 11.Quantitative and Qualitative Disclosures about Market Risk146168
   
Item 12.Description of Securities other than Equity Securities146168
 
PART II
Item 13.Defaults, Dividend Arrearages and Delinquencies147169
   
Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds147169
   
Item 15.Controls and Procedures147169
   
Item 16 A.16A.Audit Committee Financial Expert147169
   
Item 16 B.16B.Code of Ethics148170
   
Item 16 C.16C.Principal Accountant Fees and Services148170
   
Item 16 D.16D.Exemptions from the Listing Standards for Audit Committees148170
   
Item 16 E.16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers148171
 
PART III
Item 17.Financial Statements149172
   
Item 18.Financial Statements149172
   
Item 19.Exhibits149172

 

Rio Tinto 2006 2007 Form 20-F23

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RIO TINTO

PART I

 

Item 1.1.Identity of Directors, Senior Management and Advisers
 
Not applicable.
  
Item2.Offer Statistics and Expected Timetable
 
Not applicable.
  
Item 3.3.Key Information

SELECTED FINANCIAL DATA

The selected consolidated financial data on pages 3 to 4below has been derived from the 2006 financial2007 Financial statements of the Rio Tinto Group under Item 18. Financial statements herein, have been restated where appropriate to accord with the current accounting policies and presentations.Group. The selected consolidated financial data should be read in conjunction with, and qualified in their entirety by reference to, the 2006 financial2007 Financial statements and notes thereto.

The 2006 financial2007 Financial statements were prepared in accordance with IFRS as adoptedissued by the European Union, which differs in certain respects from US GAAP. Details of the principal differences between EU IFRS and US GAAP are setout in note 48 to the 2006 financial statements.IASB (IFRS).

RIO TINTO GROUP

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 










 

Income Statement Data          
For the years ending 31 December  2004 2005 2006 2007 
Amounts in accordance with IFRS(a)  US$m US$m US$m US$m 










 
Consolidated revenue  12,954 19,033 22,465 29,700 
Group operating profit (b)  3,327 6,922 8,974 8,571 
Profit for the year  3,244 5,498 7,867 7,746 
Group operating profit per share (US cents)  241.3 507.5 673.0 666.6 
Earnings per share (US cents)  239.1 382.3 557.8 568.7 
Diluted earnings per share (US cents)  238.7 381.1 555.6 566.3 










 
           
           
Dividends per share2003 2004 2005 2006 2007 










 
US cents (c)          
– ordinary dividends60.5 66.0 83.5 81.5 116.0 
– special dividend   110.0  
UK pence (c)          
– ordinary dividends37.05 36.22 45.69 44.77 58.22 
– special dividend   61.89  
Australian cents (c)          
– ordinary dividends96.89 90.21 108.85 107.34 143.53 
– special dividend   145.42  
Weighted average number of shares (millions)1,378 1,379 1,364 1,333 1,286 










 
           
           
Balance Sheet Data          
at 31 December  2004 2005 2006 2007 
Amounts in accordance with IFRS(a)  US$m US$m US$m US$m 










 
Total assets  26,308 29,803 34,494 101,391 
Share capital / premium  3,127 3,079 3,190 3,323 
Total equity / Net assets  12,591 15,739 19,385 26,324 
Equity attributable to Rio Tinto shareholders  11,877 14,948 18,232 24,772 










 
           
Rio Tinto 2006 Form 20-F3

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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 accordance with the General Instructions for Form 20-F, Section G, audited information under EUIFRSIFRS is presented for 2004 2005 and 2006through 2007 only, as International Financial Reporting Standards wereIFRS was adopted from 1 January 2004.
(b)Operating profit under EU IFRS includes the effects of charges and reversals resulting from impairments and profit and loss on disposals of interests in businesses, including investments. Operating profit under US 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 operating profit amounts shown above exclude equity accounted operations.
(c)Dividends presented above are those paid in the year.
(d)Amounts shown are attributable to equity shareholders of Rio Tinto.
(e)The results for all years relate wholly to continuing operations.
(f)There 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, which previously were equity accounted under UK and US GAAP, are proportionally consolidated under EUIFRS. The above US GAAP data for 2005 and 2006 also include these units on the basis of proportional consolidation. Amounts presented for consolidated revenue and operating profit in the years 2002 through 2004 have not been restated and continue to incorporate these units on the equity accounting basis. If these units had been subject to equity accounting, Group consolidated revenue and 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 would have been unchanged
(h)(e)As a result of adopting IAS 32, 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. See Note 1 to the 2006 financial statements for further discussion.restated.

 

Rio Tinto 20062007 Form 20-F4

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RISK FACTORS

The following describes some of the risks that could affect Rio Tinto. There 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 they materialise individually or 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 on page 7.
Rio Tinto’s overriding corporate objective is to maximise long term shareholder value through responsible and sustainable investment in mining and related assets. The directors recognise that creating shareholder value is the reward for taking and accepting risk.
The directors have established a process for identifying, evaluating and managing the significant risks faced by the Group.
The following page.highlight the Group’s exposure to risk without explaining how these exposures are managed and mitigated or how some risks are also potential opportunities.

Acquisitions
The Group has grown partly through the acquisition of other businesses and most notably through the acquisition of Alcan Inc. for US$38.7 billion during 2007. Business combinations commonly entail a number of risks and Rio Tinto cannot be sure that management will be able to effectively integrate businesses acquired or 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 for the past acts or omissions of the acquired businesses in circumstances where the price paid does not adequately reflect the eventual cost of these liabilities.

Divestments
Following the acquisition of Alcan the Group undertook a strategic review which has highlighted approximately US$30 billion of potential divestments and has announced a target of US$15 billion. The Group intends to explore options for the sale of a shortlist of assets but any sales would be value driven and dependent on price. The amount and timing of sale proceeds that might eventually be realised is subject to considerable uncertainty and the Group cannot anticipate by when and by how much its borrowings might be reduced.

Economic conditions

Commodity prices, and demand for the Group’s products, are cyclical and influenced strongly by world economic growth, particularly that in the US and 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 12,15, Business environment, markets and regulations,regulation, and on page 79,104, commodity prices.

Exchange rates

The Group’s 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 areas of operation. The majority of the Group’s sales are denominated in US dollars.Thedollars. The Australian, Canadian, Euro and US dollars are the most important currencies influencing costs. The relative value of currencies canfluctuatecan fluctuate widely and could have a material and adverse impact on the Group’s asset values, costs, earnings and cash flows. Further discussion can be found under Exchange rates, reporting currencies and currency exposure on page 77.102.

Acquisitions
The Group has grown partly through the acquisition of other businesses. Business combinations commonly entail anumber of risks and Rio Tinto cannot be sure that management will be able effectively to integrate businesses acquiredor 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. The Group has also undertaken the development or expansion of other major operations. There is no guarantee,however, that such expenditure will be recouped or that existing mineralore reserves will be replaced. Failure to do socouldso could have a material and adverse impact on the Group’s financial results and prospects. In particular, Rio Tinto has commenced or recommenced exploration for and development of 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. IncreasingUnanticipated delays and project execution complications along with increasing regulatory, environmental and social approvals are, however, required which can result insignificantin significant increases in construction costs and/or significant delays in construction. These increases could materially andadverselyand adversely affect the economics of a project and, consequently, the

Rio Tinto 2007 Form 20-F5

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Group’s asset values, costs, earnings and cash flows.

Energy cost and supply
The Group’s operations are energy intensive and, as a result, the Group’s costs and earnings could be adversely affected by rising energy costs or by energy supply interruptions. The following factors could materially adversely affect the Group’s energy position: the unavailability of energy or fuel due to a variety of reasons including fluctuations in climate, significant increases in costs of supplied electricity or fuel, interruptions in energy supply due to equipment failure or other causes, and the inability to extend contracts for the supply of energy on economical terms.

Greenhouse gas emissions
Rio Tinto’s smelting and mineral processing operations are energy intensive and depend heavily on coal, oil, diesel and gas. Increasing regulation of greenhouse gas emissions, including the progressive introduction of carbon emissions trading mechanisms, in numerous jurisdictions in which the Group operates could adversely impact access to, and cost of, the Group’s energy supply. Regulation of greenhouse gas emissions in the jurisdictions of the Group’s major customers could also have an adverse effect on the demand for the Group’s products.

Interest rate fluctuations
Increases in benchmark interest rates will likely increase the interest cost associated with the Group’s debt and will increase the cost of future borrowings, which could harm the Group’s earnings and financial condition.

Ore reserve estimates

There are numerous uncertainties inherent in estimating ore reserves;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 theeconomicthe economic 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 forclosefor close down, restoration and environmental clean up costs. Further discussion can be found under Ore reserve estimatesreserves on page 82.108.

Political and community

The Group has operations in jurisdictions having varying degrees of political and commercial instability. Political instability can result in civil unrest, expropriation, nationalisation, renegotiation or nullification of existing agreements, mining leases and permits, 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 effect 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

Rio Tinto 2006Form 20-F5

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occur, it may have a material adverse impact on 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 in the country.

Defined benefit pension plans
Certain of the Group’s businesses sponsor defined benefit pension plans. If the assets of these pension plans do not achieve expected investment returns for any fiscal year, such deficiency would result in one or more charges against the Group’s earnings. In addition, changing economic conditions, poor pension investment returns or other factors may require the Group to make substantial cash contributions to these pension plans in the future, preventing the use of such cash for other purposes.

Unions and labour disputes
Some of the Group’s employees are represented by labour unions under various collective labour agreements. The Group may not be able to satisfactorily renegotiate its collective labour agreements when they expire. In addition, existing labour agreements may not prevent a strike or work stoppage at its facilities in the future, and any such work stoppage could have a material adverse effect on the Group’s earnings and financial condition.

Technology

The Group has invested in and implemented information system and operational initiatives. Several technical aspects oftheseof these initiatives are still unproven and the eventual operational outcome or viability cannot be assessed with certainty.Accordingly,certainty. Accordingly, the costs and benefits from these initiatives and the consequent effects on the Group’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 (includingindigenous(including indigenous title) may be unclear and may lead to disputes over resource development. Such disputes could disrupt relevant mining projects and/or impede the Group’s ability to develop new mining properties.

Rio Tinto 2007Form 20-F6

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Health, safety and environment

Rio Tinto operates in an industry that is subject to numerous health, safety and environmental laws and regulations aswellas well as community expectations. Evolving regulatory standards and expectations can result in increased litigation and/orincreasedor increased costs all of which can have a material and adverse effect on earnings and cash flows.

Mining operations

Mining operations are vulnerable to a number of circumstances beyond the Group’s control, including natural disasters and unexpected geological variations and industrial actions.variations. 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.mining inputs. 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 andcommunityand community issues are estimated and provided for based on the most current information available. Estimates may, however, be insufficient and/or further issues may be identified. Any underestimated or unidentified rehabilitation costswillcosts will reduce earnings and could materially and adversely affect the Group’s asset values, earnings and cash flows.

Non managed projects and operations

Where projects and operations are controlled and managed by the Group’s partners, the Group may provide expertise and advice, but it cannot guarantee compliance with its standards and objectives. Improper management or ineffectivepolicies,ineffective policies, procedures or controls could not only adversely affect the value of the related non managed projects andoperationsand operations but could also, by association, harm the Group’s other operations and future access to new assets.

Regulation
The group is subject to extensive governmental regulations in all jurisdictions in which it operates. Operations are subject to general and specific regulations governing mining and processing, land tenure and use, environmental regulations (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 are conducted under specific agreements with respective governments and associated acts of parliament. Changes to any regulation or agreement may have an adverse effect on the profitability and viability of an operation.

CAUTIONARY STATEMENT ABOUT FORWARD LOOKING STATEMENTS

This document contains certain forwardincludes “forward looking statements with respect tostatements” within the financial condition, resultsmeaning of operations and businessSection 27A 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.ExamplesSecurities Act of forward looking1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this annual report on Form 20-Finclude,document, including, without limitation, those regardingestimated ore reserves, anticipated Rio Tinto’s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to Rio Tinto’s products, production or construction dates, costs, outputsforecasts and productive lives of assets or similar factors. Forwardreserve positions), are forward looking statements. Such forward looking statements involve known and unknown risks, uncertainties assumptions and other factors set forthwhich may cause the actual results, performance or achievements of Rio Tinto, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Such forward looking statements are based on numerous assumptions regarding Rio Tinto’s present and future business strategies and the environment in this document that are beyondwhich Rio Tinto will operate in 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 affectfuture. Among the timing and feasibility of particular developments. Otherimportant factors that could affectcause Rio Tinto’s actual results, performance or achievements to differ materially from those in the Group’s resultsforward looking statements include, among others, levels of actual production during any period, levels of demand and market prices, the ability to produce and transport products profitably, demand for our products, the effectimpact of foreign currency exchange rates on market prices and operating costs, operational problems, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors, activities by governmental authorities such as changes in taxation or regulation and political uncertainty.
Insuch other risk factors identified in the section entitled, “Risk factors” herein. Forward looking statements should, therefore, be construed in light of these risks, uncertaintiessuch risk factors and assumptions, actual results couldundue reliance should not be materially different from any future results expressed or implied by theseplaced on forward looking statements. These forward looking statements which speak only as atof the date of this report. Exceptasdocument. Rio Tinto expressly disclaims any obligation or undertaking (except as required by applicable regulations or by law, the Group does not undertakeCity Code on Takeovers and Mergers (the “Takeover Code”), the UK Listing Rules, the Disclosure and Transparency Rules of the Financial Services Authority and the Listing Rules of the Australian Securities Exchange) to release publicly any obligationupdates or revisions to publicly update orrevise any forward looking statements, whether as a result of new informationstatement contained herein to reflect any change in Rio Tinto’s expectations with regard thereto or future events. The Group cannot guarantee that its forward looking statements will not differ materially from actual results.any change in events, conditions or circumstances on which any such statement is based.

 

Rio Tinto 20062007Form 20-F67

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IMPORTANT INFORMATION

This document contains statements which could be deemed recommendations or solicitations under the US federal securities laws in the context of the pre-conditional offer by BHP Billiton. If BHP Billiton does commence a tender offer within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, Rio Tinto will file a Solicitation/Recommendation Statement with the SEC on Schedule 14D-9 thereafter and holders of Rio Tinto’s shares and ADRs are advised to read it when it becomes available as it will contain important information. Copies of any such Solicitation/Recommendation Statement and other related documents filed by Rio Tinto will be available free of charge on the SEC’s website at http://www.sec.gov and on Rio Tinto’s website at www.riotinto.com

Rio Tinto 2007 Form 20-F8

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Item 4.Information on the Company

INTRODUCTION

Rio Tinto is a leading international mining group whose business is finding, mining and processing the earth’sEarth’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 businessesBusinesses 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,which is listed on the London Stock Exchange, and headquartered in the UK;London, and Rio Tinto Limited, incorporated in Victoria, Australia,which is listed on the Australian Securities Exchange and withhas 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 3537 to 38 to40 of the 2006 financial statements.2007 Financial statements.
     On 31 December 2006,2007, Rio Tinto plc had a market capitalisation of £27.8£53.0 billion (US$54 .5105.9 billion) and Rio Tinto Limited had a market capitalisation in publicly held shares of A$21.238.3 billion (US$16.833.5 billion). The combined Group’s market capitalisation in publicly held shares at the end of 20062007 was US$71.3139.4 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 byoperatingby operating responsibly and sustainably in areas of proven expertise such as exploration, project evaluation, mining, smelting and mining,refining where the Group has a competitive advantage.
     Our strategy is to maximise net present value by investing in large, long life, cost competitive mines.mines and processing plants. 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 and Industrial Minerals
Energy
Iron Ore
Exploration
Technology and Innovation (formerly Operational and Technical Excellence).
Business Resources
The chief executive of each product group reports to the chief executive of Rio Tinto. Diamonds and Industrial Minerals report to the product group heads of Copper and Energy respectively.

Nomenclature and financial data

Rio Tinto Limited and Rio Tinto plc operate as one business organisation, referred to in this report as Rio Tinto, the Rio Tinto Group or, more simply, the 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” and 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$) is derived from, and should be read in conjunction with, the 2006financial2007 Financial statementswhich are in US$. In general, financial data in pounds sterling (£) and Australian dollars (A$) have been translated from the consolidated financial statements and have 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 in the2007 Financial statements.
     Rio Tinto Group sales revenue, profit before tax and net earnings and operating assets for 20052006 and 20062007 attributable to the product groups and geographical areas are shown in notes 3031 and 3132 to the 2006 financial statements.In2007 Financial statements. In theOperating and financial reviewreport(OFR), operating assets and sales revenue for 20052006 and 20062007 are consistent withthe financial information by business unit in note 47 to the 2006 financial2007 Financial statements.
The tables on pages 1928 to 2242 show production for 2004,2007, 2006 and 2005 and 2006 and include estimates of proven andprobableand probable ore reserves. Words and phrases, often technical, have been used which have particular meanings; definitions of these terms are in the Glossary on pages 153175 to 155.177. The weights and measures used are mainly metric units;conversions into other units are shown on page 155.177.

History

Rio Tinto’s predecessor companies were formed in 1873 and 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 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 Rio

Rio Tinto 2007 Form 20-F9

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Tinto 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

Rio Tinto 2006Form 20-F7

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Australian interests of The Consolidated Zinc Corporation and The Rio Tinto Company.
     Between 1962 and 1995, both RTZ and CRA discovered important mineral deposits, developed major miningprojects and also grew through acquisition.
     RTZ and CRA were unified in 1995 through a dual listed companies structure. This means the Group, with its common board of directors, is designed to place the shareholders of both Companies in substantially the same positionas if they held shares in a single enterprise owning all of the assets of both Companies.
     In 1997, The RTZ Corporation became Rio Tinto plc and CRA Limited became Rio Tinto Limited, together known as the Rio Tinto Group. SinceOver the 1995 merger,past decade, the Group has continued to invest in developments andacquisitionsand acquisitions in keeping with its strategy.
In 2007, Rio Tinto completed an agreed takeover of the Canadian aluminium producer Alcan Inc. in a US$38.7 billion transaction that transforms the Group’s aluminium product group into a global leader in aluminium.

Contact details

The registered office of Rio Tinto plc is at 6 St James’s5 Aldermanbury Square, London, SW1Y 4LDEC2V 7HR (telephone: +44 20 7930 2399)7781 2000) and the registered office of Rio Tinto Limited is at Level 33, 120 Collins Street, Melbourne, Victoria 3000 (telephone: +61 3 9283 3333). Rio Tinto’s agent for service in the US is Shannon Crompton, secretary of Rio Tinto’s US holding companies, who may be contacted at Rio Tinto Services Inc., 80 State Street, Albany, New York, 12207-2543.

Rio Tinto 20062007 Form 20-F810

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CAPITAL PROJECTS

Rio Tinto is investing heavily in future growth opportunities from the Group’s broad portfolio of assets. Projects havebeenhave been financed out of internally generated funds. Major projects completed andin 2005-2007, together with ongoing projects are summarised below.

ProjectEstimated cost Status/MilestonesStatus
 (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.200 The full production rateplant produced 115,000 tonnes of pig iron during 2007, its second year of ramp up towards a planned capacity of 800,000 tonnes per year is expected to be reached over three years.annum.




Iron ore –Expansion of Yandicoogina mine.200 Expansion completed in the third quarter.




Iron ore –Expansion of West AngelesAngelas mine (Rio Tinto:53%).105 Project completed in the third quarter.




Titanium dioxide– Expansion of upgraded slag plant.76 Commissioning started in first quarter.




Copper –Development of the Escondida Norte satellitedepositsatellitedeposit (Rio Tinto: 30%) to provide mill feed to keep Escondida’skeepEscondida’s capacity above 1.2 million tonnes of copper percopperper year to the end of 2008.400 First production occurred in 2005.




Iron ore –Expansion of port capacity to 116 milliontonnesmilliontonnes per annum.annum,685 Focus 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 ofconstructionof new mine capacity at Nammuldi.290 The Marandoo and Nammuldi components arecomplete and Tom Price is scheduled forcompletion by the first quarterwas completed during firstquarter of 2007.




Iron ore– Expansion by Robe River (Rio Tinto: 53%) ofrailofrail capacity including completion of dual tracking of 100 km100km mainline section.200 The project was completed on budget and ahead of schedule.ofschedule.




Copper– Escondida sulphide leach (Rio Tinto: 30%). The.The project will produce 180,000 tonnes per annum of copperofcopper cathode for more than 25 years.925 The first cathode production from the sulphideleach plantsulphide leachplant occurred in June 2006.




Titanium dioxideExpansionexpansion of annual capacity at UGSplantUGSplant from 325,000 tonnes to 375,000 tonnes.79 The project was completed in October three monthsahead of schedule and under budget.




Boric acid –Phase 2 of Rio Tinto Minerals boric acidExpansionacidExpansion50 The project was completed on schedule and under budget.underbudget.




Coking coal– Hail Creek (Rio Tinto: 82%) Expansion ofannualofannual capacity from 6 million tonnes to nameplate 8 million8million tonnes per annum, with washing plant increased to 12to12 million tonnes per annum.223 The 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 approvedCompleted in February 2005 and work on the pushback continues. The pebble crushing unit was commissioned in the third quarter of 2006.
2007   




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.




Rio Tinto 2006 Form 20-F9

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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’sHamersley’s (Rio Tinto:Tinto share100%) Mount Tom Price mine to 28 million tonnes perannum capacity.226Project completed in March 2007.




Iron ore– Brownfields mine expansion of Hamersley’s(Rio Tinto 100%) Yandicoogina mine from 36 milliontonnes per annum to 52 million tonnes per annum.530First ore was produced in May 2007, with theproject completed at the end of the third quarter of2007 on time and on budget.




Iron ore– Expansion of Hamersley’s (Rio Tinto 100%)Dampier port (Phase B) from 116 million tonnes per annumperannum to 140 million tonnes per annum capacity and additionalandadditional rolling stock and infrastructure.803 This project was also approved in October 2005 and completion is expected bycompleted at the end of 2007 onschedule and on budget.




Iron ore– Hope Downs development (Rio Tinto share:50% of mine and 100% of infrastructure). Construction of22 million tonnes per annum mine and relatedinfrastructure.980First production occurred in November 2007, threemonths ahead of schedule. The first train load tookplace in December 2007.




Rio Tinto 2007 Form 20-F11

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CAPITAL PROJECTS (continued)





Ongoing




Copper– Kennecott Utah Copper (Rio Tinto 100%) East1 pushback. The project extends the life of the open pit to2017 while retaining options for further underground oropen pit mining thereafter.170The project was approved in February 2005 andwork on the pushback continues. The pebblecrushing unit was commissioned in the third quarterof 2006.




Titanium dioxide– Construction by QMM (Rio Tinto:80%Tinto80%) of a greenfield ilmenite operation in Madagascar andMadagascarand associated upgrade of processing facilities at QIT.QIT inCanada.8501,000 Basic infrastructureConstruction is being put in place and the port construction contractunder way. The budget was awarded in 2006.revisedin 2007. First production is scheduled forexpected at the end of2008.




Alumina– Expansion of the Gove Alumina Refinery (RioTinto 100%) from 2.0 to 3.8 million tonnes per annum.2,300Approved in September 2004, the expansion isexpected to reach full nameplate capacity by the endof 2008.




Aluminium– Development of the 370,000 tonne perannum greenfield Sohar smelter in Oman (Rio Tinto20%)1,700Approved in February 2005, first production isexpected in the third quarter of 2008.




Aluminium– Aluminium spent pot lining recycling plantin Quebec (Rio Tinto 100%).180Approved in September 2006, the plant is expectedto begin pot lining treatment operations in thesecond quarter of 2008.




Gold– Development of Cortez Hills (Rio Tinto:Tinto 40%) as at31 December 2007; on 5 March 2008, Rio Tintocompleted the sale of its interest in Cortez).504 Approved in September 2005, the project continues tocontinuesto focus on permitting requirements. The project ison time and on budget.




EnergyUranium– Rössing (Rio Tinto:Tinto 68.6%) uranium mine lifeextensionlifeextension to 2016.82112 Approved in December 2005, works are on schedule andscheduleand on budget to prolong the life of the mine to 2016to2016 and beyond. The mine life extension estimateremains at US$82 million with US$30 million ofsustaining capital expenditure.




Diamonds– Argyle (Rio Tinto:Tinto 100%) development ofundergroundofunderground mine and open pit cutback, extending the life oflifeof the mine to 2018.9101,500 Approved in December 2005, the undergrounddevelopment consisting of 34 km of tunnels andexcavations is currently 40% complete.Construction of the major undergroundinfrastructure commenced in February 2008. Fullproduction from the underground developmentmine is progressing with the mine dueonschedule 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.be achieved by December 2010.




Copper– Northparkes (Rio Tinto:Tinto 80%) E48 block caveprojectcaveproject extending mine life to 2016.160 Approved in November 2006. Undergrounddevelopment has commenced and is on schedule forMay 2009 production start.




Energy– Clermont (Rio Tinto:Tinto 50.1%) is expected toproducetoproduce 12.2 million tonnes per annum, replacing Blair Athol.BlairAthol.750 Approved in January 2007, first shipments are expectedareexpected in the second quarter of 2010 with full capacityfullcapacity being reached in 2013.




Iron ore– Cape Lambert port expansion (Rio Tinto share:53%)from 55 to 80 million tonnes per annum.annum and additionalrolling stock and infrastructure.860952 Approved in January 2007, the project is forecast to betobe complete by the end of 2008, with progressive capacityprogressivecapacity ramp up in the first half of 2009. Theestimated capital cost now includes US$92m foradditional rolling stock and infrastructure.




Iron ore– Wharf upgrade and shiploader replacement atEast Intercourse Island (Rio Tinto 100%).65The project is in progress and is expected to becomplete by May 2009.




Alumina– Expansion of Yarwun Alumina Refinery from1.4 to 3.4 million tonnes per annum.1,800Approved in July 2007, the expansion will morethan double annual production at Yarwun and isexpected to come onstream by 2011.




Iron ore– Expansion of Hope Downs Stage 2 (Rio Tinto50%) from 22 to 30 million tonnes per annum.350Approved in August 2007, the expansion will becomplete by early 2009.




 

Rio Tinto 2007 Form 20-F12

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CAPITAL PROJECTS (continued)

ACQUISITIONSRecently approved   




Diamonds– Construction at Diavik (Rio Tinto 60%) of an underground mine.787Capital investment of US$563 million was approved in November 2007 in addition to US$224 million invested in 2006-2007 for the feasibility studies and related capital projects. First production from the underground mine is expected to commence in 2009




Iron ore– Mesa A development (Rio Tinto 53%):construction of a 25 million tonne per annum mine andrelated infrastructure.901Approved in November 2007, the mine is forecast tobe complete by 2010 with a progressive ramp up to25 million tonnes per annum by 2011.




Iron ore– Brockman 4 development (Rio Tinto 100%):construction of a 22 million tonne per annum mine (PhaseA) and related infrastructure.1,521Approved in November 2007, Phase A of theproject, to 22 million tonnes is forecast to becomplete by 2010, with scope to expand further to36 million tonnes per annum by 2012.




Coking coal– extension and expansion of Kestrel mine(Rio Tinto share 80%).991Approved in December 2007, the investment willextend the life of the mine to 2031 and increaseproduction to an average of 5.7mtpa.




Nickel– Development of Eagle nickel mine in Michigan,US.300Approved in December 2007, this high grade nickeland copper mine is expected to commenceproduction in late 2009, delivering 16,000 tonnes ofnickel per annum over a seven year period.




Aluminium– Replacement of overhead cranes andupgrade of crane runways on Lines 1 and 2 at BoyneSmelters (Rio Tinto 59.4%).270Approved in January 2008, the mobile cranes andassociated runways on reduction Lines 1 and 2 willbe replaced. The project is estimated to becompleted by late 2010.




Aluminium– Replacement of Lines 1 and 2 carbon bakefurnace at Boyne Smelters (Rio Tinto 59.4%).347Approved in January 2008, the carbon bakingfurnace that supplies anodes to Lines 1 and 2 will bereplaced. The project is estimated to be completedby mid 2011.




Iron ore– Expansion to increase the production of ironore concentrate by the Iron Ore Company of Canada (RioTinto 58.7%)475Approved March 2008, the first phase of anexpansion programme intended to increase productioncapacity by 50 per cent to 22 million tonnes perannum by 2011.




ACQUISITIONS

Rio Tinto is also investing heavily in future growth opportunities from acquisitions. These opportunities have been financed out of internally generated funds and, in the the case of Alcan Inc., out of a US$40 billion credit facility which was fully underwritten and subsequently syndicated at floating rates of interest.

AssetEstimated Status
 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 WesternAustraliaWesternAustralian/a Rio Tinto reached agreement with Hancock ProspectingHancockProspecting Pty Ltd to purchase a 50% interest.




Acquired in 2006   




Copper– Ivanhoe Mines (Rio Tinto: 9.9%)303 Agreement to acquire a strategic stake including,upon completion of satisfactory a long term investmentterminvestment agreement with the Mongolian government,Mongoliangovernment, 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

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DIVESTITURES
AssetEstimatedStatus
proceeds
US$m




DivestedAcquired in 20042007   




CopperAluminium –– Mineração Serra da Fortaleza Ltda (Rio Tinto:100%) nickel mining company.Alcan Inc8038,652 Sold to Votorantim Metais, a Brazilian controlled mining company. Proceeds included an adjustment for future nickel prices.Acquisition of Alcan Inc announced in July 2007and completed in October 2007




Other operationsEnergySepon project in LaosHydrogen Energy (Rio Tinto:20% 50%), comprising a gold operation and the Khanong copperproject.8535 Sold to Oxiana Limited.Joint venture with BP




CopperDiamonds & Industrial Minerals –– Freeport-McMoRan Copper & Gold Inc (FCX)Dampier Salt (RioTinto: 3%)(Rio Tinto: 13.1%).88219 Rio Tinto retains its 40 per cent joint ventureThe purchase of a 3% interest in reserves discovered after 1994 atDampier Salt froma minority shareholder that increased 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.Group’stotal interest to 68.4%.




Copper– Zinkgruvan Mining AB (Rio Tinto: 100%)Rio Tinto 2007 Form 20-Fn/13

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DIVESTITURES

On the acquisition of Alcan Inc the Group announced an asset divestment target of at least US$10 billion and following the completion of a strategic review, which highlighted approximately US$30 billion of potential divestments, increased this target to at least US$15 billion. Rio Tinto will explore options for the sale of a shortlist of assets. These are all good businesses and any sales will be value driven and dependent on price.

AssetEstimated Sold to South Atlantic Ventures. Zinkgruvan was acquired in 2000 as part of North Ltd.Status
proceeds 




CopperUS$m– Neves Corvo copper mine in Portugal (RioTinto: 49%)92 Rio 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)Fund(LIORIF) (Rio Tinto: 19%)130 LIORIF has an interest of 15.1% in, and receives royaltiesreceivesroyalties from, Iron Ore Company of Canada (IOC)Canada(IOC), a subsidiary of Rio Tinto. The transaction hadtransactionhad no effect on Rio Tinto’s 59% direct interest in IOC.inIOC.




Other operations– Lihir Gold (Rio Tinto: 14.5%)295 Rio Tinto relinquished its management agreement withagreementwith Lihir, and subsequently sold its interest.




Divested in 2006  




Aluminium –Eurallumina SpA (Rio Tinto: 56.2%)n/a Sold to RUSAL




Diamonds– Ashton Mining of Canada Inc (Rio Tinto:51.7%)n/a Sold to Stornaway Diamond Corporation for US$forUS$26m plus shares representing an interest of17.7%.




Divested in 2007




Diamonds and Industrial Minerals –Lassing andEnnsdorf6Rio Tinto Minerals disposed of 17.7%its operations atLassing and Ennsdorf for consideration of $6m.




Divested in 2008




Copper –Greens Creek mine (Rio Tinto: 70%)750Sale agreed to Hecla Mining Company, the Group’sminority partner.




Copper –Cortez joint venture (Rio Tinto: 40%)1,695Sold to Barrick Gold Corporation, the Group’spartner, for a cash consideration plus a deferredbonus payment and a contingent royalty interest.




 

Rio Tinto 20062007 Form 20-F1114

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BUSINESS ENVIRONMENTS,ENVIRONMENT, MARKETS AND REGULATIONSREGULATION

Competitive environment
Rio Tinto is a major producer in all the metals and minerals markets in which it operates. It is generally among the top five global producers by volume. It has market shares for different commodities ranging from five per cent to 40 per cent. The competitive arena is spread across the globe.
     Most of Rio Tinto’s competitors 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 some of the world’s largest deposits enables it to contribute to long term market growth. World production volumes are likely to grow at least in line with global economic activity. The emergence of China and eventually India as major economies requiring metals and minerals for development could mean even higher market growth.

Economic overview

The world economy grew by 4.95.2 per cent in 20062007 on a purchasing power parity basis. This wasbasis, marking the fourthfifth successive year of global growth in excess of four per cent.
     Growth was broad based, but once againThis extended global economic boom has inevitably not been without its stresses and strains. The implications of some of the excesses driven by previous loose monetary conditions and easy credit availability emerged last year. The full implications of the US housing downturn which started in the second half of 2005 began to be felt last year and China provided the bedrock for this expansion. Although thepace of US economic growth progressively slowed over the coursehas led to financial market volatility and asset writedowns by some of the year,major banking institutions. Despite this, the manufacturing sector of the US economy performed well during 2007 and growth across the country averaged 2.2 per cent.
Growth in the rest of the developed world was reasonably supportive for the mining sector. European Union economies, which in general are not subject to same imbalances as the housing market faltered, it still managed to rise by 3.3 per cent over its 2005 level. Chinese growthUS, grew above their long run trend rate for the second year was 10.5 per cent, its biggest annualincrease in over a decade.row. The Japanese economy, whilst volatile and still dependent for growth on external demand, expanded by 1.8 per cent.
     The developed world accounts for around half of global metals demand but its importance to commodity markets is much less than it was as recently as the start of this decade. Changes in demand in other regions – most notably in China, but also increasingly in other emerging countries – has become much more important to the mining sector than cyclical fluctuations in consumption in the developed world.

So whilst weaker economic growth in the US, Europe and Japan acted to hold down growth in commodity demand last year, the effect of this was more than offset by accelerating economic activity elsewhere. China has been the principal driver behind this change. Its economy expanded 11.4 per cent last year and apparent copper demand in the country rose 2.4by close to 30 per cent. Aluminium demand was up a remarkable 40 per cent. Other emerging markets also achieved buoyant growth. The Asia region excluding Japan expanded by eight per cent and in Asia as a whole growth was 5.1 per cent.Latin America grew by 4.8five per centcent.
Given that 2007 started with already depleted stocks, and activity picked upwith the mining industry still struggling to add capacity despite increased levels of capital investment, the macroeconomic conditions outlined above were more than sufficient to generate some further increases in Europe, rising by 2.7 per cent on 2005.
     Despite this sustained rapid globalwhat were already high prices at the start of the year. A number of historic price highs were breached. Slower growth and higher commodityadditions to supply caused some metals prices global inflation remained relatively
tame. Central banks have increased interest rates as the balance of inflationary pressure has shifted towards the upside.Even the Japanese Central Bank raised interest rates for the first time 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 commodity stock availability and continued delaysto fall back in bringing on new supply contributed to further large increases in commodity prices in the first half of 2006. In the second half of the year, but a number of bulk and energy commodities prices continued their upwards trajectory.
Amongst the base metals, lead, tin and nickel registered the greatest increase in annual average prices in 2007 (up 82 per cent, 59 per cent and 65 per cent year on year respectively). Aluminium and copper saw more modest increases of three per cent and six per cent, respectively. Zinc was the only LME metal to return a 2007 average price lower than in 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 ina sharp sell off through the year. After a record price increase of 71.5 per cent during 2005 a further 19 per cent
was agreed in 2006. BenchmarkIron ore benchmark prices are set to rise a furtherincreased by 9.5 per cent in 2007.
The cash priceApril but with additions to low cost supply still not keeping pace with demand the market has become even more dependent on high cost Indian and Chinese production. As a result of copper reached a record high of almost US$4 per pound in May 2006, but finished the year on a weaker tonethis and over 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 pound in 2006, its highest in real terms for 17 years. Whilst the metal was strong,higher freight costs, spot alumina prices fell sharply later in the year as a surge in Chinese refinery production came on the market. After starting the year at US$650 a tonne, spot aluminaended not much above US$200.
The volatility seen in metals markets last year was replicated in the energy sector. Spot prices for seaborne thermal coal reached the low US$50s a tonne early in 2006, but were US$10 per tonne off their peak later in the year.The annual average price was similariron ore to that achieved in 2005. After more than doubling in the 2005/6 marketing year,coking coal prices fell slightly in 2006/7 in response to mixed demand in their major markets. Prices for Powder River Basin coal in the US started the year at very high levels and although they ended the year somewhat weaker the annualaverage price was up 25-30 per cent (depending on grade) over 2005 levels. Uranium prices rose sharply during 2006on concerns about low stocks. Spot pricesChina doubled over the course of the year. Benchmark prices are likely to see more of the benefit of these strong market conditions in 2008.
In February 2008, Rio Tinto noted the announced settlements between another iron ore producer and steelmakers, and indicated it would continue to negotiate for a freight premium to reflect Australia’s proximity to Asia and major customers.
Australian thermal coal export prices ended the year on a high note of US$90 per tonne due to tight market conditions resulting from diminishing Chinese exports and infrastructure constraints on supply. The average annual price of US$65 per tonne was one third up on the 2006 level. In contrast, average US coal prices in the Powder River Basin were down some 20 per cent on their 2006 level, reflecting softer demand in the US. The star performer amongst energy prices was uranium, with average reported spot prices doubling year on year. Most trade in uranium takes place on longer contracted terms, and these have begun to reflect stronger market conditions.
Demand for industrial minerals such as borates and titanium minerals continuedhas held up well with prices holding

Rio Tinto 2007 Form 20-F15

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steady. The same applies to the diamond market, where supply trends have been supportive of prices.
One of the beneficiaries of financial uncertainty are often precious metals prices. The average gold price rose 15 per cent in 2007 to US$691 per ounce. Most of this increase took place later in the first halfyear and gold finished 2007 selling at record levels of the year but concerns about the US housing market dampened expectations in the latter part of the year.
Diamond prices started the year on a very firm basis but conditions declined, due to monsoon flooding in majorIndian cutting and polishing centres, and increased stockholding costs in the jewellery supply chain.
Gold prices have not seen the same degree of escalation as other metals but recorded a strong trend in 2006,averaging over US$600830 per ounce, over the year ascompared to a whole, up 362006 average of around US$602 per cent on 2005.ounce.
     Many less widely traded metals have also continued to benefit from firm demand. TheIn particular, the molybdenum price averagedcontinued its remarkable performance, averaging US$2530 per pound in 2006, down on2007, close to its 2005record level but still historically high.in 2005.

Marketing channels

Rio Tinto’s marketing channels are described under ‘Marketing’ on page 66.93.

Rio Tinto 2006 Form 20-F12

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Governmental regulations
regulation

Rio Tinto is subject to extensive governmental regulationsregulation affecting all aspects of its operations and consistently seekstoseeks to apply best practice in all of its activities. Due to Rio Tinto’s product and geographical spread, there is unlikely to beany single governmental regulation that could have a material effect on the Group’s business.
Rio Tinto’s operations in Australia, New Zealand, and Indonesia are subject to state, provincial and federalregulationsfederal regulations of general 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 areconductedare conducted under specific agreements with the respective governments and associated acts of parliament. In addition,Rio Tinto’s uranium operations in the Northern Territory, Australia and Namibia are subject to specific regulation in relation to mining and the export of uranium.
     US and Canada based operations are subject to local, state, provincial and national regulations governing land tenure and use, environmental aspects of operations, product and workplace health and safety, trade and exportadministration, corporations, competition, securities and taxation. In relation to hydro-electric power generation in Canada, water rentals and royalties, as well as surplus power sales, are regulated by the Quebec and British Columbia provincial governments.
     The South African Mineral 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 26 per cent ownership of existingSouthexisting South African mining assets to historically disadvantaged South Africans (HDSAs) within ten years. Attached to theEmpowermentthe Empowerment Charter is a “scorecard” by which companies will be judged on their progress towards empowerment and the attainment of the target transfer of 26 per cent ownership. The scorecard also provides that in relation to existingminingexisting mining assets, 15 per cent ownership should vest in HDSAs within five years of 1 May 2004. Rio Tinto anticipates thatthethat the government of South Africa will continue working towards the introduction of new royalty payments in respect of mining tenements, expected to become effective during 2009.

Environmental regulation

Rio Tinto measures its performance against environmental regulation referred to in the previous section by rating incidents on a low, moderate, high, or critical scale of likelihood and consequence of impacting the environment. HighandHigh and 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 2006,2007, there were nine high or critical environment incidents compared with eight reportablein 2006. These incidents were of a nature to impact the same number as in 2005. Threeenvironment or may have concerned local communities. Of these two impacted air quality, five resulted from water discharge and two were spills. Examples of these incidents resulted in spills which caused minor contamination.
Four operations incurred fines in 2006 amounting to 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:include:

US$38,500Air emission concentrations of fluorine exceeded license conditions at Boyne smelters, Australia.
Unauthorised discharge of mine water downstream of a dam as a result of poor communications with a contractor at Kestrel, Australia.
Sewage discharged into a holding pond following a blockage in pumps at Weipa, Australia.
Sea water used in cooling was discharged to the ocean at a higher temperature and pH than limits 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.license at Yarwun, Australia.
US$12,900 imposed byMinor land clearing inside an area identified as having heritage value at Hope Downs, Australia.
Diesel leak from below the United States Environmental Protection Agency followingfloor of a spillbulk storage tank 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.West Angelas, Australia.

During 2007 three operations incurred fines amounting to US$9,633 (2006: US$56,779).
Further information in respect of the Group’s environmental performance is in the 2006Sustainable development reviewavailableincluded throughout this annual report and on the Rio Tinto website.

 

Rio Tinto 20062007 Form 20-F1316

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GROUP MINES

MineLocationAccessTitle/lease







ALUMINIUMRIO TINTO ALCAN      







Rio Tinto Aluminium
CBG Sangaredi
Weipa(23%)
 Weipa, Queensland, AustraliaConakry, Guinea Road air, and portair Queensland Government leaseLease expires in 2041 with 21 year extension, then two years’ notice of termination2038







ElyWeipa, Queensland,AustraliaRoad and airAlcan Queensland Pty. LimitedAgreement Act 1965 expires in 2048with 21 year right of renewal with atwo year notice period







GBC Awaso(80%)Awaso, GhanaRoadLease expires in 2022, renewable in
25 year periods







GoveGove, Northern Territory,AustraliaRoad, air and port100% Leasehold (held in trust by theCommonwealth on behalf of theTraditional Owners until end of minelife)







Porto Trombetas (MRN)(12%)Porto Trombetas, BrazilAir or portMineral rights granted forundetermined period

Rio Tinto 2007 Form 20-F17

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GROUP MINES(continued)

MineHistoryType of minePower source







RIO TINTO ALCAN







CBG Sangaredi(23%)Bauxite mining commenced in 1973.Shareholders are 51% Halco and49% Guinea. Alcan holds 45% ofHalco since 2004 and off-takes 45%.Current annual capacity is 13 milliontonnes.Open cutOn site generation (fuel oil)







ElyDiscovered in 1957; 100% secured in1965. In 1997, Ely Bauxite MiningProject Agreement signed with thelocal Aboriginal land owners.Bauxite Mining and ExchangeAgreement signed in 1998 withComalco to allow for extraction ofthe ore by Comalco. Miningcommenced in 2006, first oreextracted in 2007.Supplied by Weipa







GBC Awaso(80%)Bauxite mining commenced in 1940(100% British Aluminium). From1974 to 1997, Ghana held 55%,Alcan 45%; since 1998 Alcan 80%Ghana 20%. Annual capacity is onemillion tonnes, currently limited to750,000 tonnes by rail infrastructure.Open cutElectricity grid with on sitegeneration back up







GoveBauxite mining commenced in 1970feeding both the Gove refinery andexport market capped at two milliontonnes per annum. Bauxite exportceased in 2006 with feed intended forthe expanded Gove Refinery. Currentproduction capacity about ten milliontonnes per annum with mine lifeestimated to 2025.Open cutCentral power stationlocated at the Gove refinery







Porto Trombetas (MRN)(12%)In June 1974, an agreement wassigned between the shareholders ofMineração Rio do Norte S.A,consisting at that time of thefollowing companies: CVRD (41%),Alcan Aluminum Limited (19%),CB-Votorantim (10%), ReynoldsAlumínio do Brasil Ltda (5%), NorskHydro a.s. (5%), Mineração RioXingu Ltda (5%), A/S Aaardal ogSunndal Verk (5%), InstitutoNacional de Industria (5%) and RioTinto Zinc do Brasil Ltda (5%).Mineral extraction commenced inApril 1979. Initial productioncapacity 3.4 million tonnes annually.From October 2003, productioncapacity up to 16.3 million tonnes peryear. Capital structure currently: Vale(40%), BHP-Billiton (14.8%), RioTinto Alcan(12%), CBA (10%),Alcoa/Abalco (18.2%) and Hydro(5%). Production 17.8 million tonnesof wet and dry bauxite annually.Open cutOn site generation (heavyoil, diesel)







Rio Tinto 2007 Form 20-F18

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GROUP MINES (continued)

MineLocationAccessTitle/lease







WeipaWeipa, Queensland,AustraliaRoad, air and portQueensland Government lease expiresin 2041 with option of 21 yearextension, then two years’ notice oftermination







COPPER      







Escondida(30%) Atacama Desert, Chile Pipeline and road to deep seadeepsea port at Coloso Rights conferred by Government underGovernmentunder Chilean Mining Code







Grasberg joint venture(40%) Papua, Indonesia Pipeline, road and port Indonesian Government Contracts of WorkofWork expire in 2021 with option of twooftwo ten year extensions







Kennecott Minerals
Cortez/Pipeline (40%) (a)
 Nevada, US Road Patented and unpatented mining claims
Cortez/Pipeline (40%)miningclaims







Kennecott Minerals
Greens Creek (70%) (b)
 Alaska, US Port Patented and unpatented mining claims
Greens Creek (70%)miningclaims







Kennecott Utah Copper
Bingham Canyon
 Near Salt Lake City,
Utah, US
 Pipeline, road and rail Owned
Bingham Canyon







Northparkes(80%) Goonumbla, New South Wales,SouthWales, Australia Road and rail State Government mining lease issued inissuedin 1991 for 21 years







Palabora(58%) Phalaborwa, Northern Province,LimpopoProvince, South Africa RailRoad and roadrail Lease from South African Government validAfricanGovernment until deposits exhausted. Baseexhausted.Base metal claims owned by Palabora







DIAMONDS      







Argyle Diamonds Kimberley Ranges, Western AustraliaWesternAustralia Road and air Mining tenement held under Diamond (ArgyleDiamond(Argyle Diamond Mines Joint Venture)JointVenture) Agreement Act 1981-83; 1981-1983;lease extended for 21 years from 2004







Diavik(60%) NorthwestN orthwest Territories,Canada Air, ice road in winter Mining leases from Canadian federal governmentfederalgovernment expiring in 2017 and2018







Murowa(78%) Zvishavane, Zimbabwe Road and air Claims and mining leases







ENERGY      







Energy Resources ofAustralia(68%)
Ranger
 Northern Territory, Australia Road Leases granted by State
Australia(68%)
Ranger







 

Rio Tinto 2006 2007Form 20-F1419

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GROUP MINES (continued)

MineHistory HistoryType 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 cut On site generation; newpower station underconstructionPower source







WeipaBauxite mining commenced in 1961.Major upgrade completed in 1998.Open cut Rio Tinto interest increasedfrom 72.4% to 100% in 2000. In2004 a mine expansion wascompleted that has lifted annualcapacity to 16.5 million tonnes.Mining commenced on the adjacentEly mining lease in 2006, inaccordance with the 1998 agreementwith Alcan. A second shiploader thatincreases the shipping capability ofthe Weipa operation wascommissioned in 2006Open pitOn site generation; newpower stationcommissioned in 2006







COPPER      







Escondida(30%) Production started in 1990 and expandedandexpanded in phases to 2002 when newthenew concentrator was completed;production from Norte commenced in 2005in2005 and the sulphide leach produced theproducedthe first cathode during 2006 Open pit Supplied from SING gridundergridunder various contracts with NorgenerwithNorgener, Gas Atacama andEdelnorandEdelnor







Grasberg joint venture(40%) Joint venture interest acquired 1995; capacityin1995. Capacity expanded to over 200,000and200,000 tonnes of ore per day in 1998in1998 with addition of underground productionundergroundproduction of more than 35,000 tonnes35,000tonnes per day in 2003, with an expansionanexpansion to a sustained rate of 50,000 tonesof50,000 tonnes per day by mid 2007 Open pit and underground Long term contract withUS-Indonesian consortium operated, purpos ewithUS-Indonesian consortiumoperated, purpose built, coalfiredcoalfired generating station







Kennecott Minerals

Cortez/Pipeline (40%) (a)
 Gold production started at Cortez in1969; at Pipeline deposit in 1969, Pipeline in 1997 and 1997;Cortez Hills was approved in 2005.2005 Open pit Public utility







Kennecott Minerals
Greens Creek (70%) (b)
 Redeveloped in 1997 Underground / Underground/drift and fill On site diesel generators
Greens Creek (70%)







Kennecott Utah Copper

Bingham Canyon
 Interest acquired in 1989; modernisation1989.Modernisation includes smelter complexsmeltercomplex and expanded tailings dam Open pit On site generationsupplementedgenerationsupplemented by long term contractstermcontracts with Utah PowerandPowerand Light







Northparkes(80%) Interest acquired in 2000; productionProduction started in 19951995; interestacquired in 2000 Open pit and underground Supplied from State grid







Palabora(58%) Development of 20 year underground mineundergroundmine commenced in 1996 with open pitopenpit closure in 2003 Underground Supplied by ESCOM via gridESKOM viagrid network







DIAMONDS      







Argyle Diamonds Interest increased from 59.7%following purchase of Ashton Mining inMiningin 2000. Underground mine project approvedprojectapproved in 2005 to extend mine life tolifeto 2018 Open pit to undergroundin future Long term contract withOrdwithOrd Hydro Consortium andonandon site generation back upbackup







Diavik(60%) Deposits discovered 1994-1995; construction1994-1995.Construction approved 2000; diamond2000.Diamond production started 2003. Second dyke2003.Second dike closed off in 2005 for miningformining of additional orebody Open pit to underground inundergroundin future On site diesel generators;installed capacity 27MW27MWwith an upgrade under way







Murowa(78%) Discovered 1997; small scale productionin 1997. Small scaleproduction started in 2004 Open pit Supplied 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 withdiesel generator backup







ENERGY(continued)      







Energy Resources ofAustralia(68%)
Ranger
Mining commenced in 1981. Interestacquired through North in 2000. Lifeof mine extension to 2020 announcedin 2007Open pitOn site diesel/steam powergeneration







Rio Tinto 2007Form 20-F20

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GROUP MINES (continued)

MineLocationAccessTitle/lease







Rio Tinto Coal Australia
Bengalla (30%)
Blair Athol (71%)
Hail Creek (82%)
Hunter Valley Ops. (76%Operations (76%)
Kestrel (80%)
Mount Thorley Ops. (61%Operations (61%)
Tarong Coal
Warkworth (42%)
 New South Wales and Queensland, Australia Road, rail, conveyor and port Leases granted by State







Rio Tinto Energy America

Antelope
Colowyo (20%)
Cordero Rojo
Decker (50%)
Jacobs Ranch
Spring Creek
 Wyoming, Montana and Colorado, US Rail and road Leases from US and State Governments and private parties, with minimum coal production levels, and adherence to permit requirements and statutes







Rössing Uranium(69%) Namib Desert, Namibia Rail, road and port Federal lease







INDUSTRIALINDUSTRIAL MINERALS      







Rio Tinto Minerals -Minerals: Boron California, US Road, rail and port Owned







Rio Tinto Minerals - saltMinerals: (65%Salt(68.4%) Dampier, Lake MacLeod and Port Hedland, Western Australia Road and port Mining leasesState agreements (mining 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 - talcMinerals:Talc Trimouns, France (other smaller operations in Australia, Europe and North America) Road and rail Owner of ground (orebody) and long term lease agreement to 2012







QIT-Fer et Titane The Saguenay, County, Quebec, Canada Rail and port (St Lawrence River) Mining covered by two Concessionsconcessions 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%(50%) Richards Bay, KwaZulu -KwaZulu- Natal, South Africa Rail, road and port Long term renewable leases ;mineral leases; State lease for Reserve 4 initially runs to the end of 2022; Ingonyama Trust lease for Reserve 10Reserve10 runs to 20102010. Both mineral leases are required to be converted to new order mining rights by 30 April 2009 in terms of South African legislation. An application for conversion was made in 2006 for the Ingonyama Trust mineral lease, and an application is expected to be made by mid 2008 for the conversion of the State mineral lease







IRON ORE      







Hamersley Iron
Brockman
Marandoo
Mount Tom Price
Nammuldi
Paraburdoo
Yandicoogina
Channar (60%)
Eastern Range (54%)
 Hamersley Ranges, Western Australia Railway and port (owned by Hamersley Iron and operated by Pilbara Iron) Agreements for life of mine with Government of We stern Australia







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 2007Form 20-F1621

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GROUP MINES(continued)

MineHistoryType of mine Power source







ENERGY(continued)







Rio Tinto Coal Australia

Bengalla (30%)
Blair Athol (71%)
Hail Creek (82%)

Hunter Valley Ops. (76%Operations(76%)
Kestrel (80%)

Mount Thorley Ops. (61%Operations(61%)
Tarong Coal
Warkworth (42%)
 Peabody Australian interests acquired inacquiredin 2001. Production started for export atexportat Blair Athol and adjacent power stationpowerstation at Tarong in 1984. Kestrel acquiredKestrelacquired and recommissioned 1999.in1999. Hail Creek started 2003.in 2003 Open cut and underground (Kestrel)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 CorderoandCordero acquired in 1993, Colowyo inColowyoin 1995, Caballo Rojo in 1997,Jacobs Ranch in 1998 and West AntelopeWestAntelope in 2004 Open cut Supplied by IPPs andCooperatives through nationalandCooperatives throughnational grid service







Rössing Uranium(69%) Production began in 1978. Life of mineofmine extension to 2016 approved in 2005in2005 Open pit Namibian National Power







INDUSTRIALMINERALS     







Rio Tinto Minerals - Minerals:Boron Deposit discovered in 1925, acquired byacquiredby Rio Tinto in 1967 Open pit On site co-generation units







Rio Tinto Minerals - saltMinerals:
(65%Salt (68.4%)
 Construction of the Dampier field startedfieldstarted in 1969; first shipment in 1972.shipmentin1972. Lake MacLeod was acquired inacquiredin 1978 as an operating field. PortHedland was acquired in 2001 as anoperating field Solar evaporation of seawaterofseawater (Dampier and PortandPort Hedland) and undergroundandunderground brine (Lake MacLeod)(LakeMacLeod); dredging of gypsumofgypsum from surface of LakeofLake MacLeod Dampier supply from HamersleyfromHamersley Iron Power; Pty Ltd;Lake MacLeod from WesternfromWestern Power and on site generationsitegeneration units; Port HedlandPortHedland from Western PowerWesternPower







Rio Tinto Minerals - talcMinerals:
Talc
 Production started in 1885; acquired in 1988.acquiredin 1988 . (Australian mine acquired in 2001)in2001) Open pit Supplied by EdFAtel and on site generation unitssitegeneration units. Australianmine power supplied byWestern Power







QIT-Fer et Titane Production started in 1950; interest acquiredinterestacquired in 1989 Open pit Long term contract with Quebec HydrowithHydro-Quebec







Richards Bay Minerals
(50%)
 Production started in 1977; interest acquired 1989; fifth dredge commissionedinterestacquired in 1989. Fifth dredgecommissioned in 2000 Beach sand dredging Contract with ESCOMESKOM







IRON ORE     







Hamersley Iron
Brockman

Marandoo

Mount Tom Price

Nammuldi

Paraburdoo

Yandicoogina

Channar (60%)

Eastern Range (54%)
 Annual capacity increased to 68 million68million tonnes during 1990s; Yandicoogina1990s.Yandicoogina first ore shipped in 1999in1999 and port capacity increased; Easternincreased.Eastern Range mine started 2004first shipped ore in2004 Open pitspit Supplied through theintegratedtheintegrated Hamersley and RobeandRobe power network operatednetworkoperated by Pilbara Iron







Rio Tinto 2007 Form 20-F22

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GROUP MINES (continued)

MineLocationAccessTitle/lease







Hope Downs JointVenture(50% mine, 100%infrastructure)Pilbara region, WesternAustraliaRailway owned andoperated by Rio TintoAgreements for life of mine withGovernment of Western Australia







Iron Ore Company ofCanada(59%) Current operation began in 1962Labrador City, Province ofNewfoundland 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 NorthLabrador Open pitRailway and portfacilities in Sept-Iles,Quebec(owned andoperated by IOC) Supplied by NewfoundlandHydro under long term contractSublease with the Labrador Iron OreRoyalty Income Fund which has leaseagreements with the Government ofNewfoundland and Labrador that aredue to be renewed in 2020 and 2022







Rio Tinto BrasilCorumbáMatto Grosso do Sul, BrazilRoad, air and riverGovernment licence for undeterminedperiod







Robe River IronAssociates
(53%)Mesa JWest Angelas
Pilbara region, WesternAustraliaRailway and port (ownedby Robe River andoperated by Pilbara Iron)Agreements for life of mine withGovernment of Western Australia







Rio Tinto 2007 Form 20-F23

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GROUP MINES (continued)

MineHistoryType of minePower source







Hope Downs JointVenture(50% mine, 100%infrastructure)Joint venture venture between RioTinto and Hancock Prospecting PtyLimited. Construction of Stage 1 to22 million tonnes per annumcommenced April 2006 and firstproduction occurred November 2007.Stage 2 to 30 million tonnes perannum has been approved and isforecast to be completed by Q1 2009Open pitSupplied through theintegrated Hamersley andRobe power networkoperated by Pilbara Iron







Iron Ore Company ofCanada(59%)Current operation began in 1962 andhas processed over one billion tonnesof crude ore since. Annual capacitynow 17.5 million tonnes ofconcentrate of which 13.5 milliontonnes can be pelletised Interestacquired in 2000 through NorthacquisitionOpen pitSupplied by NewfoundlandHydro under long termcontract







Rio Tinto BrasilCorumbá Iron ore production started in 1978;interest acquired in 1991 Open pit Supplied by ENERSUL







Robe River Iron
Associates(53%)
Mesa J
WestJWest Angelas
 First shipment in 1972; annual sales reached1972. Annual salesreached 30 million tonnes in late 1990s; interestlate1990s. Interest acquired in 2000 through North; West Angelas2000through North acquisition. WestAngelas first ore shipped in 2002 and mineandmine expanded in 2005 Open pit Supplied through theintegratedtheintegrated Hamersley and RobeandRobe power network operatednetworkoperated by Pilbara Iron







Notes
(a)On 5 March 2008 the Group completed the sale of its interest in the Cortez joint venture to its joint venture partner for a cash consideration of US$1,695 million, a deferred bonus payment in the event of additional reserves and a contingent royalty interest.
(b)On 12 February 2008 the Group reached agreement for the sale of Greens Creek to its minority partner for US$750 million.

 

Rio Tinto 2006 2007 Form 20-F1724

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GROUP SMELTERS AND REFINERIES










Smelter, Smelter/refinery or plantLocation Title/leaseLocation Title/leasePlant type/product Capacity as of
31 December 2007









ALUMINIUM GROUPRIO TINTO ALCAN        









Anglesey Aluminium(51%)Alma Holyhead, Anglesey, WalesAlma, Quebec,Canada 100% Freehold Aluminium smelter producing aluminiumproducingaluminium rod, t-foundry, sow,molten metal415,000 tonnes per yearaluminium









Alouette(40%)Sept-Iles, Quebec,Canada100% FreeholdAluminium smelter producingaluminium ingot, sow572,000 tonnes per yearaluminium









Alucam(46.7%)Edea, Cameroon100% FreeholdAluminium smelter producingaluminium slab, ingot100,000 tonnes per yearaluminium









Anglesey(51%)Anglesey, Wales, UK100% FreeholdAluminium smelter producingaluminium billet, block, sow 145,000 tonnes per yearaluminium









ArvidaArvida, Quebec,Canada100% FreeholdAluminium smelter producingaluminium billet, molten metal166,000 tonnes per yearaluminium









BeauharnoisBeauharnois, Quebec,Canada100% FreeholdAluminium smelter producingaluminium ingot foundry52,000 tonnes per yearaluminium









Becancour(25%)Becancour, Quebec,Canada100% FreeholdAluminium smelter producingaluminium billet, slab,
t-foundry,
t-bar
404,000 tonnes per year aluminium









Bell Bay Bell Bay, Northern Tasmania,NorthernTasmania, Australia 100% Freehold Aluminium smelter producing aluminiumproducingaluminium ingot, block, t-bar 178,000 tonnes per yearaluminium









Boyne IslandSmelters(59%)Boyne Island,Queensland, Australia100% FreeholdAluminium smelter producingaluminium ingot, billet, t-bar545,000 tonnes per yearaluminium









DunkerqueDunkerque, France100% FreeholdAluminium smelter producingaluminium slab, t-foundry,
t-bar
259,000 tonnes per yearaluminium









GardanneGardanne, France100% FreeholdRefinery producing specialtyaluminas635,000 tonnes peryear specialtyaluminas(including 133000 tonnes of smeltergrade aluminas)









GoveGove, NorthernTerritory, Australia100% Leasehold.Commonwealth land held(in trust on behalf ofTraditional Owners).Numerous lots withvarying expiry datesstarting 2011Refinery producing alumina2,000,000 tonnes per yearalumina









La Grande-BaieGrande-Baie, Quebec,Canada100% FreeholdAluminium smelter producingaluminium slab, sow, moltenmetal207,000 tonnes per yearaluminium









ISALReykjavik, Iceland100% FreeholdAluminium smelter producingaluminium slab, t-bar179,000 tonnes per yearaluminium









KitimatKitimat, BritishColumbia, Canada100% FreeholdAluminium smelter producingaluminium billet, slab, ingot277,000 tonnes per yearaluminium









LaterriereLaterriere, Quebec,Canada100% FreeholdAluminium smelter producingaluminium slab, t-bar, moltenmetal228,000 tonnes per yearaluminium









LochaberFort William,Scotland, UK100% FreeholdAluminium smelter producingaluminium slab, t-bar43,000 tonnes per yearaluminium









LynemouthLynemouth,Northumberland, UK100% FreeholdAluminium smelter producingaluminium slab, t-bar178,000 tonnes per yearaluminium









Ningxia(50%)Qingtongxia, China100% FreeholdAluminium smelter producingaluminium ingot152,000 tonnes peryear aluminium









QueenslandAlumina(80%)Gladstone,Queensland, Australia73.3% Freehold.
26.7% Leasehold (ofwhich more than 80%expires in 2026 and after)
Refinery producing alumina3,953,000 tonnes per yearalumina









Sao Luis (Alumar)(10%)Sao Luis, Maranhao,Brazil100% FreeholdRefinery producing alumina140,000 tonnes peryear(10%) of aluminawhich will increase to350,000 tonnes per yearafter expansion in 2009









St-Jean-de-MaurienneSt-Jean-de-Maurienne,France100% FreeholdAluminium smelter producingaluminium slab, rod135,000 tonnes per yearaluminium









Rio Tinto 2007 Form 20-F25

Back to Contents

GROUP SMELTERS AND REFINERIES (continued)










Smelter/refineryLocationTitle/leasePlant type/productCapacity as of
31 December 2007









SebreeKentucky, US100% FreeholdAluminium smelter producingaluminium billet, ingot foundry, t-bar196,000 tonnes per year aluminium









Boyne Smelters(59%)Shawinigan Boyne Island, Queensland, AustraliaShawinigan, Quebec,Canada 100% Freehold Aluminium smelter producing aluminium ingot,producingaluminium billet, t-barsow 545,00099,000 tonnes per year aluminiumyearaluminium









SORAL (50%)Husnes, Norway100% FreeholdAluminium smelter producingaluminium billet164,000 tonnes per yearaluminium









YarwumTiwai Point (NewZealand AluminiumSmelters)(previously(79%)Comalco Alumina Refinery) Gladstone, Queensland,Invercargill,Southland, NewZealand19.6% Freehold.
80.4%
Leasehold (expiring in2029 and use of certainCrown land)
Aluminium smelter producingaluminium ingot, billet, t-bar352,000 tonnes per yearaluminium









Tomago(51.6%)Tomago, New SouthWales, Australia 97%100% Freehold 3% Leasehold (expiring in 2101 and after)Aluminium smelter producingaluminium billet, slab, ingot520,000 tonnes per yearaluminium









Vaudreuil(Jonquiere)Quebec, Canada100% Freehold Refinery producing alumina 1,400,0001,300,000 tonnes per
year alumina









YarwunGladstone,Queensland, Australia97% Freehold.
3% Leasehold (expiring in
2101 and after)
Refinery producing alumina1,400,000 tonnes peryear alumina









COPPER GROUP









Kennecott UtahCopperMagna, Salt LakeCity, Utah, US100% FreeholdFlash smelting furnace/Flashconvertor furnace copper refinery335,000 tonnes per yearrefined copper









Palabora(58%)Phalaborwa, SouthAfrica100% FreeholdReverberatory Pierce Smithcopper refinery130,000 tonnes per yearrefined copper









BoronCalifornia, US100% FreeholdBorates refinery565,000 tonnes per yearboric oxide









QIT-Fer et TitaneSorel PlantSorel-Tracy, Quebec,Canada100% FreeholdIlmenite smelter1,100,000 tonnes peryear titanium dioxideslag, 900,000 tonnes peryear iron









Richards BayMinerals(50%)Richards Bay, SouthAfrica100% FreeholdIlmenite smelter1,060,000 tonnes peryear titanium dioxideslag









IRON ORE GROUP









HIsmelt®(60%)Kwinana, WesternAustralia100% Leasehold (expiringin 2010 with rights ofrenewal for further 25 yearterms)HIsmelt®ironmaking plantproducing pig iron800,000 tonnes per yearpig iron









IOC Pellet Plant(59%)Labrador City,Newfoundland,Canada100% Leaseholds (expiringin 2020, 2022 and 2025with rights of renewal forfurther terms of 30 years)Pellet induration furnacesproducing multiple iron ore pellettypes13,500,000 tonnes per year pellet









Rio Tinto 2007 Form 20-F26

Back to Contents

GROUP POWER PLANTS










Smelter/refineryLocationTitle/leasePlant type/productCapacity as of
31 December 2007









RIO TINTO ALCAN









Daba Power Plant(21.8%)Qingtongxia, China100% FreeholdThermal power station1,200 megawatts









Gladstone Power
Station
(42%)
 Gladstone, Queensland,Australia 100% Freehold Thermal power station 1,680 megawatts









New Zealand
Aluminium Smelters

(NZAS)
(79%)Highlands Power Stations
 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, USLochaber, Kinlochleven, UK 100% Freehold Flash smelting furnace / Flash convertor furnace copper refineryHydro-electric power 335,000 tonnes per  year refined copper80 megawatts









Palabora(58%)Lynemouth Power Station Phalaborwa, South AfricaLynemouth, UK 100% Freehold Reverberatory Pierce Smith copper refineryThermal power station 130,000 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 GROUP420 megawatts









Hlsmelt®(60%)Kemano Power Plant Kwinana, Western AustraliaKemano, British Columbia,Canada 100% Leasehold (expiring in 2010 with rights of renewal for two further 25 year terms)Freehold Hlsmelt®ironmaking plant producing pig ironHydro-electric power 800,000 tonnes per year pig iron896 megawatts









IOC Pellet Plant
(59%)Quebec Power Stations
 Labrador City, Newfoundland, CanadaThe Saguenay, Quebec, Canada(Chute-a-Caron, Chute a laSavanne, Chute- des-Passes,Chute du Diable, Isle-Maligne,Shipshaw)100% FreeholdHydro-electric power2,687 megawatts









Vigelands Power StationNr Kristiansand, Norway 100% Leaseholds (expiring in 2020, 2022 and 2025 with rights of renewal for further terms of 30 years)Freehold Pellet induration furnaces producing multiple iron ore pellet typesHydro-electric power 13,500,000 tonnes per year pellet26 megawatts









 

Rio Tinto 20062007 Form 20-F1827

Back to Contents

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 














 
   2007 2006 2005 
   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)   914 513 1,070 601 
Gardanne (France) (d)100.0 21 21         
Gove (Australia) (d)100.0 405 405         
Jonquiere (Canada) (d)100.0 252 252         
Queensland Alumina (Australia) (d) (e)80.0 3,816 1,766 3,871 1,494 3,953 1,526 
Sao Luis (Alumar) (Brazil) (d)10.0 288 29         
Yarwun (Australia) (d) (f)100.0 1,260 1,260 1,240 1,240 835 835 
Speciality Plants (Canada/France/Germany) (d)100.0 144 144         














 
Rio Tinto total    3,877   3,247   2,963 














 
ALUMINIUM (refined) (’000 tonnes)              
Alma (Canada) (d)100.0 80.1 80.1         
Alouette (Sept-Iles) (Canada) (d)40.0 108.9 43.5         
Alucam (Edea) (Cameroon) (d)46.7 18.8 8.8         
Anglesey (UK)51.0 144.7 73.3 143.8 73.3 143.9 73.4 
Arvida (Canada) (d)100.0 31.8 31.8         
Beauharnois (Canada) (d)100.0 9.8 9.8         
Becancour (Canada) (d)25.1 80.1 20.1         
Bell Bay (Australia)100.0 178.3 178.3 177.5 177.5 173.8 173.8 
Boyne Island (Australia)59.4 550.3 329.6 545.1 325.0 544.9 326.2 
Dunkerque (France) (d)100.0 49.5 49.5         
Grande-Baie (Canada) (d)100.0 39.7 39.7         
ISAL (Reykjavik) (Iceland) (d)100.0 35.0 35.0         
Kitimat (Canada) (d)100.0 46.8 46.8         
Lannemezan (France) (d)100.0 5.0 5.0         
Laterriere (Canada) (d)100.0 44.0 44.0         
Lochaber (UK) (d)100.0 8.3 8.3         
Lynemouth (UK) (d)100.0 33.3 33.3         
Ningxia (Qingtongxia) (China) (d)50.0 30.9 15.5         
Sebree (USA) (d)100.0 36.8 36.8         
Shawinigan (Canada) (d)100.0 18.3 18.3         
SORAL (Husnes) (Norway) (d)50.0 32.0 16.0         
St-Jean-de Maurienne (France) (d)100.0 25.2 25.2         
Tiwai Point (New Zealand)79.4 353.0 280.9 337.3 268.9 351.4 280.3 
Tomago (Australia) (d)51.6 97.4 50.2         














 
Rio Tinto total    1479.7   844.7   853.7 














 
BAUXITE (’000 tonnes)              
Awaso (Ghana) (d) (g)80.0 216 173         
Gove (Australia) (d)100.0 985 985         
Porto Trombetas (MRN) (Brazil) (d)12.0 3,392 407         
Sangaredi (Guinea) (d)(h) 2,774 1,248         
Weipa (Australia)100.0 18,209 18,209 16,319 16,319 15,604 15,604 














 
Rio Tinto total    21,022   16,319   15,604 














 
BORATES (’000 tonnes) (i)              
Rio Tinto Minerals – Boron (US)100.0 541 541 538 538 540 540 
Rio Tinto Minerals – Argentina (Argentina)100.0 19 19 15 15 20 20 














 
Rio Tinto total    560   553   560 














 
COAL – HARD COKING (’000 tonnes)              
Rio Tinto Coal Australia              
Hail Creek Coal (Australia)82.0 5,012 4,110 4,544 3,726 5,900 4,838 
Kestrel Coal (Australia)80.0 2,586 2,069 2,729 2,183 2,946 2,357 














 
Rio Tinto total hard coking coal    6,179   5,909   7,195 














 

Rio Tinto 2007 Form 20-F28

Back to Contents

METALS AND MINERALS PRODUCTION (continued)

     2007   2006   2005 
   Production (a) Production (a) Production (a) 










 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share   share   share 














 
COAL – OTHER* (’000 tonnes)              
Rio Tinto Coal Australia              
Bengalla (Australia)30.3 5,155 1,561 5,544 1,679 5,965 1,806 
Blair Athol (Australia)71.2 7,924 5,645 10,190 7,259 10,600 7,551 
Hunter Valley Operations (Australia)75.7 10,094 7,642 12,024 9,104 12,374 9,369 
Kestrel Coal (Australia)80.0 1,035 828 863 691 774 619 
Mount Thorley Operations (Australia)60.6 2,924 1,771 3,895 2,359 3,962 2,400 
Tarong Coal (Australia)100.0 4,510 4,510 6,979 6,979 6,470 6,470 
Warkworth (Australia)42.1 5,775 2,430 7,342 3,089 6,293 2,647 














 
Total Australian other coal    24,388   31,159   30,863 














 
Rio Tinto Energy America              
Antelope (US)100.0 31,267 31,267 30,749 30,749 27,174 27,174 
Colowyo (US)(j) 5,077 5,077 5,754 5,754 5,325 5,325 
Cordero Rojo (US)100.0 36,712 36,712 36,094 36,094 34,234 34,234 
Decker (US)50.0 6,340 3,170 6,449 3,225 6,288 3,144 
Jacobs Ranch (US)100.0 34,565 34,565 36,258 36,258 33,823 33,823 
Spring Creek (US)100.0 14,291 14,291 13,181 13,181 11,881 11,881 














 
Total US coal    125,083   125,260   115,580 














 
Rio Tinto total other coal    149,471   156,419   146,443 














 
COPPER (mined) (’000 tonnes)              
Bingham Canyon (US)100.0 212.2 212.2 265.6 265.6 220.6 220.6 
Escondida (Chile)30.0 1,405.5 421.6 1,313.4 394.0 1,270.2 381.1 
Grasberg – Joint Venture (Indonesia) (k)40.0 569.4 28.4 115.5 46.2 273.9 109.6 
Northparkes (Australia)80.0 43.1 34.5 83.3 66.6 54.0 43.2 
Palabora (South Africa) (l)57.7 71.4 41.2 61.5 31.1 61.2 30.0 














 
Rio Tinto total    737.9   803.5   784.4 














 
COPPER (refined) (’000 tonnes)              
Escondida (Chile)30.0 238.4 71.5 134.4 40.3 143.9 43.2 
Kennecott Utah Copper (US)100.0 265.6 265.6 217.9 217.9 232.0 232.0 
Palabora (South Africa) (l)57.7 91.7 52.9 81.2 40.9 80.3 39.3 














 
Rio Tinto total    390.0   299.2   314.5 














 
DIAMONDS (’000 carats)              
Argyle (Australia)100.0 18,744 18,744 29,078 29,078 30,476 30,476 
Diavik (Canada)60.0 11,943 7,166 9,829 5,897 8,272 4,963 
Murowa (Zimbabwe)77.8 145 113 240 187 251 195 














 
Rio Tinto total    26,023   35,162   35,635 














 
GOLD (mined) (‘000 ounces)              
Barneys Canyon (US)100.0 11 11 15 15 16 16 
Bingham Canyon (US)100.0 397 397 523 523 401 401 
Cortez/Pipeline (US) (m)40.0 538 215 444 178 904 361 
Escondida (Chile)30.0 187 56 170 51 183 55 
Grasberg – Joint Venture (Indonesia) (k)40.0 2,689 423 238 95 1,676 670 
Greens Creek (US) (m)70.3 68 48 63 44 73 51 
Kelian (Indonesia)90.0     43 38 
Lihir (Papua New Guinea) (n)     424 61 
Northparkes (Australia)80.0 79 63 95 76 57 46 
Rawhide (US)51.0 19 10 26 13 35 18 
Others 19 11 18 9 15 7 














 
Rio Tinto total    1,233   1,003   1,726 














 
GOLD (refined) (’000 ounces)              
Kennecott Utah Copper (US)100.0 523 523 462 462 369 369 














 
*Coal – other includes thermal coal, semi-soft coking coal and semi-hard coking coal.
See notes on page 22

 

Rio Tinto 20062007 Form 20-F1929

Back to Contents

METALS AND MINERALS PRODUCTION continued(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              
     2007   2006   2005 
   Production (a) Production (a) Production (a) 










 
 Rio Tinto Total Rio Tinto Total Rio Tinto Total Rio Tinto 
 % share (b)   share   share   share 














 
IRON ORE (’000 tonnes)              
Channar (Australia)60.0 10,549 6,330 9,798 5,879 8,644 5,186 
Corumbá (Brazil)100.0 1,777 1,777 1,982 1,982 1,410 1,410 
Eastern Range (Australia)             (n) 6,932 6,932 8,215 8,215 6,559 6,559 
Hamersley Iron (Australia)100.0 94,567 94,567 79,208 79,208 74,387 74,387 
Hope Downs (Australia) (p)50.0 64 32     
Iron Ore Company of Canada (Canada)58.7 13,229 7,768 16,080 9,442 15,647 9,188 
Robe River (Australia)53.0 51,512 27,301 52,932 28,054 52,385 27,764 














 
Rio Tinto total    144,707   132,780   124,494 














 
LEAD (’000 tonnes)              
Greens Creek (US) (m)70.3 17.0 11.9        16.9 11.9 16.9 11.9 














 
MOLYBDENUM (’000 tonnes)              
Bingham Canyon (US)100.0 14.9 14.9        16.8 16.8 15.6 15.6 














 
PIG IRON (’000 tonnes)              
HIsmelt®(Australia)60.0 115 69 89 53 9 5 














 
SALT (’000 tonnes)              
Rio Tinto Minerals – salt (Australia) (q)68.4 7,827 5,242 8,323 5,405 8,480 5,507 














 
SILVER (mined) (’000 ounces)              
Bingham Canyon (US)100.0 3,487 3,487 4,214 4,214 3,958 3,958 
Escondida (Chile)30.0 7,870 2,361 6,646 1,994 6,565 1,970 
Grasberg – Joint Venture (Indonesia) (k)40.0 5,238 477 1,675 670 3,410 1,364 
Greens Creek (US) (m)70.3 8,646 6,075 8,866 6,230 9,664 6,791 
Others 914 602 1,345 861 1,422 843 














 
Rio Tinto total    13,002   13,968   14,926 














 
SILVER (refined) (’000 ounces)              
Kennecott Utah Copper (US)100.0 4,365 4,365 4,152 4,152 3,538 3,538 














 
TALC (’000 tonnes)              
Rio Tinto Minerals – talc100.0 1,281 1,281 1,392 1,392 1,364 1,364 
(Australia/Europe/North America) (r)              














 
TITANIUM DIOXIDE FEEDSTOCK (’000 tonnes)             
Rio Tinto Iron & Titanium100.0 1,458 1,458 1,415 1,415 1,312 1,312 
(Canada/South Africa) (s)              














 
URANIUM (’000 lbs U3O8)(t)              
Energy Resources of Australia (Australia)68.4 11,713 8,011 10,370 7,092 13,013 8,900 
Rössing (Namibia)68.6 6,714 4,605 7,975 5,469 8,182 5,611 














 
Rio Tinto total    12,616   12,561   14,511 














 
ZINC (mined) (’000 tonnes)              
Greens Creek (US) (m)70.3 50.8 35.7        47.5 33.4 52.9 37.2 














 

 

Rio Tinto 20062007 Form 20-F2030

Back to Contents

METALS AND MINERALS PRODUCTION continued(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

Back to Contents

METALS AND MINERALS PRODUCTION continued

Notes
(a)Mine production figures for metals refer to the total quantity of metal produced in concentrates or doré bullion irrespective of whether these products are then refined onsite, except for the data for iron ore and bauxite (beneficiated plus calcined) which represent production of saleable quantities of ore.
(b)Rio Tinto percentage share, shown above, is as at the end of 20062007 and has applied over the period 2004 – 20062005–2007 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 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 
 







 
        
 Rio Tinto Share %      
 





 
 Operation See note2007 2006 2005 
 Queensland Alumina (e)46.3 38.6 38.6 
 Palabora (l)57.7 50.5 49.0 
 Rio Tinto Minerals – salt (q)67.0 64.9 64.9 
 





 
(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)Rio Tinto acquired the operating assets of Alcan with effect from 24 October 2007; production is shown as from that date. The Rio Tinto assets and the Alcan assets have been combined under the Rio Tinto Alcan name.
(e)Rio Tinto held a 38.6 per cent share in QAL until 24 October 2007; this increased to 80.0 per cent following the Alcan acquisition
(f)Yarwun was previously known as Comalco Alumina Refinery, started production in October 2004.Refinery.
(e)(g)Rio Tinto completed the sale of its fourhas an 80 per cent interest in the BokéAwaso mine on 25 June 2004. Production data are shown up t obut purchases the dateadditional 20 per cent of sale.production
(f)(h)Rio Tinto has a 22.9 per cent shareholding in the Sangaredi mine but receives 45 per cent of production under the partnership agreement.
(i)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 ofThrough a joint venture agreement with 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’s shareholding in Palabora varied during 2005 and 2006 due to the progressive conversion of debentures into ordinary shares.
(m)In February 2008 Rio Tinto reached agreement for the sale of Greens Creek and on 5 March 2008 the Group completed the sale of its 49 per cent interest in Somincor on 18 June 2004. Production data are shown upthe Cortez joint venture 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.its partner.
(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 interest 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..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 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)(o)Rio Tinto’s share of production includes 100 per cent of the production from the Eastern Range mine, which commenced production in March 2004.mine. 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)(p)Hope Downs started production in the fourth quarter of 2007
(q)Rio Tinto completed the sale ofincreased its 100shareholding in Rio Tinto Minerals – salt to 68.4 per cent interest inat the Zinkgruvan mine on 2 June 2004. Production data are shown up to the datebeginning of sale.July 2007.
(t)HIsmelt® commenced production during September 2005.
(u)(r)Talc production includes some products derived from purchased ores.
(v)(s)Quantities comprise 100 per cent of QIT and 50 per cent of Richards Bay Minerals’ production.
(t)With effect from the second quarter of 2007 Rio Tinto is reporting uranium production as ‘000 lbs U3O8rather than tonnes.

 

Rio Tinto 20062007 Form 20-F2231

Back to Contents

ORE RESERVES
(under (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:

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 mineraldepositmineraldeposit 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”"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, is estimated,could be extracted economically if future prices were to be in line with the average of historical pricesfor the threeprices for thethree years to 30 June 2006,2007, or contracted prices where applicable. For this purpose, contracted prices areapplied onlyare appliedonly to future sales volumes for which the price is predetermined by an existing contract; and theaverage of historicalthe average ofhistorical prices is applied to expected sales volumes in excess of such amounts. Moreover, reportedore reserve estimatesreported ore reserveestimates have not been increased above the levels expected to be economic based on Rio Tinto'sownTinto's own long term pricetermprice assumptions.
The term “legally”"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,reserves toexist, 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”"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”"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 2006.2007. 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 20062007 Form 20-F2332

Back to Contents

ORE RESERVES (under Industry Guide 7) continued(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              
 Type Total ore reserves at end     
 of 2007     
 mine 


     
 (b) Tonnage Grade Interest Rio Tinto 
       % share 










 
         Recoverable 
BAUXITE(c)        mineral 
   millions     millions 
   of tonnes %Al2O3    of tonnes 
Reserves at operating mine          
Gove (Australia) (d)O/P 143 49.2 100.0 143 
Porto Trombetas (Brazil) (d)O/P 166 51.2 12.0 20 
Weipa (Australia) (d)O/P 1,224 53.6 100.0 1,224 










 
Rio Tinto total        1,387 










 
         
       Marketable 
BORATES(e)      product 
   millions   millions 
   of tonnes   of tonnes 
Reserves at operating mine        
Rio Tinto Minerals - Boron (US)        
- mineO/P 19.2 100.0 19.2 
- stockpiles (f)S/P 2.3 100.0 2.3 








 
Rio Tinto total      21.5 








 
             
   Coal type Marketable Marketable coal quality     
   (h) reserves (i) (i)     
     
 


     
             Marketable 
COAL(g)      Calorific Sulphur   reserves 
     millions value content   millions 
     of tonnes MJ/kg %   of tonnes 
Reserves at operating mines              
Rio Tinto Energy America              
Antelope (US)O/C SC 325 20.59 0.24 100.0 325 
Colowyo (US) (j)O/C SC 9 24.19 0.44 100.0 9 
Cordero Rojo (US)O/C SC 241 19.54 0.30 100.0 241 
Decker (US)O/C SC 12 22.10 0.39 50.0 6 
Jacobs Ranch (US)O/C SC 383 20.35 0.43 100.0 383 
Spring Creek (US) (k)O/C SC 295 21.75 0.33 100.0 295 














 
Total US coal            1,259 














 
Rio Tinto Coal Australia              
Bengalla (Australia)O/C SC 137 28.21 0.47 30.3 42 
Blair Athol (Australia)O/C SC 37 26.91 0.30 71.2 26 
Hail Creek (Australia)O/C MC 174 32.20 0.35 82.0 142 
Hunter Valley OperationsO/C SC + MC 298 28.90 0.58 75.7 226 
(Australia)              
Kestrel (Australia) (l)U/G SC + MC 136 31.60 0.59 80.0 109 
Mount Thorley OperationsO/C SC + MC 23 29.48 0.46 60.6 14 
(Australia)              
Warkworth (Australia)O/C SC + MC 242 28.87 0.45 42.1 102 














 
Total Australian coal            661 














 
Rio Tinto total reserves at operating mines           1,920 














 
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 














 

 

Rio Tinto 20062007 Form 20-F2433

Back to Contents

ORE RESERVES (under Industry Guide 7) continued(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            
 Type of Total ore reserves at end 2007 Average     
 mine 


 mill     
 (b) Tonnage Grade recovery Interest Rio Tinto 
       % % share 












 
           Recoverable 
COPPER          metal 
   millions       millions 
   of tonnes %Cu     of tonnes 
             
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/P 563 0.52 86 100.0 2.539 
– stockpiles (f)S/P 49 0.33 86 100.0 0.141 
Escondida (Chile) (n)            
– sulphide mineO/P 1,690 1.14 86 30.0 4.959 
– sulphide leach mineO/P 2,217 0.53 32 30.0 1.123 
– oxide mineO/P 46 1.12 68 30.0 0.104 
– sulphide stockpiles (f)S/P 14 1.24 86 30.0 0.044 
– sulphide leach stockpiles (f)S/P 182 0.75 32 30.0 0.129 
– oxide stockpiles (f)S/P 112 0.78 68 30.0 0.176 
Grasberg (Indonesia)O/P + U/G 2,712 1.04 88 (o) 7.388 
Northparkes (Australia)            
– mineU/G 47 0.97 89 80.0 0.325 
– stockpiles (f)S/P 0.7 0.69 85 80.0 0.003 
Palabora (South Africa)U/G 104 0.62 88 57.7 0.327 












 
Rio Tinto total reserves at operating mines          17.258 












 
Undeveloped reserves (m)            
Eagle (US) (p)U/G 3.2 3.04 95 100.0 0.092 
Oyo Tolgoi (Mongolia) (q)O/P 930 0.50 87 9.9 0.399 












 
Rio Tinto total undeveloped reserves          0.491 












 
             
           Recoverable 
DIAMONDS(c)          diamonds 
   millions carats     millions 
   of tonnes per tonne     of carats 
             
Reserves at operating mines            
Argyle (Australia)            
– AK1 pipe mineO/P + U/G 89 2.2   100.0 192.3 
– AK1 pipe stockpiles (f)S/P 5.2 1.0   100.0 5.2 
Diavik (Canada)O/P + U/G 22 3.5   60.0 46.2 
Murowa (Zimbabwe)            
– mineO/P 21 0.7   77.8 11.5 
– stockpiles (f)S/P 0.2 0.5   77.8 0.1 












 
Rio Tinto total          255.4 












 
             
           Recoverable 
GOLD          metal 
   millions grammes     millions 
   of tonnes per tonne     of ounces 
             
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/P 563 0.30 65 100.0 3.567 
– stockpiles (f)S/P 49 0.18 65 100.0 0.183 
Cortez/Pipeline (US) (r)            
– mineO/P + U/G 129 2.70 81 40.0 3.629 
– stockpiles (f)S/P 1.6 4.47 86 40.0 0.080 
Grasberg (Indonesia)O/P + U/G 2,712 0.90 69 (o) 13.672 
Greens Creek (US) (s)U/G 7.7 3.68 68 70.3 0.437 
Northparkes (Australia)            
– mineU/G 47 0.40 73 80.0 0.357 
– stockpiles (f)S/P 0.7 0.58 76 80.0 0.008 












 
Rio Tinto total reserves at operating mines          21.932 












 

 

Rio Tinto 20062007 Form 20-F2534

Back to Contents

ORE RESERVES (under Industry Guide 7) continued(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            
 Type of Total ore reserves at end 2007 Average     
 mine 
 mill     
 (b) Tonnage Grade recovery Interest Rio Tinto 
       % % share 












 
           Recoverable 
GOLD          metal 
   millions grammes     millions 
   of tonnes per tonne     of ounces 
             
Undeveloped reserves(m)            
Oyo Tolgoi (Mongolia) (q)O/P 930 0.36 71 9.9 0.753 












 
             
           Marketable 
IRON ORE(c)          product 
   millions       millions 
   of tonnes %Fe     of tonnes 
             
Reserves at operating mines            
and mines under construction            
Channar (Australia)            
– Brockman OreO/P 106 63.4   60.0 64 
Corumbá (Brazil)            
– mineO/P 209 67.0   100.0 209 
– stockpiles (f)S/P 1 66.3   100.0 1 
Eastern Range (Australia)            
– Brockman Ore (t)O/P 111 63.2   54.0 60 
Hamersley (Australia)            
– Brockman 2 (Brockman Ore)O/P 25 62.7   100.0 25 
– Brockman 4 (Brockman Ore)O/P 570 62.3   100.0 570 
– Marandoo (Marra Mamba Ore)O/P 50 61.7   100.0 50 
– Mt Tom Price (Brockman Ore)            
– mineO/P 104 64.4   100.0 104 
– stockpiles (f)S/P 21 64.5   100.0 21 
– Mt Tom Price (Marra Mamba Ore)O/P 33 61.2   100.0 33 
– Paraburdoo (Brockman Ore) (u)O/P 28 63.9   100.0 28 
– Paraburdoo (Marra Mamba Ore) (u)O/P 0.8 63.3   100.0 0.8 
– Nammuldi (Marra Mamba Ore)O/P 30 61.2   100.0 30 
– Yandicoogina (Pisolite Ore HG) (v)            
– mineO/P 271 58.7   100.0 271 
– stockpiles (f)S/P 5 58.5   100.0 5 
– Yandicoogina (Process Product)            
– mineO/P 119 58.5   100.0 119 
Hope Downs (Australia)            
– Marra Mamba OreO/P 344 61.4   50.0 172 
Iron Ore Company of Canada (w)            
 (Canada)O/P 538 65.0   58.7 316 
Robe River (Australia)            
– Pannawonica (Pisolite Ore)            
– mineO/P 288 57.2   53.0 153 
– stockpiles (f)S/P 16 56.9   53.0 9 
– West Angelas (Marra Mamba Ore)            
– mineO/P 385 61.8   53.0 204 
– stockpiles (f)S/P 6 59.3   53.0 3 












 
Rio Tinto total          2,449 












 
             
           Recoverable 
LEAD          metal 
   millions       millions 
   of tonnes %Pb     of tonnes 
             
Reserves at operating mine            
Greens Creek (US) (s)U/G 7.7 3.79 66 70.3 0.136 












 

 

Rio Tinto 20062007 Form 20-F2635

Back to Contents

ORE RESERVES (under Industry Guide 7) continued(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            
 Type of Total ore reserves at end 2007 Average     
 mine 


 mill     
 (b) Tonnage Grade recovery Interest Rio Tinto 
       % % share 












 
           Recoverable 
MOLYBDENUM          metal 
   millions       millions 
   of tonnes %Mo     of tonnes 
             
Reserves at operating mine            
Bingham Canyon (US) (x)            
– mineO/P 563 0.047 62 100.0 0.166 
– stockpiles (f)S/P 49 0.020 62 100.0 0.006 












 
Rio Tinto total          0.172 












 
             
           Recoverable 
NICKEL          metal 
   millions       millions 
   of tonnes %Ni     of tonnes 
             
Undeveloped reserves (m)            
Eagle (US) (p)U/G 3.2 3.89 84 100.0 0.105 












 
             
           Recoverable 
SILVER          metal 
   millions grammes     millions 
   of tonnes per tonne     of ounces 
             
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/P 563 2.42 77 100.0 33.533 
– stockpiles (f)S/P 49 1.56 77 100.0 1.881 
Grasberg (Indonesia)O/P + U/G 2,712 4.11 68 (o) 77.186 
Greens Creek (US) (s)U/G 7.7 471 72 70.3 58.378 












 
Rio Tinto total          170.978 












 
         
       Marketable 
TALC(e)      product 
   millions   millions 
   of tonnes   of tonnes 
         
Reserves at operating mines        
Rio Tinto Minerals – talc (y)        
Europe/N America/Australia)O/P + U/G 33.5 100.0 33.5 








 
         
       Marketable 
TITANIUM DIOXIDE      product 
FEEDSTOCK(e)  millions   millions 
   of tonnes   of tonnes 
         
Reserves at operating mines        
QIT (Canada)O/P 53.5 100.0 53.5 
RBM (South Africa)D/O 24.2 50.0 12.1 








 
Rio Tinto total reserves at operating mines      65.5 








 
Undeveloped reserves (m)        
QMM (Madagascar)D/O 12.4 80.0 9.9 








 

 

Rio Tinto 20062007 Form 20-F2736

Back to Contents

ORE RESERVES (under Industry Guide 7) continued(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              
   Total ore reserves       
 Type of  at end 2007 Average     
 mine 


 mill     
 (b) Tonnage Grade recovery Interest Rio Tinto share 
       % %   












 
           Recoverable 
URANIUM          metal 
   millions       millions 
   of tonnes %U308      of tonnes 
Reserves at operating mines            
Energy Resources of Australia            
(Australia)            
– Ranger #3 mineO/P 11.8 0.220 88.5 68.4 0.0157 
– Ranger #3 stockpiles (f)S/P 20.3 0.107 86.0 68.4 0.0140 
Rössing (Namibia) (z)            
– mineO/P 148.4 0.037 85 68.6 0.0318 
– stockpiles (f)S/P 1.8 0.038 85 68.6 0.0004 












 
Rio Tinto total          0.0618 












 
             
           Recoverable 
ZINC          metal 
   millions       millions 
   of tonnes %Zn     of tonnes 
Reserves at operating mine            
Greens Creek (US) (s)U/G 7.7 10.18 76 70.3 0.419 












 

 

Rio Tinto 20062007 Form 20-F2837

Back to Contents

ORE RESERVES (under Industry Guide 7) continued(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              
 Type of Proven ore reserves at end 2007 Probable ore reserves at end 2007 
 mine 


 




 
 (b) Tonnage Grade Drill hole Tonnage Grade Drill hole 
        Spacing(aa)     Spacing(aa) 














 
BAUXITE(c)  millions     millions     
   of tonnes %Al2O3    of tonnes %Al2O3    
Reserves at operating mine              
Gove (Australia) (d)O/P 78 49.4 50m x 50m to 65 49.0 100m x 100m to 
       50m x 100m     200m x 200m 
Porto Trombetas (Brazil) (d)O/P 149 51.3 200m x 200m 18 50.1 400m x 400m 
Weipa (Australia) (d)O/P 149 53.2 76m x 76m 1,074 53.7 400m x 800m or 
             better 














 
BORATES(e)  millions     millions     
   of tonnes     of tonnes     
Reserves at operating mine              
Rio Tinto Minerals - Boron (US) (j)              
– mineO/P 14.3   61m x 61m 4.9   61m x 61m 
– stockpiles (f)S/P 0.1     2.2     














 
               
       Marketable Reserves 
 Recoverable % Yield to 




 
   reserves give Proven Drill hole Probable Drill hole 
   total marketable   spacing(aa)   spacing(aa) 
     reserves         
COAL(g)  millions   millions   millions   
   of tonnes   of tonnes   of tonnes   
Reserves at operating mines              
Rio Tinto Energy America              
Antelope (US)O/C 325 100 325 350m    
Colowyo (US) (j)O/C 9 100 9 150m     
Cordero Rojo (US)O/C 241 100 241 250m     
Decker (US)O/C 12 100 12 250m     
Jacobs Ranch (US)O/C 383 100 379 300m 4 300m 
Spring Creek (US) (k)O/C 295 100 295 250m     
Rio Tinto Coal Australia              
Bengalla (Australia)O/C 182 75 75 350m 62 500m 
Blair Athol (Australia)O/C 42 89 37 150m     
Hail Creek (Australia)O/C 258 67 100 300m 73 400m 
Hunter Valley Operations (Australia)O/C 440 68 235 300m 63 500m 
Kestrel (Australia) (l)U/G 163 83 53 500m 83 1000m 
Mount Thorley Operations (Australia)O/C 36 66 21 125m 2 500m 
Warkworth (Australia)O/C 379 64 142 450m 100 1000m 
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 














 

 

Rio Tinto 20062007 Form 20-F2938

Back to Contents

ORE RESERVES (under Industry Guide 7) continued(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              
 Type of                Proven ore reserves at end 2007 Probable ore reserves at end 2007 
 mine 




 




 
 (b) Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing(aa)     spacing(aa) 














 
COPPER  millions     millions     
   of tonnes %Cu   of tonnes %Cu   
Reserves at operating mines              
Bingham Canyon (US)              
– mineO/P 318 0.57 90m 245 0.47 110m 
– stockpiles (f)S/P 19 0.32   30 0.34   
Escondida (Chile) (n)              
– sulphide mineO/P 612 1.24 55m x 55m 1,078 1.08 80m x 80m 
– sulphide leach mineO/P 514 0.51 55m x 55m 1,703 0.54 100m x 100m 
– oxide mineO/P       46 1.12 50m x 50m 
– sulphide stockpiles (f)S/P 14 1.24         
– sulphide leach stockpiles (f)S/P 182 0.75         
– oxide stockpiles (f)S/P 112 0.78         
Grasberg (Indonesia)O/P + U/G 771 1.10 13m to 40m 1,941 1.01 42m to 100m 
Northparkes (Australia)              
– mineU/G       47 0.97 40 x 40 x 80m 
– stockpiles (f)S/P 0.7 0.69         
Palabora (South Africa)U/G 104 0.62 76m       
Undeveloped reserves (m)              
Eagle (US) (p)U/G       3.2 3.04 25m 
Oyo Tolgoi (Mongolia) (q)O/P 127 0.58 50m 803 0.48 70m 














 
               
DIAMONDS(c)  millions carats   millions carats   
   of tonnes per tonne   of tonnes per tonne   
Reserves at operating mines              
Argyle (Australia)              
– AK1 pipe mineO/P + U/G 19 1.2 50m x 50m 70 2.4 50m x 50m 
– AK1 pipe stockpiles (f)S/P 0.4 2.6   4.7 0.9   
Diavik (Canada)O/P + U/G 9.0 3.4 27m to 34m 13 3.6 30m to 34m 
Murowa (Zimbabwe)              
– mineO/P       21 0.7 25m 
– stockpiles (f)S/P       0.2 0.5   














 
               
GOLD  millions grammes   millions grammes   
   of tonnes per tonne   of tonnes per tonne   
Reserves at operating mines              
Bingham Canyon (US)              
– mineO/P 318 0.33 90m 245 0.27 110m 
– stockpiles (f)S/P 19 0.18   30 0.18   
Cortez/Pipeline (US) (r)              
– mineO/P + U/G 12 4.34 27m to 30m 116 2.53 48m 
– stockpiles (f)S/P 1.6 4.47         
Grasberg (Indonesia)O/P + U/G 771 1.09 13m to 40m 1,941 0.82 42m to 100m 
Greens Creek (US) (s)U/G       7.7 3.68 30m 
Northparkes (Australia)              
– mineU/G       47 0.40 40 x 40 x 80m 
– stockpiles (f)S/P 0.7 0.58         
Undeveloped reserves (m)              
Oyo Tolgoi (Mongolia) (q)O/P 127 0.93 50m 803 0.27 70m 














 

 

Rio Tinto 20062007 Form 20-F3039

Back to Contents

ORE RESERVES (under Industry Guide 7) continued(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              
   Proven ore reserves Probable ore reserves 
 Type of at end 2007 at end 2007 
 mine 










 
 (b) Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing(aa)     spacing(aa) 














 
IRON ORE(c)  millions    millions    
   of tonnes %Fe  of tonnes %Fe  
Reserves at operating mines            
and mines under construction            
Channar (Australia)            
– Brockman OreO/P 89 63.4 60m x 60m 18 63.3 Max 120m 
Corumbá (Brazil)            
   – mineO/P 102 66.9 100m x 100m 107 67.0 200m x 400m 
   – stockpiles (f)S/P 1 66.3       
Eastern Range (Australia)            
Brockman Ore (t)O/P 81 63.2 60m x 60m 30 63.2 Max 120m 
Hamersley (Australia)            
Brockman 2 (Brockman Ore)O/P 18 62.7 50m x 50m 8 62.6 Max 100m 
Brockman 4 (Brockman Ore)O/P 336 62.4 50m x 50m 233 62.1 200m x 100m 
Marandoo (Marra Mamba Ore)O/P 48 61.7 75m x 75m 2 60.7 Max 150m 
Mt Tom Price (Brockman Ore)            
   – mineO/P 59 64.2 30m x 30m 46 64.7 60m x 30m 
   – stockpiles (f)S/P      21 64.5  
- Mt Tom Price (Marra Mamba Ore)O/P      33 61.2 60m x 30m 
Paraburdoo (Brockman Ore) (u)O/P 23 64.0 30m x 30m 6 63.4 60m x 30m 
Paraburdoo (Marra Mamba Ore) (u)O/P      0.8 63.3 60m x 60m 
Nammuldi (Marra Mamba Ore)O/P 25 61.5 60m x 60m 5 59.7 120m x 120m 
Yandicoogina (Pisolite Ore HG)            
(v)            
   – mineO/P 271 58.7 50m x 50m      
   – stockpiles (f)S/P      5 58.5  
Yandicoogina (Process Product)            
   – mineO/P 119 58.5 50m x 50m      
Hope Downs (Australia)            
Marra Mamba OreO/P 32 61.9 100m x 50m 312 61.4 200m x 50m 
Iron Ore Company of Canada (w)            
   (Canada)O/P 406 65.0 122m x 61m 131 65.0 122m x 122m 
Robe River (Australia)            
Pannawonica (Pisolite Ore)            
   – mineO/P 262 57.3 Max 70m x 70m 27 56.4 Max 100m x 100m 
   – stockpiles (f)S/P 2 57.0  13 56.9  
West Angelas (Marra Mamba Ore)            
   – mineO/P 196 62.1 25m x 25m 190 61.6 Max 200m x 50m 
   – stockpiles (f)S/P      6 59.3  














 
             
LEAD  millions    millions    
   of tonnes %Pb  of tonnes %Pb  
Reserves at operating mine            
Greens Creek (US) (s)U/G      7.7 3.79 30m 














 
             
MOLYBDENUM  millions    millions    
   of tonnes %Mo  of tonnes %Mo  
Reserves at operating mine            
Bingham Canyon (US) (x)            
mineO/P 318 0.049 90m245 0.045 110m 
stockpiles (f)S/P 19 0.022  30 0.018  














 
             
NICKEL  millions    millions    
   of tonnes %Ni  of tonnes    
Undeveloped reserves (m)         %Ni  
Eagle (US) (p)U/G      3.2 3.89 25m 














 

 

Rio Tinto 20062007Form 20-F3140

Back to Contents

ORE RESERVES (under Industry Guide 7) continued(continued)

   Proven ore reserves Probable ore reserves 
 Type of at end 2007 at end 2007 
 mine 










 
 (b) Tonnage Grade Drill hole Tonnage Grade Drill hole 
       spacing(aa)     spacing(aa) 














 
SILVER  millions grammes  millions grammes  
   of tonnes per tonne  of tonnes per tonne  
Reserves at operating mines            
Bingham Canyon (US)            
– mineO/P 318 2.59 90m 245 2.19 110m 
stockpiles (f)S/P 19 1.51  30 1.58  
Grasberg (Indonesia)O/P + U/G 771 4.31 13m to 40m 1,941 4.03 42m to 100m 
Greens Creek (US) (s)U/G      7.7 471 30m 














 
             
TALC(e)  millions    millions    
   of tonnes    of tonnes    
Reserves at operating mines            
Rio Tinto Minerals - talc (y)O/P + U/G 25.7   10m to 60m 7.8   15m to 100m 
(Europe/N.America/Australia)            














 
             
TITANIUM DIOXIDE  millions    millions    
FEEDSTOCK(e)  of tonnes    of tonnes    
Reserves at operating mines            
QIT (Canada) (w)O/P 30.0   <60m x 60m 23.5   >60m x 60m 
RBM (South Africa)D/O 5.6   50m x 50m 18.6   800m x 100m 
Undeveloped reserves (m)            
QMM (Madagascar)D/O 12.0   200m x 100m 0.4   400m x 200m 














 
             
URANIUM  millions    millions    
   of tonnes %U308   of tonnes %U308   
Reserves at operating mines            
Energy Resources of Australia            
(Australia)            
Ranger #3 mineO/P 4.8 0.224 25m 6.9 0.217 50m 
Ranger #3 stockpiles (f)S/P 20.3 0.107       
Rössing (Namibia) (z)            
mineO/P 17.8 0.051 20m x 20m 130.6 0.035 60m 
stockpiles (f)S/P 1.8 0.038       














 
             
ZINC  millions    millions    
   of tonnes %Zn  of tonnes %Zn  
Reserves at operating mine            
Greens Creek (US) (s)U/G      7.7 10.18 30m 














 

Rio Tinto 2007Form 20-F41

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)2007) used to test whether the reported reserve estimates could be economically extracted, include the following benchmark prices:
  
Ore reservesUnit US$ 




ALUMINIUMAluminiumpound1.02
Copperpound2.31
Goldounce529
Iron ore    
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** 0.460.61 
Atlantic benchmark (fines)dmtu** 0.490.64 
LEAD
Greens Creek (US)Leadpound 0.410.56 
MOLYBDENUM
Bingham Canyon (US)Molybdenumpound 20.527 
SILVER
Bingham Canyon (US)Silverounce 7.349.66 
Grasberg (Indonesia)*ounce7.34
Greens Creek (US)ounce7.34
ZINC
Greens Creek (US)Zincpound 0.64




1.05
 

* = 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.
(d)Rio Tinto acquired the operating assets of Alcan with effect from 24 October 2007. The Rio Tinto assets and the Alcan assets have been combined under the Rio Tinto Alcan name and reserves are presented here for the first time. The Weipa deposit now includes the reserve for Ely as this deposit is contiguous with Weipa.
(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)Stockpile components of reserves are shown for all operations.
(g)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)(h)Coal type: SC = steam/thermal coal; MC = metallurgical/coking coal.
(h)(i)Analyses of coal from the US were undertaken according to "American Standard Testing Methods" (ASTM) on an "As Received" moisture basis whereas the coals from Australia have been analysed on an "Air Dried" moisture basis according to Australian Standards (AS). MJ/kg = megajoules per kilogramme. 1 MJ/kg = 430.2 Btu/lb.
(i)Stockpile components of reserves are shown for all operations.
(j)Rio Tinto Minerals - Boron was previously known as Boron.
(k)Rio Tinto Energy America was previously known as Kennecott Energy.
(l)Rio Tinto Energy America has a partnership interest in the Colowyo mine but, as it is responsible under a management agreement for the operation of the mine, all of Colowyo's reserves are included in Rio Tinto's share shown above.

Rio Tinto 2006 Form 20-F(k)32Acquisition of additional leases increased the Spring Creek reserves

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ORE RESERVES (under Industry Guide 7) continued

(l)Approval of the Kestrel mine extension resulted in an increase in reserves by upgrading of mineralised material from the Kestrel West area.
(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)Reporting for Escondida and Escondida Norte is combined for 2007. The increase in reserves at Escondida and Escondida Norte results from updated geological 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.parameters.
(o)Under the terms of a joint venture agreement between Rio Tinto and Freeport-McMoRan Copper & Gold (FCX),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)ReservesFollowing completion of economic and technical studies at Palabora have decreased following detailed remodelling of both grade and block cave models, and the effect of dilutingEagle project, mineralised material fromwas upgraded to reserves that are presented here for 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.first time.
(q)The successful completion of feasibilityWhilst economic and technical studies and change in economic parameters has increased reservescontinue 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,Oyu Tolgoi deposits, reserves are presented here for the first time.
(r)The increase in grade at Cortez is due to the addition of higher grade material from mineralised material together with production depletion of lower grade material. On 5 March 2008 the Group completed the sale of its interest in the Cortez joint venture to its partner.
(s)In February 2008 Rio Tinto entered into an agreement to sell its interest in Greens Creek.
(t)Life of mine studies at Eastern Range resulted in development of new pit designs that in turn increased the reserves.
(u)Mt Tom Price reserves have increased following the upgradingLife of mine studies at Paraburdoo resulted in transfer of mineralised material and approved mine design extensions into a new area.that increased the reserves.
(v)Following a reassessmentThe reduction in reserves at Yandicoogina is the result of production and 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.studies
(w)The reserve model was updated on receiptReserves at IOC increased as a result of new data, which including depletion, resulted in a reductionrevised economic studies leading to an enlarging of reserves at QIT.the optimal pits
(x)ImprovementsMolybdenum grades reflect reconciliation of model and plant grades.
(y)The increase in processingreserves at the talc operations results from updated models following increased drilling and the application of new economic parameters enabled lower grade stockpileparameters; this transferred mineralised material to reserves.
(z)Economic and technical studies at Rossing resulted in revisions of pit shape thus increasing reserves.
(aa)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 addedaligned to test the reserves at Ranger #3.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.

 

Rio Tinto 20062007Form 20-F3342

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LOCATION OF GROUP OPERATIONS

Note
Wholly owned unless stated otherwise

LOCATION OF GROUP OPERATIONS as at JuneRio Tinto 2007 (wholly owned unless stated otherwise)Form 20-F43

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LOCATION OF GROUP OPERATIONS (continued)

Aluminium ALUMINIUM
  
Operating assetsUS$43,846 million
Sales revenueUS$7,309 million
Underlying earningsUS$1,097million

Rio Tinto’s Aluminium product group is the wholly owned, integrated aluminium subsidiary, Rio Tinto Alcan, which owns and manages operations predominately located in Canada and Australia, with other significant interests in the UK, France, New Zealand, Brazil, Guinea, China, Iceland, Ghana, Norway and the US. The group is currently organised into four business units – Bauxite & Alumina, Primary Metal, Engineered Products and Packaging. Rio Tinto announced in 2007 the intention to divest both the Engineered Products and Packaging business units. Sites relating to these businesses are not shown.

Aluminium
Operating sites
1Alma
20Alouette (40%)
7Alucam (Edea) (47%)
2Anglesey Aluminium (51%)
21Arvida
9Awaso (80%)
1Beauharnois
1Becancour (25%)
3Bell Bay
34Boyne Island (59%)
35Gladstone Power Station (42%CBG Sangaredi (23%)
36Dunkerque
8Queensland Alumina (39%Gardanne
10Gove alumina refinery
11Gove bauxite mine
1Grande-Baie
12ISAL
1Jonquiere
13Kitimat
1Laterriere
14Lochaber
15Lynemouth
17Ningxia (50%)
16Porto Trombetas (MRN) (12%)
4Queensland Alumina Limited (80%)
18Sao Luis (Alumar) (10%)
19Sebree
1Shawinigan
21SORAL (50%)
22St-Jean-de-Maurienne
23Tiwai Point (79%)
524Tomago (52%)
25Weipa
34Yarwun
CopperYarwun (formerly Comalco
  
Alumina Refinery)Operating assetsUS$4,118 million
Sales revenueUS$8,501 million
Underlying earningsUS$3,479 million

The Copper group comprises Kennecott Utah Copper and Kennecott Minerals in the US, and interests in the copper mines of Escondida in Chile, Grasberg in Indonesia, Northparkes in Australia, Palabora in South Africa. Projects under evaluation include the Resolution, Pebble and Eagle projects in the US, Oyu Tolgoi in Mongolia, La Granja in Peru and Sulawesi in Indonesia.

Copper and gold
Operating sites
26Bougainville (not operating) (54%)
27Cortez/Pipeline (40% - sale completed on 5 March 2008)
28Escondida (30%)
29Grasberg joint venture (40%)
30Kennecott Utah Copper
31Northparkes (80%)
32Palabora (58%)
33Rawhide (51%)
Projects
34La Granja
35Oyu Tolgoi (10%)
36Pebble (10%)
37Resolution (55%)
Nickel
Projects
38Eagle
39Sulawesi
Zinc, lead, silver
Operating sites
40Greens Creek (70% - sale agreed during February 2008)

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LOCATION OF GROUP OPERATIONS (continued)

Diamonds and Industrial Minerals
  
Operating assetsBORATESUS$4,632 million
Sales revenueUS$3,921 million
Underlying earningsUS$488 million

The Diamond and Industrial Minerals group comprises Rio Tinto’s diamond interests in the Diavik mine in Canada, the Argyle mine in Australia, and the Murowa mine in Zimbabwe, served by diamond sales offices in Belgium and India. Rio Tinto’s industrial minerals businesses comprise Rio Tinto Minerals, made up of borate and talc operations in the US, South America, Europe and Australia, and salt in Australia, as well as Rio Tinto Iron & Titanium interests in North America, South Africa and Madagascar.

Diamonds
Operating sites
41Argyle
42Diavik (60%)
43Murowa (78%)
 
Operating sitesBorates
Operating sites
644Boron
745Coudekerque Plant
846Tincalayu
947Wilmington Plant
 
Potash
Projects
48Rio Colorado Potash
 
COALSalt
Operating sites
49Dampier (68%)
50Lake MacLeod (68%)
49Port Hedland (68%)
Talc
Operating sites (only major sites are shown)
51Ludlow
52Talc de Luzenac
53Three Springs
54Yellowstone
Titanium dioxide feedstock
Operating sites
55QIT-Fer et Titane Lac Allard
56QIT-Fer et Titane Sorel Plant
57Richards Bay Minerals (50%)
Projects
58QIT Madagascar Minerals (80%)
Energy
  
Operating assetsUS$3,399 million
Sales revenueUS$4,621 million
Underlying earningsUS$484 million

The Energy group is represented in coal by Rio Tinto Coal Australia and Coal & Allied in Australia and by Rio Tinto Energy America in the US. It also includes uranium interests in Energy Resources of Australia and the Rössing Uranium mine in Namibia.

Coal
Operating sites
1059Antelope
1160Bengalla (30%)
1261Blair Athol (71%)
1362Colowyo (20%)
1059Cordero Rojo
1463Decker (50%)
1261Hail Creek (82%)
1564Hunter Valley Operations (76%)
1059Jacobs Ranch
1665Kestrel (80%)
1564Mt Thorley Operations (61%)
1463Spring Creek
1766Tarong
15Warkworth (42%)
 
Projects
Projects61
12Clermont (50%)
1160Mt Pleasant (76%)
 
COPPER AND GOLDUranium
Operating sites
1867Bougainville (not operating) (54%ERA (68%)
1968Cortez/Pipeline (40%)
20Escondida (30%)
21Grasberg joint venture (40%)
22Kennecott Utah Copper
23Northparkes (80%)
24Palabora (58%)
25Rawhide (51%Rössing (69%)
 
Projects
69Kintyre
70Sweetwater

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LOCATION OF GROUP OPERATIONS (continued)

Iron Ore 
Operating assetsProjectsUS$9,038 million
26Sales revenueLa GranjaUS$8,799 million
27Underlying earningsUS$2,651million

The Iron Ore group’s interests comprise Hamersley Iron and Robe River in Australia, Iron Ore Company of Canada, the Corumbá mine in Brazil and the Simandou, Guinea, and Orissa, India, projects. The group includes the HIsmelt® direct iron making plant in Australia.

Oyu Tolgoi (10%)Iron ore
28Pebble (20%)Operating sites
29Resolution (55%)
DIAMONDS
Operating sites
30Argyle
31Diavik (60%)
32Murowa (78%)
IRON ORE
Operating sites
3371 Corumbá
3472 Hamersley Iron mines:
  Brockman Channar (60%)
Eastern Range (54%)
Hope Downs (50% joint venture)
  Marandoo
  Mt Tom Price
  Nammuldi
  Paraburdoo
  Yandicoogina
Channar (60%)
Eastern Range (54%)
3573 HIsmelt®(60%)
3474Iron Ore Company of Canada (59%)
72 Robe River mines: (53%)
  West AngelasPannawonica
  PannawonicaWest Angelas
35Iron Ore Company ofProjects
Canada (59%)
Projects
34Hope Downs (50%)
3775 IOC Pellet Plant (59%)
3876 Orissa (51%)
3977 Simandou (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

Exploration

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 opportunities and 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 Former Soviet Union.

Technology and Innovation

Technology and Innovation, previously Operational and Technical Excellence, has bases in Australia, Canada, the UK and the US. Its role is to identify and promote best operational technology practice across the Group and to pursue step change innovation of strategic importance to orebodies of the future.


 

Rio Tinto 20062007 Form 20-F3446

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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 reportsunderreports under the Exchange Act received more than 180 days before 31 December 2006.2007.

Item 5.Operating and Financial Review and Prospects

This Item contains forward looking statements and attention is drawn to the Cautionary statement on page 7.

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 and underlying earnings have been reconciled on page 53 and the exclusions in arriving at underlying earnings have been analysed on page 55. Segmental information is provided in note 250 to the 2006 financial2007 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 messagestatement 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 MESSAGEChairman’s statement

We2007 was another record year for Rio Tinto characterised by continuing strong demand and prices for our metals and minerals, a change in chief executive and the transformational acquisition of Alcan. Once again Rio Tinto’s consistent strategy, focused on value creation and business excellence, delivered significant returns for our shareholders and major benefits to the countries and communities in which we operate.
The purchase of Alcan, announced in July and completed in October created a world leader in aluminium. Alongside this major acquisition we continued to experience strong global demandinvest heavily in our existing business with a programme totalling US$5.0 billion, further strengthening our platform for future production and high prices across our product groupsearnings growth. The Alcan acquisition, and the many other initiatives which the new executive team launched in 20062007, further demonstrated the strength and are pleaseddepth of Rio Tinto’s managerial capability 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 alertdeliver value 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.shareholders.

Results and dividends

The Group’s underlying earnings in 20062007 were a record US$7,3387,443 million, US$2,383 million or 48one per cent above 2005. Netearnings2006. Net earnings were US$7,4387,312 million compared with US$5,2157,438 million in 2005.2006. Cash flow from operations increased 3615 percent to [US$10,923]*a record US$12,569 million.
     The final dividendtotal dividends declared for 20062007 of 64136 US cents per share bringsrepresent an increase of 31 per cent over the total for 2006 to 104 US cents, anincrease of 30 per cent.dividends. We have a long standing policycommitted to further increases in the dividends of progressive dividend deliveryat least 20 per cent in each of 2008 and maintaining it remains apriority. In addition,2009. This underpins 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 investmentconfidence in the growth of thebusiness with particular emphasis on our portfoliobusiness and is a strong signal of economically robust projects. our belief in the strength of future demand and prices. We have always said that our priority for excess capital after meeting our investment in profitable growth is the ordinary dividend, and we are pleased to reinforce this commitment to our shareholders.
Our growth potential is further evidenced by our planned capital investment grew fromexpenditure in 2008 and 2009 of US$2.59 billion in 2005each year, including the commitments we have made to US$3.9 billioncompleting Rio Tinto Alcan’s growth projects. This indicative programme will, of course, be subject to rigorous appraisal of each investment.

Strategy
Our acquisition of Alcan was fully consistent with our long standing strategy. We remain focused on large, long life, low cost resources capable of delivering superior returns across the economic cycle. Alcan’s extensive global asset base has among the lowest cost aluminium smelters in 2006. Our pipeline of project opportunitiesthe world and is an industry leader in production technology and self generated energy, particularly hydro-electricity. This will see this grow to aroundUS$5 billionbe important in 2007.a carbon constrained world.

 

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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 ourRio Tinto’s primary objective and will remain so. We are fortunatethe addition of Alcan enables us to have a geographical portfolio weighted towards large, maturecapture value from growing aluminium demand alongside our established leadership positions in iron ore 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.copper.

Sustainable development

Rio TintoA successful business is in aone that is sustainable. It is one that maintains long term capital intensive business and our investments typically have life spansprofitability by pursuing value creating projects which recognise the importance 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,good social and environmental challenges simultaneously will beoutcomes. Moreover, I believe making our business sustainable is about recognising and managing the full spectrum of risk, thereby making the best opportunities available to us.
The value of this approach was demonstrated in the agreed transaction to acquire Alcan. Our positive reputation for social and environmental responsibility was welcomed by the Alcan board and led to the Government of Quebec readily agreeing to Rio Tinto continuing Alcan’s commitments to social and economic development in Quebec.
For our part we recognised the strategic advantage of expanding our position in aluminium, a recyclable metal which, in the case of Rio Tinto Alcan, is produced with a high proportion of hydro-generated electricity.
Our joint venture with BP to seek cleaner uses of coal through production of hydrogen energy coupled with storage of carbon dioxide underground reflects similar thinking. Our reputation supports our position as the developer of choice in Guinea where we are investing to develop a major iron ore project.
We were accepted into theFTSE4Goodindex in the UK after its policy committee decided to include companies involved in the production of uranium. Rio Tinto has maintained membership of theDow Jones Sustainability Worldindex since its inception in 1999 and has been an increasingly critical featureactive member of our business. I am pleased that our way of doingthe World Business Council for Sustainable Development and the International Council on Mining and Metals (ICMM), whose members are committed to superior business has received positive recognition and support from our various stakeholderspractices in these environments.sustainable development.

New chief executive
Board and management developments

We have announced thatAs you know, Tom Albanese will succeedsucceeded Leigh Clifford as chief executive on 1in May 2007. We thank Leigh for his many years of service to Rio Tinto, and its predecessor companies, including the last seven as chief executive. He contributed much to creating Rio Tinto’s platform for the future and we owe him a lot. As his successor, Tom has a long and proven track record in Rio Tinto and has made a very strong start in his first year as chief executive.
Following the acquisition of Alcan we were pleased to welcome Yves Fortier and Paul Tellier to the board as non executive directors, and Dick Evans, chief exective of Rio Tinto Alcan, as an outstandingexecutive director.
Yves joins theNominations committeeand theCommittee on social and environmental accountability. Paul joins theAudit committeeand theRemuneration committee. This strong representation from Canada will provide important continuity in the integration of Alcan and brings valuable new perspectives to the board.
As announced at the 2007 annual general meetings, Sir Richard Sykes, currently the senior non executive director, will retire at the conclusion of the 2008 annual general meetings after ten years on the board. Richard has made a highly valued contribution to Rio Tinto over the period based on his prior experience of leading a major global company and across the technology field. We thank him for almost 37 years. His seven yearsthat. Andrew Gould, currently chairman of theAudit committee, will become the senior non executive director on Sir Richard’s retirement and will become chairman of theRemuneration committee. Sir David Clementi will replace Andrew as chief executive have seen significantgrowthchairman of theAudit committee. These changes will take effect at the conclusion of the 2008 annual general meetings.
Ill health led to the resignation of Ashton Calvert from the board in November and we were deeply saddened to hear of his death shortly afterwards. Ashton joined the board in 2005 following a long and distinguished career in the profitabilityAustralian foreign service. He made a major contribution to Rio Tinto and provided valuable insights across a range of major strategic issues, notably in relation to our businesses in Australia and Asia. He was a wonderful colleague.

Forward outlook
We are seeing a dramatic change in the world’s centres of economic power, with rapid growth, urbanisation and industrialisation in many parts of the developing world. We expect a large part of the world’s population – billions of people – to move through increasingly metal intensive phases of economic development. This will transform our industry and underpin future growth in markets.
Commodity markets appear to be entering the fifth straight year of growth with mineral and metal prices at levels well above their long term average. Projections for Rio Tinto’s main product groups – iron ore, aluminium and copper – suggest that demand could potentially triple over the next 25 years.
While it is premature to say that the current price cycle has peaked, we are mindful of short term risks associated with the expected slowdown in the US economy. However, the US is now somewhat less important in world commodity demand than it was five years ago. Our analysis suggests a sharp slowdown in the US would have only a modest impact on growth in China and India.
In the short term, with low commodity stocks and a likely continuation of supply side challenges, we expect solid global economic growth, led by China, to support strong increases in demand for most metals and minerals during 2008 and 2009.

Approach from BHP Billiton
In November Rio Tinto received an unsolicited approach from BHP Billiton proposing a combination of the companies. This was fully considered by the board and rejected on the basis that it significantly undervalued Rio Tinto’s assets and

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future prospects.
On 6 February 2008, BHP Billiton announced pre-conditional takeover offers for Rio Tinto of 3.4 BHP Billiton shares for each Rio Tinto share. The board gave this careful consideration and concluded that the offers still significantly undervalue Rio Tinto. The board unanimously rejected the pre-conditional offers as not being in the best interests of Rio Tinto shareholders.
The offers, while improved, still fail to recognise the underlying value of Rio Tinto’s high quality assets and prospects. Our plans are unchanged and will remain so unless a proposal is made that fully reflects the business and major enhancements invalue of Rio Tinto. Meanwhile we will forge ahead with our operational performance. We thankstated strategy.

him for all heOur people
As I hope this message has donedemonstrated, 2007 was an important year 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 infollowing 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 andsignificant developments, I believe the boardGroup is confident that, under hisleadership, Rio Tinto will continueeven more strongly positioned 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 resilientshareholders in the face of a range of politicalfuture. Managing major strategic initiatives places strong demands on management 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,they 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 ofresponded with great resilience. In strong markets 2006 was very challenging in operational terms. We have faced daily pressures inmeetingmeeting the requirementsdemands of our customers, and developing new projects within tight timetables and budgets.budgets, places considerable pressure on every individual in the Rio Tinto organisation. Our recordresults would not have been possible withoutrecord results in 2007 are very much a product of the commitment, dedication and hard work of all our global workforce. Once again, onpeople across the world. On behalf of the board and you, our shareholders, I thank them for all they have achieveddone to deliver success in an excellent year forRio Tinto.another record year.

Paul SkinnerChairman
5 March 2008

23 February 2007

*Adjusted following a reclassification post publication in the 2006 Annual report and financial statements.

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INTERVIEW WITH THE CHIEF EXECUTIVE

How would you describe the past year?

Underlying earningsIt would be a bit of an understatement to say it’s been exciting. We announced the Alcan deal in 2006 were a record US$7.3 billion. Not only were prices for metalsJuly. We successfully closed it, as we said we would, in October. The integration with Alcan is going well 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 positionlooking forward to invest heavily in growthreaping synergies of US$940 million per annum by the end of 2009. The acquisition of Alcan is just the beginning. In May and to return capital to shareholders. Through our business improvement programme,Improving performance together(IPT),June, 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 forannounced 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 haveexpansion plans in iron ore and copper, but the key factoruranium, and we followed this with further expansion announcements in the execution ofour strategy is discipline: disciplinefourth quarter. We predict rapid expansion in analysisiron ore and discipline in execution.strong prospects across our portfolio of assets.


How are you respondingI deeply regret that four people lost their lives at operations we manage. I am pleased 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 aresee a continued reduction in the nature oflost time injury frequency rate and the all injury frequency rate.

What is the plan?
Rio Tinto is all about value, and 2008 heralds a greatly expanded development pipeline. Major investments in growth projects made or approved in 2007 total US$46 billion. This includes the future.

Can you sayacquisition of Alcan Inc. for US$38 billion, and, on 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 ways100 per cent basis, construction 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 intwo 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. WithAustralia for US$2.42 billion, the underground development of the Diavik diamond mine in Canada (US$563 million) bringing 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 investment in the same period andunderground mine to US$787 million, the Hope Downs project will start production in 2008 with output of 22 million tonnes, risingexpansion to 30 million tonnes in stage two. From negotiationper year of the agreement on Hope Downs iron ore project (US$350 million), the Yarwun alumina refinery expansion to first deliveries will be only three years.
Our ilmenite project3.4 million tonnes per year (US$1.8 billion), the Cape Lambert port expansion to 80 million tonnes per year (US$860 million), the US$991 million investment in Madagascar is on schedule,the extension of the Kestrel coal mine 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$850300 million for the totalEagle nickel project includingin the buildingUS.
To feed a metal hungry world we have the people, execution capability and resources to deliver these projects better than anyone else.

Is this fast growth profile a departure from your strategy?
I am a strong believer in our core values and our strategy, which is to invest in large, cost efficient, long life assets and to leverage these with the people, capital, and technologies to create enduring value for our shareholders. There has never been a time when a development pipeline like ours is worth as much as it is today. Our plans are all aligned with our strategy. What has changed is the market environment, which is the strongest it has been in a generation. Our proven strategy positions us to meet the challenges that this level of additional processing capacitydemand imposes. We intend to stick to our mantra around value, but we’ll need to do this smarter, we’ll need to do this faster and we’ll need to do this better than anyone else. We’ll be doing this by bringing on more projects, which we can develop at a faster pace, which can be sold at higher prices. This is what we’ve been doing this year, and this is what I intend to continue to do into the future.
One thing that we must take account of in Canada. First productionapplying our strategy going forward is scheduled for2008, whenthat the world is rapidly changing and we believe there willhave to change with it. The world’s best orebodies include many beyond our Australia and North America heartlands, so we cannot afford to ignore more challenging parts of the world. While being sensitive to government and stakeholder expectations, we have to be growing demand forcapable of operating where the high quality ilmenite that Madagascar will produce for 40 years.world’s leading orebodies are located. We are also in the midst of a period of unprecedented industry change. We should not assume our asset and business mix is static. We should continue to be alert to value adding investments and portfolio changes where we see opportunity, and where we can deliver competitive value in line with our strategy.

 

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How long will the current market environment last?
Over the past five years we have watched the growth of China and its impact on our business with an initial measure of optimism and healthy scepticism to now what I would best describe as very high expectations based on real facts. Markets appear to be entering the fifth straight year of demand strength with virtually all minerals and metals prices at levels significantly above their long term historical trends. We are continuing to see a fundamental shift in the global economy towards fast and resource intensive growth as countries like China and India continue to industrialise, urbanise and expand their per capita GDP, and I would expect these conditions to continue for some time, perhaps for several decades. With this strong demand, supply growth continues to be constrained, held back by literally decades of underinvestment in people, in exploration and in mines and infrastructure. While this bodes well for the future, it is of absolute importance that our mines and businesses stay globally competitive and sufficiently robust to weather any possible downturns.

But what about the slowdown in the US?
I think we should be insulated from the effects of a major US slowdown. While many of our markets, like North American copper, aluminium and industrial minerals, depend on important sectors like US housing, our overall business is increasingly focused on global demand trends. Clearly China, and to a lesser extent India, has become extremely important to these global trends, and this will be even more so in the future based on strong demographic and economic growth prospects. The importance of the US has declined substantially relative to that of China since 2000. Specific examples include seaborne iron ore, where the US is a negligible market participant, or copper and aluminium, where China now consumes more than twice as much as the US. The key issue for the health of commodity markets over the medium term is the magnitude of any negative spillover effect from a slowing US economy on economic activity in the rest of the world and China in particular. We don’t think a recession in the US will have a significant effect on demand for steel, copper and aluminium in China. If there is a recession in the US, the impact on growth in Chinese GDP is expected to be one per cent or less. This would still leave scope for Chinese growth at levels of ten per cent. For India, the impact of any further US slowdown would likely be smaller because of India’s more limited exposure to world trade.

How do you describe Rio Tinto’s performance in 2007?
Rio Tinto set new annual records for production of iron ore, bauxite, alumina, aluminium, refined copper and refined gold. Production is running at full tilt and accelerated in the second half. Our excellent production results show the momentum in our business and the volume growth that is the fruit of our investments over recent years. With significant expansions on track in iron ore and in aluminium, as well as the contribution of the Alcan acquisition which creates the world’s leading aluminium producer, 2008 is expected to see an acceleration of this growth.

What are the highlights of your growth plan?
One driver is iron ore, where we have developed a conceptual pathway to more than triple our production capacity to more than 600 million tonnes per annum (Mt/a), primarily from expansions of up to 420 Mt/a from the Pilbara and 170 Mt/a from Simandou in Guinea. At Simandou, feasibility studies are likely to be completed by 2010 for first production to start in 2013 at a rate of 70 Mt/a. Additional phases of development are being considered to increase production in 50 Mt/a increments to 170 Mt/a.
Rio Tinto has 1.9 billion tonnes of ore reserves and further iron ore mineralisation in the Pilbara. Exploration is targeting to increase the mineralisation inventory. Exploration drilling at Simandou has also been active with more than 35,000 metres undertaken in 2007. At Simandou we are targeting to add iron ore mineralisation to Rio Tinto’s inventory.
The targeted mineralisation in both the Pilbara and Simandou areas is based on an assessment of tenure areas using surface mapping, drilling results and other information. Technical and economic studies are not complete to enable classification as ore reserves, but results so far provide an indication of just how much potential we have in these areas.
In aluminium, Rio Tinto Alcan is the global leader in bauxite production and aluminium smelting with low cost capacity derived from a unique combination of sustainable hydropower and industry leading technology. With the commissioning of the Gove expansion and the expansion at the Yarwun refinery in Australia under way, we are also on a path to become the world leader in alumina production, doubling capacity by 2015. The integration with Alcan is expected to yield US$940 million per year in operating synergies by 2009, US$340 million per year more than was estimated at mid year. We have a range of smelter upgrades in Quebec and British Columbia planned, in addition to greenfield projects in Oman, Malaysia, Saudi Arabia, Abu Dhabi and South Africa, plus other projects just entering the development process. Global aluminium demand is growing strongly. Global consumption grew by more than ten per cent in 2007, with Chinese growth at 38 per cent. Besides strong Chinese consumption, increased marginal costs of Chinese supply will continue to support this business. However, we will need to be particularly mindful of the impact of a strong Canadian dollar on this business.
In copper, Rio Tinto’s most profitable producer, Bingham Canyon in Utah, offers opportunities for growth, could operate until 2036, and hosts a newly discovered world class molybdenum deposit underneath the current open pit. New porphyry mineralisation has also been discovered below the pit walls and there are more exploration targets within three to four kilometres of the open pit. I am especially proud of everything the team at Kennecott Copper has done, from

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difficult days just a few years ago, to its current success and its promising outlook. Exploration and evaluation at La Granja in Peru has increased the extent of mineralised material several times since Rio Tinto acquired the property in late 2005. This makes it potentially the largest undeveloped copper project in South America with a possible production rate of up to 500,000 tonnes of copper a year by 2014.
Rio Tinto has a stake in three more of the largest undeveloped copper projects in the world. At Oyu Tolgoi in Mongolia we are targeting to produce up to 440,000 tonnes of copper per year with valuable gold by-products and at Resolution in the US we are targeting an operation of up to 500,000 tonnes per year for 40 years or more.
Exploration, southwest of Oyu Tolgoi, has been very promising with a new discovery called Heruga. We also have a 19.8 per cent interest in the Canadian company that controls the Pebble copper-gold deposit in Alaska, still in the early stages of planning. We are reentering the nickel market with two significant projects – Eagle in Michigan and Sulawesi in Indonesia – that could make us one of the top nickel producers globally. We announced the go-ahead for Eagle a few months ago. First production is scheduled to begin in late 2009.
The current uranium market outlook is very positive, with prices close to record highs, and Rio Tinto is in an excellent position to sustain higher levels of production going forward. With spot prices having risen sixfold since 2004, we have a window of opportunity to lock in higher contract prices over the next several years. We are already the second largest uranium producer in the world and we have identified significant opportunities to expand our business at Energy Resources of Australia and at Rössing.
In coal, our reserve position is one of the largest in Australia, but performance has been hampered by a lack of infrastructure, the result of a legacy of uncoordinated responses by miners, rail carriers and ports. We hope to see the new government in Australia begin to address this national issue as a matter of the greatest urgency. As infrastructure challenges in New South Wales and Queensland are alleviated and we overcome weather related disruptions, we will enjoy significant brownfield and greenfield expansion capabilities from thermal coal mines such as Clermont and Mount Pleasant and our coking coal mines at Hail Creek and Kestrel. Recently we reaffirmed our commitment to the Australian coal sector with an investment to extend and expand Kestrel. Meanwhile, we continue to explore for coal throughout the world.
Turning to industrial minerals, we have some exciting growth prospects here as well. We are now beginning to see increasing Chinese demand for titanium dioxide feedstock, as we have been foreshadowing for the past several years. China is estimated to have made up 17 per cent of global titanium dioxide feedstock demand in 2007, and this is growing rapidly. Our mineral sands project in Madagascar is proceeding well. The 750,000 tonnes per year operation is due to come on stream at the end of 2008, producing some of the highest grade titanium dioxide in ilmenite in the world. We’ve increased our feasibility expenditure on the Potasio Rio Colorado potash project which remains subject to final permitting and approval by the board.
In diamonds, we are making better progress with the Argyle underground development and the Diavik underground project we announced late last year will extend the mine life beyond 2020. Diavik is without doubt the most profitable diamond mine in Canada.

What are your project priorities?
We are focusing on the commodities closely linked to the metals, minerals, and energy intensive stage of development of the world’s growth economies. Our capital expenditure in 2008 and 2009 is expected to be US$9 billion in each year, primarily on projects in iron ore, copper and aluminium. As I outlined above, we have every reason to have confidence in demand growth in these key areas. For example, China’s steel production is now five times more than the amount produced in the US. China is building from scratch a city the size of Brisbane every month. That takes a lot of steel from iron ore, as well as copper, for electrification, aluminium and other metals and minerals. Last year, China consumed over 30 per cent of the world’s aluminium and its annual rate of consumption grew at 38 per cent.

What are you doing about rising production costs?
We are a global company and we are applying advantages of scale and breadth to improve efficiencies and create value. Working through ourOne Rio Tintoconcept we continue to improve, with greater cohesion and collaboration, as a single operating organisation. We expect to achieve considerable savings by operating common systems across our diverse businesses to leverage off the critical mass of the whole. This proved successful when applied to our safety systems, how we run procurement, and in implementing our business improvement programmeImproving performance together(IPT). In the two years of the IPT programme it yielded more than US$800 million of extra value and I fully expect this to continue to grow underOne Rio Tinto. We have a target to reduce corporate function costs by US$500 million before 2010. Every effort is being made to capture the benefits of global standardisation and the transfer of best practice between our operations. Our rapid integration of Alcan, with higher than originally targeted synergies, is a great example of these new systems at work.
I envisage thatOne Rio Tintowill also allow us to be better positioned to introduce innovative technologies across the Group. We are by our nature a capital and process intensive industry, and we are repositioning ourselves from being a fast follower to a targeted innovator of technology in areas where we can make a difference. An example is our goal of developing a fully automated iron ore mine in the Pilbara within the next five years.
Our 2007 second half results show that we are doing better than most in stemming the effects of industry inflation.

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Where are new opportunities coming from?
In exploration, we believe we’ve had an unrivalled company track record in discovery among the major mining companies. Many of our major value adding projects are the result of exploration successes, which means they were acquired at a very competitive initial investment. For example, La Granja in Peru was acquired for US$22 million plus a minimum investment of US$60 million and has the potential to become one of the world’s largest copper producers. We’ve maintained our commitment to exploration over the years and the consistency of expenditure and activity over the cycle has produced extraordinary results. Looking ahead, our exploration portfolio is an exciting multi-commodity mix of brownfield and greenfield opportunities ranging from iron ore in the Pilbara to bauxite prospects in Brazil, potash in Canada and coking coal in Mongolia. We have an exceptional set of assets and growth opportunities, both in established projects and exploration prospects. We have well trained and motivated people throughout our organisation. And we have a great track record for management delivery in safety, in daily operations and in the execution of our capital projects. We face the future with confidence.

Any reflections on the future?
I’ve inherited a great business and a great organisation. Our primary objective is the creation of further value for our shareholders in a market environment that is nothing short of spectacular. Rio Tinto, with its 135 year heritage of assets, its strong organisation, people and prospects, is well positioned to capitalise on the terrific opportunities available at this point in the market cycle. We cannot rest on our laurels though, and the fast pace of events in 2007 should be seen as a guide to how we have to look to the future, being ever more competitive in an ever more dynamic world. The modernisation of our head office, introduction of our new Rio Tinto brand, and the development of new global systems under a unifiedOne Rio Tintois all evidence of this vision. I’m very excited about the way things are going and our plans for value creation for the shareholders of Rio Tinto.
In closing, I would like to express my thanks and appreciation to all Rio Tinto people around the world for their strong support and dedication at this time.

Tom AlbaneseChief executive
5 March 2008

Group financial performance

The Group uses a number of key performance indicators (‘KPI’s) to monitor financial performance. These are summarised below and discussed later in this report.

KPIDescription2007 2006 2005 
  US$m US$m US$m 








Underlying earningsUnderlying 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 business performance of the Group’s operations. Items excluded from net earnings to arrive at underlying earnings are explained in note 2 to the2007 Financial statements. The Group’s underlying earnings for the past three years are discussed below.7,443 7,338 4,955 








Gearing (net debt to total capital)The Group’s total capital is defined as Rio Tinto’s shareholders’ funds plus net debt and outside equity shareholders’ interests. The Group’s approach to capital management is discussed in the Liquidity and capital resources section on page 100.63%11%8%








Capital investmentContinuing investment in value adding growth projects. The Group’s capital projects are listed on pages 11 to 13.   








Total shareholder return (‘TSR’)Total shareholder return measures the Group’s performance in terms of generating shareholder wealth through dividends and the share price. The Group’s TSR performance compared to the FTSE 100 index, the ASX All Ordinaries index and the HSBC Global Mining Index is shown on page 128. The relationship between TSR and executive remuneration is also discussed on page 122.91.8%7.6%78.4%








Acquisition of Alcan
During 2007, the Rio Tinto Group acquired 100 per cent of the issued share capital of Alcan Inc. The total cost of acquisition amounted to US$38.7 billion, including fees. Alcan’s results are included within the Group’s results from 24 October 2007.
Alcan Inc. is the parent company of an international group of companies involved in bauxite mining, alumina refining, aluminium smelting, engineered products, flexible and specialty packaging, as well as related research and development.
The Group has decided to dispose of Alcan Packaging, which is presented in the balance sheet in the lines: ‘Assets held for sale’ and ‘Liabilities of disposal groups held for sale’. Therefore, the income and cash flow statements

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     Development continuesfor the year exclude amounts relating to Alcan Packaging. Following a company wide strategic review of the combined Rio Tinto and Alcan assets, on 26 November 2007 the intention to divest the Engineered Products business was also announced.

Net earnings and underlying earnings
Both net earnings and underlying earnings deal with amounts attributable to equity shareholders of Rio Tinto. However, 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 to underlying earnings as follows:

 2007 2006 2005 
 US$m US$m US$m 







Profit for the year7,746 7,867 5,498 
Less: attributable to outside equity shareholders(434)(429)(283)







Attributable to equity shareholders of Rio Tinto (net earnings)7,312 7,438 5,215 
Less: exclusions from underlying earnings131 (100)(260)







Underlying earnings attributable to shareholders of Rio Tinto7,443 7,338 4,955 







2007 financial performance compared with 2006
Net earnings of US$7,312 million in 2007 were US$126 million below 2006, a decrease of two per cent. Underlying earnings of US$7,443 million were US$105 million above 2006, an increase of one per cent. Underlying earnings per share increased by five per cent and net earnings per share increased by two per cent in 2007 reflecting the lower number of shares resulting from the share buyback programme in the first half of the year. The principal factors explaining the changes in underlying earnings are shown in the table below.

Changes in underlying earnings 2006 – 2007US$m




2006 Underlying earnings7,338
Effect of changes in:
Prices1,364
Exchange rates(403)
Volumes516
General inflation(218)
Cash costs(442)
Non-cash costs(201)
Exploration, evaluation and technology costs(309)
Tax/other(202)




2007 Underlying earnings7,443




The effect of price movements on all major commodities was to increase earnings by US$1,364 million. Prices for the major products remained strong throughout the year and were higher overall than those experienced in 2006: average copper prices were six per cent higher whilst average aluminium prices were three per cent higher. The strength of the global iron ore market was reflected in the 9.5 per cent increase in the benchmark price, mainly effective from 1 April 2007. The seaborne thermal and coking coal markets were also strong and strengthened further in the second half.
     Molybdenum prices averaged US$30/lb throughout 2007, an increase of 20 per cent compared with the prioryear.
There was significant movement in the US dollar in 2007 relative to the currencies in which Rio Tinto incurs the majority of its costs. The Australian dollar was 11 per cent stronger, the Canadian dollar was six per cent stronger and the South African rand four per cent weaker. The effect of all currency movements was to decrease underlying earnings relative to 2006 by US$403 million.
Higher sales volumes predominantly from growth projects increased underlying earnings by US$516 million compared with 2006. The ramp up of new projects in iron ore (including the Yandicoogina and brownfields expansions), higher volumes of copper in concentrate at Escondida from improved grades, higher refined copper sales from the Kennecott Utah Copper (‘KUC’) smelter operating at close to capacity and higher diamond grades at Diavik were the main contributors.
The Group continued to invest further in the future development of the business with an increased charge to underlying earnings of US$309 million from exploration, evaluation and technology costs. Higher freight and demurrage costs and increased energy costs reduced underlying earnings by US$163 million and US$82 million, respectively. Significant shipping congestion at the port of Newcastle affected coal sales with a resulting impact on costs at Rio Tinto Coal Australia, through higher demurrage and a higher unit cost of sale. General inflation and mining inflation increased costs by US$218 million and US$140 million respectively as higher contractor, maintenance and input costs were experienced throughout the Group, notably in the iron ore and copper operations, as industry supply constraints persisted.
     An increase in non cash costs reduced 2007 earnings by US$201 million compared with 2006, following the

Rio Tinto 2007 Form 20-F53

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completion of several large capital investment projects.
The effective tax rate on underlying earnings, excluding equity accounted units, was 25.7 per cent compared with 24.2 per cent in 2006. The tax charge in 2007 was reduced by US$392 million as a result of the impact of the reduction in the Canadian tax rate enacted in December 2007 on deferred tax provisions. The 2006 tax rate benefited from US$335 million of US Alternative Minimum Tax credits, which were recognised on the balance sheet as a result of improved prospects for recovery of these from future taxable earnings from the Group’s US operations, as well as the utilisation of US$140 million of previously unrecognised tax assets.
Alcan’s contribution to underlying earnings for the nine weeks to 31 December 2007 was US$424 million, including a benefit relating to the change in the Canadian tax rate as described above. Exploration divestments increased 2007 underlying earnings by US$139 million relative to 2006. A higher interest charge from an increase in net debt following the Alcan acquisition reduced earnings by US$248 million relative to 2006. These variances and the tax variances referred to above are included within the US$202 million adverse variance for ‘Tax/other’.

2006 financial performance 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. Underlying earnings of US$7,338 million were US$2,383 million above 2005, an increase of 48 per cent. Underlying earnings per share, 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 below.

US$m




2005 Underlying earnings4,955
Effect of changes in:
Prices3,068
Exchange rates(35)
General inflation(174)
Volumes(135)
Cash costs(629)
Non cash costs(66)
Exploration, evaluation and technology costs(46)
Tax/other400




2006 Underlying earnings7,338




The effect of price movements on all major commodities was to increase earnings by US$3,068 million. Prices for the major products remained strong throughout the year and were considerably higher than those experienced in 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 effective from 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. This more 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 and throughput at Northparkes, higher ore grades and the commencement of sulphide leach production at Escondida, along with higher molybdenum and gold production at KUC, were the main contributors. Record volumes of thermal coal sales at Rio Tinto Energy America and alumina at Yarwun, also contributed to higher volumes. Lower sales volumes were recorded at Argyle Diamondwith a build up of diamond 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 earnings by US$741 million, of which US$77 million was the result of higher energy costs. Ongoing acute shortages in the mining industry, in particular in the Pilbara, continued to put pressure on costs. Costs at KUC were affected by an extended, scheduled smelter maintenance shutdown whilst Escondida experienced higher wages, following the strike in August. Significant shipping congestion 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 expected to be utilised in future years. This reflected improved projections of long term taxable earnings from the Group’s 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 included within the favourable variance of US$400 million for ‘Tax/other’.

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Exclusions in arriving at underlying earnings 2005–2007
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 discussion of year on year results below.

 2007 2006 2005 
 US$m US$m US$m 






 
Profit less losses on disposal of interests in businesses1 3 311 
Impairment reversals less (charges)(113)44 4 
Exchange gains/(losses) on US$ net debt and intragroup balances (including those relating to equity accounted units)156 (14)(99)
Gains/(losses) on currency and interest rate derivatives not qualifying for hedge accounting   
(including those relating to equity accounted units)34 30 (40)
Other exclusions(209)37 84 






 
Total excluded in arriving at underlying earnings(131)100 260 






 

In 2007 an impairment charge of US$328 million after tax was recognised at Argyle following a decline in value as a result of large increases in the estimated capital costs of the underground project. This was partly offset by the reversal of the residues of the impairments of Tarong Coal and Palabora.
Other exclusions from underlying earnings in 2007, a charge of US$209 million, mainly comprised non-recurring consequences of the Alcan acquisition, including integration costs. Of this total, US$146 million resulted from the sale of Alcan inventories that were revalued based on selling prices at the date of acquisition.
Net earnings in 2006 included net impairment reversals totalling US$44 million. Impairments were reversed at KUC and IOC which more than offset impairment charges at Argyle and Tarong Coal.
Exchange gains and losses on US dollar net debt and intragroup balances that are recorded in the Group’s income statement, together with gains and losses on currency and interest rate derivative contracts that do not qualify as hedges under IFRS are excluded from underlying earnings. In 2007, these items produced a gain of US$190 million (2006: a gain of US$16 million) reflecting the weakening of the US dollar against the Australian and Canadian dollars. In 2005 these items represented a loss of US$139 million.
     In 2005, gains from disposals of interests in businesses amounted to 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.

     The effective tax rate on net earnings in 2007, excluding equity accounted units was 25.3 per cent compared with 26.8 per cent in 2006. The reduction in the Canadian tax rate reduced the 2007 effective tax rate and the recognition of US deferred tax assets lowered the effective tax rate in 2006. 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.

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 2007. These are discussed on pages 56 to 98.

 2007 2006 2005 
 US$m US$m US$m 






 
Iron Ore2,651 2,251 1,722 
Energy484 706 730 
Aluminium1,097 746 392 
Copper3,479 3,538 1,987 
Diamonds and Industrial Minerals488 406 438 
Other operations15 33 40 
Other items(526)(241)(186)
Exploration and evaluation20 (84)(124)
Net interest(265)(17)(44)






 
Group underlying earnings7,443 7,338 4,955 
Exclusions from underlying earnings(131)100 260 






 
Net Earnings7,312 7,438 5,215 






 

Trend information
The demand for the Group’s products is closely aligned with changes in global Gross Domestic Product. Changes in the GDP of developing countries are expected to 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 are expected to have a greater impact on industrial 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 and prospects.

Rio Tinto 2007 Form 20-F55

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Aluminium group

MinedRio Tinto share 
Weipa bauxite million tonnes 


 
200312.1 
200412.8 
200515.6 
200616.3 
200721.0 


 
ProductionRio Tinto share 
Alumina ‘000 tonnes 


 
20032,014 
20042,231 
20052,963 
20063,247 
20073,877 


 
Aluminium ‘000 tonnes 


 
2003817 
2004837 
2005854 
2006845 
20071,480 


 
Underlying earnings contribution*US$m 


 
2004331 
2005392 
2006746 
20071,097 


 
Changes in underlying earnings 2005 - 2007US$m 


 
2005 Underlying earnings392 
Effect of changes in: 
         Prices and exchange rates454 
         General inflation(36)
         Volumes8 
         Costs(65)
         Tax and other(7)


 
2006 Underlying earnings746 
Effect of changes in: 
         Prices and exchange rates(12)
         General inflation(37)
         Volumes11 
         Costs(36)
         Tax and other425 


 
2007 Underlying earnings1,097 


 
*A reconciliation of the net earnings with underlying earnings for 2007, 2006 and 2005 as determined under IFRS is set out on page 53.

STRATEGIC OVERVIEW

Alcan Inc. (Alcan) joined the Rio Tinto Group on 23 October 2007. The total cost of the acquisition amounted to US$38.7 billion, including fees. The expanded aluminium product group, formed by the combination of Alcan and Rio Tinto’s existing aluminium assets, was renamed Rio Tinto Alcan (RTA).
RTA comprises closely integrated, high quality bauxite, alumina and aluminium businesses with a broad global reach. The business is founded on large reserves of the mineral bauxite, which is refined into the intermediate product alumina, before being smelted into aluminium metal. RTA is a world leader in the production of bauxite and aluminium, with a defined pathway to becoming the largest producer of alumina through the commissioning of the Gove refinery expansion and current expansion of the Yarwun refinery, both in Australia.
RTA is an industry leader in technology which, combined with an ownership position in clean hydro-electric generating capacity of 3,689 megawatts (MW), provides a significant, sustainable competitive advantage of increasing value in a carbon constrained world. The combined group has one of the industry’s most extensive bauxite mine, alumina refinery and aluminium smelter development portfolios, comprising 16 major projects in 13 countries.

Rio Tinto 2007 Form 20-F56

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RTA’s strategy is to maximise shareholder return whilst achieving excellence in health, safety and environmental performance; maximising value generated from existing assets; and optimising and opportunistically growing the bauxite, alumina and aluminium businesses. RTA uses its dedicated business improvement programme, called Lean Six Sigma, to improve operations, process stability and eliminate waste.
RTA is currently organised into four business units – Bauxite & Alumina, Primary Metal, Engineered Products and Packaging. In the announcement of Rio Tinto’s offer for Alcan in July 2007, it was disclosed that it had been agreed with Alcan that the Packaging business would be divested. The Packaging business has therefore been classified as an Asset held for sale and its results for the period since acquisition have not been included in the earnings of the Rio Tinto Group.
RTA’s financial results include Alcan businesses from 24 October 2007. On this basis, in 2007 RTA contributed 22 per cent of Rio Tinto’s gross sales revenue and 15 per cent of its underlying earnings. As at 31 December 2007, RTA accounted for 63 per cent of Rio Tinto’s operating assets.
At year end, RTA employed 71,600 people of whom 67,000 joined the group with Alcan. About 25,000 employees are employed in the Bauxite & Alumina and Primary Metal business units and approximately 45,000 employees in the Engineered Products and Packaging businesses.

Dick Evans, chief executive, Rio Tinto Alcan, is based in Montreal, Canada.

DIVESTMENTS

As part of Rio Tinto’s offer for Alcan on 12 July 2007, it was announced that the Packaging business would be divested. Following a company wide strategic review of the combined Rio Tinto and Alcan assets, on 26 November 2007 the intention to divest the Engineered Products business was also announced.

INTEGRATION OF ALCAN

Rio Tinto’s offer for Alcan on 12 July 2007 aimed at after tax synergies of US$600 million per annum by the end of 2009. Within the parameters of relevant takeover regulations, intensive and cooperative integration efforts were made between 12 July and 23 November 2007 which resulted in an increase in the targeted after tax synergies to US$940 million per annum by the end of 2009. A rigorous and comprehensive integration plan is being progressively executed and is overseen by an Integration Steering Committee and an Integration Management Office.

SAFETY

All injury frequency rateper 200,000 hours 


 
20031.43 
20041.48 
20051.37 
20061.40 
20071.02 


 

An important factor in Rio Tinto’s acquisition of Alcan was alignment across both businesses on the importance of safety. While philosophies were similar, Alcan’s definitions were different to those used by Rio Tinto and hence 2007 performance is not comparable. Moving forward, former Alcan operations will adopt Rio Tinto definitions and consolidated data will be presented from 2008. The safety results are based on data from the former Rio Tinto Aluminium business; data from former Alcan businesses are not included.
Regrettably a metal merchant was fatally injured at an Engineered Products operation in December. Alcan’s Recordable Case Rate at the end of 2007 represented a 28 per cent reduction over 2006 and an 84 per cent reduction compared to 2001. This performance was 23 per cent better than Alcan’s target for the period. The Lost Time Injury Illness Rate also declined by 26 per cent but remained eight per cent short of the 2007 target.
Some notable examples of Alcan’s success in reducing these rates include controlling hazardous energy sources from upstream operations and development and roll out of large scale man machine interface programmes in downstream operations.
The former Rio Tinto Aluminium business recorded its best ever safety performance in 2007. The All Injury Frequency Rate improved by 26 per cent over 2006 and the number of Lost Time Injuries reduced by 30 per cent compared to the previous year. During the year New Zealand Aluminium Smelters was awarded the Rio Tinto Chief Executive’s Safety Award and Weipa received the award for the Most Improved Site. In 2007, the Safety Leadership Development Programme was introduced across the business and implementation of the Health, Safety and Environment Quality Management System continued.

Rio Tinto 2007 Form 20-F57

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GREENHOUSE GAS EMISSIONS

The former Rio Tinto Aluminium sites have approached meeting greenhouse gas (GHG) and energy targets by planning improvements in the key metrics of net carbon ratio, anode effects, power efficiency and fuel use. Projects are undertaken to improve overall site performance, including cost and production, in addition to supporting GHG and energy targets. There are a considerable number of individual projects being undertaken through the business improvement system, each supported by a detailed plan of activities to bridge the gap between current and targeted performance.
     To track and encourage focus on target performance, Rio Tinto Aluminium for several years produced and distributed to its management team quarterly tracking of target performance at all sites. Comparing 2007 actual performance with the 2008 targets shows Anglesey is meeting both energy and GHG target performance, Weipa is meeting energy targets and so is Boyne Island Smelters. Other sites are currently not meeting 2008 targets.
     Alcan’s total greenhouse gas emissions were 27.8 million tonnes of CO2 equivalent in 2007, calculated on an equity share basis, representing a four per cent improvement in on site greenhouse gas emissions per tonne of product over a 2005 baseline as a result of efficiency improvements, retrofitting best in class technology and shutdown of some underperforming operations. It is anticipated that the contribution of Alcan will be lower when reported under Rio Tinto greenhouse gas accounting rules. The new RTA is expected to make up about two thirds of Rio Tinto’s gas emissions in the future.
     The expanded RTA group will prepare and present revised plans, incorporating activities and costing, for all assets. The group will combine the best ideas from both Rio Tinto and Alcan and enjoy the benefit of a high percentage of low GHG intensity power sourced from hydro-electricity.

FINANCIAL PERFORMANCE

2007 compared with 2006
In 2007, RTA’s contribution to the Group’s underlying earnings was US$1,097 million, an increase of 47 per cent. The higher contribution was due mainly to the one off impact of the reduction in the Canadian tax rates attributable to the Alcan businesses, but also benefited from higher aluminium prices. The average aluminium price in 2007 was US$2,646 per tonne compared with US$2,557 per tonne in 2006. The performance excludes results from the Packaging business as it is classified as a discontinued operation.

2006 compared with 2005
In 2006, the former Rio Tinto Aluminium’s contribution to the Group’s underlying earnings was US$746 million, an increase of 90 per cent. Higher aluminium prices resulted in earnings increasing by US$451 million, with the average aluminium price in 2006 at US$2,557 per tonne compared with US$1,896 per tonne in 2005.

BAUXITE & ALUMINA OPERATIONS

Bauxite

Bauxite production capacity more than doubled during the year, with the group’s wholly owned bauxite mine at Weipa (Australia) being joined by Alcan’s four operating bauxite mines from around the world (Australia, Brazil, Ghana and Guinea). At year end, RTA’s bauxite production capacity was the largest in the industry, at 34.4 million tonnes per annum, up from 16.5 million tonnes in 2006.

The RTA bauxite business benefits from the following:

The largest reserves and mineralisation inventory in the industry which should ensure sufficient bauxite supply to sustain the group’s long term growth strategy.
Regional concentration of reserves (Weipa, Ely, Gove) which should provide the basis for optimisation opportunities going forward.
Scope for expansion of annual production which should underpin expected future alumina production growth.
Interests in three of the four largest mines in the world (Weipa, Porto Trombetas and Sangaredi), located in the top three bauxite reserve countries (Australia, Brazil and Guinea).
Annual production capacity that not only supports internal alumina production, but allows significant sales to third parties.

The Weipa mine located on Cape York, Australia contains reserves of 1,224 million tonnes and additional mineralisation. It has an annual production capacity of 18.2 million tonnes and is by far the largest bauxite mine in the group. In 2007 the mine increased its production capacity by 1.7 million tonnes from 16.5 million tonnes as the result of commissioning of a second shiploader in late 2006. Alcan’s Ely mining lease is situated adjacent to Weipa and is included in the reserve figures for Weipa. Bauxite from Weipa is either shipped to Gladstone for processing at the group’s wholly owned Yarwun refinery and 80 per cent owned Queensland Alumina Limited (QAL) refinery or sold to third parties.

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     RTA’s other Australian mine, at Gove contains reserves of 143 million tonnes and additional mineralisation. It has an annual production capacity of 6.9 million tonnes and is co-located with the Group’s Gove alumina refinery in the Northern Territory, Australia. Output from the mine is consumed mainly by the refinery, although some amounts are sold to third parties.
     RTA owns 12.0 per cent of the Porto Trombetas mine in Brazil. Its share of reserves is 20 million tonnes and share of additional mineralisation, constituting a share of annual production capacity of 2.1 million tonnes. Across the Atlantic, RTA owns 22.9 per cent of the Sangaredi mine in Guinea and 80 per cent of the Awaso mine in Ghana, constituting shares of annual production capacity of 6.2 million tonnes and 1 million tonnes respectively. The reserve positions of these African mines are currently under review.

Alumina
The addition of Alcan’s assets during 2007 boosted RTA’s total alumina production capacity almost threefold, from 3.2 million tonnes per annum in 2006 to 8.3 million tonnes at the end of 2007. In addition to increasing smelter grade alumina refining capacity, the Alcan assets included specialty alumina production capacity of 740,000 tonnes per annum. Specialty alumina represents a range of products that is used extensively in a wide range of industrial and consumer applications.
     The combination of Rio Tinto and Alcan has created an alumina business which is balanced in terms of internal alumina demands from the Primary Metal aluminium business. This is important as a balanced or long net alumina position prevents the group from being negatively exposed to periodic alumina price spikes.
Additional advantages of the RTA alumina business include:
Demonstrated technological capability backed by a strong research and development team.
Ownership of the Gove, Yarwun and QAL alumina refineries located in north eastern Australia, which along withthe Weipa and Gove bauxite mines offer significant scope for optimisation as experience, best practices andsupply chain benefits are shared.
A modern set of assets with expansion optionality.
Deployment of the latest technology in significant expansions at Gove and Yarwun.

The Gove refinery is a wholly owned two million tonnes per annum plant which is in the final stages of a 1.8 million tonnes per annum expansion. It is expected to take overall capacity to 3.8 million tonnes per annum by the end of 2008. The refinery is located next to the Gove bauxite mine. Associated infrastructure includes a deep water port, township and oil fired power station. Following completion of the expansion, the Gove refinery is expected to operate in the second quartile of the industry cash cost curve. Alternative energy sources are currently being evaluated for use at Gove, which could result in a significant further reduction in cash operating costs.
     The wholly owned Yarwun refinery, located in Gladstone, Australia, has current nameplate capacity of 1.4 million tonnes per annum. On 3 July 2007, Rio Tinto Aluminium announced an expansion of the Yarwun refinery to increase capacity to 3.4 million tonnes per annum. First shipments are expected in the second half of 2010. An important feature is the inclusion of a gas fired cogeneration facility. Gas will become the primary fuel source, demonstrating RTA’s ongoing commitment to reducing greenhouse gas emissions and improving energy efficiency. There remains potential for the refinery to be ultimately expanded to over four million tonnes per annum. Following completion of the proposed Yarwun expansion, the refinery is expected to operate in the second quartile of the industry cash cost curve.
     The combination of Rio Tinto and Alcan has resulted in an 80 per cent interest in QAL, an increase from 38.6 per cent at the end of 2006. QAL, also located in Gladstone, Australia, is one of the world’s largest alumina refineries, with a capacity of just under four million tonnes per annum. QAL operates in the second quartile of the industry cash cost curve and has opportunities for further development.
     Outside Australia, RTA wholly owns the 1.3 million tonne per annum Jonquière refinery in Quebec, Canada and the Gardanne refinery in France, which produces mainly specialty alumina, but also has capacity to produce 150,000 tonnes of smelter grade alumina per annum. Both refineries are placed in the fourth quartile of the industry cash cost curve. Other wholly owned refinery operations relate to specialty alumina, in which four smaller plants combine with Gardanne and part of Jonquière to provide around 740,000 tonnes of annual production capacity.
     RTA owns a ten per cent share of the Sao Luis (also known as Alumar) refinery in Brazil, which has a current capacity of 1.5 million tonnes per annum. The refinery is currently undergoing a 2.1 million tonnes per annum expansion, of which RTA’s contribution is expected to be approximately US$200 million and which is expected to be completed during 2009. Once completed, the refinery is expected to operate in the first quartile of the industry cash cost curve.

2007 operating performance
Bauxite production during 2007 included output from Alcan’s bauxite mines from 24 October 2007. Accordingly, total production for 2007 of 21 million tonnes exceeded 2006 production by 29 per cent.
     Production of bauxite at Weipa reached record levels in 2007, at 18.2 million tonnes (beneficiated and calcined), 12 per cent higher than in 2006. Increased capacity from the commissioning of the second shiploader in late 2006 was

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the major contributor to Weipa’s improved production capability. Adverse weather conditions that impacted production in early 2006 did not occur in 2007. Weipa bauxite shipments rose by 15 per cent, to 18.2 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.
     To meet the increased transport needs for bauxite and alumina, Rio Tinto has committed US$210 million to the purchase of five new post Panamax bulk ore carriers to be used on the Weipa to Gladstone run and for international trade. These ships are being built in Japan. The first ship, “Wakamatha” was delivered in the third quarter of 2007. In 2007, Weipa’s improved safety performance was recognised with a Chief Executive’s Safety Award.
     As is the case with bauxite production, 2007 alumina production included the output of Alcan’s alumina refineries from 24 October 2007. Smelter grade alumina production for 2007 was therefore 15 per cent higher than in 2006 at 3.73 million tonnes. The addition of Alcan’s specialty alumina business during 2007 provided 144,000 tonnes of production from 24 October 2007.
     The Yarwun refinery produced at higher levels than 2006 being the first full year of operation since the plant ramped up to nameplate capacity.
     On 31 October 2007, RTA announced that it had reached an agreement with Norsk Hydro ASA to expand its alumina supply to Hydro Aluminium from 500,000 tonnes of alumina per annum to 900,000 tonnes from 2011 to the end of the contract. Under a 20 year contract signed in 2003 with Norsk Hydro, RTA is committed to supplying Hydro Aluminium with 500,000 tonnes of alumina per annum from 2006 until 2030. The new contract underpins RTA’s decision to expand the Yarwun alumina refinery and is consistent with its strategy of maximising the value of RTA’s world class bauxite deposits at Weipa.

PRIMARY METAL OPERATIONS

The addition of Alcan aluminium smelters to the Rio Tinto Group created the world’s premier primary aluminium producer, with year end capacity of 4.1 million tonnes per annum representing nearly five times the group’s 2006 production capacity of 853,700 tonnes.
     The transformation of this business during 2007 was significant. Aside from the enormous increase in primary aluminium smelting capacity, the business added one partly owned and 11 wholly owned power facilities, boosting owned electricity generation capacity by 620 per cent to twice the industry average. In addition, a range of businesses related to aluminium smelting (including technology sales and service, engineering services, smelting equipment sales and smelting consumables production) were added.

Smelting facilities
As of 31 December 2007 the business unit comprised 25 smelters in 11 countries, the vast majority of which are located in OECD countries. The former Rio Tinto Aluminium consisted of interests in four smelters in three countries.
     As with any commodity business, the position on the global cash cost curve is important in determining the relative profitability of operations within the industry. In this regard, RTA enjoys an excellent position, with the world’s largest share of first quartile production capacity and an overall average position at the low end of the second quartile. This position is particularly noteworthy given the number of RTA facilities and the enormous scale of total production capacity. The RTA smelting system has around half of its capacity located in the first quartile of the industry cash cost curve, with another third in the second quartile. Only one fifth of RTA’s current smelting capacity lies in the higher cost part of the industry cash cost curve. This is expected to prove increasingly valuable as the industry’s average cash costs rise as expected, influenced by factors such as rising energy costs, potential Chinese currency revaluations and possible greenhouse gas emission costs.
Key reasons for RTA’s excellent position on the global aluminium cash cost curve include:
Ownership and utilisation of industry leading AP series pre-bake cell technology, one of the most efficientaluminium smelting technologies in the world from an energy and operating cost perspective.
Ownership of around half of the smelting group’s electricity generation needs, compared to an industry averageof around 30 per cent.
The existence of a modern smelter fleet, with over 70 per cent of overall smelting capacity being less than 30years old, a significantly greater proportion than the industry average.
Operational expertise, as demonstrated during the period since 2001 by both improving safety trends and anability to extract on average 1.1 per cent per annum production capacity improvement, compared to an industryaverage over the same period of 0.5 per cent.

The group’s largest concentration of smelting assets is located in Canada. RTA has ownership interests in nine smelters in Canada, seven of which are wholly owned and all but one of which are located in the Province of Quebec. Total annual production capacity in Canada, resulting from the acquisition of Alcan, is 1.77 million tonnes as at 31 December 2007. All of this capacity is powered by clean, renewable hydro-electricity, the majority of which is self owned.
     In the Oceania region, RTA has ownership interests in four smelters, three in Australia and one in New Zealand. The Bell Bay smelter in Australia is wholly owned, while ownership interests range from 52 to 79 per cent in respect of

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the other three facilities. The total annual attributable production capacity in this region is 1.06 million tonnes as at 31 December 2007, an increase of 37 per cent over the prior year mainly due to the addition of a 51.6 per cent interest in Australia’s Tomago smelter as a result of the combination with Alcan.
RTA also has a substantial presence in Europe with ownership interests in eight smelters, principally in France and the UK. The annual production capacity at the end of 2007 was one million tonnes, an increase of over 1,200 per cent due to the combination with Alcan. Two of the smelters in the UK totalling 221,000 tonnes of annual capacity are powered by wholly owned electricity generation facilities. The Lannemezan smelter in France, which had a capacity of 25,000 tonnes as at 31 December 2007, will be closed during the first half of 2008.
In addition to Canada, Oceania and Europe, RTA wholly owns one smelter in the United States, which, together with interests in smelters in Cameroon and China, represents annual production capacity of 324,000 tonnes as at the end of 2007. Alcan Ningxia Aluminum Company Limited (Ningxia), in which RTA holds a 50 per cent stake in the pre-bake Line 3, is one of the lowest cost aluminium producers in China. Further, the group retains a 20 per cent stake in the 350,000 tonne per annum Sohar smelter in Oman, which is on track to be commissioned during 2008. The smelter will utilise RTA’s AP35 technology which, together with RTA operational expertise, will contribute toward the expected position of the smelter in the first quartile of the industry cash cost curve.

Power facilities
Given the long term nature of a smelter investment, and the fact that electricity costs usually represent around one quarter of industry average smelting cash costs, a secure, long life and competitively priced electricity supply is of vital importance in the aluminium smelting industry. In this respect, RTA is very favourably positioned. As at 31 December 2007, RTA owns electricity generating capacity of 5,076 MW, up from 706 MW at the end of 2006. The group owns generation capacity sufficient to meet around half of its electricity needs, a proportion far above the industry average, while long term power purchase contracts account for a further 46 per cent. An additional advantage is that 75 per cent of the total RTA electricity supply is non fossil fuel based hydropower and nuclear power.
As with the aluminium smelters, the significant majority of RTA’s power facilities are located in Canada. Six separate wholly owned power stations located on the Peribonka and Saguenay rivers in Quebec comprise a generation capacity of 2,687 MW. The water management system for these power stations, with their associated dams, reservoirs and catchment areas, covers an area of 73,800 square kilometres. The group’s wholly owned Kemano power station in British Columbia has capacity of 896 MW and primarily supplies electricity to the wholly owned Kitimat smelter. It is noteworthy that the group’s Canadian self owned hydropower assets are the result of construction efforts that took place over a period of 50 years, and that such assets would be extremely difficult and costly to replicate today.
The group owns a 42 per cent share of the coal fired Gladstone Power Station (GPS) in Australia, used to supply the Boyne Island smelter. The GPS interest held by RTA has a capacity of 706 MW.
In China, RTA owns nearly 22 per cent of the Daba power station, a facility which provides electricity to the Ningxia smelter. The group’s share of generating capacity from this coal fired plant is 261 MW.
In Europe, the group wholly owns four power stations, three in the UK totalling 500 MW of capacity and one in Norway of 26 MW. Of the total of 526 MW of European generating capacity, 420 MW is coal fired while the remainder is hydro powered.

Technology
 The combination of Rio Tinto and Alcan creates an excellent opportunity to exercise undisputed industry leadership in technology. RTA’s technology strategy is to:
lead through benchmark performance in all aspects of current operations;
maintain and enhance RTA’s industry-leading position with respect to the AP technologies; and
develop new breakthrough, high value future options focusing on significant reductions in energy andenvironmental impact.

During 2007, design and engineering work continued on schedule in respect of the AP50 pilot plant in Quebec, expected to cost around US$550 million and have a nameplate capacity of 60,000 tonnes per annum. The plant is expected to serve as the basis for commercialisation of the AP50 technology, which incorporates unique design features that make it a superior platform for the fullest exploitation of a suite of breakthrough technologies currently under development.
     An innovative portfolio of breakthrough technologies is being pursued with the overall goal of lowering unit energy consumption by up to 20 per cent while reducing and eventually eliminating GHG and other emissions. RTA is focused on step changes in energy consumption, environmental impact and full economic cost, in order to maintain and extend RTA’s position as industry technology leader, thereby supporting a key corporate objective of sustainable growth.
     RTA also sells technology to third parties. In addition to being a viable business, this product offering has the benefit of enhancing RTA’s appeal as the joint venture partner of choice, given the combination of technological and management skills the group is able to offer. This aspect of the RTA business may prove increasingly valuable in accessing growth options in the future, as the supply side of the industry trends away from the developed world due to diminishing availability of competitively priced, secure power.

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Other businesses
RTA’s Primary Metal business unit participates in a number of other businesses related to the smelting of primary metal. These include the production and sale of cathode blocks, anodes, aluminium fluoride and calcined coke, the provision of engineering services and sale of smelting equipment, as well as the sale of electricity where generation is surplus to production needs. These businesses are relatively small compared to the smelting and power operations. During the first half of 2007, they comprised less than ten per cent of Primary Metal’s revenues. The various businesses have a presence in most regions of the world, with particular emphasis in North America and Europe.

2007 operating performance
In 2007, RTA produced 1.5 million tonnes of primary aluminium, up 75 per cent from 2006 levels due to the addition of Alcan aluminium production from 24 October 2007.
In respect of the four smelters owned by Rio Tinto Aluminium prior to the Alcan acquisition, RTA’s share of aluminium production of 862,000 tonnes was above 2006 production levels of 845,000 tonnes. Much of this improvement was attributable to Tiwai Point, (New Zealand Aluminium Smelters) where production was not hampered by the low lake levels that had been experienced in 2006.
During 2007, RTA smelters continued to produce close to capacity, with the exception of Edea (Cameroon) which operated at levels of around 85 per cent due to power constraints.
On 1 October, NZAS and Meridian Energy Limited signed an 18 year electricity price agreement for 572 MW of continuous consumption at the smelter. The agreement runs from 1 January 2013 to 31 December 2030. The new agreement provides NZAS with the basis for a secure and reliable power supply to meet the smelter’s operational requirements during this period. The smelter already has the lowest level of GHG emissions of any smelter of similar technology worldwide and this contract will maintain that position. In November 2007, the smelter received a gold award from the New Zealand Business Excellence Foundation.

BAUXITE & ALUMINA PROJECTS

Weipa(Rio Tinto: 100 per cent)
A 3.5 million tonne per annum expansion of the group’s Weipa bauxite mine is currently under way. The expansion is scheduled to be completed by late 2009 and is expected to cost around US$30 million. The expansion is expected to further leverage the world class Weipa bauxite deposit.

Gove(Rio Tinto: 100 per cent)
As of the date of Rio Tinto’s acquisition of Alcan, a 1.8 million tonnes per annum expansion of the Gove alumina refinery in Australia was nearing completion, with certain components of the expansion already commissioned and being brought into production. The expansion cost is US$2.3 billion, and is expected to bring the Gove refinery to a total capacity of 3.8 million tonnes per annum, making it one of the largest refineries in the world. Nameplate capacity is expected to be reached by the end of 2008. Following completion of the expansion, the Gove refinery is expected to operate in the second quartile of the industry cash cost curve.

Yarwun(Rio Tinto: 100 per cent)
On 3 July 2007, Rio Tinto approved an expansion of the Yarwun alumina refinery in Gladstone, Queensland in order to more than double annual production, increasing output by two million tonnes. First shipments are expected in the second half of 2010. The expansion is expected to cost around US$1.8 billion. Work commenced on the expansion in the third quarter and is expected to take about three years to complete. First shipments are expected in the second half of 2010. All government approvals have been granted. Once completed, the refinery is expected to be positioned in the second quartile of the industry cost curve.

Sao Luis (Alumar)(Rio Tinto: ten per cent)
A 2.1 million tonnes per annum expansion of the Alumar refinery in Brazil (Rio Tinto share 210,000 tonnes) is under way and progress on construction is approximately 35 per cent advanced as at 31 December 2007. The project will cost an estimated US$200 million (Rio Tinto’s share). Alumar is expected to be positioned in the first quartile of the industry operating cost curve once construction is completed.

Guinea(Rio Tinto: 50 per cent)
A 1.6 million tonnes per annum greenfield alumina refinery project in Guinea is being evaluated in partnership with Alcoa Inc. The project is currently at the pre feasibility stage and it is expected that the sponsors will make a decision in the first half of 2008 with regard to undertaking detailed feasibility studies. It is expected that the refinery would be positioned in the first quartile of the industry cost curve.

Ghana(Rio Tinto: 51 per cent)
A 1.5 million tonnes per annum greenfield alumina refinery project is under consideration in partnership with the Government of Ghana. The project is currently at the conceptual study stage and it is expected that the sponsors will

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make a decision in the first half of 2008 with regard to undertaking a pre feasibility study. It is expected that the refinery would be positioned in the first quartile of the industry cost curve.

Madagascar(Rio Tinto: 51 per cent)
A 1.6 million tonnes per annum greenfield alumina refinery and associated bauxite mine is being considered in partnership with a Malagasy company. The project is currently at the conceptual study stage and it is expected that the sponsors will make a decision in the first half of 2008 with regard to undertaking a pre feasibility study. It is expected that the refinery would be positioned in the first quartile of the industry cost curve.

PRIMARY METAL PROJECTS

Sohar(Rio Tinto: 20 per cent)
In 2007, construction advanced on time and on budget at the 350,000 tonnes per annum smelter at Sohar, Oman. When complete, the 350,000 tonne potline would be the world’s largest both in terms of capacity and overall length, utilising the world’s most advanced commercial technology, the RTA owned AP35 smelting technology. The smelter is expected to produce aluminium ingot for export commencing in the first half of 2008. Once operational, the smelter is expected to be positioned in the first quartile of the industry cost curve. A second potline of similar size is currently the subject of discussions among the joint venture partners. Under the original agreement between the partners, RTA has the right to take up to 60 per cent of this second potline.

Hydropower(Rio Tinto: 100 per cent)
On 26 April 2007, the former Alcan announced the investment of US$130 million in a new, power efficient hydro generator to be installed at the group’s Shipshaw power facility in Quebec, Canada. The new generator will optimise the performance of the facility and improve the efficiency with which the water flow is utilised. In addition, on 30 January 2008, the group announced an investment of US$90 million in its Lochaber, Scotland hydro-electric facilities, designed to ensure the future of smelting in the Highlands of Scotland for many years to come. The project, which will see the installation of new hydro-electric turbo generators, is expected to commence in 2009 and be completed by 2012.

Spent pot lining facility(Rio Tinto: 100 per cent)
RTA is building a US$180 million aluminium spent pot lining recycling plant in Quebec’s Saguenay-Lac-Saint-Jean region of Canada. This unique industrial scale pilot plant is expected to have a capacity of approximately 80,000 tonnes to recycle spent pot lining using Alcan’s proprietry technology. Spent pot lining is the residual material generated in the de-lining of pots following the aluminium smelting electrolysis process. The spent pot lining is composed of carbon and various inert elements and is typically pre-treated and land filled under strict precautions. Through this new process, all of the spent pot lining will be recycable, providing the global aluminium industry with a sustainable re-usable solution for spent pot lining by-products. The plant’s technology was developed at RTA’s Arvida Research and Development Centre and is expected to begin pot lining treatment operations in 2008.

Kitimat(Rio Tinto: 100 per cent)
In 2006, Alcan announced its intention to modernise the existing Kitimat smelter, replacing the current Soderberg technology with industry leading AP35+ prebake technology and increasing smelter capacity to 400,000 tonnes per annum. The facility will take advantage of the RTA owned Kemano hydro-electric facility, with a capacity of 896 MW, and access to the Pacific Rim in terms of raw materials and metal markets, while reducing the environmental footprint of the existing plant by 40 per cent by reducing GHG generation by around 500,000 tonnes per annum. Total investment in respect of the project is expected to be around US$2 billion. On 30 January 2008, the third and final condition for proceeding to board approval of the project was completed with clearance from the British Columbia Utilities Commission in respect of BC Hydro’s 2007 Energy Purchase Agreement with RTA. The other two hurdles were the securing of an acceptable labour agreement for construction and start up and assurances on environmental permitting issues. Advanced feasibility studies have been completed and the project is expected to be submitted for approval during 2008, on which basis first metal can be expected in 2011. When completed, the smelter is expected to be positioned in the first quartile of the industry cost curve.

Quebec(Rio Tinto: 100 per cent)
In December 2006, the former Alcan announced a plan to build a US$550 million pilot plant at its Complexe Jonquière site in Quebec, Canada to develop the company’s proprietary AP50 smelting technology. The pilot plant is expected to produce approximately 60,000 tonnes of aluminium per annum and will be the platform for future generations of AP50 technology. The first of its kind, the plant is the start of a planned ten year US$1.8 billion investment programme in Quebec’s Saguenay–Lac-Saint-Jean region, involving up to an additional 390,000 tonnes annually of new smelting capacity by 2015. The new AP50 pilot facility will be the cornerstone of an industrial strategy developed by RTA with the support of the Government of Quebec. Engineering and feasibility studies are advancing as are site preparation activities, and initial approval is expected around the middle of 2008. When completed, the smelter is expected to be

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positioned in the first quartile of the industry cost curve.

Coega(Rio Tinto: 80 per cent)
Feasibility studies have been substantially completed in respect of the construction of a 720,000 tonnes per annum smelter at Coega, Eastern Cape Province, South Africa. Although an energy contract with the South African utility, ESKOM was signed in November 2006, ongoing discussions are reviewing the terms of the project to align its timing with the availability of secure power generation capacity from ESKOM. When completed, the smelter is expected to be positioned in the first quartile of the industry cost curve.

Saudi Arabia(Rio Tinto: 49 per cent)
In 2007, a heads of agreement was signed with Ma’aden (the Saudi Arabian Mining Company) to investigate the development of a bauxite mine at Az Zabirah, and construction of a power plant, alumina refinery and aluminium smelter complex at Ras Az Zawr, on the Gulf Coast of Saudi Arabia. Under the agreement, RTA is expected to take a 49 per cent interest in the project, with Ma’aden owning the remainder. Pre feasibility work is scheduled to be completed in 2008. The proposed aluminium smelter is planned to have a capacity of 720,000 tonnes per annum and if completed, is expected to be positioned in the first quartile of the industry cost curve. The proposed alumina refinery would have a capacity of 1.6 million tonnes per annum and if completed, is expected to be positioned in the second quartile of the industry cost curve. Most of the smelter output, at least initially, is planned for export.

Sarawak(Rio Tinto: 60 per cent)
On 7 August 2007, Rio Tinto and Cahya Mata Sarawak Berhad signed a heads of agreement for the proposed development of a smelter in the State of Sarawak, Malaysia. Under the signing of the heads of agreement, detailed feasibility studies on the design, engineering, construction, commissioning and operation of a smelter with an initial capacity of 550,000 tonnes are being undertaken. The smelter is expected to have the capability to be expanded to 1.5 million tonnes per annum. It is proposed that electricity for the smelter may come from the Bakun hydro-electric dam, which is currently under construction. If completed, the smelter is expected to be positioned in the first quartile of the industry cost curve.

Abu Dhabi(Rio Tinto: 50 per cent)
Discussions are continuing with General Holding Corporation of Abu Dhabi for a development that could result in a smelter with a first stage production capacity of 720,000 tonnes of metal per annum. Abu Dhabi Aluminium Company (Adalco) has been formed to manage the joint venture. If completed, the smelter is expected to be positioned in the first quartile of the industry cost curve.

Iceland(Rio Tinto: 100 per cent)
During 2007, the community near RTA’s ISAL smelter expressed dissatisfaction with a proposed expansion and modernisation of the facilities, by narrowly rejecting a town planning referendum which included the matter. RTA is continuing to assess options for the possible expansion of its smelting activities in Iceland.

Cameroon(Rio Tinto: 46.7 per cent)
A potential upgrade and expansion of the Alucam smelter by 200,000 tonnes per annum, together with the construction of a new 330 MW hydro-electric power station, is being contemplated. Pre-feasibility studies have been completed and environmental authorisations have been obtained. RTA and the Government of Cameroon committed on 29 November 2007 to additional access to water resources to facilitate the launch of technical and pre-feasibility studies for a new greenfield smelter with potential capacity of 400,000 tonnes per annum. If completed, these smelter projects are expected to be positioned in the first quartile of the industry cost curve.

ENGINEERED PRODUCTS

RTA’s Engineered Products business unit is a portfolio of inter connected aluminium and non aluminium businesses providing innovative, high value added solutions to meet the diverse needs of its global customer base. In particular, the business is the premier supplier of high value added aluminium products to the world’s leading aircraft manufacturers. In Europe, it also produces large profile extrusions for the transportation industry and is a top supplier of beverage can stock. The business is the North American leader in aluminium wire and cable, and a world leader in composite products with a unique portfolio of brands and product solutions. As at 31 December 2007, the business unit comprised 95 operating and sales sites in 34 countries and regions around the world. The unit is organised into seven sub business units; Aerospace, Transport and Industry (ATI), Cable, Extruded Products, Composites, Specialty Sheet, Engineered and Automotive Solutions (EAS) and the Alcan International Network (AIN).
      On 8 November 2007, RTA announced the sale of the non aerospace portion of its service centre operations in Europe, Alcan Service Centres (ASC), to Amari Metals. The transaction was completed on 4 January 2008. Rio Tinto announced on 26 November 2007 the intention to explore options for the divestment of the remainder of the Engineered Products business unit. Although Engineered Products is a market leader in many of its largest businesses, and has

Rio Tinto 2007 Form 20-F64

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recently experienced strong growth, the business unit does not fit within Rio Tinto’s overall corporate strategy.

PACKAGING

RTA’s Packaging business unit enjoys market leading positions in each of the four packaging segments in which it operates; Food Flexible, Pharmaceutical and Medical, Beauty and Personal Care, and Tobacco. It is one of the few participants in its product markets with a truly global reach having executed considerable expansion into emerging countries and regions over the last few years. The business delivers innovative packaging solutions using plastics, engineered films, aluminium, paper, paperboard and glass to customers worldwide. As at 31 December 2007, the business unit comprised 129 operating sites in 31 countries and regions around the world. The potential divestment of the Packaging business unit was being explored by Alcan during the first half of 2007 and was confirmed in the announcement by Rio Tinto of an agreed bid for Alcan on 12 July, 2007. The sale process for the Packaging business unit is ongoing.

Rio Tinto 2007 Form 20-F65

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Copper group

MinedRio Tinto share 
Copper‘000 tonnes 


 
2003867 
2004753 
2005784 
2006803 
2007738 


 
   
Gold‘000 ounces 


 
20032,731 
20041,552 
20051,726 
20061,003 
20071,233 


 
   
RefinedRio Tinto share 
Copper‘000 tonnes 


 
2003349 
2004333 
2005314 
2006299 
2007390 


 
   
Underlying earnings contribution*US$m 


 
2004860 
20051,987 
20063,538 
20073,479 


 
   
Changes in underlying earnings 2005 - 2007US$m 


 
2005 Underlying earnings1,987 
Effect of changes in:  
     Prices and exchange rates1,707 
     General inflation(28)
     Volumes(179)
     Costs(196)
     Tax and other247 


 
2006 Underlying earnings3,538 
Effect of changes in:  
     Prices and exchange rates388 
     General inflation(37)
     Volumes309 
     Costs(230)
     Tax and other(489)


 
2007 Underlying earnings3,479 


 
*A reconciliation of the net earnings with underlying earnings for 2007, 2006 and 2005 as determined under IFRS is set out on page 53.

STRATEGIC OVERVIEW

Rio Tinto’s Copper portfolio comprises a diverse mix of operations and projects along the development pipeline. During 2007 the focus on copper and molybdenum was supplemented by nickel.
     The Copper group comprises Kennecott Utah Copper in the US and interests in the producing copper mines of Escondida in Chile, Grasberg in Indonesia, Northparkes in Australia and Palabora in South Africa. The group has management responsibility for Kennecott Minerals Company in the US and includes interests in undeveloped world class copper orebodies at La Granja in Peru, Oyu Tolgoi in Mongolia and Resolution in the US. Nickel projects in Indonesia and the US offer a pathway to becoming a top tier global nickel producer.
      As one of the world’s leading copper businesses, Rio Tinto’s pipeline of projects position the Group to become the world’s leading base metal producer by value creation. Recent exploration at the La Granja project in Peru has highlighted the potential for doubling forecast production to in excess of 500,000 tonnes per annum. Development work on Oyu Tolgoi is progressing well with significant further exploration potential in Mongolia. Average production is projected to be 440,000 tonnes per annum of copper and 320,000 ounces per annum of gold over the life of the mine.

Rio Tinto 2007 Form 20-F66

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Rio Tinto has a 9.9 per cent interest in the Pebble copper-gold-molybdenum project in Alaska managed by the Northern Dynasty Minerals/Anglo American joint venture. Rio Tinto continues to be involved and monitor progress.
There are significant extension options in copper, gold and molybdenum at Kennecott Utah Copper and upside on the Resolution project, both in the US. In addition to these world class projects, the group is developing the E48 underground deposit at Northparkes. At Palabora, studies are progressing to evaluate an extension to the existing underground block cave lift, to explore the option of developing a second lift and to review options for enhancing revenue from magnetite stockpiles, a form of iron ore produced as a by-product of copper concentration.
Historically, the Copper group built the majority of its portfolio through acquisitions (Kennecott) or joint ventures (Escondida, Grasberg) followed by expansions. The current pipeline of projects represents a transition with a greater proportion of opportunities created through exploration and acquisitions at an early stage of development. The Copper group’s long term development plans are not 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 nickel deposit (Rio Tinto: 100 per cent) in Michigan in the US, feasibility studies were completed during 2007 and the decision to construct the underground mine was made in November 2007. In Indonesia, positive progress was made with the government on a Contract of Work for the Sulawesi Nickel project.
A Copper Projects team was formed in 2007 to manage the planning, development and related technology aspects of the portfolio of major projects, namely La Granja, Oyu Tolgoi, Resolution Copper, Keystone at Kennecott Utah Copper and Sulawesi Nickel. The team will collaborate with the Technology and Innovation group to focus on block cave design (with project work at Palabora), rapid construction (at Diavik), copper leaching (at La Granja) and nickel/cobalt recoveries (trials in Australia). With the significant ramp up of activities at each project site, there has been an elevated focus on safety systems especially in the area of contractor management.
Oyu Tolgoi, Resolution Copper and Kennecott Utah Copper’s Bingham Canyon are amenable to being mined using the underground block caving technique. Unlike an open pit mine, which involves extensive removal of the surface waste rock to access the orebody, the block cave method accesses the orebody from underneath through a series of deep shafts and tunnels. These shafts and tunnels generate minimal waste rock. The block caving technique is currently being used at both Palabora and Northparkes. La Granja will rely on innovative leaching technology which will be about three times higher than their average level through the 1990s and well above levels achieved in the early part of this decade. Copper stocks have been at critically low levels since a surge of consumption in 2004 depleted available inventories. Since then, supply has been constrained while underlying demand has strengthened with Chinese economic growth. Prices could remain near current levels as long as production growth continues to lag the underlying demand trend. Strong Chinese demand growth is expected in 2008 while on the supply side issues include the likelihood of ongoing disruptions and possible constraints on the availability of sulphuric acid affecting solvent extraction and electro-winning (SxEw) operations. The importance of investment funds in exchange traded commodity markets means that large price movements could take place on the back of commodity specific speculative shifts or broader shifts in investor sentiment, well in advance of any fundamental change in physical markets. Looking to the long run, strong demand growth prospects are based on the expected resource intensive development of economies such as China and associated investment in power distribution networks and other infrastructure. On balance, there has been a structural shift in copper costs supporting the expectation of significantly higher long run prices than would be implied by historical trends.
Rio Tinto announced in November 2007 that it would explore options for the sale of a shortlist of assets, including three businesses from the Copper product group – Greens Creek (zinc, lead, silver) (Rio Tinto: 70 per cent), Cortez/Pipeline (gold)(Rio Tinto: 40 per cent) and Northparkes (copper, gold)(Rio Tinto: 80 per cent). These are all good businesses and any sales will be value driven and dependent on price. On 12 February 2008 the Group reached agreement for the sale of the Greens Creek interest for US$750 million. On 5 March 2008 the Group completed the sale of its interest in the Cortez gold mine for US$1,695 million, a deferred bonus payment and a contingent royalty.
At 31 December 2007, the Copper group, which also produces gold and molybdenum as significant co-products, accounted for six per cent of the Group’s operating assets and in 2007 contributed approximately 25 per cent of Rio Tinto’s gross sales revenue, of which 72 per cent was from copper, 12 per cent from molybdenum and the remainder mostly from gold. It accounted for 47 per cent of underlying earnings in 2007.
Bret Clayton, chief executive, Copper, is based in London.

SAFETY

All injury frequency rate per 200,000 hours 


20031.72
20041.25
20051.64
20061.47
20071.28


In 2007 there was one fatality at Resolution Copper and four fatalities at non managed operations (three at Grasberg and one at Escondida). For Copper group managed operations, the all injury frequency rate (AIFR) was 1.27 compared to

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1.47 for 2006. There were notable improvements in AIFR at Kennecott Minerals (3.68 to 1.84) and Palabora (1.08 to 0.60) .
On 10 March 2008 a helicopter under charter to the La Granja copper project in Peru went missing while two pilots were ferrying eight passengers from the La Granja camp to Chiclayo. Wreckage was observed from the air and it was subsequently found that all ten occupants of the helicopter had perished. Rio Tinto is providing support and counselling to the families and colleagues of those involved.

GREENHOUSE GAS EMISSIONS

Kennecott Utah Copper (KUC) currently has 49 projects that will reduce greenhouse gas (GHG) emissions, including reduction of diesel consumption by haul trucks and increasing throughput at the pebble crusher. The challenge in 2008 will be to achieve GHG reductions per unit of copper produced.
     Palabora is expecting a reduction of 13.3 per cent which is below the targeted reduction of 19.8 per cent. The reason is the switch, made for economic reasons, from processing purchased concentrates to processing Palabora owned low grade surface stockpiles. This results in higher energy use and a reduction in production.
     Given the energy limitations in South Africa, Palabora continues to implement energy efficiency measures while maintaining operational flexibility. Northparkes in Australia has set reduction targets although GHG emissions per unit of copper will increase due to the early cessation of the E26 underground phase and processing of harder ore.

FINANCIAL PERFORMANCE

2007 compared with 2006
The Copper group’s contribution to 2007 underlying earnings was US$3,479 million, similar to 2006 record earnings. Higher prices and volumes offset higher costs and the absence of 2006 tax benefits. The average price of copper was 324 US cents per pound during 2007, six per cent higher than in 2006. The average gold price of US$691 per ounce increased by 15 per cent. The average price of molybdenum was US$29.92 per pound compared with US$24.60 per pound in 2006. Higher volumes were achieved across all operations except Northparkes, with the largest increases at Escondida due to a full year’s sulphide leach production, and at KUC due to the absence of the 2006 smelter shutdown. Higher operational costs were due to increased truck numbers resulting from longer haul profiles at KUC, increased diesel power costs due to natural gas restrictions at Escondida and the premature shutdown of Lift 2 at Northparkes. Evaluation projects also impacted cash costs due to higher spending at Resolution, La Granja, the Keystone project at KUC and the share of spending on the Oyu Tolgoi project.
KUC’s contribution to underlying earnings of US$1,649 million was US$161 million lower than 2006, primarily through the absence of the US$289 million tax credit recognised in the prior year, a higher tax rate due to the shift from the Alternative Minimum Tax accounting basis in the US group and increased depreciation following the impairment reversal during 2006. As well as increased prices, offsetting these decreases in earnings were higher refined copper and gold volumes as smelter performance improved following the extended shutdown in late 2006 as well as a reduction in the environmental liability following a re-assessment of the acid plume clean-up rate.
Rio Tinto’s share of underlying earnings from Escondida was US$1,525 million, an increase of US$275 million from the prior year. This was achieved through higher prices and increased copper volumes as a result of the continued ramp up of the sulphide leach plant and a higher ore grade which more than compensated for higher energy and material costs.
     The Grasberg joint venture contributed US$159 million to underlying earnings, US$37 million above 2006. This was due to significant increases in gold volumes due to improved grade offset by a fall in copper volumes as grade and mill throughput both fell.
     Palabora’s 2007 earnings of US$58 million were US$6 million above the prior year, as increasing volumes achieved through improved underground production and ore grade and also higher copper rod premiums all benefited earnings.
Northparkes contributed US$137 million to underlying earnings, a fall of US$92 million from 2006. Performance was dominated by the premature shutdown of the Lift 2 underground area during the first half of the year, resulting in the processing of low grade open pit stockpiles and increased costs.
Kennecott Minerals earnings of US$106 million were US$1 million above the prior year, with higher prices and increased gold volumes from Cortez offset by the absence of the US$14 million tax credit from the prior year and the resulting higher effective tax rate in 2007.
The impact on earnings of expenditure on evaluation projects was US$155 million in 2007, an increase of US$125 million from the prior year as activities increased on a number of projects. Activities included pre-feasibility studies at Resolution Copper and La Granja and early construction work at Oyu Tolgoi in anticipation of the signing of an Investment Agreement with the Mongolian government.

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2006 compared with 2005
The Copper group’s contribution to underlying earnings was US$3,538 million, US$1,551 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.
KUC’s earnings of US$1,810 million were 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 KUC. As a result, impairments recorded in 2001 and 2002 were reversed in 2006.
Rio Tinto’s share of 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’ 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 54 per 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 offset by higher costs and lower sales volumes from Cortez, due to lower grades.

OPERATIONS

Kennecott Utah Copper(Rio Tinto: 100 per cent)
Kennecott Utah Copper (KUC) operates the Bingham Canyon mine, Copperton concentrator and Garfield smelter and refinery 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 13 per cent of the nation’s annual refined copper requirements and it employs approximately 1,800 people.
KUC joined the Climate Registry, a voluntary reporting system for greenhouse gas emissions. KUC will continue to report publicly on greenhouse gas emissions associated with the operations.

2007 operating performance
KUC has been operating for over 100 years, was Rio Tinto’s most profitable mine in 2007 and has extensive optionality for future development. KUC is well positioned on the industry cost curve, benefiting from significant co-product revenues from gold and molybdenum. It continues to demonstrate operating flexibility by delivering high volumes of molybdenum during a continuing period of exceptionally high prices. Building on the foundation of Rio Tinto’sImproving performance together(IPT) methodology, KUC continued to improve its knowledge of molybdenum mineralisation in the orebody to optimise production. The bulk flotation upgrade at the concentrator started in 2007 with an expected capital cost of US$88 million. The project, scheduled for completion in June 2008, is expected to increase recovery by around two per cent and increase concentrate grade by four per cent.
KUC continues to be one of the most favourable brownfield environments of all Rio Tinto’s mines and retains significant options for further mine life extensions. Over the past two years brownfield exploration has uncovered a world class molybdenum deposit sitting underneath the Bingham open pit, additional porphyry mineralistion below the southern pit wall at depth and multiple targets with further potential both in the immediate three to four kilometre wide orbit of the Bingham pit and within 20 kilometres in the Oquirrh Range.
The Keystone project continues to evaluate pit expansion options while concurrently establishing underground access, through the dewatering and rehabilitation of an existing mine shaft to provide access for an underground drilling programme. Additional option analysis to accelerate the underground schedule through shaft and level access design will be conducted in 2008. Current open pit options indicate that there is good opportunity to expand mining in the southern area of the pit. Current ore reserves will support open pit operations until 2019 and this could be extended to 2036 through a combination of underground and open pit options.
KUC is progressing with a feasibility study to advance the molybdenum autoclave process (MAP), which will convert molybdenum concentrates into final saleable products. KUC currently produces a high grade molybdenum concentrate that is shipped to a third party roaster for conversion to metallurgical grade molybdenum products. The proposal is to produce enhanced chemical grade products on a brownfield site west of the smelter. The main economic drivers for the project are attracting a chemical grade premium with contract floor pricing and higher molybdenum recoveries. A decision whether or not to proceed with construction will be made in the first quarter of 2008, with operations commencing in the first quarter of 2010. The estimated capital cost to construct the facility is US$169

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million with an additional US$106 million to expand the plant in 2014 to match a predicted increase in mined molybdenum production.

Principal operating statistics at KUC 2005-2007

 2007 2006 2005 






 
Rock mined (’000 tonnes)142,297 145,343 140,906 
Ore milled (’000 tonnes)47,525 47,857 46,664 
Head grades:      
     Copper (%)0.53 0.63 0.53 
     Gold (g/t)0.38 0.49 0.37 
     Silver (g/t)3.00 3.50 3.23 
     Molybdenum (%)0.050 0.057 0.058 
     Copper concentrates produced (’000 tonnes)889 1,019 881 
Production of metals in copper concentrates       
     Copper (’000 tonnes)212.2 265.6 220.6 
     Gold (’000 ounces)397 523 401 
     Silver (’000 ounces)3,487 4,214 3,958 
     Molybdenum concentrates produced (’000 tonnes)26.6 30.2 29.5 
     Contained molybdenum (’000 tonnes)14.9 16.8 15.6 
     Concentrate smelted on site (’000 tonnes)1,103 918 1,042 
Production of refined metals       
     Copper (’000 tonnes)265.6 217.9 232.0 
     Gold (’000 ounces)523 462 369 
     Silver (’000 ounces)4,365 4,152 3,538 






 

Grasberg joint venture(Rio Tinto: 40 per cent)
Grasberg, located in the province of Papua in 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). The Government of Indonesia owns the remaining nine per cent of PTFI. The joint venture gives Rio Tinto a 40 per cent share of production above specific levels until 2021 and 40 per cent of all production after 2021, as well as representation on operating and technical committees.
The joint venture operates under an agreement with the Government of Indonesia, which allows the joint venture to conduct exploration, mining and production activities in a 10,000 hectare area (Block A). Exploration activities are conducted in an approximate 200,000 hectare area (Block B). All of the proved and probable mineral reserves and current mining operations are located in Block A. Rio Tinto and PTFI also have joint ventures in other entities which have exploration rights in areas covering 690,000 hectares in addition to Blocks A and B. Rio Tinto has the right to 40 per cent of the exploration potential in all areas outside of Block A.
In meeting the mine’s social obligations to local communities, at least one per cent of Grasberg’s net sales revenues 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 2007, PTFI contributed US$48 million (net of Rio Tinto portion) and Rio Tinto US$4.5 million in total to the funds.
      As a result of training and educational programmes, Papuans represented more than a quarter of PTFI’s approximately 10,776 strong workforce by the end of 2007.

2007 operating performance
In mid 2007, the Deep Ore Zone expansion to 50,000 tonnes per day was completed, and a further expansion to 80,000 tonnes per day is under way. Ninety per cent of the tunnelling on the Common Infrastructure Project was completed, which will provide access to large undeveloped orebodies through a tunnel system 400 metres below existing workings. Feasibility studies for Grasberg block cave operations are well advanced and mine development activities will commence in the first half of 2008. The Big Gossan development will reach full production rates by the end of 2010. The high pressure grinding rolls project which involves new energy saving technology for treating ore in the mill was completed during 2007.
      Rio Tinto’s share of metal is 40 per cent of the production in excess of a level specified in the joint venture agreement (the Product Schedule). This means that Rio Tinto’s share is leveraged to relatively small variations in total production. Rio Tinto’s 2007 share of production showed considerable variation from 2006 – volumes of payable copper decreased to 60 million pounds in 2007 from 99 million pounds in 2006, offset by an increase in the volume of payable gold from 94,000 ounces in 2006 to 411,000 ounces in 2007. The sequencing in mining areas with varying ore grades causes fluctuations in the timing of ore production, resulting in varying annual production of copper and gold. This continuing variation in production will continue year on year. It is expected that in the first half of 2008 mining will be in a relatively low grade section of the Grasberg open pit.
      The current mine plan reflects a transition from the Grasberg open pit to the Grasberg underground block cave orebody in mid 2015. PTFI, as manager, continually analyses its longer range mine plans to assess the optimal design of

Rio Tinto 2007 Form 20-F70

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the Grasberg open pit and the timing of development of the Grasberg underground block cave orebody. The review in 2006 resulted in changes to the expected final Grasberg open pit design which will result in a section of high grade ore previously expected to be mined in the open pit to be mined in Grasberg’s underground block cave operations.

Principal operating statistics for PTFI 2005-2007

 2007 2006 2005 






 
Ore milled (’000 tonnes)77,593 83,716 78,907 
Head grades:      
     Copper (%)0.82 0.85 1.13 
     Gold (g/t)1.24 0.85 1.65 
     Silver (g/t)3.53 3.84 4.88 
Production of metals in concentrates      
     Copper (’000 tonnes)569.4 610.8 793.9 
     Gold (’000 ounces)2,689 1,880 3,546 
     Silver (’000 ounces)5,238 5,609 7,531 






 

Escondida(Rio Tinto: 30 per cent)
The low cost Escondida copper mine in Chile’s Atacama Desert, is the largest copper mine in the world in terms of annual production, and has a mine life expected to exceed 30 years. It accounts for approximately eight per cent of world primary 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 and Escondida Norte, located five kilometres from Escondida. A sulphide leach project was completed during 2006 and continued to ramp up during 2007. Escondida employs approximately 2,900 people. Options for future growth at Escondida continue to be evaluated jointly. These include increasing throughput by adding new facilities such as a concentrator to the two existing ones, optimising mining rates through coordinating mine plans with adjacent pits and identifying new ore sources through exploration. A brownfields exploration programme has been in place since 2005, with encouraging results.
The energy situation in northern Chile is tight and vulnerable to rationing. Diesel power has replaced natural gas and the future energy matrix is likely to shift towards coal and liquefied natural gas (LNG). Escondida is supporting the development of a LNG plant which should provide additional power and reliability to the system. In the longer term, Escondida will secure power through the construction of a coal fired power station which will be operational by 2011.

2007 operating performance
Escondida’s copper concentrate production was 11 per cent higher than 2006 due to higher grades and throughput. Refined copper production was 77 per cent higher than 2006 due to a full year of sulphide leach production which commenced in June 2006.

Principal operating statistics at Escondida 2005-2007

 2007 2006 2005 






 
Rock mined (’000 tonnes)345,377 338,583 359,569 
Ore milled (’000 tonnes)90,697 84,158 86,054 
Head grade:       
     Copper (%)1.64 1.59 1.53 
Production of metals in concentrates       
     Copper (’000 tonnes)1,247 1,122 1,127 
     Gold (’000 ounces)187 170 183 
     Silver (’000 ounces)7,870 6,646 6,565 
Copper cathode (’000 tonnes)238.4 134.4 143.9 






 

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 block cave underground mine with a planned production rate of at least 32,000 tonnes of ore per day. Approximately 678,900 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 2,050 people. For the first time, three year wage agreements were entered into with organised labour until the end of February 2011.

Palabora is progressing arrangements to meet the requirements of legislation governing broad based economic empowerment in the South African mining industry.

Rio Tinto 2007 Form 20-F71

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2007 operating performance
Underground production increased as a result of improved block caving conditions, procedures and equipment availability. Ore milled increased mainly due to higher underground production and the processing of Palabora marginal and oxide ore surface stock piles. Concentrate tonnage was 15 per cent greater than 2006 due to reclaimed low grade concentrate during the first quarter of 2007 and higher milled tonnage. Smelter production also increased on the prior year due to the absence of the 2006 smelter shutdown. Magnetite production in 2007 was up 16 per cent year on year, in line with Palabora’s plans to meet offtake agreements.

Principal operating statistics at Palabora 2005-2007

 2007 2006 2005 






 
Ore milled (’000 tonnes)12,915 10,730 9,536 
Head grade:      
     Copper (%)0.70 0.71 0.72 
Copper concentrates produced (’000 tonnes)239.2 208.9 197.1 
Contained copper (’000 tonnes)71.4 61.5 61.2 
New concentrates smelted on site (’000 tonnes)295.8 288.5 304.4 
Refined copper produced (’000 tonnes)91.7 81.2 80.3 
Magnetite concentrate ('000 tonnes)1,306 1,127 888 






 

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. Northparkes employs approximately 220 people.

2007 operating performance
Production was constrained by early closure of the E26 Lift 2 due to the ingress of clay at the underground drawpoints. Ore was and will continue to be sourced from stockpiles, the E22 open pit and the Lift 2 North block cave until production commences from the E48 block cave in 2009.

Principal operating statistics at Northparkes 2005-2007

 2007 2006 2005 






 
Ore milled (’000 tonnes)5,297 5,789 5,453 
Head grade:      
     Copper (%)0.91 1.53 1.12 
     Gold (g/t)0.62 0.64 0.46 
Production of contained metals       
     Copper (’000 tonnes)43.1 83.3 54.0 
     Gold (’000 ounces)78.8 94.7 57.0 






 

Kennecott Minerals(Rio Tinto: 100 per cent)
Kennecott Minerals in the US managed the Greens Creek mine (Rio Tinto: 70 per cent) on Admiralty Island in Alaska which produces silver, zinc, lead and gold and the Rawhide mine (Rio Tinto: 51 per cent) in Nevada which produces gold and silver by leaching since mining operations ceased in 2002. Reclamation work is well advanced. Kennecott Minerals also owned the group’s interest in the Cortez joint venture (Rio Tinto: 40 per cent), also in Nevada.
      Kennecott Minerals has a successful record in mine closure, having demonstrated responsible post mining use of land at Flambeau, Wisconsin, where the mine became a nature park, and at Ridgeway in South Carolina, now a wetland for ecological studies.

Rio Tinto announced in November 2007 that it would explore options for the sale of a shortlist of assets including the Greens Creek mine and the Cortez joint venture. On 12 February 2008 the Group reached agreement for the sale of Greens Creek to its minority partner for US$750 million. On 5 March 2008 the Group completed the sale of its interest in the Cortez joint venture to its partner for a cash consideration of US$1,695 million, a deferred bonus payment in the event of additional reserves and a contingent royalty interest.
      Kennecott Minerals employed approximately 250 people, excluding employees of non managed operations.

2007 operating performance
Net earnings of US$106 million matched 2006 earnings, with prices for gold, silver, zinc and lead remaining strong. At Greens Creek, production increased over 2006 due to the completion of the major rehabilitation programme at the mine. Cortez gold production remains constrained as mining moves into the final lower grade stages of the Pipeline orebody. 2007 production was, however, 21 per cent higher than 2006 due to increased leach ore tonnes.

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COPPER GROUP PROJECTS

Resolution(Rio Tinto: 55 per cent)
The Resolution Copper project is located in the historic Pioneer Mining District three miles east of Superior, Arizona. Exploration from 2001 to 2003 indicated a large, world class copper resource more than 2,000 metres (7,000 feet) below surface. The project team is currently working through a pre-feasibility study, including dewatering the former Magma mine and sinking an exploratory shaft to 2,000 metres below the surface, as well as preparing numerous studies to evaluate the technical, legal and environmental issues and to prepare the mining plan.
      The key issue facing the project is progress on the passage of a land exchange bill through the US Congress to exchange 1,300 hectares of federal land above the Resolution deposit for over 2,000 hectares of land with high conservation value spread throughout Arizona. In July 2007, land exchange bills were reintroduced into the US Senate and House, followed by a House hearing in November. The next steps include mark up of the bill in the House and a hearing in the Senate which is likely to take place in the first half of 2008.

Oyu Tolgoi(Rio Tinto: 9.9 per cent interest in Ivanhoe Mines)
In October 2006 Rio Tinto purchased a stake of just under ten per cent in Ivanhoe Mines of Canada in order to jointly develop the Oyu Tolgoi copper-gold resource in Mongolia’s south Gobi region. Rio Tinto has the ability progressively to increase its stake to 43 per cent over the next four years at pre-determined prices. This phased, risk managed entry into an outstanding resource secures a valuable share of a potential average production rate of 440,000 tonnes of copper per year with significant gold by-products.
     There is extensive exploration potential in Mongolia, including ground controlled by Entrée Gold around Oyu Tolgoi. Rio Tinto is the largest single shareholder in Entrée Gold and, with Ivanhoe, owns a total equity interest of 30.6 per cent. Ivanhoe has an option for up to an 80 per cent interest in the Entrée ground over the north and south extensions of the Oyu Tolgoi trend. Exploration on the Entrée Gold joint venture by Ivanhoe has recently delineated a continuous molybdenum-rich copper and gold mineralisation up to 400 metres wide along a 1,100 metre strike length. Overall, the Oyu Tolgoi mineralised trend now has a strike length of over 20 kilometres.
     Rio Tinto is actively engaged and working with the Mongolian Government to progress settlement of a long term investment agreement.

Entrée Gold(Rio Tinto: 16 per cent)
In June 2005 Rio Tinto acquired a 9.9 per cent stake via private placement in Entrée Gold Inc, a Canadian junior mining company. Entrée Gold's main asset includes three claims that surround the Ivanhoe Mines Oyu Tolgoi project in Mongolia. Rio Tinto's entry into Entrée Gold was due primarily to the prospectivity of the land package, including high grade copper and gold intercepts in their tenement already under agreement to Ivanhoe adjacent to the Oyu Tolgoi lease. Recent drilling by Ivanhoe identified significant high grade intercepts of porphyry mineralisation on the Heruga concession adjacent to the Oyu Tolgoi project. As part of the initial entry into Entrée Gold, Rio Tinto secured a further 6.3 million A and B class warrants which were due to expire by the end of June 2007. On the 28th June, Rio Tinto exercised these warrants at a cost of US$16.9 million which took Rio Tinto's direct equity in Entrée Gold to approximately 16 per cent. The combined Rio Tinto and Ivanhoe equity position is now over 30 per cent.

La Granja(Rio Tinto: 100 per cent)
La Granja in the Cajamarca region of northern Peru is a copper project in the pre-feasibility phase. Rio Tinto acquired the project in December 2005 for US$22 million plus a minimum investment of US$60 million, through a public bidding process carried out by the Peruvian Government.
      As of December 2007, 41 kilometres of drilling had been completed which led to discovery of four additional porphyries in the vicinity, as well as further exploration potential. Drilling results suggest that the main areas have a targeted mineralisation at a copper equivalent average grade of about 0.5 per cent. Initial investigations indicate two to four times more mineralised material than was reported by previous owners, making La Granja the largest undeveloped copper project in Latin America. It has the potential to be a very large, long life operation. First production could occur in 2014.
     Instead of looking at La Granja as a conventional milling operation producing concentrates for export, the pre-feasibility study is aimed at demonstrating the possibility of recovering copper metal using leaching of copper from whole ore, with solvent extraction and electrowinning.
     There are many stakeholders with an interest in the project due to the potential positive impact on the local and national economy. At the same time, local communities have high expectations of Rio Tinto’s presence in the area, where basic skills of literacy and numeracy and basic infrastructure and services are lacking. Rio Tinto is working in a participatory manner with local communities to help them develop and improve their quality of life with the engagement of local, regional and national authorities.

Pebble(Rio Tinto: 19.8 per cent interest 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 19.8 per cent during February 2007. Northern Dynasty Minerals is advancing the Pebble copper-gold-molybdenum deposit in south western Alaska, which includes an orebody amenable to block caving. In July 2007, Anglo American agreed to

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invest US$1.4 billion in stages to earn a 50 per cent stake in the project.
The project comprises two orebodies, Pebble East and Pebble West. Drilling has shown Pebble East to be deep and higher grade, suggesting an attractive underground mining option with a smaller environmental footprint than the Pebble West deposit which would entail open pit mining. Rio Tinto will not support development unless it is conducted in a way that protects fish, wildlife and the environment.

Sulawesi Nickel(Rio Tinto: 100 per cent)
The Sulawesi Nickel project is situated on the island of Sulawesi in Indonesia and is the result of the discovery by Rio Tinto Exploration in 2000 of a world class laterite deposit. Because of the nature of the deposit, mining is planned to be a shallow open cut process with continuous rehabilitation. Initial production is planned at a rate of about 46,000 tonnes of nickel per annum, with potential to increase to about 100,000 tonnes. The project will involve the construction of an access highway and a new seaport on the east coast of Sulawesi.
     Upon completion of the negotiation of a Contract of Work (CoW) with the Government and ratification of the agreement by the Indonesian Parliament, it is intended to start a pre-feasibility study into development.

Eagle(Rio Tinto: 100 per cent)
Late in 2007 Rio Tinto approved the development of the eagle nickel high grade underground mine in Michigan, US, which is scheduled to begin operation in 2009. There are six further adjacent prospects which may give the potential to extend the current mine life beyond 30 years at the current planned production rates. Deeper drilling under and adjacent to the Eagle deposit reinforced the potential for further economic nickel mineralisation outside the current mine plan. There are similarities to other world class magmatic nickel-sulphide deposits. Rio Tinto has an extensive land position in the Eagle district which is extremely prospective, including a 30 kilometre identified trend containing multiple target intrusions.

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Diamonds and Industrial Minerals group

Mined Rio Tinto share 
Diamonds ‘000 carats 


 
2003 33,272 
2004 25,202 
2005 35,635 
2006 35,162 
2007 26,023 


 
Underlying earnings contribution*US$m 


 
2004 431 
2005 438 
2006 406 
2007 488 


 
Changes in underlying earnings 2005 – 2007US$m 


 
2005 Underlying earnings 438 
Effect of changes in:  
     Prices and exchange rates46 
     General inflation(26
     Volumes(97
     Costs(22
     Tax and other67 


 
2006 Underlying earnings 406 
Effect of changes in:  
     Prices and exchange rates (20
     General inflation (39
     Volumes 58 
     Costs 53 
     Tax and other 30 


 
2007 Underlying earnings 488 


 
*A reconciliation of the net earnings with underlying earnings for 2007, 2006 and 2005 as determined under IFRS is set out on page 53.

STRATEGIC OVERVIEW

From 1 June 2007 the number of product groups in which Rio Tinto is organised was reduced by combining the Industrial Minerals group with the Diamonds group to form Diamonds and Industrial Minerals. The structuring better reflects the size of the Diamonds and Industrial Minerals businesses in the context of the broader Rio Tinto. Diamonds and Industrial Minerals report to the product group heads of Copper and Energy respectively.
Diamonds 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, DiavikRio Tinto’s 78 per cent interest in the Murowa mine in Zimbabwe and diamond sales and representative offices in Antwerp, Belgium and Mumbai, India.
      Within the global diamond industry, Rio Tinto Diamonds is well positioned as a leading supplier to the market with a clear focus on the upstream portion of the value chain. The group’s differentiated approach to marketing has enabled it to capture higher prices.
      The group’s strategy is to compete in the diamond business and strive to build further value through operational excellence and continued development of new and existing resources. The focus is on the mining, recovery and sale of rough natural diamonds. In keeping with Rio Tinto’s values, the group is a leading proponent of a 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 according to a strict chain of custody process ensuring all products are segregated according to mine source.
      The Industrial Minerals part of the group is made up of Rio Tinto Minerals (RTM), a global leader in borates, talc and salt supply and science, and Rio Tinto Iron & Titanium (RTIT), a major producer of titanium dioxide feedstock. Industrial minerals markets include automotive, construction, telecommunications, agriculture and consumer products industries. Market differentiation depends on technical and marketing expertise and the group maintains R&D facilities in Europe, Canada and Cortezthe US to develop new products and support customers.
     The Industrial Minerals strategy is to create value by directing resources toward high value growth sectors in Nevada,mature and emerging markets. To support this, the group focuses on meeting customers’ needs for consistent quality, on time delivery and responsiveness; setting and meeting aggressive business improvement targets; expanding high grade titanium dioxide feedstock capacity; and establishing stock points to supply demand growth in emerging economies.

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The Industrial Minerals operating strategy is market driven and focuses on optimising volumes and product mix.
      Business improvement targets set in 2004 have largely been met resulting in the lowering of the sustainable cost base of Industrial Minerals. As part of a business optimisation exercise two talc operations were sold and two more were decommissioned in 2007. The Canadian RTIT metal powders plant has been integrated into the other RTIT operations to improve operating synergies. Operational excellence programmes continue to deliver improvements through systematically eliminating waste, reducing process variability, and engaging and empowering the workforce.
      Commercial and operating excellence is the foundation for growth, with acquisitions of sufficient scale serving to complement the existing portfolio. Greenfields projects are under way in potash and soda ash. RTIT is operating its assets at maximum capacity while maximising returns from co-products. Volume growth in the high grade titanium dioxide feedstock market will be underpinned by the commissioning and expansion of the Madagascar deposit.
      During 2007 negotiations at Richards Bay Minerals (RBM) were progressed to an advanced stage to divest 26 per cent of the business to historically disadvantaged groups as doespart of the extensionlegal requirement in South Africa to convert mineral rights. Rio Tinto marginally increased its share in its salt operations by buying out minority shareholders. At the end of 2007 a Group wide review of assets was conducted to determine the long term value of retaining these assets within Rio Tinto. Based on the outcome of this review the RTM borates and talc businesses are being considered for divestment.

     At 31 December 2007, Diamonds and Industrial Minerals accounted for seven per cent of the Group’s operating assets and contributed approximately 12 per cent of Rio Tinto’s gross turnover and seven per cent of underlying earnings in 2007. Approximately 8,000 people were employed in 2007.
      Andrew Mackenzie was appointed chief executive, Diamonds and Industrial Minerals on 1 June. In November he left the Group. Responsibility for the Industrial Minerals portfolio was assumed by Preston Chiaro, chief executive, Energy, while Bret Clayton, chief executive, Copper, is responsible for Diamonds.

SAFETY

All injury frequency rate per 200,000 hours 


2003 1.89 
2004 1.67 
2005 1.45 
2006 0.91 
2007 1.07 



A regrettable double fatality occurred at RBM when two contractors lost their lives after entering a confined space. In 2007 the all injury frequency rate (AIFR) for the Industrial Minerals operations was 0.89 compared to 0.87 in 2006. The AIFR for Diamonds was 1.51 compared to 1.01 in 2006, including the Argyle underground project. A major focus continues to be delivery of a sustainable approach to safety improvement.

GREENHOUSE GAS EMISSIONS

Greenhouse gas (GHG) emissions per tonne of product are decreasing at both Diavik and Argyle diamond mines. Both sites are evaluating and implementing projects to further reduce emissions. At Argyle these projects are focused on inreasing the proportion of hydro-electric power, which already meets the majority of power requirements.
The majority of RTM’s GHG emissions are from the Boron California facility where an energy management plan has been introduced. There are currently 24 energy management projects that are being progressed, and emissions per tonne of product are decreasing. During 2007 RTIT sites undertook audits to identify opportunities for GHG and energy reduction.

FINANCIAL PERFORMANCE

2007 compared with 2006
Diamonds contributed US$280 million to Rio Tinto’s underlying earnings in 2007, an increase of US$69 million over 2006. Sales revenue for 2007 was US$1,020 million, US$182 million higher than in 2006. Increased volumes from Diavik, a reduction in stocks at Argyle and tax credits in Australia and Canada contributed to earnings. An impairment charge of US$328 million after tax was taken at Argyle, reflecting industry cost pressures and the difficult ground conditions encountered in the underground project.
      The rough diamond market recovered during 2007 as excess pipeline inventory was consumed after weakness in the latter half of 2006. The polished diamond market was steady, but the weakness of the US economy is expected to curtail demand in the lower end of the market.
      Industrial Minerals’ net earnings were US$248 million, an improvement of two per cent on 2006. Net earnings from RTM decreased eight per cent to US$84 million while revenue grew five per cent. Earnings were negatively

Rio Tinto 2007 Form 20-F76

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affected by a tax charge related to the borates business, and the impact of cyclones in Western Australia on salt volumes.
RTIT recorded earnings of US$164 million, up from US$152 million in 2006. Revenue increased by 15 per cent due to an increase in sales to emerging markets and strong co-product prices. The effect of the strong Canadian dollar and rising input costs continued to put pressure on earnings from RTIT’s wholly-owned QIT-Fer et Titane (QIT) business.

2006 compared with 2005
Diamonds contributed US$211 million to underlying earnings in 2006, a decrease of US$75 million from 2005. Reduced 2006 earnings are mainly a result of the weakened second half market.
Diamonds’ turnover for 2006 was US$838 million, US$238 million lower than in 2005 driven primarily by a downturn in the rough diamond market in the second half of 2006. This resulted in lower prices for most product types with Rio Tinto Diamonds stocking some lower quality product to be sold in 2007.
Diamond production remained at similar levels to 2005 across all operations. Argyle produced 29.1 million carats 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 end prices closed at similar levels to the start of 2006. A number of factors influenced this mid year correction, including a congested processing pipeline, tight manufacturing and trading liquidity and storms that caused flooding in India’s major cutting center, 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.
During 2006 Rio Tinto’s shares in Ashton Mining of Canada were taken up by Stornoway Diamonds under its takeover bid for Ashton. In exchange for the shares in Ashton, Rio Tinto received cash totaling approximately C$29.6 million and 25.6 million Stornoway common shares.
Industrial Minerals’ contribution to 2006 underlying earnings was US$243 million, a 30 per cent improvement on 2005.
     Rio Tinto Minerals earnings at US$91 million were 54 per cent improved on 2005. The absence in 2006 of the 2005 Rio Tinto Minerals restructure provision and modest revenue increases, combined with strong cost performance, despite upward pressure from cyclones in Western Australia and labour markets, contributed to this result.
      Rio Tinto Iron & Titanium earnings at US$152 million were 19 per cent higher than in 2005. Good price performance across all products, combined with favourable volume trends, strict cost control at RBM, and beneficial Canadian tax changes offset increased costs in the Canadian operations and the impact of the strong Canadian dollar.

RIO TINTO DIAMONDS OPERATIONS

Argyle(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 through 2008, when the mine will transition to underground operations which are expected to extend the life of the mine to about 2018.

2007 operating performance
Due to lower grades, diamonds recovered decreased to 18.7 million carats in 2007 from 29.1 million carats in 2006 despite a two per cent increase in the volume of ore treated. Mine productivity was lower due to mining at lower elevations in the pit. Improvement programmes are in place to mitigate the cost pressures brought about by the resources boom in Western Australia.

Diavik Diamonds(Rio Tinto: 60 per cent)
Rio Tinto operates the Diavik Diamond Mine, located 300 kilometres north east of Yellowknife, Northwest Territories. It is an unincorporated joint venture between Rio Tinto and Harry Winston Diamond Corporation (formerly Aber Diamonds). Operations began in 2003 with mining of the A154 kimberlite pipes. In 2007 a second dike was completed to enable development of an open pit to mine on the A418 pipe. Open pit mining is expected to cease in 2012, at which time Diavik will become an all underground mine. Diavik’s total mine life remains within the 16 to 22 years projected in the original feasibility study of 1999.

2007 operating performance
Volumes of ore mined and processed were similar to 2006, however increased grades meant that Rio Tinto’s share of diamonds recovered increased to 7.2 million carats in 2007 from 5.9 million carats in 2006. The availability of the winter road was much improved from the previous year and supply of materials did not negatively affect operations.

Rio Tinto 2007 Form 20-F77

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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.

2007 operating performance
The effects of power disruptions and lower feed head grades meant that Rio Tinto’s share of diamonds recovered decreased to 0.11 million carats from 0.19 million carats in 2006. Operating conditions in the country remained challenging with hyperinflation and commodity shortages.

RIO TINTO MINERALS OPERATIONS

RTM comprises borates, talc and salt mines, refineries, and shipping and packing facilities on five continents. Global headquarters are located in Denver, Colorado.
Borates– More than one million tonnes of refined borates are produced at Boron Operations, the organisation’s principal borate mining and refining operation in California’s Mojave Desert. Borates are essential to plants and part of a healthy diet for people. They are also key ingredients in hundreds of products essential to an acceptable standard of living, 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 micro-nutrients (seven per cent); and other uses including wood preservatives and flame retardants (30 per cent).
Talc– RTM operates talc mines – including the world’s largest, in southwest France – and processing facilities in Austria, Australia, Belgium, Canada, France, Italy, Japan, Mexico, Spain and the US. Talcs enhance performance in countless applications, including paper, paints, polymers, automotive mouldings, ceramics, personal care products and pharmaceuticals. 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: 68.4 per cent) – RTM manages three salt operations located in Western Australia. It produces industrial salt by solar evaporation at its Dampier, Port Hedland and Lake MacLeod operations, where it also mines gypsum. Customers are located in Asia and the Middle East. The majority are chemical companies who use salt as feedstock for the production of chlorine and caustic soda (together known as chlor-alkali production). Products are also used as food salt and for general purposes including road de-icing.

2007 operating performance
Borates– Production volumes were up one per cent at 560,000 tonnes of boric oxide, and sales volumes declined slightly from 2006. North American markets continued to be affected by a sluggish housing industry in 2007 but were offset by strong growth in Asian markets and steady performance in European markets.
Talc– Talc output decreased by eight per cent to 1,281,000 tonnes as smaller operations were closed and marginal sales were discontinued. Sales volumes decreased slightly. Strong polymer and coating sales in Europe offset volume declines in North America driven by the housing and automotive sector slowdown.
Salt(Rio Tinto: 68.4 per cent) – The residual effects of the cyclones in Western Australia led to a three per cent decline in salt volumes to 5.2 million tonnes (Rio Tinto share). The recovery effort is expected to take until the fourth quarter of 2008, with full capacity likely in 2010. A 500,000 tonnes per annum capacity expansion at Lake MacLeod has been completed.

RIO TINTO IRON & TITANIUM OPERATIONS

Quebec Iron & Titanium
Richards Bay Minerals(Rio Tinto: 50 per cent)
Rio Tinto Iron & Titanium (RTIT) comprises the wholly owned Quebec Iron & Titanium (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. RBM is progressing arrangements to meet the requirements of legislation governing broad based economic empowerment in the South African mining industry.
      QIT’s proprietary process technology enables it to supply both the sulphate and chloride pigment manufacturing methods. QIT has the capacity to produce 375,000 tonnes of upgraded slag (UGS) per annum and is currently improving its smelter facility to smelt ilmenite from the Madagascar project into high grade slag. Identified mineralisation will sustain more than 20 years operation at current production rates if converted to ore reserves.
      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.
      RTIT is headquartered in the UK.

Rio Tinto 2007 Form 20-F78

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2007 operating performance
Titanium dioxide pigment is the principal end use market for feedstocks manufactured by RTIT.
Titanium dioxide feedstock output remained steady from 2006 to 2007 with both smelters operating at full capacity. Prices of chloride feedstock remained flat with the market going into oversupply. The production of UGS increased by five per cent to take advantage of the increasing demand for high grade feedstock. Sales of feedstock into the sulphate market increased to meet demand from Asia. Prices for iron co-products remained strong during the year.

DIAMONDS AND INDUSTRIAL MINERALS GROUP PROJECTS

Diavik underground(Rio Tinto: 60 per cent)
Following the completion of the feasibility study in 2007 approval was given to proceed with underground mining of the A154N, A154S and A418 kimberlites. Additional funding of US$563 million was approved, bringing the total investment in the underground mine to US$787 million. Under the current life of mine plan, diamond production from underground would begin in 2009 and continue beyond 2020.
     To support underground mining, Diavik must construct new surface works including a crusher and paste backfill plant, expand its water treatment and power generating plants, and construct ancillary facilities including fuel and cement storage, and additional accommodation facilities.
      About 20 kilometres of tunnels will be constructed to bring underground mining into production. The capital investment of US$563 million will be spent over the next two years, adding to the US$224 million invested in 2006-2007 for the underground feasibility studies and related capital projects.
      The study into the A21 kimberlite concluded that this should not be included in reserves at this point and further project development will be conducted in 2008.

Murowa(Rio Tinto: 77.8 per cent)
The feasibility study into expanding the capacity of Murowa mining and processing operations was completed during 2007. A decision to proceed will depend on resolving security of tenure.

Argyle underground(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 cost estimate for the project was revised to US$1.5 billion due to the overheated Western Australian mining and construction industry and challenging ground conditions. However, efforts continue to recover value, and some improvement on the revised cost estimate may be possible following more rapid underground development rates in the second half. First production from the underground operation is expected in 2009.

QIT Madagascar Minerals(Rio Tinto 80 per cent)
The project was approved in 2005 and comprises a mineral sand mine and separation plant, and port facilities in southern Madagascar as well as an upgrade of QIT’s ilmenite smelting facilities in Canada. The Government of Madagascar contributed US$35m to the establishment of the port as part of its Growth Poles project funded by the World Bank. The project has maintained its schedule, however cost inflation and foreign exchange effects have increased the cost estimate to US$1.0 billion. Nevertheless, increased product selling prices have meant that the project value has been maintained. First production is expected at the end of 2008.
      The mine will be a key initial customer of the deep sea multi-use public port at Ehoala, providing the base load to help establish the port. Over time, it is expected the port will make an important contribution to economic development of the region.
      RTIT will manage the port operations. At the end of the life of the mine, the port will fall under the responsibility and control of the Government of Madagascar.

Extensive engagement and consultation with the Government of Madagascar and local people and leaders has taken place over many years. The World Bank is involved in a development role and non government organisations, including the Royal Botanic Gardens, Kew and Missouri Botanical Gardens, have been involved in planning environmental and conservation strategies.

Potasio Rio Colorado S.A. (Rio Tinto 100 per cent)
The Rio Colorado potash project in Argentina lies 1,000 kilometres south west of Buenos Aires. Potash is used principally as an agricultural fertiliser. Evaluation of the project began in late 2003, and has included a two year large scale trial of solution mining. This ran successfully from late 2004. During 2007 the feasibility study was completed. Development of the project depends on finalising permits and other agreements as well as approval by the board of Rio Tinto. Subject to this, first production could occur in 2011. Installed capacity will be 2.9 million tonnes per year. The scale and quality of the resource provide potential for expansion.

Rio Tinto 2007 Form 20-F79

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Kazan trona(Rio Tinto 100 per cent)
The Kazan trona project is located 35 kilometres northwest of Ankara in Turkey. Rio Tinto is conducting pre-feasibility studies and, upon expected approval in 2008, will move into large scale solution mining trials. Trona is converted to soda ash, or sodium carbonate, by dissolving ore and recrystallizing the soda ash. Soda ash is one of oldest known and largest volume inorganic chemicals, used primarily in the glass, chemicals, soap and detergent, and pulp and paper industries. Kazan trona is expected to be a more environmentally sustainable commodity to meet rising global demand than chemical synthesis.

Rio Tinto 2007 Form 20-F80

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Energy group

MinedRio Tinto share 
Coalmillion tonnes 


 
2003148.8 
2004157.4 
2005153.6 
2006162.3 
2007155.6 


 
   
Uranium‘000 pounds 
200311,372 
200413,170 
200514,511 
200612,561 
200712,616 


 
   
Underlying earnings contribution*US$m 


 
2004431 
2005730 
2006706 
2007484 


 
   
Changes in underlying earnings 2005 – 2007US$m 


 
2005 Underlying earnings730 
Effect of changes in:  
     Prices and exchange rates199 
     General inflation(50)
     Volumes(13)
     Costs(211)
     Tax and other51 


 
2006 Underlying earnings706 
Effect of changes in:  
   Prices and exchange rates102 
   General inflation(51)
   Volumes6 
   Costs(251)
   Tax and other(28)


 
2007 Underlying earnings484 


 
*A reconciliation of the net earnings with underlying earnings for 2007, 2006 and 2005 as determined under IFRS is set out on page 53.

STRATEGIC OVERVIEW

The Energy group comprises thermal coal, coking coal and uranium operations. Coal interests located in Australia and the US supply internationally traded and US and Australian domestic markets. Rio Tinto Uranium supplies uranium oxide produced at its majority owned mines in Australia and Namibia to electric power utilities worldwide. Rio Tinto Uranium is currently the world’s second largest uranium supplier.
     The group strategy aims to harness and focus resources to deliver world class performance in operations, sustainable development and value creation. The strategy is focused on positioning the group as the world’s value leader in mineable energy.
      The group’s reserve position in thermal and coking coal is sufficient to underpin significant greenfield and brownfield expansions.

In 2007 the Energy group undertook a review of its asset portfolio which highlighted opportunities in the current market to divest assets. Options to divest Rio Tinto Energy America (RTEA) and the Kintyre, Australia, and Sweetwater, US, uranium projects are currently being explored.
      A key part of the group’s strategy is to ensure that the group is a leading advocate of, and investor in, the sustainable future uses of coal and uranium. In 2007 the group continued to dedicate resources and investment funds to the development of clean coal technology through the FutureGen project in the US, COAL21 in Australia and in numerous low emission coal research organisations in the US and Australia.
      In 2007 Hydrogen Energy was launched, a 50:50 joint venture with BP which will develop low carbon energy projects around the world. Hydrogen Energy will position Rio Tinto Energy to profit from the advent of a global low carbon energy future and initiate the development of a broader risk management strategy for climate change regulation while providing a meaningful offer on climate change and product stewardship.

Rio Tinto 2007 Form 20-F81

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     The group’s strategic intent is to build through Hydrogen Energy a low carbon energy business primarily reliant on coal that will ultimately leverage Rio Tinto’s capabilities in identifying, acquiring and operating large long life coal assets. Gasification opens new and larger markets for coal and the aim is to maximise returns across the emerging coal gasification value chain. Early positioning will convey an important element of competitive advantage. A key to unlocking value will be to proactively shape government policy to support and enable initial projects.
      Hydrogen Energy will initially focus on the production of hydrogen for power generation using fossil fuels feedstocks and carbon capture and storage technology to produce new large scale supplies of clean electricity. Hydrogen Energy has announced initiation of studies for possible projects in California, Western Australia, and Abu Dhabi.

     The Rössing Uranium life of mine extension project in Namibia continues. With the substantial recovery of uranium prices in recent years, Rössing is well positioned to expand and further extend the life of its operations. This will enable the company to continue to be a leading contributor to the Namibian economy, as it has been for the past 30 years.
     At Energy Resources of Australia’s (ERA) Ranger mine, a number of opportunities for further low cost brownfield expansion are under consideration. ERA also owns the Jabiluka deposit, the second largest undeveloped uranium deposit in the world. In addition to the significant and sustainable operating assets at Rössing and ERA, Rio Tinto has increased its uranium exploration activity around the world. With a global nuclear power renaissance now under way, driven in large part by the need for large baseload electricity generation that does not emit greenhouse gases, Rio Tinto intends to maintain and enhance its position as one of the world’s leading uranium suppliers to power this growth.

 At 31 December 2007, the Energy group accounted for 4.9 per cent of Group operating assets and, in 2007, contributed 13.8 per cent of Rio Tinto’s gross sales revenue and 6.5 per cent of underlying earnings.
Preston Chiaro, chief executive, Energy and Industrial Minerals, is based in London.

SAFETY

All injury frequency rate per 200,000 hours


20032.35
20042.02
20051.31
20060.89
20070.89



Safety performance and awareness continued to be a major focus of all operations. Energy Resources of Australia achieved significant improvements in safety performance. The lost time injury rate fell by 74 per cent and the all injury rate by 46 per cent. The injury severity rate, a measure of the seriousness of injuries, also decreased by a factor of over three. At Rio Tinto Energy America the severity index improved to approximately half of the severity index in 2006. At Rio Tinto Coal Australia’s (RTCA) Kestrel mine the lost time injury rate fell by 57 per cent and the all injury rate by 60 per cent. Two Energy group operations were winners of the Chief Executive’s Safety Awards, Hunter Valley Operations and the Antelope mine in Namibia. Earlierthe US.

GREENHOUSE GAS EMISSIONS

A greenhouse gas (GHG) performance review was submitted by each business unit as part of a planning process. This included a discussion on targets and performance and a list of proposed and implemented projects noting project progress, savings, costs and NPV (net present value).
Energy Resources of Australia is expected to exceed its targeted GHG reductions. Rio Tinto Energy America is slightly above target and Rio Tinto Coal Australia emissions per tonne have increased. Both RTEA and RTCA have a number of NPV positive optimisations and diesel reduction projects being researched or implemented. With a life of mine extension under way, Rössing Uranium has set a revised target. A number of optimisation projects have been identified.
     The Energy group is also focussing on long term emissions reductions through the Hydrogen Energy joint venture. The plan identifies significant expenditure in terms of operating and capital costs for Hydrogen Energy in 2008 and 2009.

FINANCIAL PERFORMANCE

2007 compared with 2006
The Energy group’s 2007 contribution to underlying earnings was US$484 million, US$222 million less than in 2006.
      Coal chain infrastructure bottlenecks and allocation cutbacks in Australia resulted in ongoing and significant

Rio Tinto 2007 Form 20-F82

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production cutbacks and much higher demurrage costs. It is anticipated that production in Australia will not return to full capacity until 2010 when infrastructure bottlenecks are expected to be cleared. Port allocation arrangement negotiations were continuing at year end.
The results also reflected the softening of coking coal prices although there were increases in thermal coal prices and the stronger uranium oxide market. The weakening of the US dollar against the Australian dollar reduced earnings at Australian operations. For all operations, rising fuel prices and the tightness of the labour supply market continued to place pressure on operating results.
Despite lower volumes of uranium sold, higher market prices and the expiration of older contracts containing price caps contributed to a 69 per cent increase in uranium revenues in 2007 compared to 2006.
At Rössing Uranium, results were affected by reduced production volumes due to grade and plant performance and increased operating costs associated with development projects to increase capacity in the future. At ERA results were affected by production losses associated with severe rain and flooding of the pit.
The strong upward momentum that characterised the uranium market in the past three years continued for the first half of 2007, as demand remained robust in the wake of supply disruptions that affected a number of projects worldwide. However, unlike previous years, 2007 saw a fundamental change in market behaviour as the spot price became de-linked from the long term market due to the increasing influence of speculators in the commodity. Historically, the spot market has traded at a nominal discount to the term market, but last year saw substantial volatility in spot prices.
The long term uranium price, at which Rio Tinto sells most of its material, exhibited strong growth in the early part of the year, rising to a high of US$95 per pound in May, an increase of 27 per cent over December 2006. Thereafter, the long term price remained at US$95 as utility purchasing activity continued at moderately high levels.

2006 compared with 2005
The Energy group’s contribution to underlying earnings was US$706 million, US$24 million lower than in 2005.
Results benefited from a sustained increase in the price received for thermal coal. Capacity problems in the coal 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 also affected production levels. Operations focused on producing high margin products and optimising the coal supply chain. Increases in the cost of basic materials, fuel, explosives and labour were not fully offset by production growth, resulting in a rise in the cost per unit of production across all operations.
Although spot prices for uranium rose dramatically during the first part of the year, this had little effect on Rio Tinto’s long term contract portfolio. Uranium oxide is typically sold under long term contracts, with pricing determined both by fixed prices negotiated several years in advance, and by market prices at time of delivery. Therefore, the rise in the spot price of uranium oxide during the period was not fully reflected in the year’s earnings, but the rise in long term prices did contribute to the improved results. Moreover, for both mines, legacy contracts at low prices are being replaced with new long term contracts that provide floor price protection at levels far above market prices at the beginning of this decade.

OPERATIONS

Rio Tinto Energy America(Rio Tinto: 100 per cent)
Rio Tinto Energy America 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. RTEA also manages the group’s interest in Colowyo Coal in Colorado, US. In total it employs approximately 2,300 people.
The second largest US coal producer, RTEA sells its ultra low sulphur coal to electricity generators predominantly in mid western and southern states.
In April, RTEA bid and won access to approximately 98 million tonnes of additional coal reserves for its Spring Creek Mine in Montana. In June, RTEA bid and won access to additional mineralisation for the Colowyo Mine in Colorado. The acquisitions will extend the operating lives of the respective mines.
Rio Tinto has announced that it is exploring options to sell RTEA.

2007 operating performance
RTEA’s 2007 contribution to underlying earnings was US$132 million, US$45 million lower than in 2006. Results reflected steadily increasing US coal prices throughout 2007, more than offset by a higher effective tax rate in 2007.
RTEA’s 2007 sales were 128.3 million tonnes (excludes brokered sales), a decrease of 222,000 tonnes from 2006. Further increases were limited as customers had built higher levels of coal stockpiles in 2006. Earnings were reduced by a higher effective tax rate than in 2006. In 2007 the effective rate was 35 per cent as all prior year weloss carry forwards had been applied. Adjusting to comparable tax rates, the 2007 result was better than 2006, largely driven by improved contract prices.
Antelope mine production of 31.3 million tonnes set a new record for annual production and sales, above the 2006 record of 30.7 million tonnes. Colowyo mine production of 5.1 million tonnes decreased by 700,000 tonnes.

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Cordero Rojo mine production of 36.7 million tonnes increased by 600,000 tonnes. Jacobs Ranch mine production of 34.6 million tonnes decreased by 1.7 million tonnes. Spring Creek mine production of 14.3 million tonnes set a new record for annual production and sales above the 2006 record of 13.2 million tonnes.
Consistent with the worldwide mining industry, RTEA experienced an increase in the input prices of materials and supplies in 2007 resulting in higher variable costs of mining. Diesel prices in 2007 increased by more than 15 per cent relative to 2006. Labour costs increased significantly reflecting the competitive regional labour shortage and steadily increasing healthcare costs. Tyre costs increased with the worldwide shortage of large mining equipment tyres. At the same time, strip ratios increase as reserves get deeper, resulting in the requirement to move increasing volumes of overburden.
RTEA is a member of the FutureGen Alliance, which seeks to construct the world’s first coal fuelled “zero emissions” power plant. The project achieved a major milestone with a site in Illinois selected for development. Construction was planned to commence upon completion of the permitting process, however this is now in doubt with the US Department of Energy announcing a restructure of the FutureGen project in January 2008.

Rio Tinto Coal Australia(Rio Tinto: 100 per cent)
Rio Tinto Coal Australia 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 listed on the Australian Securities Exchange and had a market capitalisation of A$6.5 billion (US$5.7 billion) at 31 December 2007. Coal & Allied wholly owns Hunter Valley Operations, has an 80 per cent interest in Mount Thorley Operations, 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 (TEC), an adjacent state owned power utility. In October 2007 the sale of the Tarong mine to TEC was announced thedevelopmentwith the sale to take effect from 31 January 2008.
Blair Athol produces thermal coal and sells principally to the Japanese market generally on annual agreements. Kestrel and Hail Creek sell mainly metallurgical coal to customers in Japan, south east Asia, Europe and Central America, generally on annual agreements.
Coal & Allied produces thermal and semi soft coal. Most of its thermal coal is sold under contracts to electrical or 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.
RTCA and Coal & Allied collectively employ approximately 2,500 people.

2007 operating performance
RTCA’s 2007 contribution to underlying earnings was US$246 million, US$244 million lower than in 2006. There was an increase in thermal coal prices but this was offset by production cutbacks necessitated by shipping bottlenecks and the continued weakening of the US dollar against the Australian dollar. Rising fuel prices and the tightness of the labour supply market continued to place pressure on operating results.
A tax benefit of US$29 million was received on the release of a tax provision that was no longer required.
As the majority of costs are fixed with only consumables such as fuel, tyres and explosives being variable, reduced port capacities had a direct and negative impact on underlying earnings.
Inadequate capacity of coal chain infrastructure in both the Hunter Valley and Queensland operations was a significant contributor to less than satisfactory results for RTCA. Significant production cutbacks of 14 per cent from 2006 levels were necessary, resulting in equipment and contract employees being idled. It is anticipated that production will not return to full capacity until 2010 when infrastructure bottlenecks are expected to be cleared.
RTCA operations declaredforce majeureunder its sales contracts on two occasions during 2007; in June as a result of severe weather conditions in the Hunter Valley and in November as a result of announced first quarter 2008 allocation cutbacks at the Dalrymple Bay port facilities in Queensland.
Total production at Blair Athol decreased from 10.2 million tonnes to 7.9 million tonnes primarily as a result of limited port capacity. Kestrel’s production increased by 0.8 per cent to 3.6 million tonnes. Hail Creek production was five million tonnes, an increase of ten per cent. At Tarong, production decreased by 35 per cent in line with lower demand from Tarong Energy Corporation.

Energy Resources of Australia(Rio Tinto: 68.4 per cent)
Energy Resources of Australia Ltd (ERA) is a publicly listed company and had a market capitalisation of A$3.7 billion (US$3.3 billion) at 31 December 2007. ERA employs 420 people, an increase from 385 at the end of 2006.
Since 1980 ERA has mined ore and produced uranium oxide at its Ranger open pit mine, 250 kilometres east of Darwin in Australia’s Northern Territory. ERA also has title to the adjacent Jabiluka mineral lease, which in 2003 was put on long term care and maintenance. Ranger and Jabiluka are surrounded by, but remain separate from, the World

Rio Tinto 2007 Form 20-F84

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Heritage listed Kakadu National Park, and especially stringent environmental requirements and governmental oversight apply.
ERA is a large uranium producer, with considerable operational experience and a well established market position. The Ranger mine is the second largest uranium mine in the world and ERA is the fourth largest producer. ERA’s strategy is focused on creating the most value from the mineralisation available on existing lease areas. In line with the Energy group’s strategy of seeking additional production volumes and long term expansions to supply the current favourable market environment, ERA put significant effort into achieving growth through capitalising on opportunities for expansion and extension of production including, an extension of the existing Ranger mine, and installation of additional processing equipment to treat low grade and lateritic ore.

2007 operating performance
ERA’s 2007 full year earnings rose by 124 per cent to US$38 million in comparison with 2006 earnings of US$17 million. This was driven by a rise in the average realised price of uranium oxide from US$18.36 per pound to US$25.06 per pound despite sales being lower at 11.7 million pounds compared to the 2006 volume of 12.7 million pounds. The 2007 sales figures include no borrowed material.
      Production of uranium oxide in 2007 was 11.7 million pounds, approximately 13 per cent higher than in 2006.
      The favourable production result was significant given a severe rain event associated with a tropical low pressure system, resulting in nearly 850 millimetres of rain falling over the Ranger operation in seven days in February 2007. This resulted in flooding of the Ranger open pit, restricting access to high grade ore, forcing a processing plant shutdown and a declaration offorce majeureon sales contracts in March 2007. In the third quarter of 2007 access to high grade ore was again possible through the implementation of various water disposal measures.
      Recovery work was successful in allowing production to return to normal levels in 2008 with no adverse environmental consequences. All sales commitments were met in 2007 andforce majeurewas lifted in January 2008. Further work is under way to reduce the impact of future weather events on the mine’s performance.
      In September ERA announced an extension of the Ranger mine at a capital cost A$57 million, which added 10.7 million pounds of additional reserves, and extended the mine life from 2008 to 2012. Expenditure of A$10 million was also approved to examine options to further extend the mine and increase production from the processing plant.
      Exploration and evaluation activity increased in 2007 with ERA spending US$11.8 million compared to US$6 million in 2006. Exploration and evaluation focused on near mine extensions to the Ranger orebody.

ERA continued to work with the Mirarr, traditional owners of the mining lease. The Mirarr commenced delivery of a cultural awareness programme to all new ERA employees and advised ERA on the establishment of traditional fire management practices on the Ranger lease. Increasing indigenous employment is a significant focus including the provision of training and employment opportunities. The year saw the number of indigenous employees increase to 65, or 16 per cent of the workforce. Improving on this will continue to be a focus for 2008.

Rössing Uranium(Rio Tinto: 68.6 per cent)
Rössing Uranium Limited produces and exports uranium oxide from Namibia to power utilities globally. Rössing continues to play a major role in the Namibian economy, both in terms of GDP contribution as well as education, employment and training.
Rössing currently employs approximately 1,175 people. Following the life of mine extension project approved in 2005, capital equipment acquisitions for the new mining area are in place and planning work for further extension continues. In 2007 production volumes of 6.7 million pounds were constrained as a result of having limited access to ore sources. The phase one pit is in its last two years of life. Mining and processing volumes, however, have been good and the mine is positioned for higher volumes in 2008 and beyond.
      The year was one of consolidation and preparation for future growth and sustainable production. Truck and loading fleets doubled and over 300 people were recruited and trained. The current approved life of mine extensions will take the mine life to 2016 and further potential opportunities exist to extend both the mine life and production volumes depending on the long term price outlook and costs of production. Activities will continue to focus on continuous net present value (NPV) growth, improving margins and creation of options from known reserves and potentially economic mineralisation.

2007 operating performance
Earnings increased to US$95 million from US$27 million in 2006 due to higher market prices for uranium oxide.
      Operating costs increased to US$38 per pound of uranium oxide production from US$22 per pound in 2006 as a result of lower production volumes, outsourcing of waste stripping as well as exploration activities that are not yet adding to production volumes. Costs were also affected by ore grades and higher than planned diesel and other operating costs.

All new primary production equipment is now fully commissioned to bring the fleet complement to 24 haul trucks from 16 at the beginning of the year, and six loading units compared to four previously. Initiatives are under way to improve the performance of the milling process.
      Lower than planned leach extraction in 2007 was due to the average ore type which impacted on process controls. In 2008 there will be a focus on maintaining stability in the process and improving the head grade by applying a better blending strategy.

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     Rössing continues to put significant effort and management focus on safety. The goal is to eliminate all injuries from the workplace and to have an embedded safety culture and systems that identify and rectify potential safety hazards.

ENERGY GROUP PROJECTS

Energy Resources of Australia(Rio Tinto: 68.4 per cent)
In September 2007 ERA announced an extension to the Ranger open pit at a capital cost of A$57 million to extend mining until 2012. The pushback, when combined with optimisation of the existing pit, added an additional 10.7 million pounds of contained uranium oxide to reserves. The majority of the additional production from the extension is expected to occur in 2011.
      ERA has also approved expenditure of A$10 million for a pre-feasibility study to examine options to further expand the mine and increase production from the processing plant. The study commenced in the third quarter of 2007 and will continue into 2008.
      ERA’s other capital expansion projects to process laterite ore and radiometrically sort low grade ores are well advanced with both projects scheduled for commissioning in the second quarter of 2008. The laterite processing plant will contribute approximately 0.88 million pounds per annum of uranium oxide to production from 2008 through to 2014. The radiometric sorter will upgrade lower grade ore and allow an additional 2.4 million pounds of uranium oxide to be produced over a five year period from 2008 to the end of 2013.
      Exploration continued throughout the year including for the first time drilling through the wet season. Activity focused on further defining the down dip extension of the Ranger orebody, as well as understanding and defining the uranium mineralisation to support the pre-feasibility study on further expansion of the mine.

Rössing Uranium(Rio Tinto: 68.6 per cent)
After years of working below capacity during a period of low uranium prices, in December 2005 approval was granted to restore annual production capacity to 8.8 million pounds per annum and extend the life of the operation until at least 2016. Total incremental and sustaining capital cost of the expansion is US$112 million.
      In 2007, delays were experienced with the start of construction projects due to slow contractor tender submissions. Recruitment of staff has been slow due to skills shortages in southern Africa. Work is now progressing well.

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 will be brought into production to replace Blair Athol, due to close in 2015, and we completed significant investmentwill use Blair Athols’ existing infrastructure and market position. To date construction has progressed to expandcapacity at the Weipa bauxite mineplan with boxcut production to commence in Queensland.mid 2008 and first coal production expected in 2010.

What about new opportunities?
Rio Tinto Coal Australia Kestrel
We have acquired interests in three promising copper projects: La Granja in Peru,(Rio Tinto: 80 per cent)
Rio Tinto and its joint venture partners approved investment of US$991 million for the Pebble project in Alaska and OyuTolgoi (Turquoise Hill) in Mongolia which, together with Resolution Copperextension of the Kestrel mine. This represents a 20 year investment in the US, give usBowen Basin of Queensland to help meet Asian demand for metallurgical coal. First coal production from the extension is forecast for 2012 when the existing mine ceases production.

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 coal mine near Muswellbrook in the Hunter Valley, New South Wales. With continued uncertainty surrounding coal chain infrastructure in the Hunter Valley, further study is required before the feasibility study can be finalised.

Coal & Allied Lower Hunter Land(Rio Tinto: 75.7 per cent)
In 2006 Coal and Allied signed a memorandum of understanding with the New South Wales Government to facilitate the provision of extensive land conservation corridors in the Lower Hunter via the transfer of 80 per cent of the Company’s post mining land holdings. The remaining 20 per cent is being considered for land development. Extensive community consultation continued through 2007 with various options considered. Feasibility studies will be conducted in 2008 to finalise these options.

Rio Tinto Energy America(Rio Tinto: 100 per cent)
During 2007 RTEA commenced construction of the Jacobs Ranch overland conveyor and in pit crusher project. This will reduce emissions and operating costs in addition to providing latent capacity for expansion (from around 38 million tonnes to around 45 million tonnes per annum). Commissioning is on schedule for completion in 2008. At Antelope and Spring Creek recent expansion projects were completed in 2007 and production is ramping up to meet market demand.

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Iron Ore group

Production Rio Tinto share  
  million tonnes  


 
2003 102.6 
2004 107.8 
2005 124.5 
2006 132.8 
2007 144.7 


 
Underlying earnings contribution* US$m 


 
2004 565 
2005 1,703 
2006 2,251 
2007 2,651 


 
Changes in underlying earnings 2005 – 2007 US$m 


 
2005 Underlying earnings 1,703 
Effect of changes in:  
     Prices and exchange rates 616 
     General inflation (25
     Volumes 156 
     Costs (229
     Tax and other 30 


 
2006 Underlying earnings 2,251 
Effect of changes in:  
     Prices and exchange rates 537 
     General inflation (43
     Volumes 136 
     Costs (255
     Tax and other 25 


 
2007 Underlying earnings 2,651 


 
*A reconciliation of the net earnings with underlying earnings for 2007, 2006 and 2005 as determined under IFRS is set out on page 53.

STRATEGIC OVERVIEW

Rio Tinto’s Iron Ore group conforms with the larger Group’s overall strategy of pursuing the world’s best natural resources, wherever they are located, using the best technologies, and operating them safely. RTIO seeks to do this by being faster and better at producing iron ore, supported by an interestunmatched capacity and capability to develop key infrastructure.
     RTIO is geographically well placed to take advantage of the exceptionally strong market conditions and outlook in four world class undeveloped copper mineral deposits. The investmentAsia, with a massive mineralisation inventory base close to an integrated production platform in Mongolia representsthe Pilbara of Western Australia. This enables a phased, risk managed entry into apotentially outstanding resource. La Granja has been givenrapid expansion of production in the go ahead for a US$95 million pre-feasibility study.
We are encouraged by the exploration potential on ERA leasesshort and medium term. RTIO’s large mineralisation position in Australia and the expansion possibilities at Rössing Uranium in Namibia. These,Guinea, west Africa, together with an established project execution capability, provides potential for a global iron ore production capacity of more than 600 million tonnes per annum.
     As new competitors and constraints emerge, RTIO’s strategy to meet the potentialindustry challenges is focused on achieving “industry leadership” in global iron ore. The strategy is centred on rapidly expanding the business, both globally and in the Pilbara, and delivering maximum value from RTIO’s operations by developing a world class production platform.
RTIO’s portfolio of Kintyreoperations is international, including Australia, Canada and Brazil, a major development project in Guinea at Simandou, and the Orissa project in India. It also includes the HIsmelt® plant in Australia, which applies revolutionary technology to convert iron ore fines with significant impurities into high quality pig iron.
      RTIO Asia was established in Singapore in November 2007 to provide an integrated sales, marketing, distribution and logistics service for Hamersley Iron products in the Asia Pacific. It aims to maximise Hamersley’s share of forecast growth in the region.
      At 31 December 2007, the Iron Ore group accounted for 13 per cent of Rio Tinto’s operating assets, and in 2007 contributed 26 per cent of the Group’s gross sales revenue and 36 per cent of underlying earnings.
      At year end 2007 RTIO employed 6,520 people in Western Australia and Sweetwater8,630 worldwide. In a highly contested market, the recruitment effort was exceptional, with 1,951 new starters in Wyoming, US, mean we are well placed2007.

Environmental initiatives included development of a strategic approach to extend uranium reserveswater for the Pilbara, to ensure long term security of supply at the ports and in the management of dewatering discharge associated with the increasing requirement for below water table mining across the Pilbara, and recognising the importance of this issue for traditional

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land owners of the region.
A major milestone was reached with the completion of the Phase B upgrade of the port of Dampier, now ramping up towards its new capacity of 140 million tonnes per annum (Mt/a). Work has commenced on the Cape Lambert upgrade to 80 Mt/a from 55 Mt/a, which is expected to be completed in early 2009. Two new mines were approved for development – Brockman 4 (22 Mt/a) and Mesa A/Warramboo (25 Mt/a) – at a combined total cost of US$2.4 billion, of which Rio Tinto’s share is US$2.0 billion. Both mines will replace tonnages from deposits nearing the end of their mine life.
      Rio Tinto’s 50:50 joint venture with Hancock Prospecting is progressing well. In November, Hope Downs 1 (22 Mt/a), began production – a full quarter ahead of schedule, and the stage 2 expansion to 30 Mt/a has been brought forward one year, with production planned to commence at the start of 2009. In December approval was given for a US$71.4 million feasibility study into the development of a Hope Downs 4 mine (15-20 Mt/a).
      RTIO’s growth strategy has seen more than US$7 billion committed to port, rail, power and mine assets since 2003, resulting in a world class, integrated iron ore network. A feasibility study into expanding Pilbara capacity to 320 Mt/a by 2012 is well advanced and a decision will be made in early 2009. Cape Lambert has been identified as the preferred site for port expansion.
      In late November 2007 Rio Tinto senior management outlined an aggressive expansion programme designed to capitalise on RTIO’s global spread of assets and markets. This included a conceptual framework towards establishing a Pilbara production capacity of 420 Mt/a and an expansion at Simandou in Guinea of up to 170 Mt/a.
      During the year, RTIO was inducted into the Australian Export Hall of Fame, was twice honoured at the Australian Business Arts Foundation awards and won a 2007 Water Award for its re-injection project at Yandicoogina.

Sam Walsh, chief executive Iron Ore, is based in Perth, Western Australia.

SAFETY

All injury frequency rateper 200,000 hours 


 
20032.19 
20041.79 
20051.48 
20061.24 
20070.92 


 

Iron Ore Company of Canada’s safety performance continued to improve in 2007 with a 59 per cent reduction in the lost time injury frequency rate to 0.29. The Corumbá mine in Brazil again won the Chief Executive’s Safety Award. Work progressed on a number of safety initiatives across operations, particularly focused on issues surrounding contractor management, vehicle safety and implementing proactive measures to prevent the risk of injury. Cyclone preparation measures in the Pilbara employee accommodations were reviewed, focusing on standardised safety measures. Overall, the group’s all injury frequency rate was 0.92 (1.24 in 2006) and the lost time injury frequency rate 0.38 (0.59) .

GREENHOUSE GAS EMISSIONS
The 2008–2009 greenhouse gas (GHG) plan notes an increased focus on energy reduction through the appointment of an energy specialist in late 2007 and the conduct of further energy reviews. A feasibility study is being conducted to examine the possible replacement of power stations to reduce GHG emissions and mitigate current potential environment risk.
A number of additional activities aimed at reducing energy use and GHG emissions are also under way including replacing heavy mobile equipment and locomotives. Dash 7 and Dash 8 locomotives are being replaced by new generation GE EVO locomotives. The RTIO technology group is also examining hybrid locos in collaboration with General Electric, liquid natural gas replacement for diesel trucks and locomotives, rail electrification, and closed cycle power generation for existing open cycle power units. Rio Tinto has approved new gas fired power generation in the Pilbara as a step towards lower emissions electricity.

FINANCIAL PERFORMANCE

2007 compared with 2006
RTIO’s contribution to 2007 underlying earnings was US$2,651 million, US$400 million higher than in 2006.
      Demand for iron ore remained extremely strong across the product range throughout 2007, driven by the continuing robust growth in global steel demand and production, significantly exceeding seaborne suppliers’ capacity to match. Total Chinese iron ore imports rose from 326 million tonnes to 383 million tonnes, accounting for more than 90 per cent of world growth. Hamersley Iron and Robe River in Australia operated at record or near future.record levels of

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production in 2007.
     In December RTIO announced plans to sell up to 15 million tonnes of iron ore on the spot market in 2008, taking advantage of the large gap between annual (benchmark) and short term prices while continuing to meet longer term contractual commitments.

2006 compared with 2005
RTIO’s contribution to 2006 underlying earnings was US$2,251 million, US$548 million higher than in 2005.
      Demand for iron ore continued to be extremely strong across the product range throughout 2006, driven by continued 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 of 19 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.

OPERATIONS

Hamersley Iron(Rio Tinto: 100 per cent)
Hamersley Iron operates nine mines in Western Australia, including three mines in joint ventures, about 700 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 final phase in ramping up Pilbara infrastructure to 220 million tonnes of annual capacity is well under way. Dampier port’s two terminals now account for a combined capacity of 140 Mt/a. With the completion of Junction South East, Yandicoogina mine capacity has been expanded to 52 Mt/a, and brownfield mine expansions at Marandoo, Nammuldi and Mount Tom Price have been completed.
      The new Hope Downs mine, owned in 50:50 joint venture with Hope Downs Iron Ore Pty Ltd (owned by Hancock Prospecting Pty Ltd), but managed by RTIO, began production in November, a full quarter ahead of schedule, and the first train was loaded in mid December.
      Approval was granted for the US$1.52 billion Brockman 4 mine, 60 kilometres north west of Tom Price, which is expected to begin ramp up in 2010 to 22 Mt/a. The mine will be connected to the main network via a 35 kilometre rail spur, and the design allows for an additional 14 Mt/a expansion.

Work is progressing on a number of options for new mine development as part of the feasibility study to reach 320 Mt/a capacity. A decision is expected in early 2009. Work also continued on pre-development studies for new mines.

2007 operating performance
Hamersley Iron’s total production in 2007 was 112.1 million tonnes, 14.9 million tonnes more than the 97.2 million tonnes in 2006. This result was notable for being achieved amid significant expansion work across several sites.
      Shutdowns and flooding from two cyclones early in the year hindered operations significantly, although tie down procedures performed well. Several derailments also impacted operations significantly, resulting in an estimated 1.39 million lost saleable ore tonnage. Remedial action was undertaken on high risk sections and a rerailing project was approved which will eventually see 45 per cent of the network replaced.
      Reinvestment in additional yard capacity, locomotives and rolling stock has been implemented to improve efficiency and remove bottleneck issues associated with limited rail capacity.
      The Pilbara Blend product was successfully introduced mid year, winning widespread customer acceptance and at 100 per cent of the reference price. Pilbara Blend will comprise 15 per cent of the world’s seaborne iron ore trade.
      Shipments by Hamersley Iron totalled 109.5 million tonnes, including sales through joint ventures. Shipments to China also reached a new record level at 59.6 million tonnes, confirming China’s place as the single largest, and fastest growing, destination for Hamersley’s iron ore.

Hamersley’s total shipments of iron ore to major markets (million tonnes)

 2007 2006 2005 






 
China59.6 52.9 49.5 
Japan30.0 27.4 24.5 
Other Asia18.3 15.8 14.1 
Europe0.7 2.0 2.0 






 
 108.5 98.1 90.1 






 
Note      
This table includes 100 per cent of all shipments through joint ventures.      

Rio Tinto 2007 Form 20-F89

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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) retain interests. Robe River is the world’s fourth largest seaborne 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 and Marra Mamba iron ore products which were successfully incorporated into the Pilbara Blend during the year.
      Expansion of mine, rail and port operations has continued, with the upgrade of Cape Lambert port from 55 Mt/a to a rated capacity of 80 Mt/a proceeding on schedule. The port has also been nominated as the preferred site for subsequent expansion as part of the upgrade of Pilbara capacity to 320 Mt/a, subject to an ongoing feasibility study.
      In November, Rio Tinto and the joint venture partners approved development of the US$901 million (Rio Tinto share US$478 million) Mesa A/Warramboo mine in the western end of the Robe Valley. This followed a lengthy, ultimately successful, process to gain environmental approval. The new mine’s annual production will be 20 Mt/a, increasing to 25 Mt/a by 2011, and will be replacement tonnage as Mesa J’s mine life approaches its end.
      Robe River primarily exports under medium and long term supply contracts with major integrated steel mill customers in Japan, China, Europe, South Korea and Taiwan.

2007 operating performance
The effect of cyclones slowed production early in the year at Robe River’s Pannawonica and West Angelas mines, as did a serious derailment which required significant track repairs. A two week shutdown of the Cape Lambert dumper also affected production, as did delays in commissioning a conveyor system at West Angelas.
      Robe River’s total production in 2007 was 51.5 million tonnes, comprising 25.5 million tonnes from Mesa J, and 26.0 million tonnes from West Angelas. Sales were 25.9 million tonnes of Mesa J and 25.6 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 52.0 million tonnes. Japan remains Robe River’s largest single market, with total shipments in 2007 of 22.6 million tonnes.

Robe’s total shipments of iron ore to major markets (million tonnes)

 2007 2006 2005 






 
China21.0 18.5 17.5 
Japan22.6 24.7 26.1 
Other Asia2.9 2.7 1.7 
Europe5.5 6.1 7.3 






 
 52.0 52.0 52.6 






 

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 an open pit mine, concentrator and pellet plant at Labrador City, Newfoundland and Labrador, together with a 418 kilometre 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 on the St Lawrence Seaway. The port is ice free all year and handles both ocean going ore carriers and Lakers, providing competitive access to all seaborne pellet markets and to the North American Great Lakes region. IOC exports its concentrate and pellet products to major North American, European and Asian steel makers.
     IOC employs approximately 2,000 people and recruited 170 people during the year to offset an increase in retirements and to meet greater production needs.

2007 operating performance
The demand for IOC’s products strengthened further in 2007 with concentrate prices increasing by ten per cent and pellet prices by five per cent over last year’s benchmark prices.
      Total saleable production was 13.2 million tonnes, down from 16.1 million tonnes in 2006. The variation was primarily due to a seven week labour strike. Pellet production was 11.3 million tonnes (12.7 million tonnes in 2006) with saleable concentrate being 1.9 million tonnes (3.4 million tonnes in 2006). Lower production levels coupled with higher oil prices put pressure on 2007 unit costs.
      A labour strike in March/April occurred when negotiations broke down over the new collective agreement to replace the one that expired in February 2007. The strike ended following agreement of a new five year collective agreement.
     In August, IOC announced the approval of US$57 million to expand annual concentrate production capacity to 18.4 Mt/a by mid-2008 and to conduct a feasibility study to further expand to 21 Mt/a.

Rio Tinto 2007 Form 20-F90

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     In March 2008 IOC announced the approval of US$475 million to increase annual concentrate production by some 40 per cent, or seven Mt/a, to 25 Mt/a and annual pellet production by ten per cent, or 1.5 Mt/a, to 14.5 Mt/a over the next five years.

IOC’s total shipments of iron ore to major markets (million tonnes)

 2007 2006 2005 






 
Europe5.210 5.7 6.8 
Asia Pacific3.777 5.4 3.4 
North America4.155 4.8 4.8 






 
 13.142 15.9 15.0 






 

Mineração Corumbaense Reunida (Corumbá)(Rio Tinto: 100 per cent)
Corumbá produced 1.8 million tonnes of lump iron ore in 2007 and sold 1.1 million tonnes to South American, Asian and European customers. Sales were lower in 2007 due to strong competition for barging freight, barge unloading delays at Argentine ports and abnormally low river levels during the last quarter.
     Rio Tinto approved investments in additional barging capacity, port improvements and an ore dryer to develop the market for Corumbá lump in direct reduction processes, all of which will come on line during 2008. The feasibility study to expand mine production and transport logistics to ten Mt/a is nearing completion, as the next step towards production of 20 Mt/a. Negotiations continued with prospective investors regarding a steel making project at Corumbá that would consume local iron ore.
     Corumbá has more than 200 million tonnes of reserves, and additional mineralisation. There are approximately 650 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 cent interest through its subsidiary, HIsmelt Corporation), US steelmaker Nucor Corporation (25 per cent), Mitsubishi Corporation (ten per cent), and Chinese steelmaker Shougang Corporation (five per cent). The project produced 115,000 tonnes of pig iron and achieved a number of production records in 2007, its second year of ramp up as it builds towards a planned capacity of 800,000 tonnes per annum. The project was visited by Chinese president Hu Jintao in September 2007.

IRON ORE GROUP PROJECTS

Hamersley Iron(Rio Tinto: 100 per cent)

Upgrade to 220 Mt/a
RTIO is on schedule to have 220 Mt/a installed capacity in the Pilbara by the end of 2008, achieving a doubling of capacity since the beginning of the decade. The second stage of the Pilbara Expansion is well advanced with a further upgrade of Dampier Port, Yandicoogina mine expansion and Hope Downs stage 1 development now completed. The initial upgrade of Cape Lambert Port will complete the major infrastructure upgrades for this phase. Additional mine capacity at Hope Downs stage 2 to 30 Mt/a will match the capacities of mine, rail and port facilities at 220 Mt/a.

Pilbara 320/420 Mt/a
A suite of mine and infrastructure projects for the expansion of Pilbara capacity to 320 Mt/a is under study. The studies include a variety of greenfield and brownfield mine options across the Pilbara, expansions to both rail and port and supporting infrastructure, designed to bring the Pilbara capacity firstly to 320 Mt/a and then 420 Mt/a. The studies also contemplate the use of new technologies including a Perth based Remote Operations Centre, and a range of automation options. Underlying this work is an aggressive resource evaluation and definition programme, designed to ensure that the available mineralisation is delineated and developed with optimal sequencing and timing. More than 400,000 metres of exploration drilling was completed during 2007 and a further 500,000 metres is planned for 2008.

Robe River Iron Associates(Rio Tinto: 53 per cent)

Mesa A
The US$901 million Mesa A/Waramboo mine development is required to sustain production of Robe Valley pisolite, which would otherwise decline with the run down of the Mesa J mineralisation. Pending finalisation of plans for the proposed rail spur to the existing line, transition work will begin shortly. Production at Mesa A is expected to commence in the first quarter of 2010, starting at 20 Mt/a, increasing to a 25 Mt/a rate from 2011.

Cape Lambert port
The first upgrade of Cape Lambert (from 55 Mt/a to 80 Mt/a) is well under way. A construction camp for 600 people has been established, and works are continuing according to plan with marine piling and bulk earthworks well

Rio Tinto 2007 Form 20-F91

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advanced. The project scope includes extension of the wharf and upgrading of shiploading facilities to accommodate four capsize vessels simultaneously as well as upgrades to the stockyard with the addition of a new reclaimer. The project is scheduled for completion at the end of 2008 with progressive ramp up during the first half of 2009.

The 320/420 project
Cape Lambert is also the preferred site for expansion of Pilbara port facilities to 320 Mt/a, and conceptually to 420 Mt/a. Under the early planning for the 320 Mt/a, this would involve construction of a new terminal (Cape Lambert West) capable of berthing four capsize ships. That terminal would be extended to accommodate a further four berths according to the 420 Mt/a concept. Early planning has also identified the area to the west of the existing rail line for both stockpiles under both 320 and 420 Mt/a upgrade scenarios. This expansion plan carries the added benefit of not adding to Rio Tinto’s footprint in the area.

Simandou(Rio Tinto: 95 per cent)
The Simandou project in eastern Guinea, west Africa, is of great strategic significance for Rio Tinto. It is a greenfield discovery situated in one of the best undeveloped major iron ore provinces in the world. A prefeasibility study is studying the mining and transport options needed to bring Simandou into production as quickly as possible, with an initial capacity of 70 million tonnes per annum. The deposit has great potential in exploration opportunities across the project area. Total drilling of 50,000 metres was undertaken at the Pic de Fon and Oueleba sites in 2007, with an equivalent amount expected in 2008. Simandou has significant brownfield growth capacity, and conceptual development plans are already under way on expanding capacity towards 170 million tonnes per annum. These studies are scheduled for completion in 2010.
     The International Finance Corporation (the private sector arm of the World Bank Group) retains a five per cent stake in the project and is working with Rio Tinto to develop it in an environmentally and socially sustainable way.
     The project currently employs 375 Rio Tinto staff operating from offices in Conakry and Kerouane, and construction camps at Canga East and Oueleba in the Mining Concession. The total workforce, including contractors, is greater than 700.

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 with the state owned Orissa Mining Corporation. The joint venture holds rights to iron ore leases in Orissa, which it is seeking to develop. Although progress has been slow, Rio Tinto remains keen to participate in the development of the Indian iron ore sector through its joint venture. A project team has been established and is working to expedite the development of operations in India.
     Rio Tinto has identified India as among the most likely economies to follow east Asia’s development of a greater intensity of steel use. India’s economy is expected to maintain its present growth rate, thus providing support for an expanding domestic steel industry. Rio Tinto has continued discussions with major domestic steel companies.

Rio Tinto 2007 Form 20-F92

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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 approximately 20,000 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 1,650 home sales completed since opening in June 2004. At full build out, the community will house 40,000 to 50,000 residents. Revenues in 2007 were US$48 million.
     Kennecott Land is in the process of studying development opportunities for the remaining landholdings. Development potential is approximately 163,000 residential units and 58 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 few years.

Sari Gunay(Rio Tinto: 70 per cent)
In November 2007, Rio Tinto signed a final and binding sale agreement to divest the whole of its interest in the Sari Gunay gold project in western Iran. On the completion of this transaction, which is expected in mid 2008, Rio Tinto intends to close its office in Iran and will cease to have any interests in Iran.

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.
     Rio Tinto has numerous marketing channels, which include electronic marketplaces, with differing characteristics 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 and long 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.
     In 2007, Rio Tinto continued to focus on improvements in its marketing capability, with a small central marketing team based in London and Australia working collaboratively with business based sales and marketing teams to disseminate leading marketing practices across the Group. The team supports the Group’s businesses by helping to identify analytical tools, approaches and strategic frameworks to help identify the value to Rio Tinto of meeting customers’ needs.

MARINE

Ocean freight
Ocean freight is an important part of Rio Tinto’s marketing. It is managed by Rio Tinto Marine, with a head office in Melbourne, to provide Rio Tinto with a comprehensive capability in all aspects of marine transportation, global freight markets and the international regulatory environment. In 2007, Rio Tinto Marine handled over 78 million tonnes of dry bulk cargo, a 13 per cent increase on 2006 volumes transported.
     Rio Tinto Marine leverages the Group’s substantial cargo base to obtain a low cost mix of short, medium and long term freight cover. It seeks to create value by improving the competitive position of the Group’s products through freight optimisation, and does not seek to trade freight as a stand alone activity. Rio Tinto Marine sets and maintains the Group’s HSE and vessel assurance standards for freight and is one of three equal shareholders in Rightship, a ship vetting specialist, promoting safety and efficiency in the global maritime industry.
     During 2007 Rio Tinto Marine took possession of the first of five new bulk carriers, the RTM Wakmatha. These vessels will be used principally for carrying bauxite from Rio Tinto Alcan’s mine at Weipa, Queensland, to Gladstone for processing. In addition, an order has been placed for the construction of three 250,000 deadweight tonne ore carriers to transport iron ore from Rio Tinto’s operations in Western Australia to customers in China and elsewhere. These ore carriers will be delivered from late 2012 to help Rio Tinto build on its natural freight advantage in Asian exports.

Freight market
Sea freight rates reached unprecedented levels in all segments during 2007. Strong demand for commodities, combined with supply constraints and port congestion, resulted in increased long haul trade and reduced fleet availability.

Rio Tinto 2007 Form 20-F93

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The Baltic Dry Index (BDI), an index of dry bulk shipping rates, more than doubled in 2007, increasing 110 per cent during the year. The Capesize vessel segment had the greatest upward impact on the BDI, with average daily freight prices increasing by 132 per cent during 2007, closing at US$157,128 per day with a November peak at US$194,115 per day. The Panamax, Supramax and Handysize indices also increased substantially, each registering gains of 93 to 95 per cent during 2007.
     With spot markets at record highs, charterers turned to the period market to cover cargoes, pushing timecharter rates higher and increasing opportunistic re-let activity. Shipyard order books swelled in the second and third quarters of 2007, resulting in a large tranche of new vessel capacity for delivery from late 2009 through 2011. Long lead times for new vessels has seen large premiums paid for second hand vessels in all segments.

Rio Tinto 2007 Form 20-F94

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Exploration group

STRATEGIC OVERVIEW

The purpose of exploration is to increase the value of the Group by discovering or acquiring resources that can augment future cash flows.
     Adding value to a Group the size of Rio Tinto effectively means that exploration programmes must regularly return what others might call “company maker” discoveries. These are the largest and highest quality mineral deposits that the natural world has to offer, called Tier 1 resources.
      Exploration involves the identification, prioritisation and testing of geological targets. As less than 0.1 per cent of targets will actually deliver a discovery, a continuous flow of opportunities is required. Exploration success in Rio Tinto is defined as the discovery of a deposit that warrants detailed economic evaluation. Handover of the deposit to a product group evaluation team marks the end of the exploration phase.
      Greenfield exploration, which aims to establish new mineral businesses, involves geographic or commodity diversification away from existing Rio Tinto operations. Accountability for greenfield work lies with Rio Tinto Exploration (RTX).
     RTX is organised into regional multi-commodity teams. This gives the group local presence, an in depth understanding of the operating environment and a holistic view of geological terrains. At the same time, programmes are prioritised on a global basis so that only the best opportunities are pursued.
      There are currently five of these regional teams, which are supplemented by the Project Generation Group (PGG). PGG provides specialist commercial, technical and generative assistance and also co-ordinates all RTX research and development activities.
     At the end of 2007, RTX was actively exploring in 30 countries and assessing opportunities in a further 20 for a broad range of commodities including bauxite, copper, coking coal, iron ore, industrial minerals, diamonds, nickel and uranium. RTX employs about 250 geoscientists around the world and has a total complement of approximately 950 people.
     Brownfield exploration is directed at sustaining or expanding the value of existing Rio Tinto business units. Given that resources are the lifeblood of every mining operation, this is an essential business activity. Accountability for brownfield programmes lies with the business units, with RTX providing technical assistance.
      The brownfield environment provides the easiest opportunity for creating value through exploration. The reasons for this are clear – Rio Tinto controls highly prospective title around its existing operations and infrastructure, and economic thresholds are lower than in a greenfield setting. Moreover, Tier 1 resources – the giants of the mineral deposit world – tend to be found in clusters.

SAFETY

All injury frequency rate per 200,000 hours


20031.30
20040.95
20050.55
20060.88
20071.10



2007 OPERATING PERFORMANCE

Two greenfield discoveries, the Chapudi thermal coal deposit in South Africa and the Kintyre uranium deposit in Western Australia, were transferred from RTX to product group evaluation teams. Kintyre is now being offered for sale. One Tier 1 brownfield discovery, the Caliwingina North channel iron deposit, was transferred to Pilbara Iron.
      Order of magnitude studies continued at the Bunder project (diamonds, India) and commenced at the Chilubane and Mutamba (ilmenite, Mozambique), Jarandol and Jadar (borates, Serbia) deposits. All are scheduled for completion in early to mid 2008. Negotiations continued with the Government of Indonesia on the Contract of Work for the Sulawesi nickel project.

     Significant progress at early stage RTX projects in Australia (zircon), Brazil (bauxite), Canada (potash), Colombia (bauxite) and the US (nickel) is expected to lead to commencement of new order of magnitude studies in the second half of 2008. Several other projects are showing early signs of encouragement and could be fast tracked into this stage.
     Exploration by the La Granja (Peru) evaluation team returned significant encouragement with the discovery of four new bodies of porphyry copper mineralisation. At the Bingham Canyon (US) copper mine, a substantial molybdenum deposit was identified located beneath the copper orebody. Adding to this discovery, which is still being delineated by deep drilling, was the recognition of new porphyry copper mineralisation beneath the southern pit wall. These two new zones of mineralisation point to further discovery potential.

Rio Tinto 2007 Form 20-F95

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     On Freeport Block A in West Papua (Indonesia), drilling encountered a new zone of copper-gold skarn mineralisation at the Gap target located between the Grasberg and Ertsberg intrusions. Delineation drilling will be conducted from an exploration drift in 2008.
     On the Heruga concession of Entrée Gold near Oyu Tolgoi (Mongolia), operator Ivanhoe Mines announced discovery of the Heruga porphyry copper-gold deposit. Drill intersections included 454 metres at 0.50 per cent copper, 1.43 grams per tonne of gold, and 0.02 per cent molybdenum.
     Near the Eagle deposit (US), drilling by the evaluation team intersected high grade nickel-copper sulphide mineralisation at three satellite prospects. Delineation drilling is planned for 2008.
     At Energy Resources of Australia, the exploration and evaluation programme focused on infill drilling to support the previously announced mine extension, as well as the prefeasibility study into a further mine expansion. In 2008, attention will return to defining the Ranger 3 Deeps deposit.

FINANCIAL PERFORMANCE

2007 compared with 2006
“Exploration” expenditures reported by Rio Tinto include exploration and evaluation spends in both the greenfield and brownfield environments. Expenditure on brownfield projects reported separately in thisAnnual reportby each of the Rio Tinto product groups is included in this summary.
Net cash expenditure on exploration in 2007 was US$576 million, an increase of US$231 million over 2006. This primarily reflects the large number of high quality projects in the exploration and evaluation pipeline, net of US$197 million cash proceeds from the sale of the Peñasquito royalty, shares in Anatolia Minerals, the Southdown iron ore deposit and various other interests during 2007. The pre-tax charge to underlying earnings of US$321 million is net of US$253 million of total proceeds from the divestments mentioned above.

2006 compared with 2005
Net cash expenditure on exploration in 2006 was US$345 million, a US$81 million increase over 2005, reflecting an increase in the number of high quality projects in the exploration and evaluation pipeline, net of US$23 million cash proceeds from the sale of various interests, including Ashton Canada shares. The pre tax charge to underlying earnings in 2006 was US$237 million net of US$46 million of total proceeds from divestments.

Discoveries(Projects transferred to product group evaluation teams)
YearTier 1 discoveriesTier 2 discoveries



2000Potasio Rio Colorado (potash)Kazan (trona)
2001
2002Resolution (copper)
2003Sari Gunay (gold)
2004Simandou (iron ore)Eagle (nickel)
2005La Granja (copper)Rio Grande (borates)
Caliwingina (iron ore)four Pilbara deposits (iron ore)
2006
2007Caliwingina North (iron ore)Chapudi (coal)
Kintyre (uranium)



Notes
Tier 1discoveries: Large, high quality deposits — the 20 per cent of deposits contributing 80 per cent of global production.
Tier 2 discoveries: Smaller or lower quality deposits — the 80 per cent of deposits contributing 20 per cent of global production.

Rio Tinto 2007 Form 20-F96

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Technology and Innovation group

The Technology and Innovation group (T&I) had its origin in the combination of the Operational and Technical Excellence (OTX) organisation and the Group’sImproving performance togetherbusiness improvement work in the areas of mining, processing, asset management and strategic production planning.
T&I’s focus is to be a partner in value delivery with Rio Tinto businesses by:

supporting implementation of leading practice and high value projects;
developing and implementing strategic innovation technologies; and
evaluating the technical risk of major capital and growth projects.

The group comprises a core team of technology professionals and a number of technology centres that develop leading practice and drive sustainable improvement in the areas of health, safety and environment (HSE), mining, processing, asset management, strategic production planning, and project development and evaluation. Key elements are common and visible measures of operational effectiveness, the improvement of analytical tools and enhanced functional development of staff capability.
      A further centre focuses on step change innovation to confer competitive advantage in development of orebodies likely to be available to Rio Tinto in the future.
     The total staff in T&I at year end was 387, compared with 368 at year end 2006. The increase was due to the higher level of growth activity characterising the resource sector.

2007 OPERATING PERFORMANCE

Health, Safety and Environment
The HSE Centre ensures that strategies and standards are in place to minimise HSE risk and drive performance. Activities support their implementation in the businesses and report results and performance trends to the board.
      Specific activities during 2007 included embedding the environmental standards and metrics within business units, to complement the health and safety standards. The safety strategy was reviewed to concentrate on safety leadership, culture and measurement, and recognition of performance. This places Rio Tinto as an industry leader in terms of performance in these areas. Implementing the product stewardship strategy via business systems has benefited market access and competitive advantage. Continued development of the HSEQ management systems and the integration of the Alcan business were also priorities for HSE.

Innovation
The Innovation Centre is designed to drive step change innovation for Rio Tinto in the five to ten year time frame. The relevant technologies are in mining, processing and energy.
The activities in 2007 continued to focus on the block cave mining method of particular relevance to the large copper orebodies currently under development, remote monitoring in underground mining, in pit material sizing and conveying, data fusion in surface mining, process advances in ore sorting and comminution and modelling of heap leaching processes to enhance metal extraction.
      A significant commitment by Rio Tinto to automation has culminated in a strategic partnership with the Australian Centre for Field Robotics (ACFR) at the University of Sydney. This exclusive partnership leverages an early mover advantage with Komatsu on driverless haul trucks and is a natural extension of other activity which is expected to see the first fully integrated, autonomous mine in operation in the Pilbara in 2010.

Mining
The Mining Technology Centre addresses the core mine production processes. Specific activities in this area during 2007 focused on continuing to establish and disseminate leading practice in orebody knowledge, payload management in surface mining and reconciliation processes across the operations. Attention was also given to further improving Rio Tinto’s technical capability in rapid underground development and block cave design.

Processing
The Processing Technology Centre focuses on core metallurgical capability and delivery of processing operations. Specific activities in this area during 2007 focused on the implementation of a structured methodology designed to identify specific points of loss (throughput, recovery, and grade), understanding underlying causes behind the losses, and the development of projects to reduce or eliminate those losses across the Group’s processing operations. A key enabling activity around the use of Processing Global Metrics for fixed plants was introduced.

Asset Management
The Asset Management Centre focuses on the effective choice and deployment of the Group’s asset base in mining and processing. Activities in 2007 focused on the continued reliability and performance of physical assets across the Group, including the implementation of standards and internal “league tables” for maintenance of heavy mobile equipment

Rio Tinto 2007 Form 20-F97

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such as trucks and shovels. This led to continued significant improvement in areas such as tyre life (a further five per cent added to the success of previous years), truck utilisation and economic extension of engine and component life. The centre also extended the range of its influence in 2007 to the reliability and performance of fixed plant assets across the Group.

Strategic Production Planning
The Strategic Production Planning Centre focuses mainly on a Group wide methodology to ensure orebodies are developed in the optimum sequence for the generation of maximum value. Specific attention is directed to the enhancement of the functional skill of planning staff and to regular review of the life of mine plans for all the Group’s mining operations.

Project Development and Evaluation
The Project Development and Evaluation Centre is the proponent of standards and guidelines for all aspects of capital projects, from pre-feasibility through to execution and commissioning. This covers major projects as well as minor projects implemented within business units. It holds a body of expertise to ensure the lessons from previous project developments are a resource to the project directors for the next generation of development.
      Evaluation staff are deliberately excluded from involvement in the formulation of major investment proposals, and the Evaluation team provides independent review and advice on the adequacy of risk identification and mitigation at key points in the approvals process. The team is also responsible for overseeing reserve estimation corporate governance within the Group.

Energy and climate change
The Group Chief Scientist monitors emerging global technology trends and identifies opportunities which could significantly enhance the Group’s operations. Particular attention is given towards technologies with the potential for step change reductions in the Group’s energy and greenhouse gas footprint. The Group Chief Scientist also assists product groups in positioning new and existing operations for reduced energy consumption, greenhouse gas emissions and energy costs.

Production Technology Services
Production Technology Services is the core team of technology professionals deployed across five global offices who provide the breadth of experience and multi disciplinary approach to support existing business activity and pursuit of new, profitable growth. They are deployed at the request of business units and the technology centres within T&I. Their offices are in Melbourne, Brisbane, Perth, Salt Lake City and Montreal. In addition, we havesome staff reside in London to be readily accessible to the UK headquarters.

FINANCIAL PERFORMANCE

2007 compared with 2006
The charge against net earnings for the T&I group was US$78 million, compared with US$50 million in 2006. The increase was due to the higher level of activity, reflected also by higher staff numbers, and the continued development and deployment of leading operational practice across the Group.

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.

Rio Tinto 2007 Form 20-F98

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Financial review

Cash flow

2007 compared with 2006
Cash flow from operations, including dividends from equity accounted units, was a record US$12,569 million, 15 per cent higher than in 2006 due to the effect of higher earnings and favourable working capital movements.
      Tax paid for 2007 increased to US$3,421 million, US$622 million higher than for 2006 largely due to the delayed tax effect of the increased earnings in 2006 compared to 2005 and tax paid by Alcan. Net interest paid of US$489 million for 2007 was US$361million higher than 2006, arising mostly from Alcan acquisition debt arrangement costs and interest paid on the Alcan debt.
      The Group invested at record levels, in particular in expansion projects. Expenditure on property, plant and equipment and intangible assets was US$4,968 million in 2007, an extensive global exploration programme, spending a totalincrease of US$345980 million over 2006. This included the completion of 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 expansion of the Yarwun alumina refinery, the A418 dike construction at the Diavik diamond mine and the Madagascar ilmenite mine. The Group’s ongoing and recently approved capital projects, which will impact future year’s cash flows are on pages 12 to 13.
      The net cash cost of acquisitions in 2007 was US$37,526 million, which was net of US$13 million related to disposals. Almost all of the acquisition cost related to Alcan. The acquisition was financed by US$38 billion of syndicated bank loans. Acquisitions less disposals were US$279 million in 2006 and we continuemainly relating to evaluate numerous development opportunities, oftenthe acquisition of an initial stake in Ivanhoe Mines.
      Dividends paid in 2007 of US$1,507 million were US$1,066 million lower than dividends paid in 2006 which included a special dividend of US$1.5 billion. The share buy back programme was discontinued after the announcement of the Alcan acquisition on 12 July 2007: returns to shareholders from the on-market buy back of Rio Tinto plc shares in 2007 totalled US$1,611 million (net of US$13 million proceeds from the exercise of options), compared with others.US$2,339 million in 2006.

Much is being made2006 compared with 2005
Cash flow from operations, including dividends from equity accounted units, was US$10,923 million, 36 per cent 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.
Expenditure on property, plant and equipment and intangible assets was US$3,988 million in 2006, an increase of a skills shortage. What is your view?
Technical skills in mining, metallurgyUS$1,434 million over 2005. This included the second phase of the Dampier port and geological sciences are in short supply and there is strong competition for recent graduates, experienced engineers and artisansYandicoogina iron ore mine expansions, as well as supervisors.construction of the Hope Downs iron ore mine in Western Australia, the A418 dike construction at the Diavik diamond mine, the Madagascar ilmenite mine and the capacity increases at Rio Tinto Energy America.
      Tax paid in 2006 increased to US$2,799 million, US$1,782 million higher than in 2005. The increase reflected 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 in Ivanhoe Mines. In 2005, there were net proceeds of disposal 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. These included 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 2006–2007 programme and US$95 million in January from the 2005–2006 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.

Balance sheet
Rio Tinto commissioned expert valuation consultants to advise on the fair values of Alcan’s assets. As required under International Financial Reporting Standards (IFRS), the tangible and intangible assets of the acquired business have been uplifted to fair value. The residue of the purchase price not allocated to specific assets and liabilities has been attributed to goodwill. The provisional values incorporated in the2007 Financial statementswill be subject to revision within 12 months of the date of acquisition as permitted by the relevant accounting standard, IFRS 3. Details of the Alcan assets acquired are included in note 41 to the2007 Financial statements.
      The completion of the Alcan acquisition was financed under a US$40 billion syndicated bank loan at floating interest rates of which US$38 billion was drawn down. This, together with the debt held by Alcan on acquisition, resulted in an increase in net debt of US$42.8 billion to US$45.2 billion at 31 December 2007 of which US$8.1 billion is classified as short term borrowings. The US$40 billion loan is split into four facilities with final maturities ranging up to five years. Facilities A and B of this acquisition related debt are subject to mandatory prepayment to the extent of the net proceeds from disposals of assets and from the raising of funds through capital markets, under specific thresholds

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and conditions. Debt to total capital rose to 63 per cent and interest cover was 20 times. In addition, the Group’s share of the third party net debt of equity accounted units totalled US$0.7 billion at 31 December 2007. US$0.3 billion of this debt is with recourse to the Rio Tinto Group.
     Goodwill arising from the Alcan acquisition relating to subsidiaries was US$14.5 billion and that relating to equity accounted units was US$2.8 billion. The future economic benefits represented by the goodwill include those associated with synergies, future development and expansion projects and the assembled workforce. The Group has decided to dispose of Alcan Packaging, which is presented in the balance sheet in the lines: ‘Assets held for sale’ and ‘Liabilities of disposal groups held for sale’.
    Net assets attributable to Rio Tinto shareholders increased by US$6.5 billion. The increase reflected profit after tax attributable to Rio Tinto shareholders of US$7.3 billion less returns to shareholders of US$2.8 billion comprising US$1.5 billion of dividends and US$1.3 billion of share buybacks. In addition, there was a positive currency translation effect of US$1.9 billion as the Australian dollar, the Canadian dollar and the Euro all strengthened against the US dollar.

Financial risk management
The Group’s policies with regard to financial risk management are clearly defined and consistently applied. They are a fundamental part of the Group’s long term strategy covering areas such as foreign exchange risk, interest rate risk, commodity price risk, credit risk and liquidity risk and capital management. From 1 January 2008, Rio Tinto Alcan has adopted the Rio Tinto Group policy on trading and hedging. The acquisition of Alcan impacted the Group’s market risk exposures, in particular, increasing the Group’s exposure to changes in interest rates and the aluminium price.
     The Group’s business is finding, mining and processing mineral resources, and not trading. Generally, the Group only sells commodities it has produced but may purchase commodities to satisfy customer contracts from time to time and to balance the loading on production facilities. In the long term, natural hedges operate in a number of ways to help protect and stabilise earnings and cash flow.
     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 the long term. 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. These natural hedges significantly reduce the necessity for using 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’s2007 Financial statementsand disclosures show the full extent of its financial commitments including debt.
     The risk factors to which the Group is subject that are thought to be of particular importance are summarised on pages 5 to 7.
     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 under Corporate governance on page 150.

Liquidity and capital resources
The Group’s total capital is defined as Rio Tinto’s shareholders’ funds plus amounts attributable to outside equity shareholders plus net debt. The Group’s over-riding objectives when managing capital are to safeguard the business as a going concern; to maximise returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure in order to reduce the cost of capital.
     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. Rio Tinto plc and Rio Tinto Limited continue to maintain solid investment grade credit ratings from Moody’s and Standard and Poor’s, despite the credit rating downgrade announced on completion of the Alcan acquisition. These ratings continue to provide access to global debt capital markets in significant depth. 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. Following the acquisition of Alcan, the Group has publicly stated an objective to reduce its debt to equity ratio from current levels through a targeted asset divestment programme and through operating cash flows to a level consistent with a ‘single-A’ credit rating. 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.

     On 12 February 2008 the Group announced the sale of its interest in the Greens Creek mine for US$750 million. On 5 March 2008 the Group completed the sale of its interest in the Cortez joint venture to its partner for a cash consideration of US$1,695 million plus deferred and contingent consideration.
     The Group maintains backup liquidity for its commercial paper programme and other debt maturing within 12 months by way of bank standby credit facilities, which totalled US$3.7 billion (undrawn) at 31 December 2007. The Group’s committed bank standby facilities contain no financial undertakings relating to interest cover and are not

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affected to any material extent (other than an increase in interest margin) by a reduction in the Group’s credit rating. The main covenant in the Rio Tinto group relates to a financial covenant over Corporate debt drawn under the Syndicated Acquisition Facility, for which a compliance certificate must be produced attesting a certain ratio of Net Borrowings to EBITDA. 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 wherever possible.
     As at 31 December 2007, the Group had contractual cash obligations arising in the ordinary course of business as follows:

Contractual cash obligations          
   Less  than 1 Between 1 Between 3 After 5 
 Total year and 3 years and 5 years years 
 US$ m US$ m US$ m US$ m US$ m 










 
Expenditure commitments in relation to:          
Operating leases1,782 283 517 468 514 
Other (mainly capital commitments)3,978 3,113 801 64  
           
Long term debt and other financial obligations          
Debt (a)47,019 8,263 21,069 13,335 4,352 
Interest payments (b)9,238 2,310 3,184 1,660 2,084 
Unconditional purchase obligations (c)7,271 1,525 1,571 1,079 3,096 
Other (mainly trade creditors)7,295 6,144 639 363 149 










 
Total76,583 21,638 27,781 16,969 10,195 










 
Notes
(a)Debt obligations include bank borrowings repayable on demand.
(b)Interest payments have been projected using the interest rate applicable at 31 December, 2007, including the impact of interest rate swap agreements where appropriate. Much of the debt is subject to variable interest rates. Future interest payments are subject, therefore, to change in line with market rates.
(c)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.

Information regarding the Group’s pension commitments and funding arrangements is provided in the Post retirement benefits section of this Financial review and in note 49 to the 2007Fnancial statements. The level of contributions to funded pension plans is determined according to the relevant legislation in each jurisdiction in which the Group operates. In some countries there are statutory minimum funding requirements while in others the Group has developed its own policies, sometimes in agreement with the local trustee bodies. The size and timing of contributions will usually depend upon the performance of investment markets. Depending on the country and plan in question the funding level will be monitored quarterly, bi-annually or annually and the contribution amount amended appropriately. Consequently it is not possible to predict with any certainty the amounts that might become payable in 2009 onwards. The impact on cash flow in 2007 of the Group’s pension plans, being the employer contributions to defined benefit and defined contribution pension plans, was US$246 million. In addition there were contributions of US$30 million in respect of unfunded healthcare schemes. Contributions to pension plans for 2008 are estimated to be around US$220 million higher than for 2007. This is predominantly due to the inclusion of the Alcan plans for the full year, although it is also partly due to changes in funding rules in the US. Healthcare plans are unfunded and contributions for future years will be equal to benefit payments and therefore cannot be predetermined.
     Information regarding the Group’s close down and restoration obligations is provided in the relevant section of this review and in note 27 to the2007 Financial statements. 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 relevant operation. Generally, the Group’s close down and restoration obligations to remediate in the long term are not fixed as to amount and timing and are not therefore included in the above table.
     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, the Group believes that it has sufficient short and long term sources of funding available to meet its working capital requirements.

Dividends and capital management
Rio Tinto’s progressive dividend policy aims to increase the US dollar value of dividends over time, without cutting them in economic downturns.
     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 plc dividends are declared and paid in pounds sterling and Rio Tinto Limited dividends are declared and paid in Australian dollars, converted at exchange rates applicable to the US dollar two days prior to the announcement of dividends. Holders of American Depositary Receipts (ADRs) receive a US dollar dividend at the rate declared. Changes in exchange rates

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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.
     The Group announced a re-basing of its ordinary dividend in February 2007, increasing the full year ordinary dividend in respect of 2006 by 30 per cent to 104 US cents. The 2007 full year ordinary dividend represents a 31 per cent increase on 2006. In addition, the Group has announced an intention to increase its annual dividend by at least 20 per cent in each of 2008 and 2009.
     Final 2007 dividends to Rio Tinto Limited shareholders will be fully franked. The board expects Rio Tinto Limited to be in a position to pay fully franked dividends for the reasonably foreseeable future.
     On 2 February 2006 the Group announced a US$4 billion capital management programme which was subsequently increased to US$7 billion in October 2006. The capital return was comprised of a US$1.5 billion special dividend (US$1.10 per share) paid in April 2006 which was paid concurrently with the 2005 final ordinary dividend, but did not form part of the Group’s progressive ordinary dividend policy, and an initial US$2.5 billion share buyback programme (increased to US$5.5 billion) to be completed over the remaining period to the end of 2007. The programme was suspended on 12 July 2007 at the time the Alcan offer was announced, by which time US$3.9 billion had been completed under the US$7 billion capital management programme, bringing the total cash returned to shareholders under announced capital management programmes since 2005 to US$6.4 billion.

Treasury management and financial instruments
Treasury operates 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 internal controls.
     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 and cross currency interest rate swaps in conjunction with longer term funds raised in the capital markets to achieve a predominantly floating rate obligation which is consistent with the Group’s interest and exchange rate policies, primarily US dollar LIBOR. No material exposure is considered to exist by virtue of the possible non performance of the counterparties to financial instruments held by the Group.
     Derivative contracts are carried at fair value based on published price quotations for the period for which a liquid active market exists. Beyond this period, Rio Tinto’s own assumptions are used.

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$739 million at 31 December 2007.
     Other commitments include capital expenditure, operating leases and unconditional purchase obligations as set out in the table of contractual cash obligations, included in the liquidity and capital resources section above.

Exchange rates, reporting currencies and currency exposure
Rio Tinto’s shareholders’ equity, 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 Canadian dollars and the Euro are the most important currencies (apart from the US dollar) 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 underlying earnings.
     The following sensitivities give the estimated effect on underlying earnings assuming that each exchange rate moved in isolation. The relationship between currencies and commodity prices is a complex one and movements in exchange rates can cause movements in commodity prices and vice versa. 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 exchange rates but exclude the effect of the revaluation of foreign currency financial assets and liabilities. They should therefore be used with care.

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Effect on net and
underlying earnings
Averageof 10% change in
exchange ratefull year average
for 2007+/- US$m




Australian dollar (a)84 US cents494
Canadian dollar (a)93 US cents203
Euro137 US cents65
Chilean peso$1 = 523 pesos12
New Zealand dollar73 US cents17
South African rand14 US cents55
UK sterling200 US cents24




(a)The sensitivities in the 2007 column are based on 2007 prices, costs and volumes and assume that all other variables remain constant, except that a full years’ volumes are included for Alcan where indicated.

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, Canadian dollars and the Euro. This cash is held in order to meet short term operational and capital commitments and, for the Australian dollar, dividend payments. The Group finances its operations primarily in US dollars, either directly or using cross currency interest rate swaps. A substantial part of the Group’s US dollar debt is located in subsidiaries having a US functional currency.
     However, Icertain US dollar debt and other financial assets and liabilities including intragroup balances 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 exchange gains and losses are recorded in the Group’s 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 of the2007 Financial statements. Gains and losses on US dollar net debt and on intragroup balances are excluded from underlying earnings. Other exchange gains and losses are included in underlying earnings.
     The Group does not generally believe wethat active currency hedging of transactions 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, typically hedging of capital expenditure and other significant financial items such as tax and dividends. There is a legacy of currency forward contracts used to hedge operating cash flow exposures which were acquired with Alcan and the North companies. Details of currency derivatives held at 31 December 2007 are set out in note 34 to the2007 Financial statements.
     The sensitivities below give the estimated effect on underlying earnings, net earnings and equity of a ten per cent change in the full year closing US dollar exchange rate, assuming that each exchange rate moved in isolation. The sensitivities are based on financial assets and liabilities held at 31 December 2007, where balances are not denominated in the functional currency of the subsidiary. A strengthening of the US dollar would result in exchange gains based on financial assets and financial liabilities held at 31 December 2007. These balances will not remain constant throughout 2008, however, and therefore these numbers should be used with care.

     Effect on  Of which  Effect of  
     net  amount  items  
     earnings of  impacting  impacting  
  Closing  10% underlying  directly on  
  exchange rate  change  earnings  equity  
  US cents  US$m  US$m  US$m  








  
Functional currency of business unit:      
Australian dollar88 204 99 (20)
Canadian dollar101 (3)53  
South African rand15 14 12 (4)
Euro147 33 14 149 
New Zealand dollar78 (9)3  








 
(a)The sensitivities show the net sensitivity of US dollar exposures in Australian dollar functional currency companies, for example, and Australian dollar exposures in US dollar functional currency companies.
(b)The sensitivities indicate the effect of a ten per cent strengthening of the US dollar against each currency.

The Group has changed its disclosure of market risk sensitive instruments from a tabular basis to a sensitivity analysis basis for consistency with the requirements of IFRS 7, the international accounting standard on financial instrument disclosure which the Group has adopted in its financial statements this year.
     Sensitivities as at 31 December 2006 were as shown below.

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        Of which     
        amount  Effect of items  
      Effect on net  impacting  impacting  
  Closing  earnings of 10%  underlying  directly on  
  exchange rate  change  earnings  equity  
  US cents  US$m  US$m  US$m  








  
Functional currency of business unit:      
Australian dollar79 37 56 (30)
Canadian dollar86 (29)12 - 
South African rand14 (6)5 - 
New Zealand dollar71 (15)3 - 








 

In addition, some US dollar functional currency companies are exposed to exchange movements on local currency deferred tax balances. The only material exposure is to the Canadian dollar and a ten per cent strengthening of the US dollar would reduce underlying earnings based on 2007 balances by US$96 million. This would offset the US$53 million gain shown above. There was no similar exposure at 31 December 2006.
      The functional currency of many operations within the Rio Tinto Group is the local currency in the country of operation. Alcan’s aluminium and alumina producing operations use a US dollar functional currency including those in Canada and Australia. Foreign currency gains or losses arising on translation to US dollars of the net assets of non US functional currency operations are taken to equity and, with effect from 1 January 2004, recorded in a currency translation reserve. A weakening of the US dollar would have a positive effect on equity. The approximate translation effects on the Group’s net assets of ten per cent movements from the year end exchange rates are as follows:

     2007 
     Effect on net assets 
  Closing  of 10% change in 
  exchange rate  closing rate 
  US cents  +/- US$m 




 
Australian dollar88 1,583 
Euro147 568 
Canadian dollar101 255 




 

These net assets will not remain constant, however, and therefore these numbers should be used with care.

Interest rates
Rio Tinto’s interest rate management policy is generally to borrow and invest at floating interest rates. This approach is based on the historical correlation between interest rates and commodity prices. In some circumstances, an element of fixed rate funding may be considered appropriate. Rio Tinto hedges interest rate and currency risk on most of its foreign currency borrowings by entering into cross currency interest rate swaps in order to convert fixed rate foreign currency borrowings to floating rate US dollar borrowings. At the end of 2007, US$4.9 billion (2006: US$1.2 billion) of the Group’s debt was at fixed rates after taking into account interest rate swaps and finance leases. Based on the Group’s net debt at 31 December 2007, the effect on the Group’s net earnings of a half percentage point increase in US dollar LIBOR interest rates with all other variables held constant, would be a reduction of US$158 million (2006: US$3 million). These balances will not remain constant throughout 2008, however, and therefore these numbers should be used with care.

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. The Group may hedge certain commitments with some of its customers or suppliers. Details of commodity derivatives held at 31 December 2007 are set out in note 34 to the2007 Financial statements. The forward contracts to sell copper were entered into as a condition of the refinancing of Palabora in 2005. The aluminium forward contracts and embedded derivatives were acquired with Alcan.
      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 including iron ore and coal are generally agreed annually or for longer periods with customers, although volume commitments vary by product.
      Certain products, predominantly copper concentrate, are ‘provisionally priced’, ie 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

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recognised based on estimates of 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 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 Metal Exchange and the value of product sold by the Group is directly linked to the form in which it is traded on that market. At the end of 2007 the Group had 270 million pounds of copper sales (2006: 324 million pounds) that were provisionally priced at 304 US cents per pound (2006: 287 US cents per pound). The final price of these sales will be determined in 2008. The impact on earnings of a ten per cent change in the price of copper for the provisionally priced sales would be US$58 million (2006: US$66 million).
      Approximately 53 per cent of Rio Tinto’s 2007 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 Group continued to achieve high prices for its products in 2007, and its assessment of the economic and demand outlook remains very positive, despite recent unsettled conditions in the financial markets. The strong increases seen in global minerals demand are driven by demographic and economic fundamentals in fast growing countries like China and India, whose large populations continue to urbanise. These long term trends are driven by domestic developments in those countries, and are therefore insulated to a significant extent from any potential near term weakness in western economies.
      The approximate effect on the Group’s underlying and net earnings of a ten per cent change from the full year average market price in 2007 for the following products would be:

         Effect on underlying 
         and net earnings of 
      Average  US$ 10% change in 
      market price  full year average 
  Unit  for 2007  +/- US$m 






 
Copperpound 3.24 360 
Aluminium (a)pound 1.20 678 
Goldounce 691 64 
Molybdenumpound 30 69 
Iron oredmtu n/a 457 






 
(a)The above sensitivities are based on 2007 volumes except that a full year impact from Alcan has been included where indicated.

The sensitivities give the estimated impact on net 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.
      The table below summarises the impact of changes in the market price on the following commodity derivatives including those aluminium and option contracts embedded in electricity purchase contracts outstanding at 31 December 2007. The impact is expressed in terms of the resulting change in the Group’s net earnings for the year or, where applicable, the change in equity. The sensitivities are based on the assumption that the market price increases by ten per cent with all other variables held constant. The Group’s ‘own use contracts’ are excluded from the sensitivity analysis below as they are outside the scope of IAS 39. Own use contracts are contracts to buy or sell non financial items that can be net settled but were entered into and continue to be held for the purpose of the receipt or delivery of the non financial item in accordance with the business unit’s expected purchase, sale or usage requirements.
      These sensitivities should be used with care. The relationship between currencies and commodity prices is a complex one and changes in exchange rates can influence commodity prices and vice versa.

     Effect of items 
     impacting directly 
  Effect on underlying  on Rio Tinto share 
  and net earnings of  of equity of 10% 
  10% increase from  increase from 
  year end price  year end price 
  US$m  US$m 




 
Copper 40 
Coal 25 
Aluminium41 50 




 
 41 115 




 

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Sensitivities as at 31 December 2006 were as shown below:

Effect on underlyingEffect of items
and net earnings ofimpacting directly
10% increase fromon Rio Tinto share
year end priceof equity of 10%
increase from
year end price
US$mUS$m




Copper49
Coal20




69




Sales revenue
The table below shows published ‘benchmark’ prices for Rio Tinto’s commodities for the last three years where these 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, 2005, 2006 and 2007. The Group’s sales revenue will not necessarily move in line with these benchmarks for a number of reasons which are discussed below.

   2007 2006 2005 
CommoditySourceUnitUS$ US$ US$ 








 
AluminiumLMEpound1.20 1.16 0.86 
CopperLMEpound3.24 3.06 1.66 
GoldLBMAounce691 602 444 
Iron oreAustralian benchmark (fines) (a)dmtu (b)0.79 0.71 0.55 
MolybdenumMetals Week: quote for dealer oxide pricepound30 25 31 








 
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 the Financial Information by Business Unit in the2007 Financial statements.
     The sales revenues of the Iron Ore group increased by 27 per cent in 2007 compared with 2006. There was a 9.5 per cent increase in the benchmark price, mainly effective from 1 April 2007 which resulted in an 11 per cent increase in the average Australian iron ore fines benchmark for the calendar year. Sales achieved the benchmark price throughout the year. The price outlook for the 2008 contract year remains very positive, with spot prices in China substantially above prevailing contract prices. In addition to higher prices, sales revenues at Hamersley Iron were higher from record production following completion of the second phase of the Dampier port upgrade and the Tom Price brownfield and Yandicoogina JSE mine expansions.
     At IOC, volumes were lower as a result of a seven week strike in the first and second quarters of the year and this was only partly mitigated by higher prices.
     The Australian iron ore fines benchmark increased by 19 per cent in April 2006. This together with higher volumes at Hamersley contributed to an increase in the Group’s iron ore revenue of 26 per cent in 2006 against 2005.
     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 the movements 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.
     Asian seaborne thermal coal prices continued to rise sharply throughout 2007 mainly due to supply disruptions from key producing countries. Issues relating to infrastructure controlled by external parties are likely to maintain market tightness for the foreseeable future. Published thermal coal benchmarks in Australia improved by 33 per cent in the calendar year whilst coking coal benchmarks decreased by 13 per cent.
     Revenues of the Group’s Australian coal operations decreased by three per cent in 2007 with lower thermal coal sales largely attributable to infrastructure constraints and a severe weather event. In general, production at the Australian coal mines continued to be constrained by rail and port constraints in Queensland and New South Wales and reduced tonnage of rail and port allotments in Queensland, which curtailed mined production, despite the generally favourable market conditions.
     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 of market weakness and the delay in thermal coal shipments arising from congestion at Newcastle. Published market indications for Australian thermal coal showed a slight increase in thermal coal prices in 2006 and a seven per cent increase in the coking coal benchmark price.

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     In the US, published market indications of spot prices for Wyoming Powder River Basin thermal coal 8800 BTU (0.80 sulphur) show a decrease of around 20 per cent for the average spot price in 2007 compared with 2006. However, Rio Tinto Energy America’s revenues increased by nine per cent in 2007 with improved realised prices. Rio Tinto Energy America has long term contracts and this increased revenue was primarily a result of the replacement of below market legacy contracts with new contracts at current market pricing in 2006 and earlier years. Revenues increased by 19 per cent in 2006 against 2005, with higher realised prices for Powder River Basin coal and increased volumes. Despite increased volatility in the spot market and a marginal decline in long term sales volumes the market sentiment for uranium remained positive through 2007. Supply from a number of producers fell short of expectations in 2007 while the outlook for demand increased as new-build programmes gathered pace, particularly in China. Higher utilisation rates were also experienced in the nuclear industry. These factors have contributed to tighter markets and an improvement in the longer term outlook for uranium demand.
     Large swings in the spot price, driven by speculative behaviour by hedge funds and investors, created a degree of uncertainty in the uranium market. The resultant effect was a de-linking of the spot and long term prices and a reduction in contracting as fuel buyers monitored movements in the market. Despite this, long term prices grew strongly in the early part of the year and remained firm thereafter. Information included in the RWE NUKEM Inc. Price Bulletin indicated price increases of 99 per cent in 2007 and 71 per cent in 2006 for uranium oxide. 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.
     The Group’s uranium revenue increased by 69 per cent in 2007 and 27 per cent in 2006 as a result of higher prices with Rössing, in particular, benefiting from positive market conditions and improved pricing. Prices at ERA continued to benefit from the gradual replacement of legacy contracts with newer contracts written in an environment of higher prices.

     The average aluminium price of 120 US cents per pound was three per cent above the 2006 average price. Global demand growth for 2007 is expected to exceed ten per cent. Rising LME inventories towards the end of 2007 and strong growth in global output pushed aluminium prices lower in the second half of the year. The Group anticipates strong demand and growing supply constraints in China.
      The Aluminium group’s sales revenues are from aluminium and related products such as alumina and bauxite. Alcan’s sales revenue for the two months from acquisition, which includes revenue from Engineered Products, was US$3,798 million. Rio Tinto Aluminium’s sales revenue increased by one per cent in 2007 reflecting higher volume and price for bauxite and aluminium and lower volume and price for alumina. Revenue increased by 27 per cent in 2006. Average aluminium prices quoted on the LME increased by 35 per cent against 2005 but achieved spot alumina prices were lower than in 2005.
     The Copper group also produces gold and molybdenum as significant co-products. The average copper price of 324 US cents per pound was six per cent above the 2006 average price. The gold price averaged US$691 per ounce, an increase of 15 per cent on the prior year, whilst the average molybdenum price was US$30 per pound, an increase of 20 per cent compared with 2006. Total Copper Group sales revenues in 2007 increased by 20 per cent over 2006. Copper revenues increased by 17 per cent reflecting higher volumes at KUC and Escondida as well as higher prices. Gold revenue increased by 69 per cent with higher volumes at Kennecott Minerals and the Grasberg joint venture. Molybdenum revenue was nine per cent higher than in 2006 with lower volumes as a result of lower ore grade and higher limestone levels in the orebody partly offsetting the improved prices.
     The total Copper group sales revenues 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 Freeport 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 Freeport 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.
     Industrial Minerals sales are made under contract at negotiated prices. Revenue from industrial minerals increased by 11 per cent in 2007 and five per cent in 2006. This was mainly attributable to higher sales volumes of titanium dioxide chloride feedstock.
     Diamonds prices realised by Rio Tinto depend on the size and quality of the diamonds in the product mix. Diamond sales revenue increased by 22 per cent in 2007 against 2006 with higher sales volumes and polished pink tender prices at Argyle, and higher volumes at Diavik. The tight supply outlook for rough diamonds is expected to support demand in 2008, especially for better placedthan most. Global graduate recruitmentquality rough diamonds produced by Diavik. 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 surplus rough diamonds being held in inventory at the end of the year.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Dual listed company reporting
As explained in detail in the Outline of dual listed companies’ structure and basis of financial statements in the2007 Financial statements, the consolidated financial statements of the Rio Tinto Group deal with the results, assets and liabilities of both of the dual listed companies, Rio Tinto plc and Rio Tinto Limited, and their subsidiaries. In other

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words, Rio Tinto plc and Rio Tinto Limited are viewed as a single parent company with their respective shareholders being the shareholders in that single company.
      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 as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December 2004 (the JORC code). Where relevant, the IFRS financial statements are based on the reserves, and in some cases mineral resources, determined under the JORC code.
     For the purposes of this combined Annual report on Form 20-F estimates of ore reserves have been computed in accordance with the SEC’s Industry Guide 7, rather than in accordance with the JORC code, and are shown on pages 32 to 42. 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 three years to 30 June 2007, 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; 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.

     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 and amortisation rates, asset carrying values, deferred stripping calculations and provisions for close down, restoration and environmental clean up costs.

Acquisition accounting
On the acquisition of a subsidiary, the purchase method of accounting is used whereby the purchase consideration is allocated to the identifiable assets, liabilities and contingent liabilities (identifiable net assets) on the basis of fair value at the date of acquisition.
     Rio Tinto acquired Alcan Inc during the year. The Group commissioned valuation consultants to advise on the fair values and asset lives of Alcan’s assets. The residue of the purchase price not allocated to specific assets and liabilities has been attributed to goodwill. The provisional values and asset lives incorporated in the2007 Financial statementswill be subject to revision within 12 months of the date of acquisition as permitted by IFRS 3 ‘Business Combinations’.

Asset carrying values
Events or changes in circumstances can give rise to significant impairment charges or reversals of impairment provisions in a particular year. In 2007, the Group’s results included net impairment charges of US$58 million (US$113 million after tax and outside shareholders interests). An impairment charge was recognised at Argyle, which was partially offset by impairment reversals at Palabora and Tarong Coal. 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. There were no significant impairment charges or reversals in 2005.
     When such events or changes in circumstances impact on a particular asset or cash generating unit, its carrying value 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 and over the last few years favourable changes in commodity prices have generally exceeded shifts in exchange rates. Comparing average exchange rates in 2007 against those in 2004, the Australian dollar strengthened by 14 per cent against the US dollar, the Canadian dollar strengthened by 21 percent and the South African rand weakened by eight per cent. In the same period, commodity prices rose substantially: for example, copper prices increased by 149 per cent, aluminium by 54 per cent and gold by 69 per cent.
     Reviews of carrying values relate to cash generating units which, in accordance with IAS 36 “Impairment of

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Assets”, are identified by dividing an entity into as many largely independent cash generating streams as is reasonably practicable. 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 mineralised material that does not currently qualify for inclusion in proved or probable ore reserves. Such non reserve material is included where there is a high prioritydegree of confidence in its economic extraction. This expectation is usually based on preliminary drilling and wesampling of areas of mineralisation that are doing wellcontiguous 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 attracting good quality people. Weare seeneach future year and for forecasting 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 the relevant 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 value in use calculations used in 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 value in use calculations 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, and associated smelters, concentrators and other long lived processing equipment generally relate to the expected life of the orebody. The life of the orebody, 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 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 final feasibility studies and ore reserve estimation, internal hurdle rates are used which are generally higher than the weighted average cost of capital.
     Value in use and ore reserve estimates are based on the exchange rates current at the time of the evaluation. In final feasibility studies and 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.
     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.

Close down, restoration and clean up obligations
Provision is made for environmental remediation costs when the related environmental disturbance occurs, based on the net 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 provisions 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 may 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

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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 as stripping. 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 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 proved 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 co-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 an individual mine’s 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 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 2007, production stage stripping costs incurred by subsidiaries and equity accounted operations were US$56 million higher than the amounts charged against pre tax profit (2006: production stage costs exceeded the amounts charged against pre-tax profit by US$20 million). In addition, US$117 million of deferred stripping was written off in 2007 as part of the Argyle impairment and there were net impairment reversals of US$36 million affecting deferred stripping in 2006. The net book value carried forward in property, plant and equipment and in investments in jointly controlled entities and associates at 31 December 2007 was US$884 million (2006: US$929 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 2007, 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 year Life of mine stripping ratio 
 




 




 
 2007 2006 2005 2007 2006 2005 












 
Kennecott Utah Copper (2019) (a) (b)1.99 2.04 2.02 1.32 1.36 1.51 
Grasberg Joint Venture (2015) (a)3.47 3.01 3.12 3.05 2.63 2.43 
Diavik (2008) (c)0.42 0.89 1.21 0.91 0.96 0.91 
Escondida (2040) (d)0.07 0.08 0.09 0.10 0.12 0.12 












 
Notes
(a)Stripping ratios shown are waste to ore.
(b)Kennecott’s life of mine stripping ratio decreased in 2006 as the latest mine plan included higher metals prices, which made previously uneconomic material (waste) economic to mine as ore.
(c)Diavik’s stripping ratio is disclosed as bench cubic metre per carat. The fall in actual ratio arises as the end of the pipe life nears.
(d)Escondida’s stripping ratio is based on waste tonnes to pounds of copper mined.

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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.

Functional currency
The determination of functional currency affects the carrying value of non current assets included in the balance sheet and, as a consequence, the amortisation of those assets included in the income statement. It also impacts exchange gains and losses included in the income statement.
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 many of Rio Tinto’s entities, this is the currency of the country in which each operates. Alcan’s aluminium and alumina producing operations use a US dollar functional currency including those in Canada and Australia. Transactions denominated in currencies other than the functional currency 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 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. With the above exceptions, and except for derivative contracts which qualify as cash flow hedges, exchange differences are charged or credited to the income statement in the year in which they arise.

Deferred tax on fair value adjustments
On transition to IFRS with effect from 1 January 2004, deferred tax was provided in respect of fair value adjustments 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 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 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 such deferred tax on acquisition results in a corresponding increase in the amounts attributed to acquired assets and/or goodwill under IFRS.

Post retirement benefits
The difference between the fair value of the plan assets (if any) of post retirement plans and the present value of the plan obligations is recognised as an organisation that can provide exciting international experience, good trainingasset or liability on the balance sheet. The Group has adopted the option under IAS 19 to record actuarial gains and lots of opportunity. We are also being more creative in retaining the skills and experience of stafflosses directly in the later stagesStatement of their career. AllRecognised 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, 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 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’

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or governments’ expectations as applicable.
     In particular, the Group estimates long term expected returns on equity 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 said ,I thinkit remains consistent with best practice.
      The discount rate used in determining the mining industryservice 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 49 to the2007 Financial statements.
     For 2007 the charge against income for post retirement benefits net of tax and minorities was US$168 million. This charge included both pension and post retirement healthcare benefits. The charge is net of the expected return on assets which was US$371 million after tax and minorities.
     In calculating the 2007 expense the average future increase in compensation levels was assumed to be 4.7 per cent and this will decrease to 3.7 per cent for 2008 reflecting the increased weighting of lower inflation countries following the Alcan acquisition. The average discount rate used for the Group’s plans in 2007 was 5.4 per cent and the average discount rate used in 2008 will be 5.6 per cent reflecting the weighted average level of discount rates following the Alcan acquisition.
      The average expected long term rate of return on assets used to determine 2007 pension cost was 6.9 per cent. This will decrease to 6.4 per cent for 2008. This reduction results mainly from a lower allocation to equities as a whole needsresult of the Alcan acquisition.
      Based on the known changes in assumptions noted above and other expected circumstances, the impact of post retirement costs on the Group’s IFRS net earnings in 2008 would be expected to sell itselfincrease by some US$198 million to US$366 million. The main reason for this increase is the inclusion of the Alcan pension expense for the full year. 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 2007 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 although a change in one assumption is likely to result in some offset elsewhere.

IFRS
US$m



Sensitivity of Group’s 2007 net earnings to changes in:
Expected return on assets 
– increase of 1 percentage point 39
– decrease of 1 percentage point (39
Discount rate 
– increase of 0.5 percentage points 7
– decrease of 0.5 percentage points (6
Salary increases 
– increase of 0.5 percentage points (6
– decrease of 0.5 percentage points 6
Demographic – allowance for additional future mortality improvements 
– participants assumed to be one year older 7
– participants assumed to be one year younger (7




The figures in the above table only show the impact on underlying and net earnings. Changing the assumptions would also have an impact on the balance sheet.
      Further information on pensions and other post retirement benefits is given in note 49 to the2007Financial statements.

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 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.
      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.
      On creation of a 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 tax asset 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

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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 IFRS the benefit to underlying and net earnings would have been US$21 million (2006: US$9 million) and to equity would have been US$185 million (2006: US$127 million).

US deferred tax potentially recoverable
The Group’s US tax group has alternative minimum tax credits and temporary differences that have the potential to reduce tax charges in future years. These ‘possible tax assets’ totalled US$182 million at 31 December 2007 (2006: US$162 million). Of these, US$119 million were recognised as deferred tax assets (2006: US$97 million), leaving US$63 million (2006: US$65 million) unrecognised, as recovery was not considered probable.
      During 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 previously unrecognised possible tax assets of US$335 million. Recoveries are dependent on future commodity prices, costs, financing arrangements and business developments in future years.
      During 2007, principally as a result of high commodity prices, US$170 million of these possible tax assets were utilised (2006: US$140 million).

Exploration
Under the Group’s accounting 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.
      The carrying values of exploration and evaluation assets are reviewed twice per annum by management and the results of these reviews are reported to theAudit committee. There may be only 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 undeveloped property. In some cases, the undeveloped properties are regarded as successors to orebodies currently in production and will therefore benefit from existing infrastructure and equipment.

Contingencies
Disclosure is made of material contingent liabilities unless the possibility of any loss arising is considered remote. Contingencies are disclosed in note 35 to the2007 Financial statements.

Underlying earnings
The Group presents “Underlying earnings” as an attractive employer more effectively. We need toconsider changesadditional measure to provide greater understanding of the underlying business performance of its operations. The adjustments made to net earnings to arrive at underlying earnings are explained above in the section on underlying earnings.

Rio Tinto 2007 Form 20-F113

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Item 6.Directors, Senior Management and Employees
Chairman and executive directors
AuditRemunerationNominationsCommittee on social 
committeecommitteecommitteeand environmental
accountability





Chairman
Paul Skinner 
Chief executive
Tom Albanese 
Finance director
Guy Elliott 
Executive director
Dick Evans 
Non executive directors
Sir David Clementi * 
Vivienne Cox * 
Sir Rod Eddington * 
Michael Fitzpatrick * 
Yves Fortier * 
Richard Goodmanson * 
Andrew Gould * 
Lord Kerr of Kinlochard * 
David Mayhew 
Sir Richard Sykes * 
Paul Tellier * 





* Independent 


CHAIRMAN

Paul SkinnerBA (Hons) (Law), DpBA (Business Administration), age 63
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2001, he was appointed chairman of the Group in 2003. Paul was last re-elected by shareholders in 2005 and stands for re-election in 2008. He is chairman of the Nominations committee (note c).
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 structureshe 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 retain staff2003.
External appointments (current and recent):
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 Board of the UK Ministry of Defence since 2006
Member of the board of INSEAD business school since 1999
Director of The “Shell” Transport and Trading Company plc from 2000 to 2003

CHIEF EXECUTIVE

Tom AlbaneseBS (Mineral Economics), MS (Mining Engineering), age 50
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since March 2006. Tom was elected by offering greater flexibilityshareholders in 2006 and stands for re-election in 2008.
Skills and experience:Tom joined Rio Tinto in 1993 on Rio Tinto’s acquisition of Nerco and held a series of management 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

Rio Tinto 2007 Form 20-F114

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Leigh Clifford with effect from May 2007.
External appointments (current and recent):
Director of Ivanhoe Mines Limited from 2006 to 2007
Director of Palabora Mining Company from 2004 to 2006

Member of the Executive Committee of the International Copper Association from 2004 to 2006

FINANCE DIRECTOR

Guy ElliottMA (Oxon), MBA (INSEAD), age 52
Appointment and election:Finance director of Rio Tinto plc and Rio Tinto Limited since 2002. Guy was last re-elected by shareholders in 2007.
Skills and experience:
Guy joined the Group in 1980 after gaining an MBA having previously been in investment banking. He has subsequently held a variety of commercial and management positions, including head of Business Evaluation and president of Rio Tinto Brasil.
External appointments (current and recent):
Non executive director and member of the Audit committee of Cadbury Schweppes plc, since 2007

EXECUTIVE DIRECTOR

Dick EvansBS (Industrial Engineering) (Oregon State University), MS Management (Stanford Graduate School of Business), age 60
Appointments and election:Director of Rio Tinto plc and Rio Tinto Limited effective 25 October 2007. Dick will stand for election by shareholders at the recruitment stage.2008 annual general meetings.
Skills and experience:Dick Evans joined Rio Tinto following the acquisition of Alcan Inc where he had held several senior management positions including executive vice president and had been president and chief executive officer of Alcan from 2006 to 2007. Prior to Alcan, he has held senior management positions with Kaiser Aluminum & Chemical Corporation.
External appointments (current and recent):
Director of AbitibiBowater Inc. since 2003
Director of the International Aluminium Institute since 2001

NON EXECUTIVE DIRECTORS

Sir David ClementiMA, MBA, FCA, age 59
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, b and e).
Skills and experience:
Sir David is chairman of Prudential plc, prior to which he was Deputy Governor of the Bank of England. 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 between 2003 and 2007

Any reflections on your handover to Tom Albanese?
Vivienne Cox
I am fortunate to have worked forMA (Oxon), MBA (INSEAD), age 48
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2005. Vivienne was elected by shareholders in 2005 and stands for almost 37 years. Itre-election in 2008. (notes a and e).
Skills and experience:
Vivienne is currently executive vice president of BP p.l.c. for Alternative Energy. She is a 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 given meworked in chemicals, exploration, finance, and refining and marketing.

External appointments (current and recent):
Director of Eurotunnel plc between 2002 and 2004

Sir Rod EddingtonB Eng, M Eng (University of Western Australia), D Phil (Oxon), age 58
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2005. Sir Rod was elected by shareholders in 2006 (notes c, d and e).
Skills and experience:Sir Rod was chief executive of British Airways Plc until the end of September 2005. Prior to his role 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.

Rio Tinto 2007 Form 20-F115

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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 2006
Director of CLP Holdings since 2006
Director of Allco Finance Group Limited since 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 2006

Michael FitzpatrickB Eng (University of Western Australia), BA (Oxon), age 55
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2006. Michael was elected by shareholders in 2007 (notes a, diverseb and interestinge).
Skills and experience:
Michael sold his interest in, and ceased to be a director of, Hastings Funds Management Ltd during 2006, 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 chairman of the Australian Football League, having previously played the game professionally, and is a former chairman of the Australian Sports Commission.

External appointments (current and recent):
Chairman of the Victorian Funds Management Corporation since 2006
Chairman of Treasury Group Limited since 2005
Managing director of Hastings Funds Management Ltd from 1994 to 2006
Director of Pacific Hydro Limited from 1996 to 2004
Director of Australian Infrastructure Fund Limited from 1994 to 2005
Director of the Walter & Eliza Hall Institute of Medical Research since 2001

Yves FortierCC, OQ, QC, LLD, Av Em, age 72
Appointments and election:Director of Rio Tinto plc and Rio Tinto Limited effective 25 October 2007. Yves will stand for election at the 2008 annual general meetings (notes c, d and e).
Skills and experience:
Yves Fortier was Ambassador and Permanent Representative of Canada to the United Nations from 1988 to 1992. He is chairman and a senior partner of the law firm Ogilvy Renault and was chairman of Alcan from 2002 until 2007.
External appointments (current and recent):

Chairman of Ogilvy Renault since 1992
Chairman and director of Alcan Inc. from 2002 until 2007
Director of NOVA Chemicals Corporation since 1998
Governor of Hudson’s Bay Company from 1998 to 2006
Director of Royal Bank of Canada from 1992 to 2005
Director of Novtel corporation from 1992 to 2005

Trustee of the International Accounting Standards Committee from 2000 to 2006

Richard GoodmansonMBA, BEc and BCom, B Eng (Civil), age 60
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2004. He was elected by shareholders in 2005 and stands for re-election in 2008. Richard is chairman of the Committee on social and environmental accountability (notes b, d and e).
Skills and experience:Richard is executive vice president and chief operating officer of DuPont. During his career duringwhich I have methe has worked at senior levels for McKinsey & Co, PepsiCo and worked with many different people who form this great team that is Rio Tinto. In Tom Albanese we haveAmerica West Airlines, where he was president and CEO. He joined DuPont in early 1999 and in his current position has responsibility for a very able, experiencednumber of the global functions, 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 menon 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 2006 (director since 2002)
Director of the Boise Cascade Corporation between 2000 and 2004

Andrew GouldBA, FCA, age 61
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, b and e).
Skills and experience:Andrew is chairman and chief executive officer of Schlumberger Limited, where he has held a succession of financial and operational management positions, 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):

Rio Tinto 2007 Form 20-F116

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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 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 2007

Lord Kerr of KinlochardGCMG, MA, age 66
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2003. He was re-elected by shareholders in 2007 (notes a, d and e).
Skills and experience:
An Oxford graduate, Lord Kerr was in the many roles over my career.UK Diplomatic Service for 36 years and headed it from 1997 to 2002 as Permanent Under Secretary at the Foreign Office. On a secondment to the UK Treasury he was principal private secretary to two Chancellors of the Exchequer. 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 an independent 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 Scottish American Investment Trust plc since 2002
Advisory Board member, Scottish Power (Iberdrola) since 2007

Director of The “Shell” Transport and Trading Company plc from 2002 to 2005
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

David Mayhewage 67
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2000. He was last re-elected by shareholders in 2006 (note c).
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 the partner 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 Richard SykesBSc (Microbiology), PhD (Microbial Biochemistry), DSc, Kt, FRS, FMedSci, age 65
Appointment and election:
Director of Rio Tinto plc and Rio Tinto Limited since 1997. Sir Richard was appointed the senior non executive director in 2005 and is chairman of the Remuneration committee. Sir Richard was re-elected for a further one year term of office in 2007 and will retire at the conclusion of 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 Eurasian Natural Resources Corporation plc since 2007
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 from 2006 to 2007
Director of Bio*One Capital Pte Ltd since 2003
Rector of Imperial College London since 2001
Chairman of GlaxoSmithKline plc between 2000 and 2002

Trustee of the Natural History Museum, London between 1996 and 2005 and of the Royal Botanic Gardens, Kew between 2003 and 2005

Paul Tellierage 68
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited effective October 2007. Paul will stand for election at the 2008 annual general meetings (notes a, b and e).
Skills and Experience:Paul was Clerk of the Privy Council Office and Secretary to the Cabinet of the Government of Canada from 1985 to 1992 and was president and chief executive officer of the Canadian National Railway Company

Rio Tinto 2007 Form 20-F117

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from 1992 to 2002. Until 2004, he was president and chief executive officer of Bombardier Inc.
External appointments (Current and recent):
Director of Bell Canada since 1996. Director of BCE Inc since 1999.
Member of the Advisory Board of General Motors of Canada since 2005.
Trustee, International Accounting Standards Foundation since 2007.
Co-chair of the Prime Minister of Canada’s Advisory Committee on the Renewal of the Public Service since 2006.
President and Chief Executive Officer of Bombardier Inc. from 2003 to 2004. Non executive Director of Alcan Inc. from 1998 to 2007.
Director of McCain Foods since 1996.

Notes
(a)Audit committee
(Sir David Clementi, Vivienne Cox, Michael Fitzpatrick, Andrew Gould, Lord Kerr and Paul Tellier)
(b)Remuneration committee
(Sir David Clementi, Michael Fitzpatrick, Richard Goodmanson, Andrew Gould, Sir Richard Sykes and Paul Tellier)
(c)Nominations committee
(Sir Rod Eddington, Yves Fortier, David Mayhew, Paul Skinner and Sir Richard Sykes)
(d)Committee on social and environmental accountability
(Sir Rod Eddington, Yves Fortier, Richard Goodmanson and Lord Kerr)
(e)Independent
(Sir David Clementi, Vivienne Cox, Sir Rod Eddington, Michael Fitzpatrick, Yves Fortier, Richard Goodmanson, Andrew Gould, Lord Kerr, Sir Richard Sykes and Paul Tellier)

DIRECTORS WHO LEFT THE GROUP DURING 2007

Leigh CliffordRio Tinto Coal Australia Clermont Chief executive(Rio Tinto: 50.1 per cent)
23 FebruaryRio 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 will be brought into production to replace Blair Athol, due to close in 2015, and will use Blair Athols’ existing infrastructure and market position. To date construction has progressed to plan with boxcut production to commence in mid 2008 and first coal production expected in 2010.

Rio Tinto Coal Australia Kestrel(Rio Tinto: 80 per cent)
Rio Tinto and its joint venture partners approved investment of US$991 million for the extension of the Kestrel mine. This represents a 20 year investment in the Bowen Basin of Queensland to help meet Asian demand for metallurgical coal. First coal production from the extension is forecast for 2012 when the existing mine ceases production.

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 coal mine near Muswellbrook in the Hunter Valley, New South Wales. With continued uncertainty surrounding coal chain infrastructure in the Hunter Valley, further study is required before the feasibility study can be finalised.

Coal & Allied Lower Hunter Land(Rio Tinto: 75.7 per cent)
In 2006 Coal and Allied signed a memorandum of understanding with the New South Wales Government to facilitate the provision of extensive land conservation corridors in the Lower Hunter via the transfer of 80 per cent of the Company’s post mining land holdings. The remaining 20 per cent is being considered for land development. Extensive community consultation continued through 2007 with various options considered. Feasibility studies will be conducted in 2008 to finalise these options.

Rio Tinto Energy America(Rio Tinto: 100 per cent)
During 2007 RTEA commenced construction of the Jacobs Ranch overland conveyor and in pit crusher project. This will reduce emissions and operating costs in addition to providing latent capacity for expansion (from around 38 million tonnes to around 45 million tonnes per annum). Commissioning is on schedule for completion in 2008. At Antelope and Spring Creek recent expansion projects were completed in 2007 and production is ramping up to meet market demand.

 

Rio Tinto 2006 2007 Form 20-F3886

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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.group

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.

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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 Rio Tinto share  
million tonnes million tonnes  


 
 
200291.0 
2003102.6 102.6 
2004107.8 107.8 
2005124.5 124.5 
2006132.8 132.8 

 
2007 144.7 
  
 
Underlying earnings contribution*US$m US$m 


 
 
2004565 565 
20051,722 1,703 
20062,279 2,251 
2007 2,651 


 
 
  
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)
Changes in underlying earnings 2005 – 2007 US$m 


 
 
2005 Underlying earnings1,722 1,703 
Effect of changes in:  
Prices and exchange rates616 616 
General inflation(25)(25
Volumes156 156 
Costs(220)(229
Tax and other30 30 


 
 
2006 Underlying earnings2,279 2,251 
Effect of changes in:  
Prices and exchange rates 537 
General inflation (43
Volumes 136 
Costs (255
Tax and other 25 


 
 
2007 Underlying earnings 2,651 


 
*A reconciliation of the net earnings with underlying earnings for 2004,2007, 2006 and 2005 and 2006 as determined under EU IFRS is set out on page 3953.

STRATEGIC OVERVIEW

Rio Tinto’s Iron Ore group (RTIO) comprisesconforms with the larger Group’s overall strategy of pursuing the world’s best natural resources, wherever they are located, using the best technologies, and operating them safely. RTIO seeks to do this by being faster and better at producing iron ore, supported by an unmatched capacity and capability to develop key infrastructure.
     RTIO is geographically well placed to take advantage of the exceptionally strong market conditions and outlook in Asia, with a massive mineralisation inventory base close to an integrated production platform in the Pilbara of Western Australia. This enables a rapid expansion of production in the short and medium term. RTIO’s large mineralisation position in Australia and Guinea, west Africa, together with an established project execution capability, provides potential for a global iron ore production capacity of more than 600 million tonnes per annum.
     As new competitors and constraints emerge, RTIO’s strategy to meet the industry challenges is focused on achieving “industry leadership” in global iron ore. The strategy is centred on rapidly expanding the business, both globally and in the Pilbara, and delivering maximum value from RTIO’s operations inby developing a world class production platform.
RTIO’s portfolio of operations is international, including Australia, Canada and Brazil, anda major development projectsproject in Guinea (west Africa)at Simandou, and the Orissa project in India. The portfolioIt also includes a HIsmelt®the HIsmelt® plant in Australia, which is aapplies revolutionary process that convertstechnology to convert iron ore fines with significant impurities into high quality pig iron.
      RTIO Asia was established in Singapore in November 2007 to provide an integrated sales, marketing, distribution and logistics service for Hamersley Iron products in the Asia Pacific. It aims to maximise Hamersley’s share of forecast growth in the region.
At 31 December 2006,2007, the iron oreIron Ore group accounted for 3213 per cent of Rio Tinto’s operating assets, and in 2006
2007 contributed 2726 per cent of the Group’s gross sales revenue and 3136 per cent of underlying earnings.
      At year end 2007 RTIO employs 4,800employed 6,520 people in Western Australia and approximately 7,0008,630 worldwide. RTIO recruited strongly during the year and inIn a highly contested market, the recruitment market in Western Australia hired 1,400effort was exceptional, with 1,951 new starters in addition2007.

Environmental initiatives included development of a strategic approach to making a large numberwater for the Pilbara, to ensure long term security of internal transfers, secondmentssupply at the ports and promotions.in the management of dewatering discharge associated with the increasing requirement for below water table mining across the Pilbara, and recognising the importance of this issue for traditional

Rio Tinto 2007 Form 20-F87

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land owners of the region.
     A major milestone was reached with the completion of the Phase B upgrade of the port of Dampier, now ramping up towards its new capacity of 140 million tonnes per annum (Mt/a). Work progressed on a number of safety and environmental initiatives, and particularly focusedhas commenced on the issues surrounding contractor managementCape Lambert upgrade to 80 Mt/a from 55 Mt/a, which is expected to be completed in early 2009. Two new mines were approved for development – Brockman 4 (22 Mt/a) and Mesa A/Warramboo (25 Mt/a) – at a combined total cost of US$2.4 billion, of which Rio Tinto’s share is US$2.0 billion. Both mines will replace tonnages from deposits nearing the end of their mine life.
      Rio Tinto’s 50:50 joint venture with Hancock Prospecting is progressing well. In November, Hope Downs 1 (22 Mt/a), began production – a full quarter ahead of schedule, and the operationstage 2 expansion to 30 Mt/a has been brought forward one year, with production planned to commence at the start of heavy mobile equipment.
Final steps were taken2009. In December approval was given for a US$71.4 million feasibility study into the next stagedevelopment of the group’s expansion, with infrastructure now in place or approved to handle up to 220 million tonnes of iron ore exports annually. Thea Hope Downs 4 mine (15-20 Mt/a).
      RTIO’s growth strategy has seen approximatelymore than US$57 billion committed to port, rail, power and mine assets since 2003, resulting in a world class, integrated iron ore network
ablenetwork. A feasibility study into expanding Pilbara capacity to 320 Mt/a by 2012 is well advanced and a decision will be made in early 2009. Cape Lambert has been identified as the preferred site for port expansion.
      In late November 2007 Rio Tinto senior management outlined an aggressive expansion programme designed to capitalise on continued strong demand internationally.
In April 2006, RTIO’s 50:50 joint venture with Hancock Prospectingglobal spread of assets and markets. This included a conceptual framework towards establishing a Pilbara production capacity of 420 Mt/a and an expansion at Simandou in Guinea of up to 170 Mt/a.
      During the year, RTIO was inducted into the Australian Export Hall of Fame, was twice honoured at the Australian Business Arts Foundation awards and won a 2007 Water Award for the development of the Hope Downsits re-injection project was ratified following State Government approval. Construction of the US$980 million, 22 million tonnes perat Yandicoogina.

annum 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.

SAFETY

All injury frequency rateper 200,000 hours 


 
20032.19 
20041.79 
20051.48 
20061.24 
20070.92 


 

Iron Ore Company of Canada’s safety performance continued to improve in 2007 with a 59 per cent reduction in the lost time injury frequency rate to 0.29. The Corumbá mine in Brazil again won the Chief Executive’s Safety Award. Work progressed on a number of safety initiatives across operations, particularly focused on issues surrounding contractor management, vehicle safety and implementing proactive measures to prevent the risk of injury. Cyclone preparation measures in the Pilbara employee accommodations were reviewed, focusing on standardised safety measures. Overall, the group’s all injury frequency rate was 0.92 (1.24 in 2006) and the lost time injury frequency rate 0.38 (0.59) .

Financial performanceGREENHOUSE GAS EMISSIONS
The 2008–2009 greenhouse gas (GHG) plan notes an increased focus on energy reduction through the appointment of an energy specialist in late 2007 and the conduct of further energy reviews. A feasibility study is being conducted to examine the possible replacement of power stations to reduce GHG emissions and mitigate current potential environment risk.
A number of additional activities aimed at reducing energy use and GHG emissions are also under way including replacing heavy mobile equipment and locomotives. Dash 7 and Dash 8 locomotives are being replaced by new generation GE EVO locomotives. The RTIO technology group is also examining hybrid locos in collaboration with General Electric, liquid natural gas replacement for diesel trucks and locomotives, rail electrification, and closed cycle power generation for existing open cycle power units. Rio Tinto has approved new gas fired power generation in the Pilbara as a step towards lower emissions electricity.

2006FINANCIAL PERFORMANCE

2007 compared with 20052006
RTIO’s contribution to 20062007 underlying earnings was US$2,2792,651 million, US$557400 million higher than in 2005.2006.
      Demand for iron ore remained extremely strong across the product range throughout 2006,2007, driven by the continuing robust growth in global steel demand and production, significantly exceeding seaborne suppliers’ capacity to match. Total Chinese iron ore imports rose from 326 million tonnes to 383 million tonnes, accounting for more than 90 per cent of world growth. Hamersley Iron and Robe River in Australia operated at record or near record levels of

Rio Tinto 2007 Form 20-F88

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production in 2007.
     In December RTIO announced plans to sell up to 15 million tonnes of iron ore on the spot market in 2008, taking advantage of the large gap between annual (benchmark) and short term prices while continuing to meet longer term contractual commitments.

2006 compared with 2005
RTIO’s contribution to 2006 underlying earnings was US$2,251 million, US$548 million higher than in 2005.
      Demand for iron ore continued to be extremely strong across the product range throughout 2006, driven by continued 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 of19of 19 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.Similarprice. 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.

OperationsOPERATIONS

Hamersley Iron(Rio Tinto: 100 per cent)
Hamersley Iron operates eightnine mines in Western Australia, including twothree mines in joint ventures, 630about 700 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 firstfinal phase of major expansions to thein ramping up Pilbara infrastructure (including expanding Dampier port to 116220 million tonnes per annum and Yandicoogina mine to 36 million tonnes per annum, and brownfields mine expansion) is now fully operational and the second phaseof annual capacity is well under wayway. Dampier port’s two terminals now account for a combined capacity of 140 Mt/a. With the completion of Junction South East, Yandicoogina mine capacity has been expanded to 52 Mt/a, and tracking onbrownfield mine expansions at Marandoo, Nammuldi and Mount Tom Price have been completed.
      The new Hope Downs mine, owned in 50:50 joint venture with Hope Downs Iron Ore Pty Ltd (owned by Hancock Prospecting Pty Ltd), but managed by RTIO, began production in November, a full quarter ahead of schedule, and on budget.the first train was loaded in mid December.
      Approval was granted for the US$1.52 billion Brockman 4 mine, 60 kilometres north west of Tom Price, which is expected to begin ramp up in 2010 to 22 Mt/a. The Marandoo mine was expandedwill be connected to the main network via a 35 kilometre rail spur, and the design allows for an additional 14 Mt/a expansion.
Work is progressing on a number of options for new Nammuldi mine was completed in the second quarterdevelopment as part of the year.
Hamersley Iron’s Yandicoogina minefeasibility study to reach 320 Mt/a capacity. A decision 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 quarterexpected in 2007.early 2009. Work also continued on pre-development studies for new mines.

20062007 operating performance
Hamersley Iron’s total production in 20062007 was 97.2112.1 million tonnes, 7.614.9 million tonnes more than the 89.697.2 million tonnes in 2005, notwithstanding the volume of2006. This result was notable for being achieved amid significant expansion work under way across the business. Rio Tinto’s share of this production was 93.3 million tonnes.several sites.
      Flooding caused by a succession of fiveShutdowns and flooding from two cyclones early in the year hindered operations significantly. Production increases throughsignificantly, although tie down procedures performed well. Several derailments also impacted operations significantly, resulting in an estimated 1.39 million lost saleable ore tonnage. Remedial action was undertaken on high risk sections and a rerailing project was approved which will eventually see 45 per cent of the network replaced.
      Reinvestment in additional yard capacity, locomotives and rolling stock has been implemented to improve efficiency and remove bottleneck issues associated with limited rail capacity.
      The Pilbara Blend product was successfully introduced mid year, sought to recover fromwinning widespread customer acceptance and at 100 per cent of the early setbacks and meet increased capacity targets.reference price. Pilbara Blend will comprise 15 per cent of the world’s seaborne iron ore trade.
Shipments by Hamersley Iron totalled 98.1109.5 million tonnes, including sales through joint ventures. Hamersley Iron’s shipmentsShipments to China also reached a new record level at 52.959.6 million tonnes, securingconfirming China’s place as the single largest, and fastest growing, destination for Hamersley’s iron ore.

Hamersley’s total shipments of iron ore to major markets (million tonnes) 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.

 2007 2006 2005 






 
China59.6 52.9 49.5 
Japan30.0 27.4 24.5 
Other Asia18.3 15.8 14.1 
Europe0.7 2.0 2.0 






 
 108.5 98.1 90.1 






 
Note      
This table includes 100 per cent of all shipments through joint ventures.      

Rio Tinto 2007 Hamersley’s total shipments of iron ore to major markets in 2006Form 20-FMillion tonnes


China52.9
Japan27.4
Other Asia15.8
Europe2.0


Total98.1


Note89
This table includes 100 per cent of all shipments through joint ventures.

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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 haveretain 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.Theproducts. 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 areand Marra Mamba iron ore products. Preparations are under wayfor these products to contribute towhich were successfully incorporated into the Pilbara Blend fromduring the third quarter 2007, when RTIO’s product range will besimplified from nine products to five.year.
Expansion of mine, rail and port operations has continued. As a resultcontinued, with the upgrade 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 2006Form 20-F44

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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 tonnesMt/a to a rated capacity of 80 Mt/a proceeding on schedule. The port has also been nominated as the preferred site for subsequent expansion as part of the upgrade of Pilbara capacity to 320 Mt/a, subject to an ongoing feasibility study.
      In November, Rio Tinto and the joint venture partners approved development of the US$901 million tonnes
per annum was recently approved.(Rio Tinto share US$478 million) Mesa A/Warramboo mine in the western end of the Robe Valley. This isfollowed a significant project, comprising lengthy, ultimately successful, process to gain environmental approval. The new mine’s annual production will be 20 Mt/a, number of major initiatives, including increasing to 25 Mt/a new product reclaimerby 2011, and an extended wharf.will be replacement tonnage as Mesa J’s mine life approaches its end.
Robe River primarily exports under medium and long term supply contracts with major integrated steel millcustomersmill customers in Japan, China, Europe, South Korea and Taiwan.

20062007 operating performance
CyclonesThe effect of cyclones slowed production early in the year at Robe River’s Pannawonica and West Angelas mines, and hinderedoperations well intoas did a serious derailment which required significant track repairs. A two week shutdown of the second quarter.Cape Lambert dumper also affected production, as did delays in commissioning a conveyor system at West Angelas.
      Robe River’s total production in 20062007 was 52.951.5 million tonnes, comprising 29.325.5 million tonnes from Mesa J, and 23.726.0 million tonnes from West Angelas. Sales were 29.125.9 million tonnes of Mesa J and 23.325.6 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 18.552.0 million tonnes. However, Japan remains Robe River’s largest single market, with total shipments in 20062007 of 24.722.6 million tonnes.

A new mining strategy at West Angelas has resulted in an improved product, with less grade variation. This improved performance is expectedRobe’s total shipments of iron ore to continue through the transition to the Pilbara Blend.major markets (million tonnes)

Robe’s total shipments of iron ore to major markets in 2006Million tonnes


Japan24.7
China18.5
Europe6.1
Other Asia2.7


Total52.0


 2007 2006 2005 






 
China21.0 18.5 17.5 
Japan22.6 24.7 26.1 
Other Asia2.9 2.7 1.7 
Europe5.5 6.1 7.3 






 
 52.0 52.0 52.6 






 

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 anopenan open pit mine, concentrator and pellet plant at Labrador City, Newfoundland and Labrador, together with a 418
kilometre 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.les on the St Lawrence Seaway. The port is openice free all year and handles both ocean going ore carriers of up to 255,000 tonnes and providesLakers, providing 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 1,9002,000 people and recruited 250170 people during the year to offset an increase in retirements and to meet greater production needs.

20062007 operating performance
WhileThe demand for IOC’s products strengthened further in 2007 with concentrate prices continued to rise, showing a 17.3increasing by ten per cent increase, the pellet premium retreated from the record high of the previous year, resulting inand pellet prices softening by 3.5 per cent. Pellets account for 80five per cent of IOC’s production.over last year’s benchmark prices.
Total saleable production was 13.2 million tonnes, down from 16.1 million tonnes (compared with 15.6in 2006. The variation was primarily due to a seven week labour strike. Pellet production was 11.3 million tonnes (12.7 million tonnes in 2005) following astrong recovery from weather related production losses in the first quarter. The total was made up of 12.72006) with saleable concentrate being 1.9 million tonnesof pellet production (13.3 (3.4 million tonnes in 2005) and 3.4 million tonnes of saleable concentrate2006). Lower production (2.3 million tonnes in 2005).
Higherlevels coupled with higher oil prices and efforts to recover first quarter production losses put pressure on 2007 unit costs.
      A project toincreaselabour strike in March/April occurred when negotiations broke down over the new collective agreement to replace the one that expired in February 2007. The strike ended following agreement of a new five year collective agreement.
     In August, IOC announced the approval of US$57 million to expand annual concentrate production capacity to 17.5 million tonnes was largely completed18.4 Mt/a by the year end,mid-2008 and plans forto conduct a feasibility study to 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.expand to 21 Mt/a.

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 20062007 Form 20-F4590

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     In March 2008 IOC announced the approval of US$475 million to increase annual concentrate production by some 40 per cent, or seven Mt/a, to 25 Mt/a and annual pellet production by ten per cent, or 1.5 Mt/a, to 14.5 Mt/a over the next five years.

IOC’s total shipments of iron ore to major markets (million tonnes)

 2007 2006 2005 






 
Europe5.210 5.7 6.8 
Asia Pacific3.777 5.4 3.4 
North America4.155 4.8 4.8 






 
 13.142 15.9 15.0 






 

Mineração Corumbaense Reunida (Corumbá)(Rio Tinto: 100 per cent)
Corumbá produced a record two1.8 million tonnes of lump iron ore in 20062007 and sold 1.81.1 million tonnes which was bargedalong the Paraguay River for export to South American, Asian and European customers. Sales were lower in 2007 due to strong competition for barging freight, barge unloading delays at Argentine ports and abnormally low river levels during the last quarter.
     Rio Tinto approved investments in additional barging capacity, port improvements and an ore dryer to develop the market for Corumbá lump in direct reduction processes, all of which will come on line during 2008. The feasibility study to expand mine production and transport logistics to ten Mt/a is nearing completion, as the next step towards production 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 to20 Mt/a. Negotiations continued with prospective investors regarding a proposed steel making project at Corumbá, which is being promoted byRio Tinto. that would consume local iron ore.
     Corumbá has overmore than 200 million tonnes of reserves, and over 400 million tonnes of additional mineralisedmaterial.mineralisation. There are approximately 500650 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 centinterestcent interest through its subsidiary, HIsmelt®Corporation), US steelmaker Nucor Corporation (25 per cent), Mitsubishi Corporation (10(ten per cent), and Chinese steelmaker Shougang Corporation (five per cent). The project has so farreceived supportproduced 115,000 tonnes 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 useand achieved a number 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 firstproduction records in 2007, its second year of a three-year ramp up to its full production rateas it builds towards a planned capacity of 800,000 tonnes per annum. Since start up,The project was visited by Chinese president Hu Jintao in September 2007.

IRON ORE GROUP PROJECTS

Hamersley Iron(Rio Tinto: 100 per cent)

Upgrade to 220 Mt/a
RTIO is on schedule to have 220 Mt/a installed capacity in the facility has produced 98,000 tonnesPilbara by the end of pig iron and has made three shipments2008, achieving a doubling of
product.
HIsmelt®has approximately 130 employees.
In 2006 capacity since the HIsmelt®facility hosted visits from senior representativesbeginning of the Chinese government,decade. The second stage of the Pilbara Expansion is well advanced with a further upgrade of Dampier Port, Yandicoogina mine expansion and Hope Downs stage 1 development now completed. The initial upgrade of Cape Lambert Port will complete the major infrastructure upgrades for this phase. Additional mine capacity at Hope Downs stage 2 to 30 Mt/a will match the capacities of mine, rail and port facilities at 220 Mt/a.

Pilbara 320/420 Mt/a
A suite of mine and infrastructure projects for the expansion of Pilbara capacity to 320 Mt/a is under study. The studies include a variety of greenfield and brownfield mine options across the Pilbara, expansions to both rail and port and supporting infrastructure, designed to bring the Pilbara capacity firstly to 320 Mt/a and then 420 Mt/a. The studies also contemplate the use of new technologies including a Perth based Remote Operations Centre, and a range of automation options. Underlying this work is an aggressive resource evaluation and definition programme, designed to ensure that the available mineralisation is delineated and developed with optimal sequencing and timing. More than 400,000 metres of exploration drilling was completed during 2007 and a further 500,000 metres is planned for 2008.

Robe River Iron Associates(Rio Tinto: 53 per cent)

Mesa A
The US$901 million Mesa A/Waramboo mine development is required to sustain production of Robe Valley pisolite, which would otherwise decline with the run down of the Mesa J mineralisation. Pending finalisation of plans for the proposed rail spur to the existing line, transition work will begin shortly. Production at Mesa A is expected to commence in the first quarter of 2010, starting at 20 Mt/a, increasing to a 25 Mt/a rate from 2011.

Cape Lambert port
The first upgrade of Cape Lambert (from 55 Mt/a to 80 Mt/a) is well under way. A construction camp for 600 people has been established, and works are continuing according to plan with marine piling and bulk earthworks well

Rio Tinto 2007 Form 20-F91

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advanced. The project scope includes extension of the wharf and upgrading of shiploading facilities to accommodate four capsize vessels simultaneously as well as asignificant numberupgrades to the stockyard with the addition of international steel companies. HIsmelt®Corporation continues to promotea new reclaimer. The project is scheduled for completion at the technology globallyand expects interest to increase as theend of 2008 with progressive ramp up phase progresses. In November, Australian stateduring the first half of 2009.

The 320/420 project
Cape Lambert is also the preferred site for expansion of Pilbara port facilities to 320 Mt/a, and federal ministers attended conceptually to 420 Mt/a. Under the early planning for the 320 Mt/a, special ceremony at Kwinanathis would involve construction of a new terminal (Cape Lambert West) capable of berthing four capsize ships. That terminal would be extended to recogniseaccommodate a further four berths according to the opening420 Mt/a concept. Early planning has also identified the area to the west of the world’s first commercial HIsmelt
®plant.existing rail line for both stockpiles under both 320 and 420 Mt/a upgrade scenarios. This expansion plan carries the added benefit of not adding to Rio Tinto’s footprint in the area.

Simandou(Rio Tinto: 95 per cent)
The Simandou project in eastern Guinea, west Africa, is of great strategic significance for Rio Tinto. It is a greenfield discovery situated in one of the best undeveloped major iron ore provinces in the world. A prefeasibility study is studying the mining and transport options needed to bring Simandou into production as quickly as possible, with an initial capacity of 70 million tonnes per annum. The deposit has great potential in exploration opportunities across the project area. Total drilling of 50,000 metres was undertaken at the Pic de Fon and Oueleba sites in 2007, with an equivalent amount expected in 2008. Simandou has significant brownfield growth capacity, and conceptual development plans are already under way on expanding capacity towards 170 million tonnes per annum. These studies are scheduled for completion in 2010.
     The International Finance Corporation (the private sector arm of the World Bank Group) retains a five per cent stake in the project and is working with Rio Tinto to develop it in an environmentally and socially sustainable way.
     The project currently employs 375 Rio Tinto staff operating from offices in Conakry and Kerouane, and construction camps at Canga East and Oueleba in the Mining Concession. The total workforce, including contractors, is greater than 700.

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 withthewith the state owned Orissa Mining Corporation. The joint venture holds rights to iron ore leases in Orissa, which it is seeking to develop. Although progress has been slow, Rio Tinto isremains 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.
     Rio Tinto has identified India as among the most likely economies to follow east Asia’s development of a greater intensity of steel use. India’s economy is expected to maintain its present growth sorate, thus providing support for an expanding domestic steel industry, andindustry. Rio Tinto has continued 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 exchange rates483
             General inflation(41)
             Volumes8
             Costs(140)
             Tax and other(8)


2005 Underlying earnings733
Effect of changes in:
             Prices and exchange rates199
             General inflation(50)
             Volumes(13)
             Costs(209)
             Tax and other51


2006 Underlying earnings711


*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 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 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 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 electrical
or 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 2005
result 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 in
2006.
     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 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 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 extensive
exploration and development programme to identify new reserves and increase the mine life of existing reserves.

Rio Tinto 2006 Form 20-F4992

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ProjectsOther operations

Rössing UraniumKennecott Land(Rio Tinto: 68.6100 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 approximately 20,000 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 1,650 home sales completed since opening in June 2004. At full build out, the community will house 40,000 to 50,000 residents. Revenues in 2007 were US$48 million.
     Kennecott Land is in the process of studying development opportunities for the remaining landholdings. Development potential is approximately 163,000 residential units and 58 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 few years.

Sari Gunay(Rio Tinto: 70 per cent)
In November 2007, Rio Tinto signed a final and binding sale agreement to divest the whole of its interest in the Sari Gunay gold project in western Iran. On the completion of this transaction, which is expected in mid 2008, Rio Tinto intends to close its office in Iran and will cease to have any interests in Iran.

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.
     Rio Tinto has numerous marketing channels, which include electronic marketplaces, with differing characteristics 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 and long 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.
     In 2007, Rio Tinto continued to focus on improvements in its marketing capability, with a small central marketing team based in London and Australia working collaboratively with business based sales and marketing teams to disseminate leading marketing practices across the Group. The team supports the Group’s businesses by helping to identify analytical tools, approaches and strategic frameworks to help identify the value to Rio Tinto of meeting customers’ needs.

MARINE

Ocean freight
Ocean freight is an important part of Rio Tinto’s marketing. It is managed by Rio Tinto Marine, with a head office in Melbourne, to provide Rio Tinto with a comprehensive capability in all aspects of marine transportation, global freight markets and the international regulatory environment. In 2007, Rio Tinto Marine handled over 78 million tonnes of dry bulk cargo, a 13 per cent increase on 2006 volumes transported.
     Rio Tinto Marine leverages the Group’s substantial cargo base to obtain a low cost mix of short, medium and long term freight cover. It seeks to create value by improving the competitive position of the Group’s products through freight optimisation, and does not seek to trade freight as a stand alone activity. Rio Tinto Marine sets and maintains the Group’s HSE and vessel assurance standards for freight and is one of three equal shareholders in Rightship, a ship vetting specialist, promoting safety and efficiency in the global maritime industry.
     During 2007 Rio Tinto Marine took possession of the first of five new bulk carriers, the RTM Wakmatha. These vessels will be used principally for carrying bauxite from Rio Tinto Alcan’s mine at Weipa, Queensland, to Gladstone for processing. In addition, an order has been placed for the construction of three 250,000 deadweight tonne ore carriers to transport iron ore from Rio Tinto’s operations in Western Australia to customers in China and elsewhere. These ore carriers will be delivered from late 2012 to help Rio Tinto build on its natural freight advantage in Asian exports.

Freight market
Sea freight rates reached unprecedented levels in all segments during 2007. Strong demand for commodities, combined with supply constraints and port congestion, resulted in increased long haul trade and reduced fleet availability.

Rio Tinto 2007 Form 20-F93

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The Baltic Dry Index (BDI), an index of dry bulk shipping rates, more than doubled in 2007, increasing 110 per cent during the year. The Capesize vessel segment had the greatest upward impact on the BDI, with average daily freight prices increasing by 132 per cent during 2007, closing at US$157,128 per day with a November peak at US$194,115 per day. The Panamax, Supramax and Handysize indices also increased substantially, each registering gains of 93 to 95 per cent during 2007.
With spot markets at record highs, charterers turned to the period market to cover cargoes, pushing timecharter rates higher and increasing opportunistic re-let activity. Shipyard order books swelled in the second and third quarters of 2007, resulting in a large tranche of new vessel capacity for delivery from late 2009 through 2011. Long lead times for new vessels has seen large premiums paid for second hand vessels in all segments.

Rio Tinto 2007 Form 20-F94

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Exploration group

STRATEGIC OVERVIEW

The purpose of exploration is to increase the value of the Group by discovering or acquiring resources that can augment future cash flows.
     Adding value to a Group the size of Rio Tinto effectively means that exploration programmes must regularly return what others might call “company maker” discoveries. These are the largest and highest quality mineral deposits that the natural world has to offer, called Tier 1 resources.
      Exploration involves the identification, prioritisation and testing of geological targets. As less than 0.1 per cent of targets will actually deliver a discovery, a continuous flow of opportunities is required. Exploration success in Rio Tinto is defined as the discovery of a deposit that warrants detailed economic evaluation. Handover of the deposit to a product group evaluation team marks the end of the exploration phase.
      Greenfield exploration, which aims to establish new mineral businesses, involves geographic or commodity diversification away from existing Rio Tinto operations. Accountability for greenfield work lies with Rio Tinto Exploration (RTX).
     RTX is organised into regional multi-commodity teams. This gives the group local presence, an in depth understanding of the operating environment and a holistic view of geological terrains. At the same time, programmes are prioritised on a global basis so that only the best opportunities are pursued.
      There are currently five of these regional teams, which are supplemented by the Project Generation Group (PGG). PGG provides specialist commercial, technical and generative assistance and also co-ordinates all RTX research and development activities.
     At the end of 2007, RTX was actively exploring in 30 countries and assessing opportunities in a further 20 for a broad range of commodities including bauxite, copper, coking coal, iron ore, industrial minerals, diamonds, nickel and uranium. RTX employs about 250 geoscientists around the world and has a total complement of approximately 950 people.
     Brownfield exploration is directed at sustaining or expanding the value of existing Rio Tinto business units. Given that resources are the lifeblood of every mining operation, this is an essential business activity. Accountability for brownfield programmes lies with the business units, with RTX providing technical assistance.
      The brownfield environment provides the easiest opportunity for creating value through exploration. The reasons for this are clear – Rio Tinto controls highly prospective title around its existing operations and infrastructure, and economic thresholds are lower than in a greenfield setting. Moreover, Tier 1 resources – the giants of the mineral deposit world – tend to be found in clusters.

SAFETY

All injury frequency rate per 200,000 hours


20031.30
20040.95
20050.55
20060.88
20071.10



2007 OPERATING PERFORMANCE

Two greenfield discoveries, the Chapudi thermal coal deposit in South Africa and the Kintyre uranium deposit in Western Australia, were transferred from RTX to product group evaluation teams. Kintyre is now being offered for sale. One Tier 1 brownfield discovery, the Caliwingina North channel iron deposit, was transferred to Pilbara Iron.
      Order of magnitude studies continued at the Bunder project (diamonds, India) and commenced at the Chilubane and Mutamba (ilmenite, Mozambique), Jarandol and Jadar (borates, Serbia) deposits. All are scheduled for completion in early to mid 2008. Negotiations continued with the Government of Indonesia on the Contract of Work for the Sulawesi nickel project.

     Significant progress at early stage RTX projects in Australia (zircon), Brazil (bauxite), Canada (potash), Colombia (bauxite) and the US (nickel) is expected to lead to commencement of new order of magnitude studies in the second half of 2008. Several other projects are showing early signs of encouragement and could be fast tracked into this stage.
     Exploration by the La Granja (Peru) evaluation team returned significant encouragement with the discovery of four new bodies of porphyry copper mineralisation. At the Bingham Canyon (US) copper mine, a substantial molybdenum deposit was identified located beneath the copper orebody. Adding to this discovery, which is still being delineated by deep drilling, was the recognition of new porphyry copper mineralisation beneath the southern pit wall. These two new zones of mineralisation point to further discovery potential.

Rio Tinto 2007 Form 20-F95

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     On Freeport Block A in West Papua (Indonesia), drilling encountered a new zone of copper-gold skarn mineralisation at the Gap target located between the Grasberg and Ertsberg intrusions. Delineation drilling will be conducted from an exploration drift in 2008.
     On the Heruga concession of Entrée Gold near Oyu Tolgoi (Mongolia), operator Ivanhoe Mines announced discovery of the Heruga porphyry copper-gold deposit. Drill intersections included 454 metres at 0.50 per cent copper, 1.43 grams per tonne of gold, and 0.02 per cent molybdenum.
     Near the Eagle deposit (US), drilling by the evaluation team intersected high grade nickel-copper sulphide mineralisation at three satellite prospects. Delineation drilling is planned for 2008.
     At Energy Resources of Australia, the exploration and evaluation programme focused on infill drilling to support the previously announced mine extension, as well as the prefeasibility study into a further mine expansion. In 2008, attention will return to defining the Ranger 3 Deeps deposit.

FINANCIAL PERFORMANCE

2007 compared with 2006
“Exploration” expenditures reported by Rio Tinto include exploration and evaluation spends in both the greenfield and brownfield environments. Expenditure on brownfield projects reported separately in thisAnnual reportby each of the Rio Tinto product groups is included in this summary.
Net cash expenditure on exploration in 2007 was US$576 million, an increase of US$231 million over 2006. This primarily reflects the large number of high quality projects in the exploration and evaluation pipeline, net of US$197 million cash proceeds from the sale of the Peñasquito royalty, shares in Anatolia Minerals, the Southdown iron ore deposit and various other interests during 2007. The pre-tax charge to underlying earnings of US$321 million is net of US$253 million of total proceeds from the divestments mentioned above.

2006 compared with 2005
Net cash expenditure on exploration in 2006 was US$345 million, a US$81 million increase over 2005, reflecting an increase in the number of high quality projects in the exploration and evaluation pipeline, net of US$23 million cash proceeds from the sale of various interests, including Ashton Canada shares. The pre tax charge to underlying earnings in 2006 was US$237 million net of US$46 million of total proceeds from divestments.

Discoveries(Projects transferred to product group evaluation teams)
YearTier 1 discoveriesTier 2 discoveries



2000Potasio Rio Colorado (potash)Kazan (trona)
2001
2002Resolution (copper)
2003Sari Gunay (gold)
2004Simandou (iron ore)Eagle (nickel)
2005La Granja (copper)Rio Grande (borates)
Caliwingina (iron ore)four Pilbara deposits (iron ore)
2006
2007Caliwingina North (iron ore)Chapudi (coal)
Kintyre (uranium)



Notes
Tier 1discoveries: Large, high quality deposits — the 20 per cent of deposits contributing 80 per cent of global production.
Tier 2 discoveries: Smaller or lower quality deposits — the 80 per cent of deposits contributing 20 per cent of global production.

Rio Tinto 2007 Form 20-F96

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Technology and Innovation group

The Technology and Innovation group (T&I) had its origin in the combination of the Operational and Technical Excellence (OTX) organisation and the Group’sImproving performance togetherbusiness improvement work in the areas of mining, processing, asset management and strategic production planning.
T&I’s focus is to be a partner in value delivery with Rio Tinto businesses by:

supporting implementation of leading practice and high value projects;
developing and implementing strategic innovation technologies; and
evaluating the technical risk of major capital and growth projects.

The group comprises a core team of technology professionals and a number of technology centres that develop leading practice and drive sustainable improvement in the areas of health, safety and environment (HSE), mining, processing, asset management, strategic production planning, and project development and evaluation. Key elements are common and visible measures of operational effectiveness, the improvement of analytical tools and enhanced functional development of staff capability.
      A further centre focuses on step change innovation to confer competitive advantage in development of orebodies likely to be available to Rio Tinto in the future.
     The total staff in T&I at year end was 387, compared with 368 at year end 2006. The increase was due to the higher level of growth activity characterising the resource sector.

2007 OPERATING PERFORMANCE

Health, Safety and Environment
The HSE Centre ensures that strategies and standards are in place to minimise HSE risk and drive performance. Activities support their implementation in the businesses and report results and performance trends to the board.
      Specific activities during 2007 included embedding the environmental standards and metrics within business units, to complement the health and safety standards. The safety strategy was reviewed to concentrate on safety leadership, culture and measurement, and recognition of performance. This places Rio Tinto as an industry leader in terms of performance in these areas. Implementing the product stewardship strategy via business systems has benefited market access and competitive advantage. Continued development of the HSEQ management systems and the integration of the Alcan business were also priorities for HSE.

Innovation
The Innovation Centre is designed to drive step change innovation for Rio Tinto in the five to ten year time frame. The relevant technologies are in mining, processing and energy.
The activities in 2007 continued to focus on the block cave mining method of particular relevance to the large copper orebodies currently under development, remote monitoring in underground mining, in pit material sizing and conveying, data fusion in surface mining, process advances in ore sorting and comminution and modelling of heap leaching processes to enhance metal extraction.
      A significant commitment by Rio Tinto to automation has culminated in a strategic partnership with the Australian Centre for Field Robotics (ACFR) at the University of Sydney. This exclusive partnership leverages an early mover advantage with Komatsu on driverless haul trucks and is a natural extension of other activity which is expected to see the first fully integrated, autonomous mine in operation in the Pilbara in 2010.

Mining
The Mining Technology Centre addresses the core mine production processes. Specific activities in this area during 2007 focused on continuing to establish and disseminate leading practice in orebody knowledge, payload management in surface mining and reconciliation processes across the operations. Attention was also given to further improving Rio Tinto’s technical capability in rapid underground development and block cave design.

Processing
The Processing Technology Centre focuses on core metallurgical capability and delivery of processing operations. Specific activities in this area during 2007 focused on the implementation of a structured methodology designed to identify specific points of loss (throughput, recovery, and grade), understanding underlying causes behind the losses, and the development of projects to reduce or eliminate those losses across the Group’s processing operations. A key enabling activity around the use of Processing Global Metrics for fixed plants was introduced.

Asset Management
The Asset Management Centre focuses on the effective choice and deployment of the Group’s asset base in mining and processing. Activities in 2007 focused on the continued reliability and performance of physical assets across the Group, including the implementation of standards and internal “league tables” for maintenance of heavy mobile equipment

Rio Tinto 2007 Form 20-F97

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such as trucks and shovels. This led to continued significant improvement in areas such as tyre life (a further five per cent added to the success of previous years), truck utilisation and economic extension of engine and component life. The centre also extended the range of its influence in 2007 to the reliability and performance of fixed plant assets across the Group.

Strategic Production Planning
The Strategic Production Planning Centre focuses mainly on a Group wide methodology to ensure orebodies are developed in the optimum sequence for the generation of maximum value. Specific attention is directed to the enhancement of the functional skill of planning staff and to regular review of the life of mine plans for all the Group’s mining operations.

Project Development and Evaluation
The Project Development and Evaluation Centre is the proponent of standards and guidelines for all aspects of capital projects, from pre-feasibility through to execution and commissioning. This covers major projects as well as minor projects implemented within business units. It holds a body of expertise to ensure the lessons from previous project developments are a resource to the project directors for the next generation of development.
      Evaluation staff are deliberately excluded from involvement in the formulation of major investment proposals, and the Evaluation team provides independent review and advice on the adequacy of risk identification and mitigation at key points in the approvals process. The team is also responsible for overseeing reserve estimation corporate governance within the Group.

Energy and climate change
The Group Chief Scientist monitors emerging global technology trends and identifies opportunities which could significantly enhance the Group’s operations. Particular attention is given towards technologies with the potential for step change reductions in the Group’s energy and greenhouse gas footprint. The Group Chief Scientist also assists product groups in positioning new and existing operations for reduced energy consumption, greenhouse gas emissions and energy costs.

Production Technology Services
Production Technology Services is the core team of technology professionals deployed across five global offices who provide the breadth of experience and multi disciplinary approach to support existing business activity and pursuit of new, profitable growth. They are deployed at the request of business units and the technology centres within T&I. Their offices are in Melbourne, Brisbane, Perth, Salt Lake City and Montreal. In addition, some staff reside in London to be readily accessible to the UK headquarters.

FINANCIAL PERFORMANCE

2007 compared with 2006
The charge against net earnings for the T&I group was US$78 million, compared with US$50 million in 2006. The increase was due to the higher level of activity, reflected also by higher staff numbers, and the continued development and deployment of leading operational practice across the Group.

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.

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Financial review

Cash flow

2007 compared with 2006
Cash flow from operations, including dividends from equity accounted units, was a record US$12,569 million, 15 per cent higher than in 2006 due to the effect of higher earnings and favourable working capital movements.
      Tax paid for 2007 increased to US$3,421 million, US$622 million higher than for 2006 largely due to the delayed tax effect of the increased earnings in 2006 compared to 2005 and tax paid by Alcan. Net interest paid of US$489 million for 2007 was US$361million higher than 2006, arising mostly from Alcan acquisition debt arrangement costs and interest paid on the Alcan debt.
      The Group invested at record levels, in particular in expansion projects. Expenditure on property, plant and equipment and intangible assets was US$4,968 million in 2007, an increase of US$980 million over 2006. This included the completion of 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 expansion of the Yarwun alumina refinery, the A418 dike construction at the Diavik diamond mine and the Madagascar ilmenite mine. The Group’s ongoing and recently approved capital projects, which will impact future year’s cash flows are on pages 12 to 13.
      The net cash cost of acquisitions in 2007 was US$37,526 million, which was net of US$13 million related to disposals. Almost all of the acquisition cost related to Alcan. The acquisition was financed by US$38 billion of syndicated bank loans. Acquisitions less disposals were US$279 million in 2006 mainly relating to the acquisition of an initial stake in Ivanhoe Mines.
      Dividends paid in 2007 of US$1,507 million were US$1,066 million lower than dividends paid in 2006 which included a special dividend of US$1.5 billion. The share buy back programme was discontinued after the announcement of the Alcan acquisition on 12 July 2007: returns to shareholders from the on-market buy back of Rio Tinto plc shares in 2007 totalled US$1,611 million (net of US$13 million proceeds from the exercise of options), compared with US$2,339 million in 2006.

2006 compared with 2005
Cash flow from operations, including dividends from equity accounted units, was US$10,923 million, 36 per cent 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.
Expenditure on property, plant and equipment and intangible assets was US$3,988 million in 2006, an increase of US$1,434 million over 2005. 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 dike construction at the Diavik diamond mine, the Madagascar ilmenite mine and the capacity increases at Rio Tinto Energy America.
      Tax paid in 2006 increased to US$2,799 million, US$1,782 million higher than in 2005. The increase reflected 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 in Ivanhoe Mines. In 2005, there were net proceeds of disposal 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. These included 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 2006–2007 programme and US$95 million in January from the 2005–2006 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.

Balance sheet
Rio Tinto commissioned expert valuation consultants to advise on the fair values of Alcan’s assets. As required under International Financial Reporting Standards (IFRS), the tangible and intangible assets of the acquired business have been uplifted to fair value. The residue of the purchase price not allocated to specific assets and liabilities has been attributed to goodwill. The provisional values incorporated in the2007 Financial statementswill be subject to revision within 12 months of the date of acquisition as permitted by the relevant accounting standard, IFRS 3. Details of the Alcan assets acquired are included in note 41 to the2007 Financial statements.
      The completion of the Alcan acquisition was financed under a US$40 billion syndicated bank loan at floating interest rates of which US$38 billion was drawn down. This, together with the debt held by Alcan on acquisition, resulted in an increase in net debt of US$42.8 billion to US$45.2 billion at 31 December 2007 of which US$8.1 billion is classified as short term borrowings. The US$40 billion loan is split into four facilities with final maturities ranging up to five years. Facilities A and B of this acquisition related debt are subject to mandatory prepayment to the extent of the net proceeds from disposals of assets and from the raising of funds through capital markets, under specific thresholds

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and conditions. Debt to total capital rose to 63 per cent and interest cover was 20 times. In addition, the Group’s share of the third party net debt of equity accounted units totalled US$0.7 billion at 31 December 2007. US$0.3 billion of this debt is with recourse to the Rio Tinto Group.
     Goodwill arising from the Alcan acquisition relating to subsidiaries was US$14.5 billion and that relating to equity accounted units was US$2.8 billion. The future economic benefits represented by the goodwill include those associated with synergies, future development and expansion projects and the assembled workforce. The Group has decided to dispose of Alcan Packaging, which is presented in the balance sheet in the lines: ‘Assets held for sale’ and ‘Liabilities of disposal groups held for sale’.
    Net assets attributable to Rio Tinto shareholders increased by US$6.5 billion. The increase reflected profit after tax attributable to Rio Tinto shareholders of US$7.3 billion less returns to shareholders of US$2.8 billion comprising US$1.5 billion of dividends and US$1.3 billion of share buybacks. In addition, there was a positive currency translation effect of US$1.9 billion as the Australian dollar, the Canadian dollar and the Euro all strengthened against the US dollar.

Financial risk management
The Group’s policies with regard to financial risk management are clearly defined and consistently applied. They are a fundamental part of the Group’s long term strategy covering areas such as foreign exchange risk, interest rate risk, commodity price risk, credit risk and liquidity risk and capital management. From 1 January 2008, Rio Tinto Alcan has adopted the Rio Tinto Group policy on trading and hedging. The acquisition of Alcan impacted the Group’s market risk exposures, in particular, increasing the Group’s exposure to changes in interest rates and the aluminium price.
     The Group’s business is finding, mining and processing mineral resources, and not trading. Generally, the Group only sells commodities it has produced but may purchase commodities to satisfy customer contracts from time to time and to balance the loading on production facilities. In the long term, natural hedges operate in a number of ways to help protect and stabilise earnings and cash flow.
     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 the long term. 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. These natural hedges significantly reduce the necessity for using 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’s2007 Financial statementsand disclosures show the full extent of its financial commitments including debt.
     The risk factors to which the Group is subject that are thought to be of particular importance are summarised on pages 5 to 7.
     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 under Corporate governance on page 150.

Liquidity and capital resources
The Group’s total capital is defined as Rio Tinto’s shareholders’ funds plus amounts attributable to outside equity shareholders plus net debt. The Group’s over-riding objectives when managing capital are to safeguard the business as a going concern; to maximise returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure in order to reduce the cost of capital.
     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. Rio Tinto plc and Rio Tinto Limited continue to maintain solid investment grade credit ratings from Moody’s and Standard and Poor’s, despite the credit rating downgrade announced on completion of the Alcan acquisition. These ratings continue to provide access to global debt capital markets in significant depth. 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. Following the acquisition of Alcan, the Group has publicly stated an objective to reduce its debt to equity ratio from current levels through a targeted asset divestment programme and through operating cash flows to a level consistent with a ‘single-A’ credit rating. 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.

     On 12 February 2008 the Group announced the sale of its interest in the Greens Creek mine for US$750 million. On 5 March 2008 the Group completed the sale of its interest in the Cortez joint venture to its partner for a cash consideration of US$1,695 million plus deferred and contingent consideration.
     The Group maintains backup liquidity for its commercial paper programme and other debt maturing within 12 months by way of bank standby credit facilities, which totalled US$3.7 billion (undrawn) at 31 December 2007. The Group’s committed bank standby facilities contain no financial undertakings relating to interest cover and are not

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affected to any material extent (other than an increase in interest margin) by a reduction in the Group’s credit rating. The main covenant in the Rio Tinto group relates to a financial covenant over Corporate debt drawn under the Syndicated Acquisition Facility, for which a compliance certificate must be produced attesting a certain ratio of Net Borrowings to EBITDA. 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 wherever possible.
     As at 31 December 2007, the Group had contractual cash obligations arising in the ordinary course of business as follows:

Contractual cash obligations          
   Less  than 1 Between 1 Between 3 After 5 
 Total year and 3 years and 5 years years 
 US$ m US$ m US$ m US$ m US$ m 










 
Expenditure commitments in relation to:          
Operating leases1,782 283 517 468 514 
Other (mainly capital commitments)3,978 3,113 801 64  
           
Long term debt and other financial obligations          
Debt (a)47,019 8,263 21,069 13,335 4,352 
Interest payments (b)9,238 2,310 3,184 1,660 2,084 
Unconditional purchase obligations (c)7,271 1,525 1,571 1,079 3,096 
Other (mainly trade creditors)7,295 6,144 639 363 149 










 
Total76,583 21,638 27,781 16,969 10,195 










 
Notes
(a)Debt obligations include bank borrowings repayable on demand.
(b)Interest payments have been projected using the interest rate applicable at 31 December, 2007, including the impact of interest rate swap agreements where appropriate. Much of the debt is subject to variable interest rates. Future interest payments are subject, therefore, to change in line with market rates.
(c)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.

Information regarding the Group’s pension commitments and funding arrangements is provided in the Post retirement benefits section of this Financial review and in note 49 to the 2007Fnancial statements. The level of contributions to funded pension plans is determined according to the relevant legislation in each jurisdiction in which the Group operates. In some countries there are statutory minimum funding requirements while in others the Group has developed its own policies, sometimes in agreement with the local trustee bodies. The size and timing of contributions will usually depend upon the performance of investment markets. Depending on the country and plan in question the funding level will be monitored quarterly, bi-annually or annually and the contribution amount amended appropriately. Consequently it is not possible to predict with any certainty the amounts that might become payable in 2009 onwards. The impact on cash flow in 2007 of the Group’s pension plans, being the employer contributions to defined benefit and defined contribution pension plans, was US$246 million. In addition there were contributions of US$30 million in respect of unfunded healthcare schemes. Contributions to pension plans for 2008 are estimated to be around US$220 million higher than for 2007. This is predominantly due to the inclusion of the Alcan plans for the full year, although it is also partly due to changes in funding rules in the US. Healthcare plans are unfunded and contributions for future years will be equal to benefit payments and therefore cannot be predetermined.
     Information regarding the Group’s close down and restoration obligations is provided in the relevant section of this review and in note 27 to the2007 Financial statements. 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 relevant operation. Generally, the Group’s close down and restoration obligations to remediate in the long term are not fixed as to amount and timing and are not therefore included in the above table.
     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, the Group believes that it has sufficient short and long term sources of funding available to meet its working capital requirements.

Dividends and capital management
Rio Tinto’s progressive dividend policy aims to increase the US dollar value of dividends over time, without cutting them in economic downturns.
     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 plc dividends are declared and paid in pounds sterling and Rio Tinto Limited dividends are declared and paid in Australian dollars, converted at exchange rates applicable to the US dollar two days prior to the announcement of dividends. Holders of American Depositary Receipts (ADRs) receive a US dollar dividend at the rate declared. Changes in exchange rates

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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.
     The Group announced a re-basing of its ordinary dividend in February 2007, increasing the full year ordinary dividend in respect of 2006 by 30 per cent to 104 US cents. The 2007 full year ordinary dividend represents a 31 per cent increase on 2006. In addition, the Group has announced an intention to increase its annual dividend by at least 20 per cent in each of 2008 and 2009.
     Final 2007 dividends to Rio Tinto Limited shareholders will be fully franked. The board expects Rio Tinto Limited to be in a position to pay fully franked dividends for the reasonably foreseeable future.
     On 2 February 2006 the Group announced a US$4 billion capital management programme which was subsequently increased to US$7 billion in October 2006. The capital return was comprised of a US$1.5 billion special dividend (US$1.10 per share) paid in April 2006 which was paid concurrently with the 2005 final ordinary dividend, but did not form part of the Group’s progressive ordinary dividend policy, and an initial US$2.5 billion share buyback programme (increased to US$5.5 billion) to be completed over the remaining period to the end of 2007. The programme was suspended on 12 July 2007 at the time the Alcan offer was announced, by which time US$3.9 billion had been completed under the US$7 billion capital management programme, bringing the total cash returned to shareholders under announced capital management programmes since 2005 to US$6.4 billion.

Treasury management and financial instruments
Treasury operates 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 internal controls.
     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 and cross currency interest rate swaps in conjunction with longer term funds raised in the capital markets to achieve a predominantly floating rate obligation which is consistent with the Group’s interest and exchange rate policies, primarily US dollar LIBOR. No material exposure is considered to exist by virtue of the possible non performance of the counterparties to financial instruments held by the Group.
     Derivative contracts are carried at fair value based on published price quotations for the period for which a liquid active market exists. Beyond this period, Rio Tinto’s own assumptions are used.

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$739 million at 31 December 2007.
     Other commitments include capital expenditure, operating leases and unconditional purchase obligations as set out in the table of contractual cash obligations, included in the liquidity and capital resources section above.

Exchange rates, reporting currencies and currency exposure
Rio Tinto’s shareholders’ equity, 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 Canadian dollars and the Euro are the most important currencies (apart from the US dollar) 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 underlying earnings.
     The following sensitivities give the estimated effect on underlying earnings assuming that each exchange rate moved in isolation. The relationship between currencies and commodity prices is a complex one and movements in exchange rates can cause movements in commodity prices and vice versa. 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 exchange rates but exclude the effect of the revaluation of foreign currency financial assets and liabilities. They should therefore be used with care.

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Effect on net and
underlying earnings
Averageof 10% change in
exchange ratefull year average
for 2007+/- US$m




Australian dollar (a)84 US cents494
Canadian dollar (a)93 US cents203
Euro137 US cents65
Chilean peso$1 = 523 pesos12
New Zealand dollar73 US cents17
South African rand14 US cents55
UK sterling200 US cents24




(a)The sensitivities in the 2007 column are based on 2007 prices, costs and volumes and assume that all other variables remain constant, except that a full years’ volumes are included for Alcan where indicated.

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, Canadian dollars and the Euro. This cash is held in order to meet short term operational and capital commitments and, for the Australian dollar, dividend payments. The Group finances its operations primarily in US dollars, either directly or using cross currency interest rate swaps. A substantial part of the Group’s US dollar debt is located in subsidiaries having a US functional currency.
     However, certain US dollar debt and other financial assets and liabilities including intragroup balances 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 exchange gains and losses are recorded in the Group’s 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 of the2007 Financial statements. Gains and losses on US dollar net debt and on intragroup balances are excluded from underlying earnings. Other exchange gains and losses are included in underlying earnings.
     The Group does not generally believe that active currency hedging of transactions 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, typically hedging of capital expenditure and other significant financial items such as tax and dividends. There is a legacy of currency forward contracts used to hedge operating cash flow exposures which were acquired with Alcan and the North companies. Details of currency derivatives held at 31 December 2007 are set out in note 34 to the2007 Financial statements.
     The sensitivities below give the estimated effect on underlying earnings, net earnings and equity of a ten per cent change in the full year closing US dollar exchange rate, assuming that each exchange rate moved in isolation. The sensitivities are based on financial assets and liabilities held at 31 December 2007, where balances are not denominated in the functional currency of the subsidiary. A strengthening of the US dollar would result in exchange gains based on financial assets and financial liabilities held at 31 December 2007. These balances will not remain constant throughout 2008, however, and therefore these numbers should be used with care.

     Effect on  Of which  Effect of  
     net  amount  items  
     earnings of  impacting  impacting  
  Closing  10% underlying  directly on  
  exchange rate  change  earnings  equity  
  US cents  US$m  US$m  US$m  








  
Functional currency of business unit:      
Australian dollar88 204 99 (20)
Canadian dollar101 (3)53  
South African rand15 14 12 (4)
Euro147 33 14 149 
New Zealand dollar78 (9)3  








 
(a)The sensitivities show the net sensitivity of US dollar exposures in Australian dollar functional currency companies, for example, and Australian dollar exposures in US dollar functional currency companies.
(b)The sensitivities indicate the effect of a ten per cent strengthening of the US dollar against each currency.

The Group has changed its disclosure of market risk sensitive instruments from a tabular basis to a sensitivity analysis basis for consistency with the requirements of IFRS 7, the international accounting standard on financial instrument disclosure which the Group has adopted in its financial statements this year.
     Sensitivities as at 31 December 2006 were as shown below.

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        Of which     
        amount  Effect of items  
      Effect on net  impacting  impacting  
  Closing  earnings of 10%  underlying  directly on  
  exchange rate  change  earnings  equity  
  US cents  US$m  US$m  US$m  








  
Functional currency of business unit:      
Australian dollar79 37 56 (30)
Canadian dollar86 (29)12 - 
South African rand14 (6)5 - 
New Zealand dollar71 (15)3 - 








 

In addition, some US dollar functional currency companies are exposed to exchange movements on local currency deferred tax balances. The only material exposure is to the Canadian dollar and a ten per cent strengthening of the US dollar would reduce underlying earnings based on 2007 balances by US$96 million. This would offset the US$53 million gain shown above. There was no similar exposure at 31 December 2006.
      The functional currency of many operations within the Rio Tinto Group is the local currency in the country of operation. Alcan’s aluminium and alumina producing operations use a US dollar functional currency including those in Canada and Australia. Foreign currency gains or losses arising on translation to US dollars of the net assets of non US functional currency operations are taken to equity and, with effect from 1 January 2004, recorded in a currency translation reserve. A weakening of the US dollar would have a positive effect on equity. The approximate translation effects on the Group’s net assets of ten per cent movements from the year end exchange rates are as follows:

     2007 
     Effect on net assets 
  Closing  of 10% change in 
  exchange rate  closing rate 
  US cents  +/- US$m 




 
Australian dollar88 1,583 
Euro147 568 
Canadian dollar101 255 




 

These net assets will not remain constant, however, and therefore these numbers should be used with care.

Interest rates
Rio Tinto’s interest rate management policy is generally to borrow and invest at floating interest rates. This approach is based on the historical correlation between interest rates and commodity prices. In some circumstances, an element of fixed rate funding may be considered appropriate. Rio Tinto hedges interest rate and currency risk on most of its foreign currency borrowings by entering into cross currency interest rate swaps in order to convert fixed rate foreign currency borrowings to floating rate US dollar borrowings. At the end of 2007, US$4.9 billion (2006: US$1.2 billion) of the Group’s debt was at fixed rates after taking into account interest rate swaps and finance leases. Based on the Group’s net debt at 31 December 2007, the effect on the Group’s net earnings of a half percentage point increase in US dollar LIBOR interest rates with all other variables held constant, would be a reduction of US$158 million (2006: US$3 million). These balances will not remain constant throughout 2008, however, and therefore these numbers should be used with care.

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. The Group may hedge certain commitments with some of its customers or suppliers. Details of commodity derivatives held at 31 December 2007 are set out in note 34 to the2007 Financial statements. The forward contracts to sell copper were entered into as a condition of the refinancing of Palabora in 2005. The aluminium forward contracts and embedded derivatives were acquired with Alcan.
      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 including iron ore and coal are generally agreed annually or for longer periods with customers, although volume commitments vary by product.
      Certain products, predominantly copper concentrate, are ‘provisionally priced’, ie 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

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recognised based on estimates of 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 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 Metal Exchange and the value of product sold by the Group is directly linked to the form in which it is traded on that market. At the end of 2007 the Group had 270 million pounds of copper sales (2006: 324 million pounds) that were provisionally priced at 304 US cents per pound (2006: 287 US cents per pound). The final price of these sales will be determined in 2008. The impact on earnings of a ten per cent change in the price of copper for the provisionally priced sales would be US$58 million (2006: US$66 million).
      Approximately 53 per cent of Rio Tinto’s 2007 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 Group continued to achieve high prices for its products in 2007, and its assessment of the economic and demand outlook remains very positive, despite recent unsettled conditions in the financial markets. The strong increases seen in global minerals demand are driven by demographic and economic fundamentals in fast growing countries like China and India, whose large populations continue to urbanise. These long term trends are driven by domestic developments in those countries, and are therefore insulated to a significant extent from any potential near term weakness in western economies.
      The approximate effect on the Group’s underlying and net earnings of a ten per cent change from the full year average market price in 2007 for the following products would be:

         Effect on underlying 
         and net earnings of 
      Average  US$ 10% change in 
      market price  full year average 
  Unit  for 2007  +/- US$m 






 
Copperpound 3.24 360 
Aluminium (a)pound 1.20 678 
Goldounce 691 64 
Molybdenumpound 30 69 
Iron oredmtu n/a 457 






 
(a)The above sensitivities are based on 2007 volumes except that a full year impact from Alcan has been included where indicated.

The sensitivities give the estimated impact on net 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.
      The table below summarises the impact of changes in the market price on the following commodity derivatives including those aluminium and option contracts embedded in electricity purchase contracts outstanding at 31 December 2007. The impact is expressed in terms of the resulting change in the Group’s net earnings for the year or, where applicable, the change in equity. The sensitivities are based on the assumption that the market price increases by ten per cent with all other variables held constant. The Group’s ‘own use contracts’ are excluded from the sensitivity analysis below as they are outside the scope of IAS 39. Own use contracts are contracts to buy or sell non financial items that can be net settled but were entered into and continue to be held for the purpose of the receipt or delivery of the non financial item in accordance with the business unit’s expected purchase, sale or usage requirements.
      These sensitivities should be used with care. The relationship between currencies and commodity prices is a complex one and changes in exchange rates can influence commodity prices and vice versa.

     Effect of items 
     impacting directly 
  Effect on underlying  on Rio Tinto share 
  and net earnings of  of equity of 10% 
  10% increase from  increase from 
  year end price  year end price 
  US$m  US$m 




 
Copper 40 
Coal 25 
Aluminium41 50 




 
 41 115 




 

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Sensitivities as at 31 December 2006 were as shown below:

Effect on underlyingEffect of items
and net earnings ofimpacting directly
10% increase fromon Rio Tinto share
year end priceof equity of 10%
increase from
year end price
US$mUS$m




Copper49
Coal20




69




Sales revenue
The table below shows published ‘benchmark’ prices for Rio Tinto’s commodities for the last three years where these 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, 2005, approval2006 and 2007. The Group’s sales revenue will not necessarily move in line with these benchmarks for a number of reasons which are discussed below.

   2007 2006 2005 
CommoditySourceUnitUS$ US$ US$ 








 
AluminiumLMEpound1.20 1.16 0.86 
CopperLMEpound3.24 3.06 1.66 
GoldLBMAounce691 602 444 
Iron oreAustralian benchmark (fines) (a)dmtu (b)0.79 0.71 0.55 
MolybdenumMetals Week: quote for dealer oxide pricepound30 25 31 








 
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 the Financial Information by Business Unit in the2007 Financial statements.
     The sales revenues of the Iron Ore group increased by 27 per cent in 2007 compared with 2006. There was granteda 9.5 per cent increase in the benchmark price, mainly effective from 1 April 2007 which resulted in an 11 per cent increase in the average Australian iron ore fines benchmark for the calendar year. Sales achieved the benchmark price throughout the year. The price outlook for the 2008 contract year remains very positive, with spot prices in China substantially above prevailing contract prices. In addition to extendhigher prices, sales revenues at Hamersley Iron were higher from record production following completion of the second phase of the Dampier port upgrade and the Tom Price brownfield and Yandicoogina JSE mine expansions.
     At IOC, volumes were lower as a result of a seven week strike in the first and second quarters of the year and this was only partly mitigated by higher prices.
     The Australian iron ore fines benchmark increased by 19 per cent in April 2006. This together with higher volumes at Hamersley contributed to an increase in the Group’s iron ore revenue of 26 per cent in 2006 against 2005.
     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 the movements 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.
     Asian seaborne thermal coal prices continued to rise sharply throughout 2007 mainly due to supply disruptions from key producing countries. Issues relating to infrastructure controlled by external parties are likely to maintain market tightness for the foreseeable future. Published thermal coal benchmarks in Australia improved by 33 per cent in the calendar year whilst coking coal benchmarks decreased by 13 per cent.
     Revenues of the Group’s Australian coal operations decreased by three per cent in 2007 with lower thermal coal sales largely attributable to infrastructure constraints and a severe weather event. In general, production at the Australian coal mines continued to be constrained by rail and port constraints in Queensland and New South Wales and reduced tonnage of rail and port allotments in Queensland, which curtailed mined production, despite the generally favourable market conditions.
     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 of market weakness and the delay in thermal coal shipments arising from congestion at Newcastle. Published market indications for Australian thermal coal showed a slight increase in thermal coal prices in 2006 and a seven per cent increase in the coking coal benchmark price.

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     In the US, published market indications of spot prices for Wyoming Powder River Basin thermal coal 8800 BTU (0.80 sulphur) show a decrease of around 20 per cent for the average spot price in 2007 compared with 2006. However, Rio Tinto Energy America’s revenues increased by nine per cent in 2007 with improved realised prices. Rio Tinto Energy America has long term contracts and this increased revenue was primarily a result of the replacement of below market legacy contracts with new contracts at current market pricing in 2006 and earlier years. Revenues increased by 19 per cent in 2006 against 2005, with higher realised prices for Powder River Basin coal and increased volumes. Despite increased volatility in the spot market and a marginal decline in long term sales volumes the market sentiment for uranium remained positive through 2007. Supply from a number of producers fell short of expectations in 2007 while the outlook for demand increased as new-build programmes gathered pace, particularly in China. Higher utilisation rates were also experienced in the nuclear industry. These factors have contributed to tighter markets and an improvement in the longer term outlook for uranium demand.
     Large swings in the spot price, driven by speculative behaviour by hedge funds and investors, created a degree of uncertainty in the uranium market. The resultant effect was a de-linking of the spot and long term prices and a reduction in contracting as fuel buyers monitored movements in the market. Despite this, long term prices grew strongly in the early part of the year and remained firm thereafter. Information included in the RWE NUKEM Inc. Price Bulletin indicated price increases of 99 per cent in 2007 and 71 per cent in 2006 for uranium oxide. 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.
     The Group’s uranium revenue increased by 69 per cent in 2007 and 27 per cent in 2006 as a result of higher prices with Rössing, in particular, benefiting from positive market conditions and improved pricing. Prices at ERA continued to benefit from the gradual replacement of legacy contracts with newer contracts written in an environment of higher prices.

     The average aluminium price of 120 US cents per pound was three per cent above the 2006 average price. Global demand growth for 2007 is expected to exceed ten per cent. Rising LME inventories towards the end of 2007 and strong growth in global output pushed aluminium prices lower in the second half of the year. The Group anticipates strong demand and growing supply constraints in China.
      The Aluminium group’s sales revenues are from aluminium and related products such as alumina and bauxite. Alcan’s sales revenue for the two months from acquisition, which includes revenue from Engineered Products, was US$3,798 million. Rio Tinto Aluminium’s sales revenue increased by one per cent in 2007 reflecting higher volume and price for bauxite and aluminium and lower volume and price for alumina. Revenue increased by 27 per cent in 2006. Average aluminium prices quoted on the LME increased by 35 per cent against 2005 but achieved spot alumina prices were lower than in 2005.
     The Copper group also produces gold and molybdenum as significant co-products. The average copper price of 324 US cents per pound was six per cent above the 2006 average price. The gold price averaged US$691 per ounce, an increase of 15 per cent on the prior year, whilst the average molybdenum price was US$30 per pound, an increase of 20 per cent compared with 2006. Total Copper Group sales revenues in 2007 increased by 20 per cent over 2006. Copper revenues increased by 17 per cent reflecting higher volumes at KUC and Escondida as well as higher prices. Gold revenue increased by 69 per cent with higher volumes at Kennecott Minerals and the Grasberg joint venture. Molybdenum revenue was nine per cent higher than in 2006 with lower volumes as a result of lower ore grade and higher limestone levels in the orebody partly offsetting the improved prices.
     The total Copper group sales revenues 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 Freeport 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 Freeport 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.
     Industrial Minerals sales are made under contract at negotiated prices. Revenue from industrial minerals increased by 11 per cent in 2007 and five per cent in 2006. This was mainly attributable to higher sales volumes of titanium dioxide chloride feedstock.
     Diamonds prices realised by Rio Tinto depend on the size and quality of the diamonds in the product mix. Diamond sales revenue increased by 22 per cent in 2007 against 2006 with higher sales volumes and polished pink tender prices at Argyle, and higher volumes at Diavik. The tight supply outlook for rough diamonds is expected to support demand in 2008, especially for better quality rough diamonds produced by Diavik. 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 surplus rough diamonds being held in inventory at the end of the year.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Dual listed company reporting
As explained in detail in the Outline of dual listed companies’ structure and basis of financial statements in the2007 Financial statements, the consolidated financial statements of the Rio Tinto Group deal with the results, assets and liabilities of both of the dual listed companies, Rio Tinto plc and Rio Tinto Limited, and their subsidiaries. In other

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words, Rio Tinto plc and Rio Tinto Limited are viewed as a single parent company with their respective shareholders being the shareholders in that single company.
      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 as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December 2004 (the JORC code). Where relevant, the IFRS financial statements are based on the reserves, and in some cases mineral resources, determined under the JORC code.
     For the purposes of this combined Annual report on Form 20-F estimates of ore reserves have been computed in accordance with the SEC’s Industry Guide 7, rather than in accordance with the JORC code, and are shown on pages 32 to 42. 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 three years to 30 June 2007, 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; 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.

     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 and amortisation rates, asset carrying values, deferred stripping calculations and provisions for close down, restoration and environmental clean up costs.

Acquisition accounting
On the acquisition of a subsidiary, the purchase method of accounting is used whereby the purchase consideration is allocated to the identifiable assets, liabilities and contingent liabilities (identifiable net assets) on the basis of fair value at the date of acquisition.
     Rio Tinto acquired Alcan Inc during the year. The Group commissioned valuation consultants to advise on the fair values and asset lives of Alcan’s assets. The residue of the purchase price not allocated to specific assets and liabilities has been attributed to goodwill. The provisional values and asset lives incorporated in the2007 Financial statementswill be subject to revision within 12 months of the date of acquisition as permitted by IFRS 3 ‘Business Combinations’.

Asset carrying values
Events or changes in circumstances can give rise to significant impairment charges or reversals of impairment provisions in a particular year. In 2007, the Group’s results included net impairment charges of US$58 million (US$113 million after tax and outside shareholders interests). An impairment charge was recognised at Argyle, which was partially offset by impairment reversals at Palabora and Tarong Coal. 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. There were no significant impairment charges or reversals in 2005.
     When such events or changes in circumstances impact on a particular asset or cash generating unit, its carrying value 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 and over the last few years favourable changes in commodity prices have generally exceeded shifts in exchange rates. Comparing average exchange rates in 2007 against those in 2004, the Australian dollar strengthened by 14 per cent against the US dollar, the Canadian dollar strengthened by 21 percent and the South African rand weakened by eight per cent. In the same period, commodity prices rose substantially: for example, copper prices increased by 149 per cent, aluminium by 54 per cent and gold by 69 per cent.
     Reviews of carrying values relate to cash generating units which, in accordance with IAS 36 “Impairment of

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Assets”, are identified by dividing an entity into as many largely independent cash generating streams as is reasonably practicable. 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 mineralised material that does 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 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 for forecasting 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 the relevant 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 value in use calculations used in 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 value in use calculations 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, and associated smelters, concentrators and other long lived processing equipment generally relate to the expected life of the orebody. The life of the orebody, 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 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 final feasibility studies and ore reserve estimation, internal hurdle rates are used which are generally higher than the weighted average cost of capital.
     Value in use and ore reserve estimates are based on the exchange rates current at the time of the evaluation. In final feasibility studies and 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.
     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.

Close down, restoration and clean up obligations
Provision is made for environmental remediation costs when the related environmental disturbance occurs, based on the net 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 provisions 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 may 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

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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 as stripping. 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 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 proved 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 co-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 an individual mine’s 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 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 2007, production stage stripping costs incurred by subsidiaries and equity accounted operations were US$56 million higher than the amounts charged against pre tax profit (2006: production stage costs exceeded the amounts charged against pre-tax profit by US$20 million). In addition, US$117 million of deferred stripping was written off in 2007 as part of the Argyle impairment and there were net impairment reversals of US$36 million affecting deferred stripping in 2006. The net book value carried forward in property, plant and equipment and in investments in jointly controlled entities and associates at 31 December 2007 was US$884 million (2006: US$929 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 2007, 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 year Life of mine stripping ratio 
 




 




 
 2007 2006 2005 2007 2006 2005 












 
Kennecott Utah Copper (2019) (a) (b)1.99 2.04 2.02 1.32 1.36 1.51 
Grasberg Joint Venture (2015) (a)3.47 3.01 3.12 3.05 2.63 2.43 
Diavik (2008) (c)0.42 0.89 1.21 0.91 0.96 0.91 
Escondida (2040) (d)0.07 0.08 0.09 0.10 0.12 0.12 












 
Notes
(a)Stripping ratios shown are waste to ore.
(b)Kennecott’s life of mine stripping ratio decreased in 2006 as the latest mine plan included higher metals prices, which made previously uneconomic material (waste) economic to mine as ore.
(c)Diavik’s stripping ratio is disclosed as bench cubic metre per carat. The fall in actual ratio arises as the end of the pipe life nears.
(d)Escondida’s stripping ratio is based on waste tonnes to pounds of copper mined.

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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.

Functional currency
The determination of functional currency affects the carrying value of non current assets included in the balance sheet and, as a consequence, the amortisation of those assets included in the income statement. It also impacts exchange gains and losses included in the income statement.
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 many of Rio Tinto’s entities, this is the currency of the country in which each operates. Alcan’s aluminium and alumina producing operations use a US dollar functional currency including those in Canada and Australia. Transactions denominated in currencies other than the functional currency 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 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. With the above exceptions, and except for derivative contracts which qualify as cash flow hedges, exchange differences are charged or credited to the income statement in the year in which they arise.

Deferred tax on fair value adjustments
On transition to IFRS with effect from 1 January 2004, deferred tax was provided in respect of fair value adjustments 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 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 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 such deferred tax on acquisition results in a corresponding increase in the amounts attributed to acquired assets and/or goodwill under IFRS.

Post retirement benefits
The difference between the fair value of the plan assets (if any) of post retirement plans and the present value of the plan obligations is recognised as an asset or liability on the balance sheet. The Group has adopted the option under IAS 19 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, 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 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’

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or governments’ expectations as applicable.
     In particular, the Group estimates long term expected returns on equity 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 49 to the2007 Financial statements.
     For 2007 the charge against income for post retirement benefits net of tax and minorities was US$168 million. This charge included both pension and post retirement healthcare benefits. The charge is net of the expected return on assets which was US$371 million after tax and minorities.
     In calculating the 2007 expense the average future increase in compensation levels was assumed to be 4.7 per cent and this will decrease to 3.7 per cent for 2008 reflecting the increased weighting of lower inflation countries following the Alcan acquisition. The average discount rate used for the Group’s plans in 2007 was 5.4 per cent and the average discount rate used in 2008 will be 5.6 per cent reflecting the weighted average level of discount rates following the Alcan acquisition.
      The average expected long term rate of return on assets used to determine 2007 pension cost was 6.9 per cent. This will decrease to 6.4 per cent for 2008. This reduction results mainly from a lower allocation to equities as a result of the Alcan acquisition.
      Based on the known changes in assumptions noted above and other expected circumstances, the impact of post retirement costs on the Group’s IFRS net earnings in 2008 would be expected to increase by some US$198 million to US$366 million. The main reason for this increase is the inclusion of the Alcan pension expense for the full year. 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 2007 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 although a change in one assumption is likely to result in some offset elsewhere.

IFRS
US$m



Sensitivity of Group’s 2007 net earnings to changes in:
Expected return on assets 
– increase of 1 percentage point 39
– decrease of 1 percentage point (39
Discount rate 
– increase of 0.5 percentage points 7
– decrease of 0.5 percentage points (6
Salary increases 
– increase of 0.5 percentage points (6
– decrease of 0.5 percentage points 6
Demographic – allowance for additional future mortality improvements 
– participants assumed to be one year older 7
– participants assumed to be one year younger (7




The figures in the above table only show the impact on underlying and net earnings. Changing the assumptions would also have an impact on the balance sheet.
      Further information on pensions and other post retirement benefits is given in note 49 to the2007Financial statements.

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 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.
      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.
      On creation of a 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 tax asset 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

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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 IFRS the benefit to underlying and net earnings would have been US$21 million (2006: US$9 million) and to equity would have been US$185 million (2006: US$127 million).

US deferred tax potentially recoverable
The Group’s US tax group has alternative minimum tax credits and temporary differences that have the potential to reduce tax charges in future years. These ‘possible tax assets’ totalled US$182 million at 31 December 2007 (2006: US$162 million). Of these, US$119 million were recognised as deferred tax assets (2006: US$97 million), leaving US$63 million (2006: US$65 million) unrecognised, as recovery was not considered probable.
      During 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 previously unrecognised possible tax assets of US$335 million. Recoveries are dependent on future commodity prices, costs, financing arrangements and business developments in future years.
      During 2007, principally as a result of high commodity prices, US$170 million of these possible tax assets were utilised (2006: US$140 million).

Exploration
Under the Group’s accounting policy, exploration and evaluation expenditure is not capitalised until the point is reached at least 2016which there is a high degree of confidence in the project’s viability and restore annual production capacityit is considered probable that future economic benefits will flow to 4,000 tonnesthe Group.
      The carrying values of exploration and evaluation assets are reviewed twice per annum atby management and the results of these reviews are reported to theAudit committee. There may be only mineralised material to form a total incrementalbasis for the impairment review. 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 orebodies currently in production and sustaining capital cost of US$112 million.will therefore benefit from existing infrastructure and equipment.

Energy ResourcesContingencies
Disclosure is made of Australiamaterial contingent liabilities unless the possibility of any loss arising is considered remote. Contingencies are disclosed in note 35 to the2007 Financial statements.

Underlying earnings
The Group presents “Underlying earnings” as an additional measure to provide greater understanding of the underlying business performance of its operations. The adjustments made to net earnings to arrive at underlying earnings are explained above in the section on underlying earnings.

Rio Tinto 2007 Form 20-F113

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Item 6.Directors, Senior Management and Employees
Chairman and executive directors
AuditRemunerationNominationsCommittee on social 
committeecommitteecommitteeand environmental
accountability





Chairman
Paul Skinner 
Chief executive
Tom Albanese 
Finance director
Guy Elliott 
Executive director
Dick Evans 
Non executive directors
Sir David Clementi * 
Vivienne Cox * 
Sir Rod Eddington * 
Michael Fitzpatrick * 
Yves Fortier * 
Richard Goodmanson * 
Andrew Gould * 
Lord Kerr of Kinlochard * 
David Mayhew 
Sir Richard Sykes * 
Paul Tellier * 





* Independent 


CHAIRMAN

Paul SkinnerBA (Hons) (Law), DpBA (Business Administration), age 63
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2001, he was appointed chairman of the Group in 2003. Paul was last re-elected by shareholders in 2005 and stands for re-election in 2008. He is chairman of the Nominations committee (note c).
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 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 Board of the UK Ministry of Defence since 2006
Member of the board of INSEAD business school since 1999
Director of The “Shell” Transport and Trading Company plc from 2000 to 2003

CHIEF EXECUTIVE

Tom AlbaneseBS (Mineral Economics), MS (Mining Engineering), age 50
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since March 2006. Tom was elected by shareholders in 2006 and stands for re-election in 2008.
Skills and experience:Tom joined Rio Tinto in 1993 on Rio Tinto’s acquisition of Nerco and held a series of management 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

Rio Tinto 2007 Form 20-F114

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Leigh Clifford with effect from May 2007.
External appointments (current and recent):
Director of Ivanhoe Mines Limited from 2006 to 2007
Director of Palabora Mining Company from 2004 to 2006

Member of the Executive Committee of the International Copper Association from 2004 to 2006

FINANCE DIRECTOR

Guy Elliott(MA (Oxon), MBA (INSEAD), age 52
Appointment and election:Finance director of Rio Tinto: 68.4 per cent)Tinto plc and Rio Tinto Limited since 2002. Guy was last re-elected by shareholders in 2007.
Skills and experience:
Guy joined the Group in 1980 after gaining an MBA having previously been in investment banking. He has subsequently held a variety of commercial and management positions, including head of Business Evaluation and president of Rio Tinto Brasil.
External appointments (current and recent):
Non executive director and member of the Audit committee of Cadbury Schweppes plc, since 2007

EXECUTIVE DIRECTOR

Dick EvansBS (Industrial Engineering) (Oregon State University), MS Management (Stanford Graduate School of Business), age 60
Appointments and election:Director of Rio Tinto plc and Rio Tinto Limited effective 25 October 2007. Dick will stand for election by shareholders at the 2008 annual general meetings.
Skills and experience:Dick Evans joined Rio Tinto following the acquisition of Alcan Inc where he had held several senior management positions including executive vice president and had been president and chief executive officer of Alcan from 2006 to 2007. Prior to Alcan, he has held senior management positions with Kaiser Aluminum & Chemical Corporation.
External appointments (current and recent):
Director of AbitibiBowater Inc. since 2003
Director of the International Aluminium Institute since 2001

NON EXECUTIVE DIRECTORS

Sir David ClementiMA, MBA, FCA, age 59ERA
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, b and e).
Skills and experience:
Sir David is spending A$27.6 millionchairman of Prudential plc, prior to which he was Deputy Governor of the Bank of England. 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 between 2003 and 2007

Vivienne CoxMA (Oxon), MBA (INSEAD), age 48
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2005. Vivienne was elected by shareholders in 2005 and stands for re-election in 2008. (notes a and e).
Skills and experience:
Vivienne is currently executive vice president of BP p.l.c. for Alternative Energy. She is a 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):
Director of Eurotunnel plc between 2002 and 2004

Sir Rod EddingtonB Eng, M Eng (University of Western Australia), D Phil (Oxon), age 58
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2005. Sir Rod was elected by shareholders in 2006 (notes c, d and e).
Skills and experience:Sir Rod was chief executive of British Airways Plc until the end of September 2005. Prior to his role 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.

Rio Tinto 2007 Form 20-F115

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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 2006
Director of CLP Holdings since 2006
Director of Allco Finance Group Limited since 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 2006

Michael FitzpatrickB Eng (University of Western Australia), BA (Oxon), age 55
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2006. Michael was elected by shareholders in 2007 (notes a, b and e).
Skills and experience:
Michael sold his interest in, and ceased to constructbe a plantdirector of, Hastings Funds Management Ltd during 2006, 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 chairman of the Australian Football League, having previously played the game professionally, and is a former chairman of the Australian Sports Commission.

External appointments (current and recent):
Chairman of the Victorian Funds Management Corporation since 2006
Chairman of Treasury Group Limited since 2005
Managing director of Hastings Funds Management Ltd from 1994 to 2006
Director of Pacific Hydro Limited from 1996 to 2004
Director of Australian Infrastructure Fund Limited from 1994 to 2005
Director of the Walter & Eliza Hall Institute of Medical Research since 2001

Yves FortierCC, OQ, QC, LLD, Av Em, age 72
Appointments and election:Director of Rio Tinto plc and Rio Tinto Limited effective 25 October 2007. Yves will stand for election at the Ranger mine2008 annual general meetings (notes c, d and e).
Skills and experience:
Yves Fortier was Ambassador and Permanent Representative of Canada to process lateritic ore,the United Nations from 1988 to 1992. He is chairman and 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. Constructionsenior partner of the plant will commencelaw firm Ogilvy Renault and was chairman of Alcan from 2002 until 2007.
External appointments (current and recent):

Chairman of Ogilvy Renault since 1992
Chairman and director of Alcan Inc. from 2002 until 2007
Director of NOVA Chemicals Corporation since 1998
Governor of Hudson’s Bay Company from 1998 to 2006
Director of Royal Bank of Canada from 1992 to 2005
Director of Novtel corporation from 1992 to 2005

Trustee of the International Accounting Standards Committee from 2000 to 2006

Richard GoodmansonMBA, BEc and BCom, B Eng (Civil), age 60
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2004. He was elected by shareholders in April2005 and stands for re-election in 2008. Richard is chairman of the Committee on social and environmental accountability (notes b, 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 America 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 2006 (director since 2002)
Director of the Boise Cascade Corporation between 2000 and 2004

Andrew GouldBA, FCA, age 61
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, b and e).
Skills and experience:Andrew is chairman and chief executive officer of Schlumberger Limited, where he has held a succession of financial and operational management positions, 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):

Rio Tinto 2007 Form 20-F116

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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 2007 with
Member of the first lateritic ore scheduled for processingcommercialization 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 2007

Lord Kerr of KinlochardGCMG, MA, age 66
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2003. He was re-elected by shareholders in 2007 (notes a, d and e).
Skills and experience:
An Oxford graduate, Lord Kerr was in the first quarterUK Diplomatic Service for 36 years and headed it from 1997 to 2002 as Permanent Under Secretary at the Foreign Office. On a secondment to the UK Treasury he was principal private secretary to two Chancellors of 2008.the Exchequer. 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 an independent 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 Scottish American Investment Trust plc since 2002
Advisory Board member, Scottish Power (Iberdrola) since 2007

Director of The “Shell” Transport and Trading Company plc from 2002 to 2005
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

David Mayhewage 67
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2000. He was last re-elected by shareholders in 2006 (note c).
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 the partner 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 Richard SykesBSc (Microbiology), PhD (Microbial Biochemistry), DSc, Kt, FRS, FMedSci, age 65
Appointment and election:
Director of Rio Tinto plc and Rio Tinto Limited since 1997. Sir Richard was appointed the senior non executive director in 2005 and is chairman of the Remuneration committee. Sir Richard was re-elected for a further one year term of office in 2007 and will retire at the conclusion of 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 Eurasian Natural Resources Corporation plc since 2007
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 from 2006 to 2007
Director of Bio*One Capital Pte Ltd since 2003
Rector of Imperial College London since 2001
Chairman of GlaxoSmithKline plc between 2000 and 2002

Trustee of the Natural History Museum, London between 1996 and 2005 and of the Royal Botanic Gardens, Kew between 2003 and 2005

Paul Tellierage 68
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited effective October 2007. Paul will stand for election at the 2008 annual general meetings (notes a, b and e).
Skills and Experience:Paul was Clerk of the Privy Council Office and Secretary to the Cabinet of the Government of Canada from 1985 to 1992 and was president and chief executive officer of the Canadian National Railway Company

Rio Tinto 2007 Form 20-F117

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from 1992 to 2002. Until 2004, he was president and chief executive officer of Bombardier Inc.
External appointments (Current and recent):
Director of Bell Canada since 1996. Director of BCE Inc since 1999.
Member of the Advisory Board of General Motors of Canada since 2005.
Trustee, International Accounting Standards Foundation since 2007.
Co-chair of the Prime Minister of Canada’s Advisory Committee on the Renewal of the Public Service since 2006.
President and Chief Executive Officer of Bombardier Inc. from 2003 to 2004. Non executive Director of Alcan Inc. from 1998 to 2007.
Director of McCain Foods since 1996.

Notes
(a)Audit committee
(Sir David Clementi, Vivienne Cox, Michael Fitzpatrick, Andrew Gould, Lord Kerr and Paul Tellier)
(b)Remuneration committee
(Sir David Clementi, Michael Fitzpatrick, Richard Goodmanson, Andrew Gould, Sir Richard Sykes and Paul Tellier)
(c)Nominations committee
(Sir Rod Eddington, Yves Fortier, David Mayhew, Paul Skinner and Sir Richard Sykes)
(d)Committee on social and environmental accountability
(Sir Rod Eddington, Yves Fortier, Richard Goodmanson and Lord Kerr)
(e)Independent
(Sir David Clementi, Vivienne Cox, Sir Rod Eddington, Michael Fitzpatrick, Yves Fortier, Richard Goodmanson, Andrew Gould, Lord Kerr, Sir Richard Sykes and Paul Tellier)

DIRECTORS WHO LEFT THE GROUP DURING 2007

Rio Tinto Coal Australia ClermontQIT Madagascar Minerals(Rio Tinto: 50.1Tinto 80 per cent)

Rio TintoThe project was approved in 2005 and comprises a mineral sand mine and separation plant, and port facilities in southern Madagascar as well as an upgrade of QIT’s ilmenite smelting facilities in Canada. The Government of Madagascar contributed US$35m to the establishment of the port as part of its joint venture partners approved investmentGrowth Poles project funded by the World Bank. The project has maintained its schedule, however cost inflation and foreign exchange effects have increased the cost estimate to US$1.0 billion. Nevertheless, increased product selling prices have meant that the project value has been maintained. First production is expected at the end of US$750 million for2008.
      The mine will be a key initial customer of the deep sea multi-use public port at Ehoala, providing the base load to help establish the port. Over time, it is expected the port will make an important contribution to economic development of the Clermont thermal coalregion.
      RTIT will manage the port operations. At the end of the life of the mine, the port will fall under the responsibility and control of the Government of Madagascar.

Extensive engagement and consultation with the Government of Madagascar and local people and leaders has taken place over many years. The World Bank is involved in central Queensland, situated 15a development role and non government organisations, including the Royal Botanic Gardens, Kew and Missouri Botanical Gardens, have been involved in planning environmental and conservation strategies.

Potasio Rio Colorado S.A. (Rio Tinto 100 per cent)
The Rio Colorado potash project in Argentina lies 1,000 kilometres south eastwest of Buenos Aires. Potash is used principally as an agricultural fertiliser. Evaluation of the Blair Athol Mine. Clermontproject began in late 2003, and has included a two year large scale trial of solution mining. This ran successfully from late 2004. During 2007 the feasibility study was completed. Development of the project depends on finalising permits and other agreements as well as approval by the board of Rio Tinto. Subject to this, first production could occur in 2011. Installed capacity will be 2.9 million tonnes per year. The scale and quality of the resource provide potential for expansion.

Rio Tinto 2007 Form 20-F79

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Kazan trona(Rio Tinto 100 per cent)
The Kazan trona project is located 35 kilometres northwest of Ankara in Turkey. Rio Tinto is conducting pre-feasibility studies and, upon expected approval in 2008, will move into large scale solution mining trials. Trona is converted to become Australia’ssoda ash, or sodium carbonate, by dissolving ore and recrystallizing the soda ash. Soda ash is one of oldest known and largest thermal coal producer when it reaches full capacity, which is scheduled for 2013. The minevolume inorganic chemicals, used primarily in the glass, chemicals, soap and detergent, and pulp and paper industries. Kazan trona is expected to be brought into productiona more environmentally sustainable commodity to replace Blair Athol, duemeet rising global demand than chemical synthesis.

Rio Tinto 2007 Form 20-F80

Back to close in 2012, and will use Blair Athol’s existing infrastructure and market position.Contents

Energy group

MinedRio Tinto share 
Coalmillion tonnes 


 
2003148.8 
2004157.4 
2005153.6 
2006162.3 
2007155.6 


 
   
Uranium‘000 pounds 
200311,372 
200413,170 
200514,511 
200612,561 
200712,616 


 
   
Underlying earnings contribution*US$m 


 
2004431 
2005730 
2006706 
2007484 


 
   
Changes in underlying earnings 2005 – 2007US$m 


 
2005 Underlying earnings730 
Effect of changes in:  
     Prices and exchange rates199 
     General inflation(50)
     Volumes(13)
     Costs(211)
     Tax and other51 


 
2006 Underlying earnings706 
Effect of changes in:  
   Prices and exchange rates102 
   General inflation(51)
   Volumes6 
   Costs(251)
   Tax and other(28)


 
2007 Underlying earnings484 


 
*A reconciliation of the net earnings with underlying earnings for 2007, 2006 and 2005 as determined under IFRS is set out on page 53.

STRATEGIC OVERVIEW

The Energy group comprises thermal coal, coking coal and uranium operations. Coal & Allied Mount Pleasant(interests located in Australia and the US supply internationally traded and US and Australian domestic markets. Rio Tinto: 75.7 per cent)Tinto Uranium supplies uranium oxide produced at its majority owned mines in Australia and Namibia to electric power utilities worldwide. Rio Tinto Uranium is currently the world’s second largest uranium supplier.
     The group strategy aims to harness and focus resources to deliver world class performance in operations, sustainable development and value creation. The strategy is focused on positioning the group as the world’s value leader in mineable energy.
      The group’s reserve position in thermal and coking coal is sufficient to underpin significant greenfield and brownfield expansions.

In 2006, Coal & Allied started2007 the Energy group undertook a feasibility study onreview of its asset portfolio which highlighted opportunities in the Mount Pleasantcurrent market to divest assets. Options to divest Rio Tinto Energy America (RTEA) and the Kintyre, Australia, and Sweetwater, US, uranium projects are currently being explored.
      A key part of the group’s strategy is to ensure that the group is a leading advocate of, and investor in, the sustainable future uses of coal mine project located adjacentand uranium. In 2007 the group continued to dedicate resources and investment funds to the Bengalla mine near Muswellbrookdevelopment of clean coal technology through the FutureGen project in the Hunter Valley, New South Wales. The study is expected to take about 12 months to completeUS, COAL21 in Australia and will include extensive community consultation.

Hydrogen Energy(Rio Tinto: 50.0 per cent)in numerous low emission coal research organisations in the US and Australia.
In May 2007 Rio Tinto and BP announced the formation of a new jointly owned company, Hydrogen Energy was launched, a 50:50 joint venture with BP which wouldwill develop decarbonisedlow carbon energy projects around the world. Hydrogen Energy will position Rio Tinto Energy to profit from the advent of a global low carbon energy future and initiate the development of a broader risk management strategy for climate change regulation while providing a meaningful offer on climate change and product stewardship.

Rio Tinto 2007 Form 20-F81

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The venture wouldgroup’s strategic intent is to build through Hydrogen Energy a low carbon energy business primarily reliant on coal that will ultimately leverage Rio Tinto’s capabilities in identifying, acquiring and operating large long life coal assets. Gasification opens new and larger markets for coal and the aim is to maximise returns across the emerging coal gasification value chain. Early positioning will convey an important element of competitive advantage. A key to unlocking value will be to proactively shape government policy to support and enable initial projects.
      Hydrogen Energy will initially focus on the production of hydrogen fuelledfor power generation using fossil fuels feedstocks and carbon capture and storage technology to produce new large scale supplies of clean electricity. Hydrogen Energy has announced initiation of studies for possible projects in California, Western Australia, and Abu Dhabi.

The first newRössing Uranium life of mine extension project wouldin Namibia continues. With the substantial recovery of uranium prices in recent years, Rössing is well positioned to expand and further extend the life of its operations. This will enable the company to continue to be a leading contributor to the Namibian economy, as it has been for the potential developmentpast 30 years.
     At Energy Resources of Australia’s (ERA) Ranger mine, a number of opportunities for further low cost brownfield expansion are under consideration. ERA also owns the Jabiluka deposit, the second largest undeveloped uranium deposit in the world. In addition to the significant and sustainable operating assets at Rössing and ERA, Rio Tinto has increased its uranium exploration activity around the world. With a global nuclear power renaissance now under way, driven in large part by the need for large baseload electricity generation that does not emit greenhouse gases, Rio Tinto intends to maintain and enhance its position as one of the world’s leading uranium suppliers to power this growth.

 At 31 December 2007, the Energy group accounted for 4.9 per cent of Group operating assets and, in 2007, contributed 13.8 per cent of Rio Tinto’s gross sales revenue and 6.5 per cent of underlying earnings.
Preston Chiaro, chief executive, Energy and Industrial Minerals, is based in London.

SAFETY

All injury frequency rate per 200,000 hours


20032.35
20042.02
20051.31
20060.89
20070.89



Safety performance and awareness continued to be a major focus of all operations. Energy Resources of Australia achieved significant improvements in safety performance. The lost time injury rate fell by 74 per cent and the all injury rate by 46 per cent. The injury severity rate, a measure of the seriousness of injuries, also decreased by a factor of over three. At Rio Tinto Energy America the severity index improved to approximately half of the severity index in 2006. At Rio Tinto Coal Australia’s (RTCA) Kestrel mine the lost time injury rate fell by 57 per cent and the all injury rate by 60 per cent. Two Energy group operations were winners of the Chief Executive’s Safety Awards, Hunter Valley Operations and the Antelope mine in the US.

GREENHOUSE GAS EMISSIONS

A greenhouse gas (GHG) performance review was submitted by each business unit as part of a planning process. This included a discussion on targets and performance and a list of proposed and implemented projects noting project progress, savings, costs and NPV (net present value).
Energy Resources of Australia is expected to exceed its targeted GHG reductions. Rio Tinto Energy America is slightly above target and Rio Tinto Coal Australia emissions per tonne have increased. Both RTEA and RTCA have a number of NPV positive optimisations and diesel reduction projects being researched or implemented. With a life of mine extension under way, Rössing Uranium has set a revised target. A number of optimisation projects have been identified.
     The Energy group is also focussing on long term emissions reductions through the Hydrogen Energy joint venture. The plan identifies significant expenditure in terms of operating and capital costs for Hydrogen Energy in 2008 and 2009.

FINANCIAL PERFORMANCE

2007 compared with 2006
The Energy group’s 2007 contribution to underlying earnings was US$1,500484 million, coal fired power generation project at KwinanaUS$222 million less than in Western Australia. This project would be subject to the successful outcome of detailed engineering2006.
      Coal chain infrastructure bottlenecks and commercial studiesallocation cutbacks in Australia resulted in ongoing and to government policy to make it commercially viable.significant

 

Rio Tinto 2006 2007 Form 20-F5082

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INDUSTRIAL MINERALS GROUPproduction cutbacks and much higher demurrage costs. It is anticipated that production in Australia will not return to full capacity until 2010 when infrastructure bottlenecks are expected to be cleared. Port allocation arrangement negotiations were continuing at year end.

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 comprisesThe results also reflected the softening of coking coal prices although there were increases in thermal coal prices and the stronger uranium oxide market. The weakening of the US dollar against the Australian dollar reduced earnings at Australian operations. For all operations, rising fuel prices and the tightness of the labour supply market continued to place pressure on operating results.
Despite lower volumes of uranium sold, higher market prices and the expiration of older contracts containing price caps contributed to a 69 per cent increase in uranium revenues in 2007 compared to 2006.
At Rössing Uranium, results were affected by reduced production volumes due to grade and plant performance and increased operating costs associated with development projects to increase capacity in the future. At ERA results were affected by production losses associated with severe rain and flooding of the pit.
The strong upward momentum that characterised the uranium market in the past three years continued for the first half of 2007, as demand remained robust in the wake of supply disruptions that affected a number of projects worldwide. However, unlike previous years, 2007 saw a fundamental change in market behaviour as the spot price became de-linked from the long term market due to the increasing influence of speculators in the commodity. Historically, the spot market has traded at a nominal discount to the term market, but last year saw substantial volatility in spot prices.
The long term uranium price, at which Rio Tinto Minerals, which produces borates, talc and salt, and Rio Tinto Iron & Titanium, a major producersells most of titanium dioxide feedstock. Rio Tinto is a global leaderits material, exhibited strong growth in the supply and scienceearly part 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 13the year, rising to a high of US$95 per pound in May, an increase of 27 per cent ofover December 2006. Thereafter, 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.long term price remained at US$95 as utility purchasing activity continued at moderately high levels.

Financial performance

2006 compared with 2005
Industrial Minerals’The Energy group’s contribution to 2006 underlying earnings was US$243706 million, US$24 million lower than in 2005.
Results benefited from a 30sustained increase in the price received for thermal coal. Capacity problems in the coal 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 also affected production levels. Operations focused on producing high margin products and optimising the coal supply chain. Increases in the cost of basic materials, fuel, explosives and labour were not fully offset by production growth, resulting in a rise in the cost per unit of production across all operations.
Although spot prices for uranium rose dramatically during the first part of the year, this had little effect on Rio Tinto’s long term contract portfolio. Uranium oxide is typically sold under long term contracts, with pricing determined both by fixed prices negotiated several years in advance, and by market prices at time of delivery. Therefore, the rise in the spot price of uranium oxide during the period was not fully reflected in the year’s earnings, but the rise in long term prices did contribute to the improved results. Moreover, for both mines, legacy contracts at low prices are being replaced with new long term contracts that provide floor price protection at levels far above market prices at the beginning of this decade.

OPERATIONS

Rio Tinto Energy America(Rio Tinto: 100 per cent)
Rio Tinto Energy America 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 improvement on 2005.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.
The second largest US coal producer, RTEA sells its ultra low sulphur coal to electricity generators predominantly in mid western and southern states.
In April, RTEA bid and won access to approximately 98 million tonnes of additional coal reserves for its Spring Creek Mine in Montana. In June, RTEA bid and won access to additional mineralisation for the Colowyo Mine in Colorado. The acquisitions will extend the operating lives of the respective mines.
     Rio Tinto Minerals’has announced that it is exploring options to sell RTEA.

2007 operating performance
RTEA’s 2007 contribution to underlying earnings atwas US$91132 million, US$45 million lower than in 2006. Results reflected steadily increasing US coal prices throughout 2007, more than offset by a higher effective tax rate in 2007.
RTEA’s 2007 sales were 54128.3 million tonnes (excludes brokered sales), a decrease of 222,000 tonnes from 2006. Further increases were limited as customers had built higher levels of coal stockpiles in 2006. Earnings were reduced by a higher effective tax rate than in 2006. In 2007 the effective rate was 35 per cent higheras all prior year loss carry forwards had been applied. Adjusting to comparable tax rates, the 2007 result was better than in 2005. Despite
upward cost pressure caused2006, largely driven by cyclonesimproved contract prices.
Antelope mine production of 31.3 million tonnes set a new record for annual production and labour markets in Western Australia,sales, above the absence in 2006 record 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$15230.7 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 impacttonnes. Colowyo mine production of the strong Canadian dollar.5.1 million tonnes decreased by 700,000 tonnes.

 

Rio Tinto 2006 2007 Form 20-F5183

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Cordero Rojo mine production of 36.7 million tonnes increased by 600,000 tonnes. Jacobs Ranch mine production of 34.6 million tonnes decreased by 1.7 million tonnes. Spring Creek mine production of 14.3 million tonnes set a new record for annual production and sales above the 2006 record of 13.2 million tonnes.
2005 comparedConsistent with 2004
Industrial Minerals’ contribution to the Group’s 2005 underlying earnings was US$187 million, 23worldwide mining industry, RTEA experienced an increase in the input prices of materials and supplies in 2007 resulting in higher variable costs of mining. Diesel prices in 2007 increased by more than 15 per cent lower than
in 2004,relative to 2006. Labour costs increased significantly reflecting significant one offthe competitive regional labour shortage and steadily increasing healthcare costs. Tyre costs increased with the worldwide shortage of US$42 million after tax, including provision for restructuring in relation tolarge mining equipment tyres. At 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 millionsame time, strip ratios increase as reserves get deeper, resulting from a change in the tax rate for QIT-Fer et Titane in Quebec.requirement to move increasing volumes of overburden.
     Rio Tinto Borax’s underlying earnings, at US$48 million, were 48 per cent lower thanRTEA is a member of the FutureGen Alliance, which seeks to construct the world’s first coal fuelled “zero emissions” power plant. The project achieved a major milestone with a site in 2004. The boratesbusinessIllinois selected for development. Construction was affected by lower sales volumes and higher energy and distribution costs. Rio Tinto Borax also incurredplanned to commence upon completion of the permitting process, however this is now in doubt with the US Department of Energy announcing a one off restructuring costrestructure of US$12 million after taxthe FutureGen project 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.

OperationsJanuary 2008.

Rio Tinto Minerals
Coal Australia
During 2006, three of (Rio Tinto’s Industrial Minerals businesses – Borax, Luzenac and Dampier Salt – combined theirTinto: 100 per cent)

management to form a new and more efficient organisation called Rio Tinto Minerals. Rio Tinto Minerals’ global presence includesCoal Australia 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 refineries, shipping facilities, refiningthe 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 listed on the Australian Securities Exchange and packing facilitieshad a market capitalisation of A$6.5 billion (US$5.7 billion) at 31 December 2007. Coal & Allied wholly owns Hunter Valley Operations, has an 80 per cent interest in Mount Thorley Operations, a 55.6 per cent interest in the contiguous Warkworth mine, and salesa 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 (TEC), an adjacent state owned power utility. In October 2007 the sale of the Tarong mine to TEC was announced with the sale to take effect from 31 January 2008.
Blair Athol produces thermal coal and technical facilities throughoutsells principally to the Americas, AsiaJapanese market generally on annual agreements. Kestrel and Europe.
     The company serves 2,500Hail Creek sell mainly metallurgical coal to customers in approximately 100 countries. The global operational headquarters havebeen relocated to Denver, Colorado,Japan, south east Asia, Europe and the global commercial headquarters are in Chiswick, London.Central America, generally on annual agreements.
Borates– More than one million tonnes of refined borates are produced at the principal borate miningCoal & Allied produces thermal 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 processing
facilities 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 alsosemi soft coal. Most of its full range of applicationsthermal coal is sold under contracts to electrical or industrial customers in Japan, Korea and user industries.
Salt– Rio Tinto Minerals manages Dampier Salt’s (Rio Tinto: 64.9 per cent) three salt operations locatedelsewhere in WesternAsia. The balance is sold in Europe and Australia. It produces industrial salt by solar evaporation at Dampier, Port Hedland and Lake MacLeod, where it also
mines gypsum. Dampier Salt’sCoal & Allied’s semi soft coal is exported to steel producing customers are located in Asia and the Middle East . The majority are chemical companies which use salt as basic feed for the productionEurope under a combination of chlorinelong term contracts and caustic soda (together known as chlor-alkali production). Dampier Salt’s product is also used as food saltspot business.
RTCA and for general purposes, including road de-icing.Coal & Allied collectively employ approximately 2,500 people.

20062007 operating performance
RTCA’s 2007 contribution to underlying earnings was US$246 million, US$244 million lower than in 2006. There was an increase in thermal coal prices but this was offset by production cutbacks necessitated by shipping bottlenecks and the continued weakening of the US dollar against the Australian dollar. Rising fuel prices and the tightness of the labour supply market continued to place pressure on operating results.
InA tax benefit of US$29 million was received on the release of a tax provision that was no longer required.
As the majority of costs are fixed with only consumables such as fuel, tyres and explosives being variable, reduced port capacities had a direct and negative impact on underlying earnings.
Inadequate capacity of coal chain infrastructure in both the Hunter Valley and Queensland operations was a significant contributor to less than satisfactory results for RTCA. Significant production cutbacks of 14 per cent from 2006 Rio Tinto Minerals streamlinedlevels were necessary, resulting in equipment and contract employees being idled. It is anticipated that production will not return to full capacity until 2010 when infrastructure bottlenecks are expected to be cleared.
RTCA operations declaredforce majeureunder its sales and administrative function, reducing staff by 20 per cent and closing three laboratories and three offices. There are plans to closecontracts on 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, and
improved plant efficiency, mine planning and energy use. In the marketplace, North America remains the most profitable region for Rio Tinto Minerals’ products. Developing economies suchoccasions during 2007; in June as China, eastern Europe and India hold promise becausea result 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 growthsevere weather conditions in the borate market, though there were pocketsHunter Valley and in November as a result of growthannounced first quarter 2008 allocation cutbacks at the Dalrymple Bay port facilities in Russia andQueensland.
eastern Europe. In North America, stagnation in the housing market signals a possible decline in demandTotal production at Blair Athol decreased 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 56,00010.2 million tonnes to supply market growth. The project was completed on time and under budget and is meeting planned throughput.
Talc– Talc7.9 million tonnes primarily as a result of limited port capacity. Kestrel’s 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 two0.8 per cent to 8.33.6 million tonnes. Hail Creek production was five million tonnes, (Rio Tinto share: 5.4 million tonnes). Sales volumesan increase of ten per cent. At Tarong, production decreased by five35 per cent.cent in line with lower demand from Tarong Energy Corporation.

Energy Resources of Australia(Rio Tinto: 68.4 per cent)
Despite this, supply reliabilityEnergy Resources of Australia Ltd (ERA) is a publicly listed company and excellent customer relations were maintained. Repairshad a market capitalisation of A$3.7 billion (US$3.3 billion) at 31 December 2007. ERA employs 420 people, an increase from 385 at the end of 2006.
Since 1980 ERA has mined ore and produced uranium oxide at its Ranger open pit mine, 250 kilometres east of Darwin in Australia’s Northern Territory. ERA also has title to the adjacent Jabiluka mineral lease, which in 2003 was put on long term care and maintenance. Ranger and Jabiluka are well under way. The residual impact of dilutionsurrounded by, but remain separate 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.World

 

Rio Tinto 2006 2007 Form 20-F5284

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Heritage listed Kakadu National Park, and especially stringent environmental requirements and governmental oversight apply.
ERA is a large uranium producer, with considerable operational experience and a well established market position. The Ranger mine is the second largest uranium mine in the world and ERA is the fourth largest producer. ERA’s strategy is focused on creating the most value from the mineralisation available on existing lease areas. In line with the Energy group’s strategy of seeking additional production volumes and long term expansions to supply the current favourable market environment, ERA put significant effort into achieving growth through capitalising on opportunities for expansion and extension of production including, an extension of the existing Ranger mine, and installation of additional processing equipment to treat low grade and lateritic ore.

2007 operating performance
ERA’s 2007 full year earnings rose by 124 per cent to US$38 million in comparison with 2006 earnings of US$17 million. This was driven by a rise in the average realised price of uranium oxide from US$18.36 per pound to US$25.06 per pound despite sales being lower at 11.7 million pounds compared to the 2006 volume of 12.7 million pounds. The 2007 sales figures include no borrowed material.
      Production of uranium oxide in 2007 was 11.7 million pounds, approximately 13 per cent higher than in 2006.
      The favourable production result was significant given a severe rain event associated with a tropical low pressure system, resulting in nearly 850 millimetres of rain falling over the Ranger operation in seven days in February 2007. This resulted in flooding of the Ranger open pit, restricting access to high grade ore, forcing a processing plant shutdown and a declaration offorce majeureon sales contracts in March 2007. In the third quarter of 2007 access to high grade ore was again possible through the implementation of various water disposal measures.
      Recovery work was successful in allowing production to return to normal levels in 2008 with no adverse environmental consequences. All sales commitments were met in 2007 andforce majeurewas lifted in January 2008. Further work is under way to reduce the impact of future weather events on the mine’s performance.
      In September ERA announced an extension of the Ranger mine at a capital cost A$57 million, which added 10.7 million pounds of additional reserves, and extended the mine life from 2008 to 2012. Expenditure of A$10 million was also approved to examine options to further extend the mine and increase production from the processing plant.
      Exploration and evaluation activity increased in 2007 with ERA spending US$11.8 million compared to US$6 million in 2006. Exploration and evaluation focused on near mine extensions to the Ranger orebody.

ERA continued to work with the Mirarr, traditional owners of the mining lease. The Mirarr commenced delivery of a cultural awareness programme to all new ERA employees and advised ERA on the establishment of traditional fire management practices on the Ranger lease. Increasing indigenous employment is a significant focus including the provision of training and employment opportunities. The year saw the number of indigenous employees increase to 65, or 16 per cent of the workforce. Improving on this will continue to be a focus for 2008.

Rio Tinto Iron & Titanium
Rössing Uranium
(Rio Tinto Iron & Titanium (RIT) comprisesTinto: 68.6 per cent)
Rössing Uranium Limited produces and exports uranium oxide from Namibia to power utilities globally. Rössing continues to play a major role in the wholly owned QIT-Fer et Titane (QIT)Namibian economy, both in Quebec, Canadaterms of GDP contribution as well as education, employment and training.
Rössing currently employs approximately 1,175 people. Following the life of mine extension project approved in 2005, capital equipment acquisitions for the new mining area are in place and planning work for further extension continues. In 2007 production volumes of 6.7 million pounds were constrained as a result of having limited access to ore sources. The phase one pit is in its last two years of life. Mining and processing volumes, however, have been good and the 50
per cent interestmine is positioned for higher volumes in Richards Bay Minerals (RBM) in KwaZulu-Natal, South Africa. Both operations produce titanium dioxide feedstock used as pigment by manufacturers2008 and beyond.
      The year was one of paintsconsolidation and surface coatings, plasticspreparation for future growth and paper. Coproducts include high purity ironsustainable production. Truck and zircon.
    QIT’s proprietary process technology enables itloading fleets doubled and over 300 people were recruited and trained. The current approved life of mine extensions will take the mine life to supply2016 and further potential opportunities exist to extend both the sulphatemine life and chloride pigment manufacturingproduction volumes depending on the long term price outlook and costs of production. Activities will continue to focus on continuous net present value (NPV) growth, improving margins and creation of options from known reserves and potentially economic mineralisation.

2007 operating performancemethods. Its upgraded slag (UGS)
Earnings increased to US$95 million from US$27 million in 2006 due to higher market prices for uranium oxide.
      Operating costs increased to US$38 per pound of uranium oxide production from US$22 per pound in 2006 as a result of lower production volumes, outsourcing of waste stripping as well as exploration activities that are not yet adding to production volumes. Costs were also affected by ore grades and higher than planned diesel and other operating costs.

All new primary production equipment is now fully commissioned to bring the fleet complement to 24 haul trucks from 16 at the beginning of the year, and six loading units compared to four previously. Initiatives are under way to improve the performance of the milling process.
      Lower than planned leach extraction in 2007 was due to the average ore type which impacted on process controls. In 2008 there will be a focus on maintaining stability in the process and improving the head grade by applying a better blending strategy.

Rio Tinto 2007 Form 20-F85

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     Rössing continues to put significant effort and management focus on safety. The goal is to eliminate all injuries from the workplace and to have an embedded safety culture and systems that identify and rectify potential safety hazards.

ENERGY GROUP PROJECTS

Energy Resources of Australia(Rio Tinto: 68.4 per cent)
In September 2007 ERA announced an extension to the Ranger open pit at a capital cost of A$57 million to extend mining until 2012. The pushback, when combined with optimisation of the existing pit, added an additional 10.7 million pounds of contained uranium oxide to reserves. The majority of the additional production from the extension is expected to occur in 2011.
      ERA has also approved expenditure of A$10 million for a pre-feasibility study to examine options to further expand the mine and increase production from the processing plant. The study commenced in the third quarter of 2007 and will continue into 2008.
      ERA’s other capital expansion projects to process laterite ore and radiometrically sort low grade ores are well advanced with both projects scheduled for commissioning in the second quarter of 2008. The laterite processing 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 tonneswill contribute approximately 0.88 million pounds per annum three months ahead of schedule.
     RBM’s ilmenite hasuranium oxide to production from 2008 through to 2014. The radiometric sorter will upgrade lower grade ore and allow an additional 2.4 million pounds of uranium oxide to be produced over a low alkali content, which makes its feedstock suitablefive year period from 2008 to the end of 2013.
      Exploration continued throughout the year including for the chloride pigment process. RBM hasfirst time drilling through the wet season. Activity focused on further defining the down dip extension of the Ranger orebody, as well as understanding and defining the uranium mineralisation to support the pre-feasibility study on further expansion of the mine.

Rössing Uranium(Rio Tinto: 68.6 per cent)
After years of working below capacity during a period of low uranium prices, in December 2005 approval was granted to restore annual production capacity to produce one8.8 million tonnespounds per annum and extend the life of feedstock annually.the operation until at least 2016. Total incremental and sustaining capital cost of the expansion is US$112 million.
      In 2007, delays were experienced with the start of construction projects due to slow contractor tender submissions. Recruitment of staff has been slow due to skills shortages in southern Africa. Work is now progressing well.

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 (TiO
2)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 MineralsOyu Tolgoi(Rio Tinto: 809.9 per cent)
cent interest in Ivanhoe Mines)

In 2005October 2006 Rio Tinto announced the approvalpurchased a stake 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 in Ivanhoe Mines of Canada in order 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 ensurejointly develop the project value is unchanged.
     The ilmenite will be smelted atOyu Tolgoi copper-gold resource in Mongolia’s south Gobi region. 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 60Tinto has the ability progressively to increase its stake to 43 per cent titanium dioxide,over theMadagascar orebody next four years at pre-determined prices. This phased, risk managed entry into an outstanding resource secures a valuable share of a potential average production rate of 440,000 tonnes of copper per year with significant gold by-products.
     There is extensive exploration potential in Mongolia, including ground controlled by Entrée Gold around Oyu Tolgoi. Rio Tinto is the world’s largest known undeveloped high grade ilmenite deposit. Itsingle shareholder in Entrée Gold and, with Ivanhoe, owns a total equity interest of 30.6 per cent. Ivanhoe has an expected mine life of 40 years and will supply a new, high quality chloride slag with 91option for up to an 80 per cent titanium dioxide contentinterest in the Entrée ground over the north and south extensions of the Oyu Tolgoi trend. Exploration on the Entrée Gold joint venture by Ivanhoe has recently delineated a continuous molybdenum-rich copper and gold mineralisation up to meet400 metres wide along a 1,100 metre strike length. Overall, the Oyu Tolgoi mineralised trend now has a strike length of over 20 kilometres.
     Rio Tinto is actively engaged and working with the Mongolian Government to progress settlement of a 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.investment agreement.

Potasio Entrée Gold(Rio Colorado S.A.Tinto: 16 per cent)
In June 2005 Rio Tinto acquired a 9.9 per cent stake via private placement in Entrée Gold Inc, a Canadian junior mining company. Entrée Gold's main asset includes three claims that surround the Ivanhoe Mines Oyu Tolgoi project in Mongolia. Rio Tinto's entry into Entrée Gold was due primarily to the prospectivity of the land package, including high grade copper and gold intercepts in their tenement already under agreement to Ivanhoe adjacent to the Oyu Tolgoi lease. Recent drilling by Ivanhoe identified significant high grade intercepts of porphyry mineralisation on the Heruga concession adjacent to the Oyu Tolgoi project. As part of the initial entry into Entrée Gold, Rio Tinto secured a further 6.3 million A and B class warrants which were due to expire by the end of June 2007. On the 28th June, Rio Tinto exercised these warrants at a cost of US$16.9 million which took Rio Tinto's direct equity in Entrée Gold to approximately 16 per cent. The combined Rio Tinto and Ivanhoe equity position is now over 30 per cent.

La Granja(Rio Tinto: 100 per cent)

The Rio Colorado potashLa Granja in the Cajamarca region of northern Peru is a copper project in Argentina lies 1,000 km south west of Buenos Aires. Evaluation ofthe pre-feasibility phase. Rio Tinto acquired the project began in late 2003, andDecember 2005 for US$22 million plus a minimum investment of US$60 million, through a public bidding process carried out by the Peruvian Government.
      As of December 2007, 41 kilometres of drilling had been completed which led to discovery of four additional porphyries in the vicinity, as well as further exploration potential. Drilling results suggest that the main areas have a targeted mineralisation at a copper equivalent average grade of about 0.5 per cent. Initial investigations indicate two to four times more mineralised material than was reported by previous owners, making La Granja the largest undeveloped copper project in Latin America. It has the potential to be a very large, scale triallong life operation. First production could occur in 2014.
     Instead of solution mining oflooking at La Granja as a conventional milling operation producing concentrates for export, the potash has run successfully from late 2004. Currently a feasibilitypre-feasibility study is under wayaimed at demonstrating the possibility of recovering copper metal using leaching of copper from whole ore, with solvent extraction 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 volumeselectrowinning.
     There are many stakeholders with an interest in the rangeproject due to the potential positive impact on the local and national economy. At the same time, local communities have high expectations of 1.6Rio Tinto’s presence in the area, where basic skills of literacy and numeracy and basic infrastructure and services are lacking. Rio Tinto is working in a participatory manner with local communities to 2.4 million tonneshelp them develop and improve their quality of life with the engagement of local, regional and national authorities.

Pebble(Rio Tinto: 19.8 per year.cent interest 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 19.8 per cent during February 2007. Northern Dynasty Minerals is advancing the Pebble copper-gold-molybdenum deposit in south western Alaska, which includes an orebody amenable to block caving. In July 2007, Anglo American agreed to

 

Rio Tinto 2006 2007 Form 20-F

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ALUMINIUM GROUPinvest US$1.4 billion in stages to earn a 50 per cent stake in the project.
The project comprises two orebodies, Pebble East and Pebble West. Drilling has shown Pebble East to be deep and higher grade, suggesting an attractive underground mining option with a smaller environmental footprint than the Pebble West deposit which would entail open pit mining. Rio Tinto will not support development unless it is conducted in a way that protects fish, wildlife and the environment.

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 


 

Sulawesi Nickel(Rio Tinto: 100 per cent)
The Sulawesi Nickel project is situated on the island of Sulawesi in Indonesia and is the result of the discovery by Rio Tinto Exploration in 2000 of a world class laterite deposit. Because of the nature of the deposit, mining is planned to be a shallow open cut process with continuous rehabilitation. Initial production is planned at a rate of about 46,000 tonnes of nickel per annum, with potential to increase to about 100,000 tonnes. The project will involve the construction of an access highway and a new seaport on the east coast of Sulawesi.
     Upon completion of the negotiation of a Contract of Work (CoW) with the Government and ratification of the agreement by the Indonesian Parliament, it is intended to start a pre-feasibility study into development.

Eagle(Rio Tinto: 100 per cent)
Late in 2007 Rio Tinto approved the development of the eagle nickel high grade underground mine in Michigan, US, which is scheduled to begin operation in 2009. There are six further adjacent prospects which may give the potential to extend the current mine life beyond 30 years at the current planned production rates. Deeper drilling under and adjacent to the Eagle deposit reinforced the potential for further economic nickel mineralisation outside the current mine plan. There are similarities to other world class magmatic nickel-sulphide deposits. Rio Tinto has an extensive land position in the Eagle district which is extremely prospective, including a 30 kilometre identified trend containing multiple target intrusions.

Changes in underlying earnings 2004 - 2006Rio Tinto 2007 Form 20-F

US$m74



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



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Diamonds and Industrial Minerals group

Mined Rio Tinto share 
Diamonds ‘000 carats 


 
2003 33,272 
2004 25,202 
2005 35,635 
2006 35,162 
2007 26,023 


 
Underlying earnings contribution*US$m 


 
2004 431 
2005 438 
2006 406 
2007 488 


 
Changes in underlying earnings 2005 – 2007US$m 


 
2005 Underlying earnings 438 
Effect of changes in:  
     Prices and exchange rates46 
     General inflation(26
     Volumes(97
     Costs(22
     Tax and other67 


 
2006 Underlying earnings 406 
Effect of changes in:  
     Prices and exchange rates (20
     General inflation (39
     Volumes 58 
     Costs 53 
     Tax and other 30 


 
2007 Underlying earnings 488 


 
*A reconciliation of the net earnings with underlying earnings for 2004,2007, 2006 and 2005 and 2006 as determined under EU IFRS is set out on page 39.53.

STRATEGIC OVERVIEW

From 1 June 2007 the number of product groups in which Rio Tinto Aluminium is an integratedorganised was reduced by combining the Industrial Minerals group with the Diamonds group to form Diamonds and Industrial Minerals. The structuring better reflects the size of the Diamonds and Industrial Minerals businesses in the context of the broader Rio Tinto. Diamonds and Industrial Minerals report to the product group with operationsheads of Copper and Energy respectively.
Diamonds 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, New ZealandRio Tinto’s 78 per cent interest in the Murowa mine in Zimbabwe and diamond sales and representative offices in Antwerp, Belgium and Mumbai, India.
      Within the UK. The Comalco name was replaced byglobal diamond industry, Rio Tinto Aluminium in November 2006Diamonds is well positioned as a leading supplier to take advantagethe market with a clear focus on the upstream portion of the Rio Tinto global brand and reputation.
value chain. The group’s differentiated approach to marketing has enabled it to capture higher prices.
      The Aluminium group’s strategy is to maximise shareholder return by committingcompete in the diamond business and strive to build further value through operational excellence in health, safetyand continued development of new and existing resources. The focus is on the mining, recovery and sale of rough natural diamonds. In keeping with Rio Tinto’s values, the group is a leading proponent of a number of programmes and partnerships that help improve social and environmental performance; maximising value generated from existing assets;standards of partners, suppliers and optimising and opportunisticallycustomers.
growing 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 December
2006, 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,sells diamonds from all three operations through its marketing arm according to a strict chain of custody process ensuring all products are segregated according to mine source.
      The Industrial Minerals part of the group is basedmade up of Rio Tinto Minerals (RTM), a global leader in borates, talc and salt supply and science, and Rio Tinto Iron & Titanium (RTIT), a major producer of titanium dioxide feedstock. Industrial minerals markets include automotive, construction, telecommunications, agriculture and consumer products industries. Market differentiation depends on technical and marketing expertise and the group maintains R&D facilities in Europe, Canada and the US to develop new products and support customers.
     The Industrial Minerals strategy is to create value by directing resources toward high value growth sectors in mature and emerging markets. To support this, the group focuses on meeting customers’ needs for consistent quality, on time delivery and responsiveness; setting and meeting aggressive business improvement targets; expanding high grade titanium dioxide feedstock capacity; and establishing stock points to supply demand growth in emerging economies.
Brisbane, Australia.

 

Rio Tinto 2006 2007 Form 20-F

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The Industrial Minerals operating strategy is market driven and focuses on optimising volumes and product mix.
      Business improvement targets set in 2004 have largely been met resulting in the lowering of the sustainable cost base of Industrial Minerals. As part of a business optimisation exercise two talc operations were sold and two more were decommissioned in 2007. The Canadian RTIT metal powders plant has been integrated into the other RTIT operations to improve operating synergies. Operational excellence programmes continue to deliver improvements through systematically eliminating waste, reducing process variability, and engaging and empowering the workforce.
      Commercial and operating excellence is the foundation for growth, with acquisitions of sufficient scale serving to complement the existing portfolio. Greenfields projects are under way in potash and soda ash. RTIT is operating its assets at maximum capacity while maximising returns from co-products. Volume growth in the high grade titanium dioxide feedstock market will be underpinned by the commissioning and expansion of the Madagascar deposit.
      During 2007 negotiations at Richards Bay Minerals (RBM) were progressed to an advanced stage to divest 26 per cent of the business to historically disadvantaged groups as part of the legal requirement in South Africa to convert mineral rights. Rio Tinto marginally increased its share in its salt operations by buying out minority shareholders. At the end of 2007 a Group wide review of assets was conducted to determine the long term value of retaining these assets within Rio Tinto. Based on the outcome of this review the RTM borates and talc businesses are being considered for divestment.

     At 31 December 2007, Diamonds and Industrial Minerals accounted for seven per cent of the Group’s operating assets and contributed approximately 12 per cent of Rio Tinto’s gross turnover and seven per cent of underlying earnings in 2007. Approximately 8,000 people were employed in 2007.
      Andrew Mackenzie was appointed chief executive, Diamonds and Industrial Minerals on 1 June. In November he left the Group. Responsibility for the Industrial Minerals portfolio was assumed by Preston Chiaro, chief executive, Energy, while Bret Clayton, chief executive, Copper, is responsible for Diamonds.

SAFETY

All injury frequency rate per 200,000 hours 


2003 1.89 
2004 1.67 
2005 1.45 
2006 0.91 
2007 1.07 



A regrettable double fatality occurred at RBM when two contractors lost their lives after entering a confined space. In 2007 the all injury frequency rate (AIFR) for the Industrial Minerals operations was 0.89 compared to 0.87 in 2006. The AIFR for Diamonds was 1.51 compared to 1.01 in 2006, including the Argyle underground project. A major focus continues to be delivery of a sustainable approach to safety improvement.

GREENHOUSE GAS EMISSIONS

Greenhouse gas (GHG) emissions per tonne of product are decreasing at both Diavik and Argyle diamond mines. Both sites are evaluating and implementing projects to further reduce emissions. At Argyle these projects are focused on inreasing the proportion of hydro-electric power, which already meets the majority of power requirements.
The majority of RTM’s GHG emissions are from the Boron California facility where an energy management plan has been introduced. There are currently 24 energy management projects that are being progressed, and emissions per tonne of product are decreasing. During 2007 RTIT sites undertook audits to identify opportunities for GHG and energy reduction.

FINANCIAL PERFORMANCE

2007 compared with 2006
Diamonds contributed US$280 million to Rio Tinto’s underlying earnings in 2007, an increase of US$69 million over 2006. Sales revenue for 2007 was US$1,020 million, US$182 million higher than in 2006. Increased volumes from Diavik, a reduction in stocks at Argyle and tax credits in Australia and Canada contributed to earnings. An impairment charge of US$328 million after tax was taken at Argyle, reflecting industry cost pressures and the difficult ground conditions encountered in the underground project.
      The rough diamond market recovered during 2007 as excess pipeline inventory was consumed after weakness in the latter half of 2006. The polished diamond market was steady, but the weakness of the US economy is expected to curtail demand in the lower end of the market.
      Industrial Minerals’ net earnings were US$248 million, an improvement of two per cent on 2006. Net earnings from RTM decreased eight per cent to US$84 million while revenue grew five per cent. Earnings were negatively

Rio Tinto 2007 Form 20-F5476

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Financial performanceaffected by a tax charge related to the borates business, and the impact of cyclones in Western Australia on salt volumes.
RTIT recorded earnings of US$164 million, up from US$152 million in 2006. Revenue increased by 15 per cent due to an increase in sales to emerging markets and strong co-product prices. The effect of the strong Canadian dollar and rising input costs continued to put pressure on earnings from RTIT’s wholly-owned QIT-Fer et Titane (QIT) business.

2006 compared with 2005
InDiamonds contributed US$211 million to underlying earnings in 2006, a decrease of US$75 million from 2005. Reduced 2006 earnings are mainly a result of the weakened second half market.
Diamonds’ turnover for 2006 was US$838 million, US$238 million lower than in 2005 driven primarily by a downturn in the rough diamond market in the second half of 2006. This resulted in lower prices for most product types with Rio Tinto Diamonds stocking some lower quality product to be sold in 2007.
Diamond production remained at similar levels to 2005 across all operations. Argyle produced 29.1 million carats 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 end prices closed at similar levels to the start of 2006. A number of factors influenced this mid year correction, including a congested processing pipeline, tight manufacturing and trading liquidity and storms that caused flooding in India’s major cutting center, 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.
During 2006 Rio Tinto’s shares in Ashton Mining of Canada were taken up by Stornoway Diamonds under its takeover bid for Ashton. In exchange for the shares in Ashton, Rio Tinto Aluminium’sreceived cash totaling approximately C$29.6 million and 25.6 million Stornoway common shares.
Industrial Minerals’ contribution to the Group’s2006 underlying earnings was US$746243 million, an increase of 90
a 30 per cent. Higher aluminium prices resulted incent improvement on 2005.
     Rio Tinto Minerals earnings increasing byat US$45191 million with the average aluminium pricewere 54 per cent improved on 2005. The absence in 2006 at 116 US cents per pound compared with 86 US cents in 2005.

of the 2005 compared with 2004
Rio Tinto Aluminium’s contributionMinerals restructure provision and modest revenue increases, combined with strong cost performance, despite upward pressure from cyclones in Western Australia and labour markets, contributed 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 refiningresult.
Rio Tinto Aluminium has a large, wholly owned bauxite mineIron & Titanium earnings at Weipa on Cape York Peninsula, Queensland. A
US$150152 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 in
2006.
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 per
cent 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’s
current 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, four19 per cent higher than in 2005. This increase was a resultGood price performance across all products, combined with favourable volume trends, strict cost control at RBM, and beneficial Canadian tax changes offset increased costs in the Canadian operations and the impact of the ongoing ramp up of project NeWeipa, which led to increased production from both the
East 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 the
result 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.strong Canadian dollar.

SmeltingRIO TINTO DIAMONDS OPERATIONS
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 of
Rio 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. This
new 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 below
2005 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

WeipaArgyle(Rio Tinto: 100 per cent)
In 2006, Rio Tinto Aluminium commissionedowns and operates the Argyle diamond mine in Western Australia. Production from Argyle’s AK1 open pit mine is expected to continue through 2008, when the mine will transition to underground operations which are expected to extend the life of the mine to about 2018.

2007 operating performance
Due to lower grades, diamonds recovered decreased to 18.7 million carats in 2007 from 29.1 million carats in 2006 despite 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 commissionedtwo per cent increase in the fourth quartervolume of ore treated. Mine productivity was lower due 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 deliveredmining at lower elevations in the third quarter of 2007.pit. Improvement programmes are in place to mitigate the cost pressures brought about by the resources boom in Western Australia.

YarwunDiavik Diamonds(Rio Tinto: 10060 per cent)
Rio Tinto Aluminium continues to studyoperates the expansionDiavik Diamond Mine, located 300 kilometres north east of Yellowknife, Northwest Territories. It is an unincorporated joint venture between Rio Tinto and Harry Winston Diamond Corporation (formerly Aber Diamonds). Operations began in 2003 with mining of the Yarwun alumina refinery, formerly Comalco Alumina
Refinery,A154 kimberlite pipes. In 2007 a second dike was completed to enable development of an open pit to mine on the A418 pipe. Open pit mining is expected to cease in Gladstone2012, at which time Diavik will become an all underground mine. Diavik’s total mine life remains within the 16 to meet22 years projected in the growing needsoriginal feasibility study of its own smelters and to supply growing demand, particularly from China and the Middle East.1999.

Abu Dhabi aluminium smelter(Rio Tinto: 50 per cent)2007 operating performance
InVolumes of ore mined and processed were similar to 2006, however increased grades meant that Rio Tinto Aluminium signed a preliminary agreement with General Holding CorporationTinto’s share of Abu Dhabidiamonds recovered increased to undertake a feasibility study into construction7.2 million carats in 2007 from 5.9 million carats in 2006. The availability of an aluminium smelter in the United Arab Emirates.
Development could result in a smelter with a first stage production capacitywinter road was much improved from the previous year and supply 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.materials did not negatively affect operations.

 

Rio Tinto 2006 2007 Form 20-F5677

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COPPER GROUPMurowa(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.

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.

2007 operating performance
The effects of power disruptions and lower feed head grades meant that Rio Tinto’s Copper group comprises Kennecott Utah Coppershare of diamonds recovered decreased to 0.11 million carats from 0.19 million carats in 2006. Operating conditions in the UScountry remained challenging with hyperinflation and interestscommodity shortages.

RIO TINTO MINERALS OPERATIONS

RTM comprises borates, talc and salt mines, refineries, and shipping and packing facilities on five continents. Global headquarters are located in Denver, Colorado.
Borates– More than one million tonnes of refined borates are produced at Boron Operations, the organisation’s principal borate mining and refining operation in California’s Mojave Desert. Borates are essential to plants and part of a healthy diet for people. They are also key ingredients in hundreds of products essential to an acceptable standard of living, 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 micro-nutrients (seven per cent); and other uses including wood preservatives and flame retardants (30 per cent).
Talc– RTM operates talc mines – including the world’s largest, in southwest France – and processing facilities in Austria, Australia, Belgium, Canada, France, Italy, Japan, Mexico, Spain and the US. Talcs enhance performance in countless applications, including paper, paints, polymers, automotive mouldings, ceramics, personal care products and pharmaceuticals. 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: 68.4 per cent) – RTM manages three salt operations located in Western Australia. It produces industrial salt by solar evaporation at its Dampier, Port Hedland and Lake MacLeod operations, where it also mines gypsum. Customers are located in Asia and the Middle East. The majority are chemical companies who use salt as feedstock for the production of chlorine and caustic soda (together known as chlor-alkali production). Products are also used as food salt and for general purposes including road de-icing.

2007 operating performance
Borates– Production volumes were up one per cent at 560,000 tonnes of boric oxide, and sales volumes declined slightly from 2006. North American markets continued to be affected by a sluggish housing industry in 2007 but were offset by strong growth in Asian markets and steady performance in European markets.
Talc– Talc output decreased by eight per cent to 1,281,000 tonnes as smaller operations were closed and marginal sales were discontinued. Sales volumes decreased slightly. Strong polymer and coating sales in Europe offset volume declines in North America driven by the housing and automotive sector slowdown.
Salt(Rio Tinto: 68.4 per cent) – The residual effects of the cyclones in Western Australia led to a three per cent decline in salt volumes to 5.2 million tonnes (Rio Tinto share). The recovery effort is expected to take until the fourth quarter of 2008, with full capacity likely in 2010. A 500,000 tonnes per annum capacity expansion at Lake MacLeod has been completed.

RIO TINTO IRON & TITANIUM OPERATIONS

Quebec Iron & Titanium
Richards Bay Minerals(Rio Tinto: 50 per cent)
Rio Tinto Iron & Titanium (RTIT) comprises the wholly owned Quebec Iron & Titanium (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. RBM is progressing arrangements to meet the requirements of legislation governing broad based economic empowerment in the copper minesSouth African mining industry.
      QIT’s proprietary process technology enables it to supply both the sulphate and chloride pigment manufacturing methods. QIT has the capacity to produce 375,000 tonnes of Escondida in Chile, Grasberg in Indonesia, Northparkes in Australia, Palabora in South Africa,upgraded slag (UGS) per annum and is currently improving its smelter facility to smelt ilmenite from the Resolution CopperMadagascar project into high grade slag. Identified mineralisation will sustain more than 20 years operation at current production rates if converted to ore reserves.
      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.
      RTIT is headquartered 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 joint
ventures (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 nickel
deposit (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,UK.

 

Rio Tinto 2006 2007 Form 20-F5778

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accounted2007 operating performance
Titanium dioxide pigment is the principal end use market for 16feedstocks manufactured by RTIT.
Titanium dioxide feedstock output remained steady from 2006 to 2007 with both smelters operating at full capacity. Prices of chloride feedstock remained flat with the market going into oversupply. The production of UGS increased by five per cent to take advantage of the Group’s operating assets and in 2006 contributed approximately 28 per centincreasing demand for high grade feedstock. Sales of Rio Tinto’s gross sales revenue, of which 74 per cent wasfeedstock into the sulphate market increased to meet demand from copper, 13 per cent from molybdenum andAsia. Prices for iron co-products remained strong during 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.year.

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 54
per 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 lower
sales 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 of
molybdenum 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$311
million 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 underground
production. 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.

OperationsDIAMONDS AND INDUSTRIAL MINERALS GROUP PROJECTS

Kennecott Utah CopperDiavik underground(Rio Tinto: 60 per cent)
Following the completion of the feasibility study in 2007 approval was given to proceed with underground mining of the A154N, A154S and A418 kimberlites. Additional funding of US$563 million was approved, bringing the total investment in the underground mine to US$787 million. Under the current life of mine plan, diamond production from underground would begin in 2009 and continue beyond 2020.
     To support underground mining, Diavik must construct new surface works including a crusher and paste backfill plant, expand its water treatment and power generating plants, and construct ancillary facilities including fuel and cement storage, and additional accommodation facilities.
      About 20 kilometres of tunnels will be constructed to bring underground mining into production. The capital investment of US$563 million will be spent over the next two years, adding to the US$224 million invested in 2006-2007 for the underground feasibility studies and related capital projects.
      The study into the A21 kimberlite concluded that this should not be included in reserves at this point and further project development will be conducted in 2008.

Murowa(Rio Tinto: 77.8 per cent)
The feasibility study into expanding the capacity of Murowa mining and processing operations was completed during 2007. A decision to proceed will depend on resolving security of tenure.

Argyle underground(Rio Tinto: 100 per cent)
Kennecott Utah Copper (KUC) operates the Bingham Canyon mine, Copperton concentrator and Garfield smelter and
refinery 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 of
exceptionally high prices. Employing Rio Tinto’sImproving performance together(IPT) methodology, KUC substantially improved its knowledge of molybdenum mineralisation in the orebody to optimise molybdenumproduction, which was eight per cent higher than 2005.
In July, a pebble crushing facility was commissioned at the concentrator. Final modifications to this circuit will

Rio Tinto 2006 Form 20-F58

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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.

Rio Tinto 2006 Form 20-F59

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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 and
Escondida 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

Rio Tinto 2006 Form 20-F60

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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 E48an underground block cave project, which is expectedmine 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 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 Kemblaestimate 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 productionrevised to US$1.5 billion due to the move intooverheated Western Australian mining and construction industry and challenging ground conditions. However, efforts continue to recover value, and some improvement on the final lower grade stages ofrevised cost estimate may be possible following more rapid underground development rates in the Pipeline orebody. Whilesecond half. First production from the underground operation 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.2009.

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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 stakeinterest in Ivanhoe Mines)
In October 2006 Rio Tinto purchased a stake of just under ten per cent in Ivanhoe Mines of Canada in order to jointly develop the Oyu Tolgoi copper-gold resource in Mongolia’s south Gobi region. Rio Tinto has the ability progressively to increase its stake to 43 per cent over the next four years at pre-determined prices. This phased, risk managed entry into an outstanding resource secures a valuable share of a potential average production rate of 440,000 tonnes of copper per year with significant gold by-products.
     There is extensive exploration potential in Mongolia, including ground controlled by Entrée Gold around Oyu Tolgoi. Rio Tinto is the largest single shareholder in Entrée Gold and, with Ivanhoe, owns a total equity interest of 30.6 per cent. Ivanhoe has an option for up to an 80 per cent interest in the Entrée ground over the north and south extensions of the Oyu Tolgoi trend. Exploration on the Entrée Gold joint venture by Ivanhoe has recently delineated a continuous molybdenum-rich copper and gold mineralisation up to 400 metres wide along a 1,100 metre strike length. Overall, the Oyu Tolgoi mineralised trend now has a strike length of over 20 kilometres.
     Rio Tinto is actively engaged and working with the Mongolian Government to progress settlement of a long term investment agreement.

Entrée Gold(Rio Tinto: 16 per cent)
In June 2005 Rio Tinto acquired a 9.9 per cent holding ofstake via private placement in Entrée Gold Inc, a Canadian junior mining company. Entrée Gold's main asset includes three claims that surround the Ivanhoe Mines in order to jointly develop and operate Ivanhoe’s Oyu Tolgoi copper-gold complexproject in Mongolia’s South Gobi region.Mongolia. Rio Tinto's entry into Entrée Gold was due primarily to the prospectivity of the land package, including high grade copper and gold intercepts in their tenement already under agreement to Ivanhoe adjacent to the Oyu Tolgoi lease. Recent drilling by Ivanhoe identified significant high grade intercepts of porphyry mineralisation on the Heruga concession adjacent to the Oyu Tolgoi project. As part of the initial entry into Entrée Gold, Rio Tinto secured a further 6.3 million A joint Ivanhoe-Rio Tinto technical committee will engineer, construct and operate the project.
SubjectB class warrants which were due to reaching a satisfactory long term investment agreement with the Mongolian government, an open pit mine is expected to be in operationexpire by the end of June 2007. On 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 with28th June, Rio Tinto exercised these warrants at a cost of US$16.9 million which took Rio Tinto's direct equity in Entrée Gold 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 betweenapproximately 16 per cent. The combined Rio Tinto and Ivanhoe Mines, been transferred to an independent third party trust, the solepurpose of whichequity position 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).now over 30 per cent.

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 toPeru is a copper project in the pre-feasibility phase. Rio Tinto acquired the project in December 2005 for US$22 million plus a minimum investment of US$60 million, through a public bidding process carried out by the Peruvian governmentGovernment.
      As of US$22 million and US$60 million ininvestmentDecember 2007, 41 kilometres of drilling had been completed which led to discovery of four additional porphyries in the vicinity, as well as further exploration and feasibility work. In late 2006, Rio Tinto approved expenditure uppotential. Drilling results suggest that the main areas have a targeted mineralisation at a copper equivalent average grade of about 0.5 per cent. Initial investigations indicate two to US$95 million, most
of which is expectedfour times more mineralised material than was reported by previous owners, making La Granja the largest undeveloped copper project in Latin America. It has the potential 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.a very large, long life operation. First production could occur in 2014.
     
Instead of looking at La Granja as a conventional milling operation producing concentrates for export, theprefeasibilitythe pre-feasibility study is aimed at demonstrating the possibility of recovering copper metal using bioleachingleaching of copper from whole ore, with solvent extraction and electrowinning.
     There are many stakeholders with an interest in the project due to the potential positive impact on the local and national economy. At the same time, local communities have high expectations of Rio Tinto’s presence in the area, where basic skills of literacy and numeracy and basic infrastructure and services are lacking. Rio Tinto is working in a participatory manner with local communities to help them develop and improve their quality of life with the engagement of local, regional and national authorities.

Pebble(Rio Tinto: 19.8 per cent stakeinterest 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 19.8per19.8 per cent during February 2007. Northern Dynasty Minerals is advancing the Pebble copper-gold-molybdenum deposit in southwesternsouth western Alaska, which is another world class ore body that isincludes an orebody amenable to block caving. In July 2007, Anglo American agreed to

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invest US$1.4 billion in stages to earn a 50 per cent stake in the project.
The project comprises two orebodies, Pebble East and Pebble West. Drilling has shown Pebble East to be deep and higher grade, suggesting an attractive underground mining option with a smaller environmental footprint than the Pebble West deposit which would entail open pit mining. Rio Tinto will not support development unless it is conducted in a way that protects fish, wildlife and the environment.

Cortez HillsSulawesi Nickel(Rio Tinto: 40100 per cent)
The Sulawesi Nickel project is situated on the island of Sulawesi in Indonesia and is the result of the discovery by Rio Tinto holdsExploration in 2000 of a 40world class laterite deposit. Because of the nature of the deposit, mining is planned to be a shallow open cut process with continuous rehabilitation. Initial production is planned at a rate of about 46,000 tonnes of nickel per cent interest inannum, with potential to increase to about 100,000 tonnes. The project will involve the Cortez joint venture,construction of an access highway and a new seaport on the east coast of Sulawesi.
     Upon completion of the negotiation of a Contract of Work (CoW) with Barrick Gold managing the joint ventureGovernment and holdingratification of the remaining 60 per cent interest. The operationagreement by the Indonesian Parliament, it 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.intended to start a pre-feasibility study into development.

Eagle(Rio Tinto: 100 per cent)
The Eagle project is aLate in 2007 Rio Tinto approved the development of the eagle nickel high grade nickel deposit locatedunderground mine in Michigan, US. Kennecott MineralsUS, which is scheduled to begin operation in 2009. There are six further adjacent prospects which may give the potential to extend the current mine life beyond 30 years at the current planned production rates. Deeper drilling under and adjacent to the Eagle deposit reinforced the potential for further economic nickel mineralisation outside the current mine plan. There are similarities to other world class magmatic nickel-sulphide deposits. Rio Tinto has carried out a project feasibility study. Permitting approvals are under way while exploration continuesan extensive land position in the area around Eagle and thewider district. A decision on developing the depositdistrict which is expected in 2007.extremely prospective, including a 30 kilometre identified trend containing multiple target intrusions.

 

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DIAMONDS GROUPDiamonds and Industrial Minerals 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


Mined Rio Tinto share 
Diamonds ‘000 carats 


 
2003 33,272 
2004 25,202 
2005 35,635 
2006 35,162 
2007 26,023 


 
Underlying earnings contribution*US$m 


 
2004 431 
2005 438 
2006 406 
2007 488 


 
Changes in underlying earnings 2005 – 2007US$m 


 
2005 Underlying earnings 438 
Effect of changes in:  
     Prices and exchange rates46 
     General inflation(26
     Volumes(97
     Costs(22
     Tax and other67 


 
2006 Underlying earnings 406 
Effect of changes in:  
     Prices and exchange rates (20
     General inflation (39
     Volumes 58 
     Costs 53 
     Tax and other 30 


 
2007 Underlying earnings 488 


 
*A reconciliation of the net earnings with underlying earnings for 2004,2007, 2006 and 2005 and 2006 as determined under EU IFRS is set out onon page 3953.

TheSTRATEGIC OVERVIEW

From 1 June 2007 the number of product groups in which Rio Tinto is organised was reduced by combining the Industrial Minerals group with the Diamonds group to form Diamonds and Industrial Minerals. The structuring better reflects the size of the Diamonds and Industrial Minerals businesses in the context of the broader Rio Tinto. Diamonds and Industrial Minerals report to the product group heads of Copper and Energy respectively.
Diamonds 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 theMurowathe Murowa 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
      Within the
development 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 to global diamond industry, Rio Tinto overall.
Within the industry, the Diamond groupDiamonds is well positioned as a leading supplier to the market with a clear focusonfocus on the upstream portion of the value chain. Rio Tinto’s exploration programme has been successful in discovering new assets for Diamonds to develop, and aThe group’s differentiated approach to marketing has enabled theit to capture of higher prices.
      The group’s strategy is to compete in the diamond business and strive to build further value.value through operational excellence and continued development of new and existing resources. The focus is on the mining,recovery and sale of rough natural diamonds. In keeping with Rio Tinto’s values, the Diamonds group is a leading proponent of
a 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.
      The Industrial Minerals part of the group is made up of Rio Tinto Minerals (RTM), a global leader in borates, talc and salt supply and science, and Rio Tinto Iron & Titanium (RTIT), a major producer of titanium dioxide feedstock. Industrial minerals markets include automotive, construction, telecommunications, agriculture and consumer products industries. Market differentiation depends on technical and marketing expertise and the group maintains R&D facilities in Europe, Canada and the US to develop new products and support customers.
     The Industrial Minerals strategy is to create value by directing resources toward high value growth sectors in mature and emerging markets. To support this, the group focuses on meeting customers’ needs for consistent quality, on time delivery and responsiveness; setting and meeting aggressive business improvement targets; expanding high grade titanium dioxide feedstock capacity; and establishing stock points to supply demand growth in emerging economies.

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The Industrial Minerals operating strategy is market driven and focuses on optimising volumes and product mix.
      Business improvement targets set in 2004 have largely been met resulting in the lowering of the sustainable cost base of Industrial Minerals. As part of a business optimisation exercise two talc operations were sold and two more were decommissioned in 2007. The Canadian RTIT metal powders plant has been integrated into the other RTIT operations to improve operating synergies. Operational excellence programmes continue to deliver improvements through systematically eliminating waste, reducing process variability, and engaging and empowering the workforce.
      Commercial and operating excellence is the foundation for growth, with acquisitions of sufficient scale serving to complement the existing portfolio. Greenfields projects are under way in potash and soda ash. RTIT is operating its assets at maximum capacity while maximising returns from co-products. Volume growth in the high grade titanium dioxide feedstock market will be underpinned by the commissioning and expansion of the Madagascar deposit.
      During 2007 negotiations at Richards Bay Minerals (RBM) were progressed to an advanced stage to divest 26 per cent of the business to historically disadvantaged groups as part of the legal requirement in South Africa to convert mineral rights. Rio Tinto marginally increased its share in its salt operations by buying out minority shareholders. At the end of 20062007 a Group wide review of assets was conducted to determine the long term value of retaining these assets within Rio Tinto. Based on the outcome of this review the RTM borates and talc businesses are being considered for divestment.

     At 31 December 2007, Diamonds and Industrial Minerals accounted for seven per cent of the Group’s operating assets and contributed approximately 12 per cent of Rio Tinto’s gross turnover and seven per cent of underlying earnings in 2007. Approximately 8,000 people were employed 1,500 people and had 930 contractors.in 2007.
     
The Diamonds groupAndrew Mackenzie 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 beenappointed chief executive, Diamonds became Group executive Business Resources; and Andrew Mackenzie, based in London, becameIndustrial Minerals on 1 June. In November he left the Group. Responsibility for the Industrial Minerals portfolio was assumed by Preston Chiaro, chief executive, Diamondsand Minerals.Energy, while Bret Clayton, chief executive, Copper, is responsible for Diamonds.

Financial performanceSAFETY

All injury frequency rate per 200,000 hours 


2003 1.89 
2004 1.67 
2005 1.45 
2006 0.91 
2007 1.07 



A regrettable double fatality occurred at RBM when two contractors lost their lives after entering a confined space. In 2007 the all injury frequency rate (AIFR) for the Industrial Minerals operations was 0.89 compared to 0.87 in 2006. The AIFR for Diamonds was 1.51 compared to 1.01 in 2006, including the Argyle underground project. A major focus continues to be delivery of a sustainable approach to safety improvement.

GREENHOUSE GAS EMISSIONS

2006Greenhouse gas (GHG) emissions per tonne of product are decreasing at both Diavik and Argyle diamond mines. Both sites are evaluating and implementing projects to further reduce emissions. At Argyle these projects are focused on inreasing the proportion of hydro-electric power, which already meets the majority of power requirements.
The majority of RTM’s GHG emissions are from the Boron California facility where an energy management plan has been introduced. There are currently 24 energy management projects that are being progressed, and emissions per tonne of product are decreasing. During 2007 RTIT sites undertook audits to identify opportunities for GHG and energy reduction.

FINANCIAL PERFORMANCE

2007 compared with 20052006
Diamonds contributed US$205280 million to Rio Tinto’s underlying earnings in 2007, an increase of US$69 million over 2006. Sales revenue for 2007 was US$1,020 million, US$182 million higher than in 2006. Increased volumes from Diavik, a reduction in stocks at Argyle and tax credits in Australia and Canada contributed to earnings. An impairment charge of US$328 million after tax was taken at Argyle, reflecting industry cost pressures and the difficult ground conditions encountered in the underground project.
      The rough diamond market recovered during 2007 as excess pipeline inventory was consumed after weakness in the latter half of 2006. The polished diamond market was steady, but the weakness of the US economy is expected to curtail demand in the lower end of the market.
      Industrial Minerals’ net earnings were US$248 million, an improvement of two per cent on 2006. Net earnings from RTM decreased eight per cent to US$84 million while revenue grew five per cent. Earnings were negatively

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affected by a tax charge related to the borates business, and the impact of cyclones in Western Australia on salt volumes.
RTIT recorded earnings of US$164 million, up from US$152 million in 2006. Revenue increased by 15 per cent due to an increase in sales to emerging markets and strong co-product prices. The effect of the strong Canadian dollar and rising input costs continued to put pressure on earnings from RTIT’s wholly-owned QIT-Fer et Titane (QIT) business.

2006 compared with 2005
Diamonds contributed US$211 million to underlying earnings in 2006, a decrease of US$7675 million from 2005. Sales revenueReduced 2006 earnings are mainly a result of the weakened second half market.
Diamonds’ turnover for 2006 was US$838 million, US$238 million lower than in 2005. The lower earnings and sales revenue arose mainly from2005 driven primarily by a downturn in the rough diamond market in the second half of 2006. This resulted in lower

Rio Tinto 2006 Form 20-F63

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prices for most product types with Rio Tinto Diamonds stocking some lower pricedquality product which willto be sold in future periods.2007.
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 manufacturing and trading liquidity in the manufacturing sector and extensivestorms that caused flooding in India’s major cutting centre,center, 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
During 2006 Rio Tinto’s shares in Ashton Mining of Canada were taken up by Stornoway Diamonds contributed US$281millionunder its takeover bid for Ashton. In exchange for the shares in Ashton, Rio Tinto received cash totaling approximately C$29.6 million and 25.6 million Stornoway common shares.
Industrial Minerals’ contribution to 2006 underlying earnings an increasewas US$243 million, a 30 per cent improvement on 2005.
     Rio Tinto Minerals earnings at US$91 million were 54 per cent improved on 2005. The absence in 2006 of the 2005 Rio Tinto Minerals restructure provision and modest revenue increases, combined with strong cost performance, despite upward pressure from cyclones in Western Australia and labour markets, contributed to this result.
      Rio Tinto Iron & Titanium earnings at US$93152 million from 2004, assisted by a
strong diamond marketwere 19 per cent higher than in 2005. Good price performance across all products, combined with favourable volume trends, strict cost control at RBM, and beneficial Canadian tax changes offset increased costs in the Canadian operations 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 endimpact 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.strong Canadian dollar.

Operations

RIO TINTO DIAMONDS 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 2009through 2008, when the mine is expected to graduallywill transition to underground operations which wouldare expected to extend the life of the mine to about 2018.

20062007 operating performance
Despite tight mining conditionsDue to lower grades, diamonds recovered decreased to 18.7 million carats in the deepening and geotechnically challenging open pit, the operation maintainedproduction and plant throughput in 2006, producing2007 from 29.1 million carats in 2006 compared with 30.5 million caratsdespite a two per cent increase in 2005.
     Commencingthe volume of ore treated. Mine productivity was lower due to mining at lower elevations in 2006, underground safety performance was separated from that of the open pit section. Althoughpit. Improvement programmes are in place to mitigate the aggregate 2006 safety performance was only slightly better thancost pressures brought about by the resources boom 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.Western Australia.

Diavik Diamonds(Rio Tinto: 60 per cent)

ConstructionRio Tinto operates the Diavik Diamond Mine, located 300 kilometres north east of Diavik was completedYellowknife, Northwest Territories. It is an unincorporated joint venture between Rio Tinto and Harry Winston Diamond Corporation (formerly Aber Diamonds). Operations began 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 integrationmining of the A154 kimberlite pipes. In 2007 a second dike was completed to enable development of an open pit to mine on 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 operational
performance 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.
pipe. Open pit mining is expected to be predominantly from A154cease in 2012, at which time Diavik will become an all underground mine. Diavik’s total mine life remains within the 16 to 22 years projected in the original feasibility study of 1999.

2007 operating performance
Volumes of ore mined and processed were similar to 2006, however increased grades meant that Rio Tinto’s share of diamonds recovered increased to 7.2 million carats in 2007 with some A418 open pit ore commencingfrom 5.9 million carats in 2008.2006. The availability of the winter road was much improved from the previous year and supply of materials did not negatively affect operations.

 

Rio Tinto 20062007 Form 20-F6477

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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.

2007 operating performance
The effects of power disruptions and lower feed head grades meant that Rio Tinto’s share of diamonds recovered decreased to 0.11 million carats from 0.19 million carats in 2006. Operating conditions in the country remained challenging with hyperinflation and commodity shortages.

RIO TINTO MINERALS OPERATIONS

RTM comprises borates, talc and salt mines, refineries, and shipping and packing facilities on five continents. Global headquarters are located in Denver, Colorado.
Borates– More than one million tonnes of refined borates are produced at Boron Operations, the organisation’s principal borate mining and refining operation in California’s Mojave Desert. Borates are essential to plants and part of a healthy diet for people. They are also key ingredients in hundreds of products essential to an acceptable standard of living, 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 micro-nutrients (seven per cent); and other uses including wood preservatives and flame retardants (30 per cent).
     Murowa’s 2006 safety performance was exceptional with no lost time injuries reportedTalc– RTM operates talc mines – including the world’s largest, in 2006southwest France – and processing facilities in Austria, Australia, Belgium, Canada, France, Italy, Japan, Mexico, Spain and the all injuryfrequency rate downUS. Talcs enhance performance in countless applications, including paper, paints, polymers, automotive mouldings, ceramics, personal care products and pharmaceuticals. 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: 68.4 per cent) – RTM manages three salt operations located in Western Australia. It produces industrial salt by more than 80 per cent.solar evaporation at its Dampier, Port Hedland and Lake MacLeod operations, where it also mines gypsum. Customers are located in Asia and the Middle East. The majority are chemical companies who use salt as feedstock for the production of chlorine and caustic soda (together known as chlor-alkali production). Products are also used as food salt and for general purposes including road de-icing.

20062007 operating performance
Borates– Production volumes were up one per cent at 560,000 tonnes of boric oxide, and sales volumes declined slightly from 2006. North American markets continued to be affected by a sluggish housing industry in 2007 but were offset by strong growth in Asian markets and steady performance in European markets.
Talc– Talc output decreased by eight per cent to 1,281,000 tonnes as smaller operations were closed and marginal sales were discontinued. Sales volumes decreased slightly. Strong polymer and coating sales in Europe offset volume declines in North America driven by the housing and automotive sector slowdown.
Salt(Rio Tinto: 68.4 per cent) – The residual effects of the cyclones in Western Australia led to a three per cent decline in salt volumes to 5.2 million tonnes (Rio Tinto share). The recovery effort is expected to take until the fourth quarter of 2008, with full capacity likely in 2010. A start was made on upgrading the 200,000500,000 tonnes per yearannum capacity expansion at Lake MacLeod has been completed.

RIO TINTO IRON & TITANIUM OPERATIONS

Quebec Iron & Titanium
Richards Bay Minerals(Rio Tinto: 50 per cent)
Rio Tinto Iron & Titanium (RTIT) comprises the wholly owned Quebec Iron & Titanium (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. RBM is progressing arrangements to meet the requirements of legislation governing broad based economic empowerment in the South African mining industry.
      QIT’s proprietary process technology enables it to supply both the sulphate and chloride pigment manufacturing methods. QIT has the capacity to produce 375,000 tonnes of upgraded slag (UGS) per annum and is currently improving its smelter facility to smelt ilmenite from the Madagascar project into high grade slag. Identified mineralisation will sustain more than 20 years operation at current production rates if converted to ore reserves.
      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.
      RTIT is headquartered in the UK.

Rio Tinto 2007 Form 20-F78

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2007 operating performance
Titanium dioxide pigment is the principal end use market for feedstocks manufactured by RTIT.
Titanium dioxide feedstock output remained steady from 2006 to 2007 with both smelters operating at full capacity. Prices of chloride feedstock remained flat with the market going into oversupply. The production of UGS increased by five per cent to take advantage of the increasing demand for high grade feedstock. Sales of feedstock into the sulphate market increased to meet demand from Asia. Prices for iron co-products remained strong during the year.

DIAMONDS AND INDUSTRIAL MINERALS GROUP PROJECTS

Diavik underground(Rio Tinto: 60 per cent)
Following the completion of the feasibility study in 2007 approval was given to proceed with underground mining of the A154N, A154S and A418 kimberlites. Additional funding of US$563 million was approved, bringing the total investment in the underground mine to US$787 million. Under the current life of mine plan, diamond production from underground would begin in 2009 and continue beyond 2020.
     To support underground mining, Diavik must construct new surface works including a crusher and paste backfill plant, expand its water treatment and power generating plants, and construct ancillary facilities including fuel and cement storage, and additional accommodation facilities.
      About 20 kilometres of tunnels will be constructed to bring underground mining into production. The capital investment of US$563 million will be spent over the next two years, adding to the US$224 million invested in 2006-2007 for the underground feasibility studies and related capital projects.
      The study into the A21 kimberlite concluded that this should not be included in reserves at this point and further project development will be conducted in 2008.

Murowa(Rio Tinto: 77.8 per cent)
The feasibility study into expanding the capacity of Murowa mining and processing plant to increase throughput, improve recoveries
and protect against power outages. The modificationoperations was completed during April 2007 and is expected2007. A decision to give Murowa several more yearsproceed will depend on resolving security 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.

Projectstenure.

Argyle underground(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 estimate for the project was revised to US$1.5 billion due to the overheated Western Australian mining and construction industry and challenging ground conditions. However, efforts continue to recover value, and some improvement on the revised cost estimate may be possible following more rapid underground development rates in the second half. First production from the underground operation is expected in 2009.

QIT Madagascar Minerals(Rio Tinto 80 per cent)
The project was approved in 2005 and comprises a mineral sand mine and separation plant, and port facilities in southern Madagascar as well as an upgrade of QIT’s ilmenite smelting facilities in Canada. The Government of Madagascar contributed US$35m to the establishment of the underground mineport as part of its Growth Poles project funded by the World Bank. The project has maintained its schedule, however cost inflation and foreign exchange effects have increased the cost estimate to US$1.0 billion. Nevertheless, increased product selling prices have meant that the project value has been maintained. First production is expected to be US$760 million, and the cutback US$150 million.
     Construction started in February 2006. Byat the end of 2006, 10,600 metres of underground development in four main access declines had been completed. In late 2006 the first2008.
      The mine will be a key initial customer of the underground declines reacheddeep sea multi-use public port at Ehoala, providing the required depth
for ore extraction. The underground block cave undercutbase load to help establish the port. Over time, it is expected the port will make an important contribution to be initiated on schedule in 2008.

Diavik(Rio Tinto: 60 per cent)
In late 2004 the joint venture approved a studyeconomic development of the feasibility of underground mining ofregion.
      RTIT will manage 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 in
2006 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.port operations. At the end of 2006, the decline had reachedlife of the kimberlite,mine, the port will fall under the responsibility and bulksampling results are expectedcontrol of the Government of Madagascar.
Extensive engagement and consultation with the Government of Madagascar and local people and leaders has taken place over many years. The World Bank is involved in a development role and non government organisations, including the first quarter of 2007. The study is scheduled for completionRoyal Botanic Gardens, Kew and Missouri Botanical Gardens, have been involved 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.planning environmental and conservation strategies.

MurowaPotasio Rio Colorado S.A(Rio Tinto: 77.8. (Rio Tinto 100 per cent)

Murowa commenced studiesThe Rio Colorado potash project in mid 2006Argentina lies 1,000 kilometres south west of Buenos Aires. Potash is used principally as an agricultural fertiliser. Evaluation of the project began in late 2003, and has included a two year large scale trial of solution mining. This ran successfully from late 2004. During 2007 the feasibility study was completed. Development of the project depends on finalising permits and other agreements as well as approval by the board of Rio Tinto. Subject to determine whether to expandthis, first production could occur in 2011. Installed capacity will be 2.9 million tonnes per year. The scale and quality of the mine.resource provide potential for expansion.

 

Rio Tinto 20062007 Form 20-F6579

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OTHER OPERATIONSKazan trona(Rio Tinto 100 per cent)
The Kazan trona project is located 35 kilometres northwest of Ankara in Turkey. Rio Tinto is conducting pre-feasibility studies and, upon expected approval in 2008, will move into large scale solution mining trials. Trona is converted to soda ash, or sodium carbonate, by dissolving ore and recrystallizing the soda ash. Soda ash is one of oldest known and largest volume inorganic chemicals, used primarily in the glass, chemicals, soap and detergent, and pulp and paper industries. Kazan trona is expected to be a more environmentally sustainable commodity to meet rising global demand than chemical synthesis.

Rio Tinto 2007 Form 20-F80

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Energy group

MinedRio Tinto share 
Coalmillion tonnes 


 
2003148.8 
2004157.4 
2005153.6 
2006162.3 
2007155.6 


 
   
Uranium‘000 pounds 
200311,372 
200413,170 
200514,511 
200612,561 
200712,616 


 
   
Underlying earnings contribution*US$m 


 
2004431 
2005730 
2006706 
2007484 


 
   
Changes in underlying earnings 2005 – 2007US$m 


 
2005 Underlying earnings730 
Effect of changes in:  
     Prices and exchange rates199 
     General inflation(50)
     Volumes(13)
     Costs(211)
     Tax and other51 


 
2006 Underlying earnings706 
Effect of changes in:  
   Prices and exchange rates102 
   General inflation(51)
   Volumes6 
   Costs(251)
   Tax and other(28)


 
2007 Underlying earnings484 


 
*A reconciliation of the net earnings with underlying earnings for 2007, 2006 and 2005 as determined under IFRS is set out on page 53.

STRATEGIC OVERVIEW

The Energy group comprises thermal coal, coking coal and uranium operations. Coal interests located in Australia and the US supply internationally traded and US and Australian domestic markets. Rio Tinto Uranium supplies uranium oxide produced at its majority owned mines in Australia and Namibia to electric power utilities worldwide. Rio Tinto Uranium is currently the world’s second largest uranium supplier.
     The group strategy aims to harness and focus resources to deliver world class performance in operations, sustainable development and value creation. The strategy is focused on positioning the group as the world’s value leader in mineable energy.
      The group’s reserve position in thermal and coking coal is sufficient to underpin significant greenfield and brownfield expansions.

In 2007 the Energy group undertook a review of its asset portfolio which highlighted opportunities in the current market to divest assets. Options to divest Rio Tinto Energy America (RTEA) and the Kintyre, Australia, and Sweetwater, US, uranium projects are currently being explored.
      A key part of the group’s strategy is to ensure that the group is a leading advocate of, and investor in, the sustainable future uses of coal and uranium. In 2007 the group continued to dedicate resources and investment funds to the development of clean coal technology through the FutureGen project in the US, COAL21 in Australia and in numerous low emission coal research organisations in the US and Australia.
      In 2007 Hydrogen Energy was launched, a 50:50 joint venture with BP which will develop low carbon energy projects around the world. Hydrogen Energy will position Rio Tinto Energy to profit from the advent of a global low carbon energy future and initiate the development of a broader risk management strategy for climate change regulation while providing a meaningful offer on climate change and product stewardship.

Rio Tinto 2007 Form 20-F81

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     The group’s strategic intent is to build through Hydrogen Energy a low carbon energy business primarily reliant on coal that will ultimately leverage Rio Tinto’s capabilities in identifying, acquiring and operating large long life coal assets. Gasification opens new and larger markets for coal and the aim is to maximise returns across the emerging coal gasification value chain. Early positioning will convey an important element of competitive advantage. A key to unlocking value will be to proactively shape government policy to support and enable initial projects.
      Hydrogen Energy will initially focus on the production of hydrogen for power generation using fossil fuels feedstocks and carbon capture and storage technology to produce new large scale supplies of clean electricity. Hydrogen Energy has announced initiation of studies for possible projects in California, Western Australia, and Abu Dhabi.

     The Rössing Uranium life of mine extension project in Namibia continues. With the substantial recovery of uranium prices in recent years, Rössing is well positioned to expand and further extend the life of its operations. This will enable the company to continue to be a leading contributor to the Namibian economy, as it has been for the past 30 years.
     At Energy Resources of Australia’s (ERA) Ranger mine, a number of opportunities for further low cost brownfield expansion are under consideration. ERA also owns the Jabiluka deposit, the second largest undeveloped uranium deposit in the world. In addition to the significant and sustainable operating assets at Rössing and ERA, Rio Tinto has increased its uranium exploration activity around the world. With a global nuclear power renaissance now under way, driven in large part by the need for large baseload electricity generation that does not emit greenhouse gases, Rio Tinto intends to maintain and enhance its position as one of the world’s leading uranium suppliers to power this growth.

 At 31 December 2007, the Energy group accounted for 4.9 per cent of Group operating assets and, in 2007, contributed 13.8 per cent of Rio Tinto’s gross sales revenue and 6.5 per cent of underlying earnings.
Preston Chiaro, chief executive, Energy and Industrial Minerals, is based in London.

SAFETY

All injury frequency rate per 200,000 hours


20032.35
20042.02
20051.31
20060.89
20070.89



Safety performance and awareness continued to be a major focus of all operations. Energy Resources of Australia achieved significant improvements in safety performance. The lost time injury rate fell by 74 per cent and the all injury rate by 46 per cent. The injury severity rate, a measure of the seriousness of injuries, also decreased by a factor of over three. At Rio Tinto Energy America the severity index improved to approximately half of the severity index in 2006. At Rio Tinto Coal Australia’s (RTCA) Kestrel mine the lost time injury rate fell by 57 per cent and the all injury rate by 60 per cent. Two Energy group operations were winners of the Chief Executive’s Safety Awards, Hunter Valley Operations and the Antelope mine in the US.

GREENHOUSE GAS EMISSIONS

A greenhouse gas (GHG) performance review was submitted by each business unit as part of a planning process. This included a discussion on targets and performance and a list of proposed and implemented projects noting project progress, savings, costs and NPV (net present value).
Energy Resources of Australia is expected to exceed its targeted GHG reductions. Rio Tinto Energy America is slightly above target and Rio Tinto Coal Australia emissions per tonne have increased. Both RTEA and RTCA have a number of NPV positive optimisations and diesel reduction projects being researched or implemented. With a life of mine extension under way, Rössing Uranium has set a revised target. A number of optimisation projects have been identified.
     The Energy group is also focussing on long term emissions reductions through the Hydrogen Energy joint venture. The plan identifies significant expenditure in terms of operating and capital costs for Hydrogen Energy in 2008 and 2009.

FINANCIAL PERFORMANCE

2007 compared with 2006
The Energy group’s 2007 contribution to underlying earnings was US$484 million, US$222 million less than in 2006.
      Coal chain infrastructure bottlenecks and allocation cutbacks in Australia resulted in ongoing and significant

Rio Tinto 2007 Form 20-F82

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production cutbacks and much higher demurrage costs. It is anticipated that production in Australia will not return to full capacity until 2010 when infrastructure bottlenecks are expected to be cleared. Port allocation arrangement negotiations were continuing at year end.
The results also reflected the softening of coking coal prices although there were increases in thermal coal prices and the stronger uranium oxide market. The weakening of the US dollar against the Australian dollar reduced earnings at Australian operations. For all operations, rising fuel prices and the tightness of the labour supply market continued to place pressure on operating results.
Despite lower volumes of uranium sold, higher market prices and the expiration of older contracts containing price caps contributed to a 69 per cent increase in uranium revenues in 2007 compared to 2006.
At Rössing Uranium, results were affected by reduced production volumes due to grade and plant performance and increased operating costs associated with development projects to increase capacity in the future. At ERA results were affected by production losses associated with severe rain and flooding of the pit.
The strong upward momentum that characterised the uranium market in the past three years continued for the first half of 2007, as demand remained robust in the wake of supply disruptions that affected a number of projects worldwide. However, unlike previous years, 2007 saw a fundamental change in market behaviour as the spot price became de-linked from the long term market due to the increasing influence of speculators in the commodity. Historically, the spot market has traded at a nominal discount to the term market, but last year saw substantial volatility in spot prices.
The long term uranium price, at which Rio Tinto sells most of its material, exhibited strong growth in the early part of the year, rising to a high of US$95 per pound in May, an increase of 27 per cent over December 2006. Thereafter, the long term price remained at US$95 as utility purchasing activity continued at moderately high levels.

2006 compared with 2005
The Energy group’s contribution to underlying earnings was US$706 million, US$24 million lower than in 2005.
Results benefited from a sustained increase in the price received for thermal coal. Capacity problems in the coal 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 also affected production levels. Operations focused on producing high margin products and optimising the coal supply chain. Increases in the cost of basic materials, fuel, explosives and labour were not fully offset by production growth, resulting in a rise in the cost per unit of production across all operations.
Although spot prices for uranium rose dramatically during the first part of the year, this had little effect on Rio Tinto’s long term contract portfolio. Uranium oxide is typically sold under long term contracts, with pricing determined both by fixed prices negotiated several years in advance, and by market prices at time of delivery. Therefore, the rise in the spot price of uranium oxide during the period was not fully reflected in the year’s earnings, but the rise in long term prices did contribute to the improved results. Moreover, for both mines, legacy contracts at low prices are being replaced with new long term contracts that provide floor price protection at levels far above market prices at the beginning of this decade.

OPERATIONS

Rio Tinto Energy America(Rio Tinto: 100 per cent)
Rio Tinto Energy America 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. RTEA also manages the group’s interest in Colowyo Coal in Colorado, US. In total it employs approximately 2,300 people.
The second largest US coal producer, RTEA sells its ultra low sulphur coal to electricity generators predominantly in mid western and southern states.
In April, RTEA bid and won access to approximately 98 million tonnes of additional coal reserves for its Spring Creek Mine in Montana. In June, RTEA bid and won access to additional mineralisation for the Colowyo Mine in Colorado. The acquisitions will extend the operating lives of the respective mines.
Rio Tinto has announced that it is exploring options to sell RTEA.

2007 operating performance
RTEA’s 2007 contribution to underlying earnings was US$132 million, US$45 million lower than in 2006. Results reflected steadily increasing US coal prices throughout 2007, more than offset by a higher effective tax rate in 2007.
RTEA’s 2007 sales were 128.3 million tonnes (excludes brokered sales), a decrease of 222,000 tonnes from 2006. Further increases were limited as customers had built higher levels of coal stockpiles in 2006. Earnings were reduced by a higher effective tax rate than in 2006. In 2007 the effective rate was 35 per cent as all prior year loss carry forwards had been applied. Adjusting to comparable tax rates, the 2007 result was better than 2006, largely driven by improved contract prices.
Antelope mine production of 31.3 million tonnes set a new record for annual production and sales, above the 2006 record of 30.7 million tonnes. Colowyo mine production of 5.1 million tonnes decreased by 700,000 tonnes.

Rio Tinto 2007 Form 20-F83

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Cordero Rojo mine production of 36.7 million tonnes increased by 600,000 tonnes. Jacobs Ranch mine production of 34.6 million tonnes decreased by 1.7 million tonnes. Spring Creek mine production of 14.3 million tonnes set a new record for annual production and sales above the 2006 record of 13.2 million tonnes.
Consistent with the worldwide mining industry, RTEA experienced an increase in the input prices of materials and supplies in 2007 resulting in higher variable costs of mining. Diesel prices in 2007 increased by more than 15 per cent relative to 2006. Labour costs increased significantly reflecting the competitive regional labour shortage and steadily increasing healthcare costs. Tyre costs increased with the worldwide shortage of large mining equipment tyres. At the same time, strip ratios increase as reserves get deeper, resulting in the requirement to move increasing volumes of overburden.
RTEA is a member of the FutureGen Alliance, which seeks to construct the world’s first coal fuelled “zero emissions” power plant. The project achieved a major milestone with a site in Illinois selected for development. Construction was planned to commence upon completion of the permitting process, however this is now in doubt with the US Department of Energy announcing a restructure of the FutureGen project in January 2008.

Rio Tinto Coal Australia(Rio Tinto: 100 per cent)
Rio Tinto Coal Australia 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 listed on the Australian Securities Exchange and had a market capitalisation of A$6.5 billion (US$5.7 billion) at 31 December 2007. Coal & Allied wholly owns Hunter Valley Operations, has an 80 per cent interest in Mount Thorley Operations, 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 (TEC), an adjacent state owned power utility. In October 2007 the sale of the Tarong mine to TEC was announced with the sale to take effect from 31 January 2008.
Blair Athol produces thermal coal and sells principally to the Japanese market generally on annual agreements. Kestrel and Hail Creek sell mainly metallurgical coal to customers in Japan, south east Asia, Europe and Central America, generally on annual agreements.
Coal & Allied produces thermal and semi soft coal. Most of its thermal coal is sold under contracts to electrical or 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.
RTCA and Coal & Allied collectively employ approximately 2,500 people.

2007 operating performance
RTCA’s 2007 contribution to underlying earnings was US$246 million, US$244 million lower than in 2006. There was an increase in thermal coal prices but this was offset by production cutbacks necessitated by shipping bottlenecks and the continued weakening of the US dollar against the Australian dollar. Rising fuel prices and the tightness of the labour supply market continued to place pressure on operating results.
A tax benefit of US$29 million was received on the release of a tax provision that was no longer required.
As the majority of costs are fixed with only consumables such as fuel, tyres and explosives being variable, reduced port capacities had a direct and negative impact on underlying earnings.
Inadequate capacity of coal chain infrastructure in both the Hunter Valley and Queensland operations was a significant contributor to less than satisfactory results for RTCA. Significant production cutbacks of 14 per cent from 2006 levels were necessary, resulting in equipment and contract employees being idled. It is anticipated that production will not return to full capacity until 2010 when infrastructure bottlenecks are expected to be cleared.
RTCA operations declaredforce majeureunder its sales contracts on two occasions during 2007; in June as a result of severe weather conditions in the Hunter Valley and in November as a result of announced first quarter 2008 allocation cutbacks at the Dalrymple Bay port facilities in Queensland.
Total production at Blair Athol decreased from 10.2 million tonnes to 7.9 million tonnes primarily as a result of limited port capacity. Kestrel’s production increased by 0.8 per cent to 3.6 million tonnes. Hail Creek production was five million tonnes, an increase of ten per cent. At Tarong, production decreased by 35 per cent in line with lower demand from Tarong Energy Corporation.

Energy Resources of Australia(Rio Tinto: 68.4 per cent)
Energy Resources of Australia Ltd (ERA) is a publicly listed company and had a market capitalisation of A$3.7 billion (US$3.3 billion) at 31 December 2007. ERA employs 420 people, an increase from 385 at the end of 2006.
Since 1980 ERA has mined ore and produced uranium oxide at its Ranger open pit mine, 250 kilometres east of Darwin in Australia’s Northern Territory. ERA also has title to the adjacent Jabiluka mineral lease, which in 2003 was put on long term care and maintenance. Ranger and Jabiluka are surrounded by, but remain separate from, the World

Rio Tinto 2007 Form 20-F84

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Heritage listed Kakadu National Park, and especially stringent environmental requirements and governmental oversight apply.
ERA is a large uranium producer, with considerable operational experience and a well established market position. The Ranger mine is the second largest uranium mine in the world and ERA is the fourth largest producer. ERA’s strategy is focused on creating the most value from the mineralisation available on existing lease areas. In line with the Energy group’s strategy of seeking additional production volumes and long term expansions to supply the current favourable market environment, ERA put significant effort into achieving growth through capitalising on opportunities for expansion and extension of production including, an extension of the existing Ranger mine, and installation of additional processing equipment to treat low grade and lateritic ore.

2007 operating performance
ERA’s 2007 full year earnings rose by 124 per cent to US$38 million in comparison with 2006 earnings of US$17 million. This was driven by a rise in the average realised price of uranium oxide from US$18.36 per pound to US$25.06 per pound despite sales being lower at 11.7 million pounds compared to the 2006 volume of 12.7 million pounds. The 2007 sales figures include no borrowed material.
      Production of uranium oxide in 2007 was 11.7 million pounds, approximately 13 per cent higher than in 2006.
      The favourable production result was significant given a severe rain event associated with a tropical low pressure system, resulting in nearly 850 millimetres of rain falling over the Ranger operation in seven days in February 2007. This resulted in flooding of the Ranger open pit, restricting access to high grade ore, forcing a processing plant shutdown and a declaration offorce majeureon sales contracts in March 2007. In the third quarter of 2007 access to high grade ore was again possible through the implementation of various water disposal measures.
      Recovery work was successful in allowing production to return to normal levels in 2008 with no adverse environmental consequences. All sales commitments were met in 2007 andforce majeurewas lifted in January 2008. Further work is under way to reduce the impact of future weather events on the mine’s performance.
      In September ERA announced an extension of the Ranger mine at a capital cost A$57 million, which added 10.7 million pounds of additional reserves, and extended the mine life from 2008 to 2012. Expenditure of A$10 million was also approved to examine options to further extend the mine and increase production from the processing plant.
      Exploration and evaluation activity increased in 2007 with ERA spending US$11.8 million compared to US$6 million in 2006. Exploration and evaluation focused on near mine extensions to the Ranger orebody.

ERA continued to work with the Mirarr, traditional owners of the mining lease. The Mirarr commenced delivery of a cultural awareness programme to all new ERA employees and advised ERA on the establishment of traditional fire management practices on the Ranger lease. Increasing indigenous employment is a significant focus including the provision of training and employment opportunities. The year saw the number of indigenous employees increase to 65, or 16 per cent of the workforce. Improving on this will continue to be a focus for 2008.

Rössing Uranium(Rio Tinto: 68.6 per cent)
Rössing Uranium Limited produces and exports uranium oxide from Namibia to power utilities globally. Rössing continues to play a major role in the Namibian economy, both in terms of GDP contribution as well as education, employment and training.
Rössing currently employs approximately 1,175 people. Following the life of mine extension project approved in 2005, capital equipment acquisitions for the new mining area are in place and planning work for further extension continues. In 2007 production volumes of 6.7 million pounds were constrained as a result of having limited access to ore sources. The phase one pit is in its last two years of life. Mining and processing volumes, however, have been good and the mine is positioned for higher volumes in 2008 and beyond.
      The year was one of consolidation and preparation for future growth and sustainable production. Truck and loading fleets doubled and over 300 people were recruited and trained. The current approved life of mine extensions will take the mine life to 2016 and further potential opportunities exist to extend both the mine life and production volumes depending on the long term price outlook and costs of production. Activities will continue to focus on continuous net present value (NPV) growth, improving margins and creation of options from known reserves and potentially economic mineralisation.

2007 operating performance
Earnings increased to US$95 million from US$27 million in 2006 due to higher market prices for uranium oxide.
      Operating costs increased to US$38 per pound of uranium oxide production from US$22 per pound in 2006 as a result of lower production volumes, outsourcing of waste stripping as well as exploration activities that are not yet adding to production volumes. Costs were also affected by ore grades and higher than planned diesel and other operating costs.

All new primary production equipment is now fully commissioned to bring the fleet complement to 24 haul trucks from 16 at the beginning of the year, and six loading units compared to four previously. Initiatives are under way to improve the performance of the milling process.
      Lower than planned leach extraction in 2007 was due to the average ore type which impacted on process controls. In 2008 there will be a focus on maintaining stability in the process and improving the head grade by applying a better blending strategy.

Rio Tinto 2007 Form 20-F85

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     Rössing continues to put significant effort and management focus on safety. The goal is to eliminate all injuries from the workplace and to have an embedded safety culture and systems that identify and rectify potential safety hazards.

ENERGY GROUP PROJECTS

Energy Resources of Australia(Rio Tinto: 68.4 per cent)
In September 2007 ERA announced an extension to the Ranger open pit at a capital cost of A$57 million to extend mining until 2012. The pushback, when combined with optimisation of the existing pit, added an additional 10.7 million pounds of contained uranium oxide to reserves. The majority of the additional production from the extension is expected to occur in 2011.
      ERA has also approved expenditure of A$10 million for a pre-feasibility study to examine options to further expand the mine and increase production from the processing plant. The study commenced in the third quarter of 2007 and will continue into 2008.
      ERA’s other capital expansion projects to process laterite ore and radiometrically sort low grade ores are well advanced with both projects scheduled for commissioning in the second quarter of 2008. The laterite processing plant will contribute approximately 0.88 million pounds per annum of uranium oxide to production from 2008 through to 2014. The radiometric sorter will upgrade lower grade ore and allow an additional 2.4 million pounds of uranium oxide to be produced over a five year period from 2008 to the end of 2013.
      Exploration continued throughout the year including for the first time drilling through the wet season. Activity focused on further defining the down dip extension of the Ranger orebody, as well as understanding and defining the uranium mineralisation to support the pre-feasibility study on further expansion of the mine.

Rössing Uranium(Rio Tinto: 68.6 per cent)
After years of working below capacity during a period of low uranium prices, in December 2005 approval was granted to restore annual production capacity to 8.8 million pounds per annum and extend the life of the operation until at least 2016. Total incremental and sustaining capital cost of the expansion is US$112 million.
      In 2007, delays were experienced with the start of construction projects due to slow contractor tender submissions. Recruitment of staff has been slow due to skills shortages in southern Africa. Work is now progressing well.

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 will be brought into production to replace Blair Athol, due to close in 2015, and will use Blair Athols’ existing infrastructure and market position. To date construction has progressed to plan with boxcut production to commence in mid 2008 and first coal production expected in 2010.

Rio Tinto Coal Australia Kestrel(Rio Tinto: 80 per cent)
Rio Tinto and its joint venture partners approved investment of US$991 million for the extension of the Kestrel mine. This represents a 20 year investment in the Bowen Basin of Queensland to help meet Asian demand for metallurgical coal. First coal production from the extension is forecast for 2012 when the existing mine ceases production.

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 coal mine near Muswellbrook in the Hunter Valley, New South Wales. With continued uncertainty surrounding coal chain infrastructure in the Hunter Valley, further study is required before the feasibility study can be finalised.

Coal & Allied Lower Hunter Land(Rio Tinto: 75.7 per cent)
In 2006 Coal and Allied signed a memorandum of understanding with the New South Wales Government to facilitate the provision of extensive land conservation corridors in the Lower Hunter via the transfer of 80 per cent of the Company’s post mining land holdings. The remaining 20 per cent is being considered for land development. Extensive community consultation continued through 2007 with various options considered. Feasibility studies will be conducted in 2008 to finalise these options.

Rio Tinto Energy America(Rio Tinto: 100 per cent)
During 2007 RTEA commenced construction of the Jacobs Ranch overland conveyor and in pit crusher project. This will reduce emissions and operating costs in addition to providing latent capacity for expansion (from around 38 million tonnes to around 45 million tonnes per annum). Commissioning is on schedule for completion in 2008. At Antelope and Spring Creek recent expansion projects were completed in 2007 and production is ramping up to meet market demand.

Rio Tinto 2007 Form 20-F86

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Iron Ore group

Production Rio Tinto share  
  million tonnes  


 
2003 102.6 
2004 107.8 
2005 124.5 
2006 132.8 
2007 144.7 


 
Underlying earnings contribution* US$m 


 
2004 565 
2005 1,703 
2006 2,251 
2007 2,651 


 
Changes in underlying earnings 2005 – 2007 US$m 


 
2005 Underlying earnings 1,703 
Effect of changes in:  
     Prices and exchange rates 616 
     General inflation (25
     Volumes 156 
     Costs (229
     Tax and other 30 


 
2006 Underlying earnings 2,251 
Effect of changes in:  
     Prices and exchange rates 537 
     General inflation (43
     Volumes 136 
     Costs (255
     Tax and other 25 


 
2007 Underlying earnings 2,651 


 
*A reconciliation of the net earnings with underlying earnings for 2007, 2006 and 2005 as determined under IFRS is set out on page 53.

STRATEGIC OVERVIEW

Rio Tinto’s Iron Ore group conforms with the larger Group’s overall strategy of pursuing the world’s best natural resources, wherever they are located, using the best technologies, and operating them safely. RTIO seeks to do this by being faster and better at producing iron ore, supported by an unmatched capacity and capability to develop key infrastructure.
     RTIO is geographically well placed to take advantage of the exceptionally strong market conditions and outlook in Asia, with a massive mineralisation inventory base close to an integrated production platform in the Pilbara of Western Australia. This enables a rapid expansion of production in the short and medium term. RTIO’s large mineralisation position in Australia and Guinea, west Africa, together with an established project execution capability, provides potential for a global iron ore production capacity of more than 600 million tonnes per annum.
     As new competitors and constraints emerge, RTIO’s strategy to meet the industry challenges is focused on achieving “industry leadership” in global iron ore. The strategy is centred on rapidly expanding the business, both globally and in the Pilbara, and delivering maximum value from RTIO’s operations by developing a world class production platform.
RTIO’s portfolio of operations is international, including Australia, Canada and Brazil, a major development project in Guinea at Simandou, and the Orissa project in India. It also includes the HIsmelt® plant in Australia, which applies revolutionary technology to convert iron ore fines with significant impurities into high quality pig iron.
      RTIO Asia was established in Singapore in November 2007 to provide an integrated sales, marketing, distribution and logistics service for Hamersley Iron products in the Asia Pacific. It aims to maximise Hamersley’s share of forecast growth in the region.
      At 31 December 2007, the Iron Ore group accounted for 13 per cent of Rio Tinto’s operating assets, and in 2007 contributed 26 per cent of the Group’s gross sales revenue and 36 per cent of underlying earnings.
      At year end 2007 RTIO employed 6,520 people in Western Australia and 8,630 worldwide. In a highly contested market, the recruitment effort was exceptional, with 1,951 new starters in 2007.

Environmental initiatives included development of a strategic approach to water for the Pilbara, to ensure long term security of supply at the ports and in the management of dewatering discharge associated with the increasing requirement for below water table mining across the Pilbara, and recognising the importance of this issue for traditional

Rio Tinto 2007 Form 20-F87

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land owners of the region.
A major milestone was reached with the completion of the Phase B upgrade of the port of Dampier, now ramping up towards its new capacity of 140 million tonnes per annum (Mt/a). Work has commenced on the Cape Lambert upgrade to 80 Mt/a from 55 Mt/a, which is expected to be completed in early 2009. Two new mines were approved for development – Brockman 4 (22 Mt/a) and Mesa A/Warramboo (25 Mt/a) – at a combined total cost of US$2.4 billion, of which Rio Tinto’s share is US$2.0 billion. Both mines will replace tonnages from deposits nearing the end of their mine life.
      Rio Tinto’s 50:50 joint venture with Hancock Prospecting is progressing well. In November, Hope Downs 1 (22 Mt/a), began production – a full quarter ahead of schedule, and the stage 2 expansion to 30 Mt/a has been brought forward one year, with production planned to commence at the start of 2009. In December approval was given for a US$71.4 million feasibility study into the development of a Hope Downs 4 mine (15-20 Mt/a).
      RTIO’s growth strategy has seen more than US$7 billion committed to port, rail, power and mine assets since 2003, resulting in a world class, integrated iron ore network. A feasibility study into expanding Pilbara capacity to 320 Mt/a by 2012 is well advanced and a decision will be made in early 2009. Cape Lambert has been identified as the preferred site for port expansion.
      In late November 2007 Rio Tinto senior management outlined an aggressive expansion programme designed to capitalise on RTIO’s global spread of assets and markets. This included a conceptual framework towards establishing a Pilbara production capacity of 420 Mt/a and an expansion at Simandou in Guinea of up to 170 Mt/a.
      During the year, RTIO was inducted into the Australian Export Hall of Fame, was twice honoured at the Australian Business Arts Foundation awards and won a 2007 Water Award for its re-injection project at Yandicoogina.

Sam Walsh, chief executive Iron Ore, is based in Perth, Western Australia.

SAFETY

All injury frequency rateper 200,000 hours 


 
20032.19 
20041.79 
20051.48 
20061.24 
20070.92 


 

Iron Ore Company of Canada’s safety performance continued to improve in 2007 with a 59 per cent reduction in the lost time injury frequency rate to 0.29. The Corumbá mine in Brazil again won the Chief Executive’s Safety Award. Work progressed on a number of safety initiatives across operations, particularly focused on issues surrounding contractor management, vehicle safety and implementing proactive measures to prevent the risk of injury. Cyclone preparation measures in the Pilbara employee accommodations were reviewed, focusing on standardised safety measures. Overall, the group’s all injury frequency rate was 0.92 (1.24 in 2006) and the lost time injury frequency rate 0.38 (0.59) .

GREENHOUSE GAS EMISSIONS
The 2008–2009 greenhouse gas (GHG) plan notes an increased focus on energy reduction through the appointment of an energy specialist in late 2007 and the conduct of further energy reviews. A feasibility study is being conducted to examine the possible replacement of power stations to reduce GHG emissions and mitigate current potential environment risk.
A number of additional activities aimed at reducing energy use and GHG emissions are also under way including replacing heavy mobile equipment and locomotives. Dash 7 and Dash 8 locomotives are being replaced by new generation GE EVO locomotives. The RTIO technology group is also examining hybrid locos in collaboration with General Electric, liquid natural gas replacement for diesel trucks and locomotives, rail electrification, and closed cycle power generation for existing open cycle power units. Rio Tinto has approved new gas fired power generation in the Pilbara as a step towards lower emissions electricity.

FINANCIAL PERFORMANCE

2007 compared with 2006
RTIO’s contribution to 2007 underlying earnings was US$2,651 million, US$400 million higher than in 2006.
      Demand for iron ore remained extremely strong across the product range throughout 2007, driven by the continuing robust growth in global steel demand and production, significantly exceeding seaborne suppliers’ capacity to match. Total Chinese iron ore imports rose from 326 million tonnes to 383 million tonnes, accounting for more than 90 per cent of world growth. Hamersley Iron and Robe River in Australia operated at record or near record levels of

Rio Tinto 2007 Form 20-F88

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production in 2007.
     In December RTIO announced plans to sell up to 15 million tonnes of iron ore on the spot market in 2008, taking advantage of the large gap between annual (benchmark) and short term prices while continuing to meet longer term contractual commitments.

2006 compared with 2005
RTIO’s contribution to 2006 underlying earnings was US$2,251 million, US$548 million higher than in 2005.
      Demand for iron ore continued to be extremely strong across the product range throughout 2006, driven by continued 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 of 19 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.

OPERATIONS

Hamersley Iron(Rio Tinto: 100 per cent)
Hamersley Iron operates nine mines in Western Australia, including three mines in joint ventures, about 700 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 final phase in ramping up Pilbara infrastructure to 220 million tonnes of annual capacity is well under way. Dampier port’s two terminals now account for a combined capacity of 140 Mt/a. With the completion of Junction South East, Yandicoogina mine capacity has been expanded to 52 Mt/a, and brownfield mine expansions at Marandoo, Nammuldi and Mount Tom Price have been completed.
      The new Hope Downs mine, owned in 50:50 joint venture with Hope Downs Iron Ore Pty Ltd (owned by Hancock Prospecting Pty Ltd), but managed by RTIO, began production in November, a full quarter ahead of schedule, and the first train was loaded in mid December.
      Approval was granted for the US$1.52 billion Brockman 4 mine, 60 kilometres north west of Tom Price, which is expected to begin ramp up in 2010 to 22 Mt/a. The mine will be connected to the main network via a 35 kilometre rail spur, and the design allows for an additional 14 Mt/a expansion.

Work is progressing on a number of options for new mine development as part of the feasibility study to reach 320 Mt/a capacity. A decision is expected in early 2009. Work also continued on pre-development studies for new mines.

2007 operating performance
Hamersley Iron’s total production in 2007 was 112.1 million tonnes, 14.9 million tonnes more than the 97.2 million tonnes in 2006. This result was notable for being achieved amid significant expansion work across several sites.
      Shutdowns and flooding from two cyclones early in the year hindered operations significantly, although tie down procedures performed well. Several derailments also impacted operations significantly, resulting in an estimated 1.39 million lost saleable ore tonnage. Remedial action was undertaken on high risk sections and a rerailing project was approved which will eventually see 45 per cent of the network replaced.
      Reinvestment in additional yard capacity, locomotives and rolling stock has been implemented to improve efficiency and remove bottleneck issues associated with limited rail capacity.
      The Pilbara Blend product was successfully introduced mid year, winning widespread customer acceptance and at 100 per cent of the reference price. Pilbara Blend will comprise 15 per cent of the world’s seaborne iron ore trade.
      Shipments by Hamersley Iron totalled 109.5 million tonnes, including sales through joint ventures. Shipments to China also reached a new record level at 59.6 million tonnes, confirming China’s place as the single largest, and fastest growing, destination for Hamersley’s iron ore.

Hamersley’s total shipments of iron ore to major markets (million tonnes)

 2007 2006 2005 






 
China59.6 52.9 49.5 
Japan30.0 27.4 24.5 
Other Asia18.3 15.8 14.1 
Europe0.7 2.0 2.0 






 
 108.5 98.1 90.1 






 
Note      
This table includes 100 per cent of all shipments through joint ventures.      

Rio Tinto 2007 Form 20-F89

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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) retain interests. Robe River is the world’s fourth largest seaborne 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 and Marra Mamba iron ore products which were successfully incorporated into the Pilbara Blend during the year.
      Expansion of mine, rail and port operations has continued, with the upgrade of Cape Lambert port from 55 Mt/a to a rated capacity of 80 Mt/a proceeding on schedule. The port has also been nominated as the preferred site for subsequent expansion as part of the upgrade of Pilbara capacity to 320 Mt/a, subject to an ongoing feasibility study.
      In November, Rio Tinto and the joint venture partners approved development of the US$901 million (Rio Tinto share US$478 million) Mesa A/Warramboo mine in the western end of the Robe Valley. This followed a lengthy, ultimately successful, process to gain environmental approval. The new mine’s annual production will be 20 Mt/a, increasing to 25 Mt/a by 2011, and will be replacement tonnage as Mesa J’s mine life approaches its end.
      Robe River primarily exports under medium and long term supply contracts with major integrated steel mill customers in Japan, China, Europe, South Korea and Taiwan.

2007 operating performance
The effect of cyclones slowed production early in the year at Robe River’s Pannawonica and West Angelas mines, as did a serious derailment which required significant track repairs. A two week shutdown of the Cape Lambert dumper also affected production, as did delays in commissioning a conveyor system at West Angelas.
      Robe River’s total production in 2007 was 51.5 million tonnes, comprising 25.5 million tonnes from Mesa J, and 26.0 million tonnes from West Angelas. Sales were 25.9 million tonnes of Mesa J and 25.6 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 52.0 million tonnes. Japan remains Robe River’s largest single market, with total shipments in 2007 of 22.6 million tonnes.

Robe’s total shipments of iron ore to major markets (million tonnes)

 2007 2006 2005 






 
China21.0 18.5 17.5 
Japan22.6 24.7 26.1 
Other Asia2.9 2.7 1.7 
Europe5.5 6.1 7.3 






 
 52.0 52.0 52.6 






 

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 an open pit mine, concentrator and pellet plant at Labrador City, Newfoundland and Labrador, together with a 418 kilometre 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 on the St Lawrence Seaway. The port is ice free all year and handles both ocean going ore carriers and Lakers, providing competitive access to all seaborne pellet markets and to the North American Great Lakes region. IOC exports its concentrate and pellet products to major North American, European and Asian steel makers.
     IOC employs approximately 2,000 people and recruited 170 people during the year to offset an increase in retirements and to meet greater production needs.

2007 operating performance
The demand for IOC’s products strengthened further in 2007 with concentrate prices increasing by ten per cent and pellet prices by five per cent over last year’s benchmark prices.
      Total saleable production was 13.2 million tonnes, down from 16.1 million tonnes in 2006. The variation was primarily due to a seven week labour strike. Pellet production was 11.3 million tonnes (12.7 million tonnes in 2006) with saleable concentrate being 1.9 million tonnes (3.4 million tonnes in 2006). Lower production levels coupled with higher oil prices put pressure on 2007 unit costs.
      A labour strike in March/April occurred when negotiations broke down over the new collective agreement to replace the one that expired in February 2007. The strike ended following agreement of a new five year collective agreement.
     In August, IOC announced the approval of US$57 million to expand annual concentrate production capacity to 18.4 Mt/a by mid-2008 and to conduct a feasibility study to further expand to 21 Mt/a.

Rio Tinto 2007 Form 20-F90

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     In March 2008 IOC announced the approval of US$475 million to increase annual concentrate production by some 40 per cent, or seven Mt/a, to 25 Mt/a and annual pellet production by ten per cent, or 1.5 Mt/a, to 14.5 Mt/a over the next five years.

IOC’s total shipments of iron ore to major markets (million tonnes)

 2007 2006 2005 






 
Europe5.210 5.7 6.8 
Asia Pacific3.777 5.4 3.4 
North America4.155 4.8 4.8 






 
 13.142 15.9 15.0 






 

Mineração Corumbaense Reunida (Corumbá)(Rio Tinto: 100 per cent)
Corumbá produced 1.8 million tonnes of lump iron ore in 2007 and sold 1.1 million tonnes to South American, Asian and European customers. Sales were lower in 2007 due to strong competition for barging freight, barge unloading delays at Argentine ports and abnormally low river levels during the last quarter.
     Rio Tinto approved investments in additional barging capacity, port improvements and an ore dryer to develop the market for Corumbá lump in direct reduction processes, all of which will come on line during 2008. The feasibility study to expand mine production and transport logistics to ten Mt/a is nearing completion, as the next step towards production of 20 Mt/a. Negotiations continued with prospective investors regarding a steel making project at Corumbá that would consume local iron ore.
     Corumbá has more than 200 million tonnes of reserves, and additional mineralisation. There are approximately 650 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 cent interest through its subsidiary, HIsmelt Corporation), US steelmaker Nucor Corporation (25 per cent), Mitsubishi Corporation (ten per cent), and Chinese steelmaker Shougang Corporation (five per cent). The project produced 115,000 tonnes of pig iron and achieved a number of production records in 2007, its second year of ramp up as it builds towards a planned capacity of 800,000 tonnes per annum. The project was visited by Chinese president Hu Jintao in September 2007.

IRON ORE GROUP PROJECTS

Hamersley Iron(Rio Tinto: 100 per cent)

Upgrade to 220 Mt/a
RTIO is on schedule to have 220 Mt/a installed capacity in the Pilbara by the end of 2008, achieving a doubling of capacity since the beginning of the decade. The second stage of the Pilbara Expansion is well advanced with a further upgrade of Dampier Port, Yandicoogina mine expansion and Hope Downs stage 1 development now completed. The initial upgrade of Cape Lambert Port will complete the major infrastructure upgrades for this phase. Additional mine capacity at Hope Downs stage 2 to 30 Mt/a will match the capacities of mine, rail and port facilities at 220 Mt/a.

Pilbara 320/420 Mt/a
A suite of mine and infrastructure projects for the expansion of Pilbara capacity to 320 Mt/a is under study. The studies include a variety of greenfield and brownfield mine options across the Pilbara, expansions to both rail and port and supporting infrastructure, designed to bring the Pilbara capacity firstly to 320 Mt/a and then 420 Mt/a. The studies also contemplate the use of new technologies including a Perth based Remote Operations Centre, and a range of automation options. Underlying this work is an aggressive resource evaluation and definition programme, designed to ensure that the available mineralisation is delineated and developed with optimal sequencing and timing. More than 400,000 metres of exploration drilling was completed during 2007 and a further 500,000 metres is planned for 2008.

Robe River Iron Associates(Rio Tinto: 53 per cent)

Mesa A
The US$901 million Mesa A/Waramboo mine development is required to sustain production of Robe Valley pisolite, which would otherwise decline with the run down of the Mesa J mineralisation. Pending finalisation of plans for the proposed rail spur to the existing line, transition work will begin shortly. Production at Mesa A is expected to commence in the first quarter of 2010, starting at 20 Mt/a, increasing to a 25 Mt/a rate from 2011.

Cape Lambert port
The first upgrade of Cape Lambert (from 55 Mt/a to 80 Mt/a) is well under way. A construction camp for 600 people has been established, and works are continuing according to plan with marine piling and bulk earthworks well

Rio Tinto 2007 Form 20-F91

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advanced. The project scope includes extension of the wharf and upgrading of shiploading facilities to accommodate four capsize vessels simultaneously as well as upgrades to the stockyard with the addition of a new reclaimer. The project is scheduled for completion at the end of 2008 with progressive ramp up during the first half of 2009.

The 320/420 project
Cape Lambert is also the preferred site for expansion of Pilbara port facilities to 320 Mt/a, and conceptually to 420 Mt/a. Under the early planning for the 320 Mt/a, this would involve construction of a new terminal (Cape Lambert West) capable of berthing four capsize ships. That terminal would be extended to accommodate a further four berths according to the 420 Mt/a concept. Early planning has also identified the area to the west of the existing rail line for both stockpiles under both 320 and 420 Mt/a upgrade scenarios. This expansion plan carries the added benefit of not adding to Rio Tinto’s footprint in the area.

Simandou(Rio Tinto: 95 per cent)
The Simandou project in eastern Guinea, west Africa, is of great strategic significance for Rio Tinto. It is a greenfield discovery situated in one of the best undeveloped major iron ore provinces in the world. A prefeasibility study is studying the mining and transport options needed to bring Simandou into production as quickly as possible, with an initial capacity of 70 million tonnes per annum. The deposit has great potential in exploration opportunities across the project area. Total drilling of 50,000 metres was undertaken at the Pic de Fon and Oueleba sites in 2007, with an equivalent amount expected in 2008. Simandou has significant brownfield growth capacity, and conceptual development plans are already under way on expanding capacity towards 170 million tonnes per annum. These studies are scheduled for completion in 2010.
     The International Finance Corporation (the private sector arm of the World Bank Group) retains a five per cent stake in the project and is working with Rio Tinto to develop it in an environmentally and socially sustainable way.
     The project currently employs 375 Rio Tinto staff operating from offices in Conakry and Kerouane, and construction camps at Canga East and Oueleba in the Mining Concession. The total workforce, including contractors, is greater than 700.

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 with the state owned Orissa Mining Corporation. The joint venture holds rights to iron ore leases in Orissa, which it is seeking to develop. Although progress has been slow, Rio Tinto remains keen to participate in the development of the Indian iron ore sector through its joint venture. A project team has been established and is working to expedite the development of operations in India.
     Rio Tinto has identified India as among the most likely economies to follow east Asia’s development of a greater intensity of steel use. India’s economy is expected to maintain its present growth rate, thus providing support for an expanding domestic steel industry. Rio Tinto has continued discussions with major domestic steel companies.

Rio Tinto 2007 Form 20-F92

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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 14,000approximately 20,000 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 1,2001,650 home sales completed since opening in June 2004. At full build out, the community will house 30,00040,000 to 40,00050,000 residents. Revenues in 20062007 were US$6048 million.
Kennecott Land is in the process of securingstudying development rights from Salt Lake Countyopportunities for the remaining landholdings. Current developmentDevelopment potential for this land is in excess of 150,000approximately 163,000 residential units and 5058 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 twofew years.

Sari Gunay(Rio Tinto: 70 per cent)
In November 2007, Rio Tinto has carried out explorationsigned a final and project evaluationbinding sale agreement to divest the whole of its interest in Iran since 2000. Preliminary results from the Sari Gunay gold project in Western Iran have indicatedwestern Iran. On the potential for a medium sized low grade oxide resource. Following successful geostatistical and infill drilling programmecompletion of this transaction, which is expected in 2004, a feasibility study, including further evaluation drilling and metallurgical testwork, has been completed.mid 2008, Rio Tinto is currently evaluatingintends to close its options for Sari Gunay.office in Iran and will cease to have any interests in Iran.

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,marketplaces, with differing
characteristics 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.
     In 2007, Rio Tinto continued to focus on improvements in its marketing capability, with a small central marketing team based in London and Australia working collaboratively with business based sales and marketing teams to disseminate leading marketing practices across the Group. The team supports the Group’s businesses by helping to identify analytical tools, approaches and strategic frameworks to help identify the value to Rio Tinto of meeting customers’ needs.

MARINE

Ocean freight
Ocean freight has becomeis an important part of Rio Tinto’s marketing. It is managed by Rio Tinto Marine, which is
basedwith a head office in Melbourne.Melbourne, to provide Rio Tinto with a comprehensive capability in all aspects of marine transportation, global freight markets and the international regulatory environment. In 2006,2007, Rio Tinto Marine handled 70over 78 million tonnes of dry bulk cargo, a significant13 per cent increase on the 51 million tonnes transported in 2005.2006 volumes transported.
     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 creatingimproving the competitive advantage forposition of the Group’s products rather than by trading freight.
through freight optimisation, and does not seek to trade freight as a stand alone activity. 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.
     During 2007 Rio Tinto Marine took possession of the first of five new bulk carriers, the RTM Wakmatha. These vessels will be used principally for carrying bauxite from Rio Tinto Alcan’s mine at Weipa, Queensland, to Gladstone for processing. In addition, an order has been placed for the construction of three 250,000 deadweight tonne ore carriers to transport iron ore from Rio Tinto’s operations in Western Australia to customers in China and elsewhere. These ore carriers will be delivered from late 2012 to help Rio Tinto build on its natural freight advantage in Asian exports.

Freight market
Sea freight rates reached unprecedented levels in all segments during 2007. Strong demand for commodities, combined with supply constraints and port congestion, resulted in increased long haul trade and reduced fleet availability.

 

Rio Tinto 20062007 Form 20-F6693

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EXPLORATION GROUPThe Baltic Dry Index (BDI), an index of dry bulk shipping rates, more than doubled in 2007, increasing 110 per cent during the year. The Capesize vessel segment had the greatest upward impact on the BDI, with average daily freight prices increasing by 132 per cent during 2007, closing at US$157,128 per day with a November peak at US$194,115 per day. The Panamax, Supramax and Handysize indices also increased substantially, each registering gains of 93 to 95 per cent during 2007.
With spot markets at record highs, charterers turned to the period market to cover cargoes, pushing timecharter rates higher and increasing opportunistic re-let activity. Shipyard order books swelled in the second and third quarters of 2007, resulting in a large tranche of new vessel capacity for delivery from late 2009 through 2011. Long lead times for new vessels has seen large premiums paid for second hand vessels in all segments.

Rio Tinto 2007 Form 20-F94

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Exploration group

STRATEGIC OVERVIEW

The purpose of exploration is to increase the value of the Group by discovering or acquiring resources that can augment future cash flows.
     Adding value to a Group the size of Rio Tinto effectively means that exploration programmes must regularly return what others might call “company maker” discoveries. These are the largest and highest quality mineral deposits that the natural world has to offer, called Tier 1 resources.
      Exploration involves the identification, prioritisation and testing of geological targets. As less than 0.1 per cent of targets will actually deliver a discovery, a continuous flow of opportunities is required. Exploration success in Rio Tinto is defined as the discovery of a deposit that warrants detailed economic evaluation. Handover of the deposit to a product group evaluation team marks the end of the exploration phase.
      Greenfield exploration, which aims to establish new mineral businesses, involves geographic or commodity diversification away from existing Rio Tinto operations. Accountability for greenfield work lies with 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.(RTX).
     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     RTX is organised into five geographically-based teamsregional multi-commodity teams. This gives the group local presence, an in North America, South America, Australasia, Asia and Africa/Europedepth understanding of the operating environment and a sixth project generation teamholistic view of geological terrains. At the same time, programmes are prioritised on a global basis so that searchesonly the world for newbest 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 are pursued.
      There are currently five of these regional teams, which are supplemented by the Project Generation Group (PGG). PGG provides specialist commercial, technical and project generation.generative assistance and also co-ordinates all RTX research and development activities.
     At the end of 2006, Rio Tinto2007, RTX was actively exploring in over 3530 countries and assessing opportunities in a further 20 for a broad range of commodities including bauxite, copper, coking coal, iron ore, industrial minerals, diamonds, nickel industrial minerals, bauxite, uranium, iron ore and coal. Explorationuranium. RTX employs about 180250 geoscientists around the world and has a total complement of approximately 900950 people.
     Eric Finlayson was appointed head     Brownfield exploration is directed at sustaining or expanding the value of Exploration, based in London, from January 2007, succeeding TomAlbanese, director, Group Resources, who became chief executive ofexisting Rio Tinto from May 2007.business units. Given that resources are the lifeblood of every mining operation, this is an essential business activity. Accountability for brownfield programmes lies with the business units, with RTX providing technical assistance.
      The brownfield environment provides the easiest opportunity for creating value through exploration. The reasons for this are clear – Rio Tinto controls highly prospective title around its existing operations and infrastructure, and economic thresholds are lower than in a greenfield setting. Moreover, Tier 1 resources – the giants of the mineral deposit world – tend to be found in clusters.

Financial performanceSAFETY

All injury frequency rate per 200,000 hours


20031.30
20040.95
20050.55
20060.88
20071.10



2007 OPERATING PERFORMANCE

Two greenfield discoveries, the Chapudi thermal coal deposit in South Africa and the Kintyre uranium deposit in Western Australia, were transferred from RTX to product group evaluation teams. Kintyre is now being offered for sale. One Tier 1 brownfield discovery, the Caliwingina North channel iron deposit, was transferred to Pilbara Iron.
      Order of magnitude studies continued at the Bunder project (diamonds, India) and commenced at the Chilubane and Mutamba (ilmenite, Mozambique), Jarandol and Jadar (borates, Serbia) deposits. All are scheduled for completion in early to mid 2008. Negotiations continued with the Government of Indonesia on the Contract of Work for the Sulawesi nickel project.

     Significant progress at early stage RTX projects in Australia (zircon), Brazil (bauxite), Canada (potash), Colombia (bauxite) and the US (nickel) is expected to lead to commencement of new order of magnitude studies in the second half of 2008. Several other projects are showing early signs of encouragement and could be fast tracked into this stage.
     Exploration by the La Granja (Peru) evaluation team returned significant encouragement with the discovery of four new bodies of porphyry copper mineralisation. At the Bingham Canyon (US) copper mine, a substantial molybdenum deposit was identified located beneath the copper orebody. Adding to this discovery, which is still being delineated by deep drilling, was the recognition of new porphyry copper mineralisation beneath the southern pit wall. These two new zones of mineralisation point to further discovery potential.

Rio Tinto 2007 Form 20-F95

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     On Freeport Block A in West Papua (Indonesia), drilling encountered a new zone of copper-gold skarn mineralisation at the Gap target located between the Grasberg and Ertsberg intrusions. Delineation drilling will be conducted from an exploration drift in 2008.
     On the Heruga concession of Entrée Gold near Oyu Tolgoi (Mongolia), operator Ivanhoe Mines announced discovery of the Heruga porphyry copper-gold deposit. Drill intersections included 454 metres at 0.50 per cent copper, 1.43 grams per tonne of gold, and 0.02 per cent molybdenum.
     Near the Eagle deposit (US), drilling by the evaluation team intersected high grade nickel-copper sulphide mineralisation at three satellite prospects. Delineation drilling is planned for 2008.
     At Energy Resources of Australia, the exploration and evaluation programme focused on infill drilling to support the previously announced mine extension, as well as the prefeasibility study into a further mine expansion. In 2008, attention will return to defining the Ranger 3 Deeps deposit.

FINANCIAL PERFORMANCE

2007 compared with 2006
“Exploration” expenditures reported by Rio Tinto include exploration and evaluation spends in both the greenfield and brownfield environments. Expenditure on brownfield projects reported separately in thisAnnual reportby each of the Rio Tinto product groups is included in this summary.
Net cash expenditure on exploration in 2007 was US$576 million, an increase of US$231 million over 2006. This primarily reflects the large number of high quality projects in the exploration and evaluation pipeline, net of US$197 million cash proceeds from the sale of the Peñasquito royalty, shares in Anatolia Minerals, the Southdown iron ore deposit and various other interests during 2007. The pre-tax charge to underlying earnings of US$321 million is net of US$253 million of total proceeds from the divestments mentioned above.

2006 compared with 2005
CashNet cash expenditure on exploration in 2006 was US$345 million, an increase ofa US$81 million increase 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 growthnumber of high quality projects in the Explorationexploration and evaluation pipeline, and accelerationnet of evaluation on significant projects by product groups duringUS$23 million cash proceeds from the year.

Operations

2006 operating performance
Since 2001 six projects have moved from Explorationsale of various interests, including Ashton Canada shares. The pre tax charge 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 mineralisation
has supplemented reserves or new mineralisation has been discovered this has been reported by the relevant product group.
     Explorationunderlying earnings in 2006 focused on advancing the most promising targets across the spectrumwas US$237 million net of grassroots and nearmine programmes. Encouraging results were obtainedUS$46 million of total proceeds 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 the
US (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,divestments.

Discoveries(Projects transferred to product group evaluation teams)
YearTier 1 discoveriesTier 2 discoveries



2000Potasio Rio Colorado (potash)Kazan (trona)
2001
2002Resolution (copper)
2003Sari Gunay (gold)
2004Simandou (iron ore)Eagle (nickel)
2005La Granja (copper)Rio Grande (borates)
Caliwingina (iron ore)four Pilbara deposits (iron ore)
2006
2007Caliwingina North (iron ore)Chapudi (coal)
Kintyre (uranium)



Notes
Tier 1discoveries: Large, high quality deposits — the 20 per cent of deposits contributing 80 per cent of global production.
Tier 2 discoveries: Smaller or lower quality deposits — the 80 per cent of deposits contributing 20 per cent of global production.

 

Rio Tinto 20062007 Form 20-F6796

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Technology and Innovation group

Colombia and Mongolia. Results in all countries are encouraging and work is continuing in 2007. Iron ore exploration continued in west Africa and further iron ore deposits in the Pilbara in Australia have been handed over to the iron ore product group in 2007.
     Industrial minerals exploration was active in many parts of the world including southern Africa, Europe and South America. Following the successful tender for the Jarandol concession (borates, Serbia), drilling has commenced.
      Brownfields exploration support continued at several Rio Tinto operations and product group projects, including Diavik, Argyle, Kennecott Utah Copper, Eagle, Energy Resources of Australia, La Granja, Pilbara Iron, Greens Creek and Rössing. Exploration also provided expertise to the brownfields programmes at the Grasberg and Cortez joint ventures.
     In December the Exploration group’s ISO14001 environmental management system certification was extended to cover the new Asia region and the project generation team.

Rio Tinto 2006Form 20-F68

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TECHNOLOGY AND INNOVATION

The Technology and Innovation group formerly(T&I) had its origin in the combination of the Operational and Technical Excellence was formed during 2006 by bringing together the Technology group(OTX) organisation and the Group’sImproving performance togetherbusiness improvement workin the areas of mining, processing, asset management and asset management.strategic production planning.
Technology and Innovation providesT&I’s focus is to be 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 ispartner in value delivery with Rio Tinto businesses by:developed.

supporting implementation of leading practice and high value projects;
developing and implementing strategic innovation technologies; and
evaluating the technical risk of major capital and growth projects.

The group comprises a core team of technology professionals and a number of Centres of Excellence whichtechnology centres that develop leading practice and drive sustainable performanceimprovement in the areas of health, safety and environment (HSE), mining, processing, assets integrity,asset management, strategic production planning, and project development and evaluation, and strategicplanning.evaluation. Key elements are standardisationcommon and visible measures of core processes to make them leading practice,operational effectiveness, the improvement ofanalytical tools the introduction of common, transparent metrics and data to measure performance, and enhanced functional training and capability development of staff.staff capability.
A further Centre of Excellencecentre focuses on majorstep change innovation to confer competitive advantage in development of orebodies likely to be requiredavailable to developRio Tinto in the orebodies of thefuture.
The total staff in Technology and InnovationT&I at year end was 368,387, compared with 343 in 2005.368 at year end 2006. The increase wasdue to the higher level of growth activity resulting fromcharacterising the current climate of growth in the industry.
resource sector.

2007 OPERATING PERFORMANCEIn 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 20062007 included the embedding of keythe environmental standards and metrics withinbusinesswithin business units, complementingto complement the health and safety standards which placestandards. The safety strategy was reviewed to concentrate on safety leadership, culture and measurement, and recognition of performance. This places Rio Tinto as an industry leader in terms ofperformanceof performance in these areas, and completing development ofareas. Implementing the product stewardship strategy which integrates product stewardship intovia business systems securing bothhas benefited market access and competitive advantage. Continued development of the HSEQ management systems and the integration of the Alcan business were also priorities for HSE.

Innovation
The Innovation Centre of Excellence is designed to drive step change innovation for Rio Tinto focused on ain the five to tenyear timeframe.time frame. The main focus is onrelevant technologies applicable across the Group, particularlyare in mining, processing and energy.
     Key innovation programmes were undertakenThe activities in underground and surface mining as well as processing. Specificactivities during 2006 focused2007 continued to focus on the block cave mining method tunnelof particular relevance to the large copper orebodies currently under development, and remote monitoring in underground mining, in pit material sizing and conveying, data fusion in surface mining, and process advances in oresortingore sorting and comminution.

Shared Expertisecomminution and modelling of heap leaching processes to enhance metal extraction.
Shared Expertise,      A significant commitment by Rio Tinto to automation has culminated in 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 instrategic partnership with the operating sitesAustralian Centre for Field Robotics (ACFR) at the University of Sydney. This exclusive partnership leverages an early mover advantage with Komatsu on driverless haul trucks and is a natural extension of other activity which is expected to implement leading practice. It also provides technical support on an ongoing basis as required.see the first fully integrated, autonomous mine in operation in the Pilbara in 2010.

Mining and Processing
The Mining and Processing Centres of Excellence addressTechnology Centre addresses the core mine production processes. Specific activities inthese areasin this area during 20062007 focused on continuing to establish and disseminate leading practice in orebody knowledge, payload management in surface mining and value driven production planningreconciliation processes across the operations. Attention was also given to further improving Rio Tinto’s technical capability in rapid underground development and block cave design.

Assets IntegrityProcessing
The Assets IntegrityProcessing Technology Centre focuses on core metallurgical capability and delivery of Excellence develops world class asset management capabilities to create significant value for Rio Tinto. Activities for 2006processing operations. Specific activities in this area during 2007 focused on the implementation of a structured methodology designed to identify specific points of loss (throughput, recovery, and grade), understanding underlying causes behind the losses, and the development of projects to reduce or eliminate those losses across the Group’s processing operations. A key enabling activity around the use of Processing Global Metrics for fixed plants was introduced.

Asset Management
The Asset Management Centre focuses on the effective choice and deployment of the Group’s asset base in mining and processing. Activities in 2007 focused on the continued reliability and performance of physical assets across the Group, including the implementation of standards and internal league tables“league tables” for maintenance of heavy mobile equipment

Rio Tinto 2007 Form 20-F97

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such as trucks and shovels. This led to continued significant improvement in areas such as tyre life (a further five per cent added to the success of previous years), truck utilisation and prolongingeconomic extension of engine and component life. The centre also extended the range of its influence in 2007 to the reliability and performance of fixed plant assets across the Group.

Strategic Production Planning
The Strategic Production Planning Centre focuses mainly on a Group wide methodology to ensure orebodies are developed in the optimum sequence for the generation of maximum value. Specific attention is directed to the enhancement of the functional skill of planning staff and to regular review of the life of mine plans for all the Group’s mining operations.

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 forThe Project Development and Evaluation (PDE). The principal accountabilitiesCentre is the proponent of PDE are to provideindependent advice to thestandards and guidelines for all aspects of capital appraisal and approval process, and on the adequacy of project submissions, fromprefeasibility studiesprojects, from pre-feasibility through to execution and commissioning. This covers major projects as well as minor projects implemented within business units. It holds a body of expertise to ensure the lessons from previous project developments are a resource to the project directors for the next generation of development.
      Evaluation staff are deliberately excluded from involvement in the formulation of major investment proposals, and the Evaluation team provides independent review and advice on the adequacy of risk identification and mitigation at key points in the approvals process. The team is also conducts post investment reviews; and ensures thatresponsible for overseeing reserve estimation corporate governance within the substantial experience of the Group in project definition and delivery is reflected in future projects.Group.

Energy and climate change
The Group Chief Scientist monitors emerging global technology trends and identifies opportunities which could significantly enhance the Group’s operations. Particular attention is given towards technologies with the potential for step change reductions in the Group’s energy and greenhouse gas footprint. The Group Chief Scientist also assists product groups in positioning new and existing operations for reduced energy consumption, greenhouse gas emissions and energy costs.

Rio Tinto 2006 Form 20-F69

BackProduction Technology Services
Production Technology Services is the core team of technology professionals deployed across five global offices who provide the breadth of experience and multi disciplinary approach to Contents
support existing business activity and pursuit of new, profitable growth. They are deployed at the request of business units and the technology centres within T&I. Their offices are in Melbourne, Brisbane, Perth, Salt Lake City and Montreal. In addition, some staff reside in London to be readily accessible to the UK headquarters.

Strategic PlanningFINANCIAL PERFORMANCE

2007 compared with 2006
The Strategic Planning Centrecharge against net earnings for the T&I group was US$78 million, compared with US$50 million in 2006. The increase was due to the higher level of Excellence focuses on three separate but related areas. These are value optimisation inthe strategic planning horizon, risk assessmentactivity, reflected also by higher staff numbers, and management,the continued development and business improvement, providing a centre forcoordinatingdeployment of leading operational practice for improvement methodologies across Rio Tinto.the Group.

Financial performance
2006 compared with 2005
The charge against net earnings for the group was US$50 million, compared with US$41 million in 2005. The increase was due to the greater level of activity, reflected also in the addition of staff.

2005 compared with 2004
The charge for the Technology group (including Health, Safety and Environment) against net earnings was US$41million, compared with US$35 million in 2004. The increase was due to the great er level of activity in all Technology group units.

 

Rio Tinto 2006 Form 20-F70

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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

Rio Tinto 2006 Form 20-F71

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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

Rio Tinto 2006 Form 20-F72

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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.

Rio Tinto 2006 Form 20-F73

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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 result
in 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 detailed
programme 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 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 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 being
implemented 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 relevant
laws and regulations. Under the policy, guidance is provided on contacts with competitors and benchmarking as well as implementation of the policy in individual businesses. As integral parts of the policy, all relevant employees receive regular training and are required to certify annually that they are not aware of any antitrust violations. No violations were reported in 2006.

Rio Tinto 20062007 Form 20-F7498

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FINANCIAL REVIEWFinancial review

Cash flow

20062007 compared with 20052006
Cash flow from operations, including dividends from equity accounted units, was a record US$12,569 million, 15 per cent higher than in 2006 due to the effect of higher earnings and favourable working capital movements.
      Tax paid for 2007 increased to US$3,421 million, US$622 million higher than for 2006 largely due to the delayed tax effect of the increased earnings in 2006 compared to 2005 and tax paid by Alcan. Net interest paid of US$489 million for 2007 was US$361million higher than 2006, arising mostly from Alcan acquisition debt arrangement costs and interest paid on the Alcan debt.
      The Group invested at record levels, in particular in expansion projects. Expenditure on property, plant and equipment and intangible assets was US$4,968 million in 2007, an increase of US$980 million over 2006. This included the completion of 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 expansion of the Yarwun alumina refinery, the A418 dike construction at the Diavik diamond mine and the Madagascar ilmenite mine. The Group’s ongoing and recently approved capital projects, which will impact future year’s cash flows are on pages 12 to 13.
      The net cash cost of acquisitions in 2007 was US$37,526 million, which was net of US$13 million related to disposals. Almost all of the acquisition cost related to Alcan. The acquisition was financed by US$38 billion of syndicated bank loans. Acquisitions less disposals were US$279 million in 2006 mainly relating to the acquisition of an initial stake in Ivanhoe Mines.
      Dividends paid in 2007 of US$1,507 million were US$1,066 million lower than dividends paid in 2006 which included a special dividend of US$1.5 billion. The share buy back programme was discontinued after the announcement of the Alcan acquisition on 12 July 2007: returns to shareholders from the on-market buy back of Rio Tinto plc shares in 2007 totalled US$1,611 million (net of US$13 million proceeds from the exercise of options), compared with US$2,339 million in 2006.

2006 compared with 2005
Cash flow from operations, including dividends from equity accounted units, was 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$3,9923,988 million in 2006, an increase of US$1,4021,434 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 dykedike 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 reflectsreflected 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 in
Ivanhoe 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 2006/072006–2007 programme and US$95 million in January from the 2005/062005–2006 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.

Balance sheet
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 dueRio Tinto commissioned expert valuation consultants to increased profits. This was partly offset by an increased cash outflowadvise on workingcapital in 2005 mainly reflecting higher receivables across all product groups due to higher metal prices and sales volumes.
Cash flowthe fair values of US$323 million from disposals of interests in businesses in 2005 primarily related toAlcan’s assets. As required under International Financial Reporting Standards (IFRS), 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 equipmenttangible and intangible assets of US$2,590 million included the major port and
rail 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 respectacquired business have been uplifted to fair value. The residue 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,purchase price not allocated to specific assets and subsequently an on market buy back of Rio Tinto plc shares. Almost two thirdsliabilities has been attributed to goodwill. The provisional values incorporated in the2007 Financial statementswill be subject to revision within 12 months of the US$1.5 billion capital management programme announced on 3 February 2005 had been completeddate of acquisition as permitted by the endrelevant accounting standard, IFRS 3. Details of January 2006.

Balance sheetthe Alcan assets acquired are included in note 41 to the2007 Financial statements.
The balance sheet remained strong duringcompletion of the period, although record capital expenditure andAlcan acquisition was financed under a US$40 billion syndicated bank loan at floating interest rates of which US$38 billion was drawn down. This, together with the increased capital
management activitydebt held by Alcan on acquisition, resulted in an increase in net debt of US$1,124 million42.8 billion to US$2,437 million45.2 billion at 31 December 2006.2007 of which US$8.1 billion is classified as short term borrowings. The US$40 billion loan is split into four facilities with final maturities ranging up to five years. Facilities A and B of this acquisition related debt are subject to mandatory prepayment to the extent of the net proceeds from disposals of assets and from the raising of funds through capital markets, under specific thresholds

Rio Tinto 2007 Form 20-F99

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and conditions. Debt to total capital rose to 1163 per cent butand interest cover strengthened to 89was 20 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 million0.7 billion at 31 December 2006. This2007. US$0.3 billion of this debt which is set out in note 15 to the 2006 financial statements, is withoutwith recourse to the Rio Tinto Group.

Rio Tinto 2006Form 20-F75

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     Goodwill arising from the Alcan acquisition relating to Contents
subsidiaries was US$14.5 billion and that relating to equity accounted units was US$2.8 billion. The future economic benefits represented by the goodwill include those associated with synergies, future development and expansion projects and the assembled workforce. The Group has decided to dispose of Alcan Packaging, which is presented in the balance sheet in the lines: ‘Assets held for sale’ and ‘Liabilities of disposal groups held for sale’.
    Net assets attributable to Rio Tinto shareholders increased by US$6.5 billion. The increase reflected profit after tax attributable to Rio Tinto shareholders of US$7.3 billion less returns to shareholders of US$2.8 billion comprising US$1.5 billion of dividends and US$1.3 billion of share buybacks. In addition, there was a positive currency translation effect of US$1.9 billion as the Australian dollar, the Canadian dollar and the Euro all strengthened against the US dollar.

Financial risk management
The Group’s policies with regard to financial risk management are clearly defined and consistently applied. They are a
fundamental principlepart of the Group’s long term strategy.strategy covering areas such as foreign exchange risk, interest rate risk, commodity price risk, credit risk and liquidity risk and capital management. From 1 January 2008, Rio Tinto Alcan has adopted the Rio Tinto Group policy on trading and hedging. The acquisition of Alcan impacted the Group’s market risk exposures, in particular, increasing the Group’s exposure to changes in interest rates and the aluminium price.
     The Group’s business is finding, mining and processing mineral resources, and not trading. TheGenerally, the Group only sells commodities it has produced.produced but may purchase commodities to satisfy customer contracts from time to time and to balance the loading on production facilities. In the long term, natural hedges operate in a number of ways to help protect and stabilise earnings and cash flow.
     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 the long term. 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. These natural hedges significantly reduce the relevance ofnecessity for using 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 statementsand2007 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 6.7.
The effectiveness of internal control procedures continues to be a high priority in the Rio Tinto Group. The boards’Boards’ statement on internal control is included underCorporate governanceon page 126.150.

Liquidity and capital resources
The Group’s total capital is defined as Rio Tinto’s shareholders’ funds plus amounts attributable to outside equity shareholders plus net debt. The Group’s over-riding objectives when managing capital are to safeguard the business as a going concern; to maximise returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure in order to reduce the cost of capital.
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. Rio Tinto plc and Rio Tinto Limited enjoy strong long and short termcontinue to maintain solid investment grade credit ratings from Moody’s and Standard and Poor’s.Poor’s, despite the credit rating downgrade announced on completion of the Alcan acquisition. These ratings continue to provide financial flexibility and consistent access to global 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’.in significant depth. 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. Following the acquisition of Alcan, the Group has publicly stated an objective to reduce its debt to equity ratio from current levels through a targeted asset divestment programme and through operating cash flows to a level consistent with a ‘single-A’ credit rating. 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.
     On 12 February 2008 the Group announced the sale of its interest in the Greens Creek mine for US$750 million. On 5 March 2008 the Group completed the sale of its interest in the Cortez joint venture to its partner for a cash consideration of US$1,695 million plus deferred and contingent consideration.
The Group maintains backup liquidity for its commercial paper programme and other debt maturing within 12 months and its commercial paper programmes by way of bank standby credit facilities, which totalled US$2.33.7 billion (undrawn) at 31 December 2006. These2007. The Group’s committed bank standby facilities contain no financial undertakings relating to interest cover and are not

Rio Tinto 2007Form 20-F100

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affected to any material extent (other than an increase in interest margin) by a reduction in the Group’s credit rating. The main covenant in the Rio Tinto group relates to a financial covenant over Corporate debt drawn under the Syndicated Acquisition Facility, for whichwere unused a compliance certificate must be produced attesting a certain ratio of Net Borrowings to EBITDA. There are no covenants relating to corporate debt which are under negotiation at the year end, can be drawn upon at any time on terms extending outpresent. The Group’s policy is to five years.centralise debt and surplus cash balances wherever possible.
     As at 31 December 2006,2007, 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          


  Less  than 1 Between 1 Between 3 After 5 
Total year and 3 years and 5 years years 
US$ m US$ m US$ m US$ m US$ m 


 
Expenditure commitments in relation to:         
Operating leases1,782 283 517 468 514 
Other (mainly capital commitments)3,978 3,113 801 64  
         
Long term debt and other financial obligations         
Debt (a)3,179 1,157 847 544 631 47,019 8,263 21,069 13,335 4,352 
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 
Interest payments (b)9,238 2,310 3,184 1,660 2,084 
Unconditional purchase obligations (c)7,271 1,525 1,571 1,079 3,096 
Other (mainly trade creditors)7,295 6,144 639 363 149 


 
 
Total9,798 3,834 2,780 1,413 1,771 76,583 21,638 27,781 16,969 10,195 


 
 
Notes
(a)Debt obligations include bank borrowings repayable on demand and reflectdemand.
(b)Interest payments have been projected using the interest rate applicable at 31 December, 2007, including the impact of related currency and interest rates wapsrate swap agreements where appropriate. Much of the debt is subject to variable interest rates. Future interest payments are subject, therefore, to change in line with market rates.
(b)(c)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 ’sGroup’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 4649 to the 2006 financial2007Fnancial statements. The level of contributions to funded pension plans is determined according to the relevant legislation in each jurisdiction in which the Group operates. In some countries there are statutory minimum funding requirements while in others the Group has developed its own policies, sometimes in agreement with the local trustee bodies. The size and timing of contributions will usually depend upon the performance of investment markets. Depending on the country and plan in question the funding level will be monitored quarterly, bi-annually or annually and the contribution amount amended appropriately. Consequently it is not possible to predict with any certainty the amounts that might become payable in 2009 onwards. The impact on cash flow in 2007 of the Group’s pension plans, being the employer contributions to defined benefit and defined contribution pension plans, was US$246 million. In addition there were contributions of US$30 million in respect of unfunded healthcare schemes. Contributions to pension plans for 2008 are estimated to be around US$220 million higher than for 2007. This is predominantly due to the inclusion of the Alcan plans for the full year, although it is also partly due to changes in funding rules in the US. Healthcare plans are unfunded and contributions for future years will be equal to benefit payments and therefore cannot be predetermined.
     Information regarding the Group’s close down and restoration obligations is provided in the relevant section of this review and in note 27 to the2007 Financial statements. 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 relevant operation. Generally, the Group’s close down and restoration obligations to remediate in the long term are not fixed as to amount and timing and are not therefore included in the above table.
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 believethe Group believes that the Groupit has sufficient short and long term sources of funding available to meet its liquidityworking capital requirements.
The Group’s committed bank standby facilities contain no financial undertakings relating to interest cover. The
Group has no financial agreements that would be affected to any material extent by a reduction in the Group’s credit rating. There are no covenants relating to corporate debt which are under negotiation at present.
The Group’s policy is to centralise debt and surplus cash balances whenever possible.

Rio Tinto 2006Form 20-F76

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Dividends and capital management
Rio Tinto’s progressive dividend policy aims to increase the US dollar value of dividends over time, without cutting them in economic downturns.
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 are declared and paid in pounds sterling and Rio TintoLimited shareholders receive dividends are declared and paid in Australian dollars, which are determined by reference to theconverted at exchange rates applicable to the US dollar two days prior to the announcement of dividends. Holders of American Depositary Receipts (ADRs) receive a US dollar dividend at the rate declared. Changes in exchange rates

Rio Tinto 2007Form 20-F101

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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.
     The Group announced a re-basing of its ordinary dividend in February 2007, increasing the full year ordinary dividend in respect of 2006 by 30 per cent to 104 US cents. The 2007 full year ordinary dividend represents a 31 per cent increase on 2006. In Apriladdition, the Group has announced an intention to increase its annual dividend by at least 20 per cent in each of 2008 and 2009.
     Final 2007 dividends to Rio Tinto Limited shareholders will be fully franked. The board expects Rio Tinto Limited to be in a position to pay fully franked dividends for the reasonably foreseeable future.
     On 2 February 2006 the Group paidannounced a US$4 billion capital management programme which was subsequently increased to US$7 billion in October 2006. The capital return was comprised of a US$1.5 billion special dividend (US$1.10 per share) announced as part of the
paid in April 2006 capital management programme (see below). The special dividendwhich 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 2006policy, 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$1.5
billion special dividend (US$1.10 per share paid in April 2006) referred to above and aan initial US$2.5 billion share buyback programme over two years(increased 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 billion5.5 billion) to US$7 billion, to becompleted over the remaining period to the end of 2007. The additionalprogramme was suspended on 12 July 2007 at the time the Alcan offer was announced, by which time US$3.9 billion had been completed under the US$7 billion capital management programme, bringing the total cash return is planned through the buyback of shares, subject to market conditions.
     As at 31 December 2006, the cumulative cash returnsreturned to shareholders under the 2005/06 and 2006/07announced capital management programmes amountedsince 2005 to US$4.86.4 billion.

Treasury management and financial instruments
Treasury activities operateoperates 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 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; 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 and cross currency interest rate swaps in conjunction with longer term funds raised in the capital markets to achieve a predominantly floating rate obligation which is consistent with the Group’s interest and exchange rate policy as described in the section on ‘Interest rates’ below. Currency swaps are used to convert debt or investments into currencies,policies, primarily theUS dollar which are consistent with the Group’s policy on currency exposure management as described inExchange rates, reporting currencies and currency exposurebelow.LIBOR. 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     Derivative contracts inare carried at fair value based on published price quotations for the period for which the Group is involveda liquid active market exists. Beyond this period, Rio Tinto’s own assumptions are valued by reference to quoted market prices,
quotations from independent financial institutions or by discounting expected cash flows.used.

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$501739 million at 31 December 2006.2007.
     Other commitments include contracted capital expenditure, operating leases and unconditional purchaseobligations as set out in the table of contractual cash obligations, included in theLiquidity liquidity and capital resourcessection above.

Exchange rates, reporting currencies and currency exposure
Rio Tinto’s shareholder’sshareholders’ equity, 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 Canadian dollars and the Euro are the most important currencies influencing costs, apart(apart from the US dollar.
dollar) 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 onRio Tinto’s underlying earnings.

Rio Tinto 2006Form 20-F77

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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. MovementsThe relationship between currencies and commodity prices is a complex one and 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 debtfinancial assets and intragroup balances.liabilities. They should therefore be used with care.

Exchange rate sensitivitiesRio Tinto 2007Form 20-F102

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   2006Effect on net and 
   Effect on underlying earnings 
Average  earnings of 10% change in 
Exchangeexchange rate  change in full
rate foryear average 
2006for 2007  +/- US$m 




 
Australian dollar (a)7584 US cents 280494 
Canadian dollar (a)8893 US cents 80203
Euro137 US cents65 
Chilean pesoUS$$1 = 530523 pesos 1012 
New Zealand dollar6573 US cents 617 
South African rand1514 US cents 2255 
UK Sterlingsterling184200 US cents 15
Othern/a624 




 

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 






 
(a)The sensitivities in the 2007 column are based on 2007 prices, costs and volumes and assume that all other variables remain constant, except that a full years’ volumes are included for Alcan where indicated.

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, Canadian dollars and the Euro. This cash is held in order to meet short term operational and capital commitments and, for the Australian dollar, dividend payments.
The Group finances its operations primarily in US dollars, either directly or using cross currency swaps, and ainterest rate swaps. A substantial part of the Group’s US dollar debt is located in subsidiaries having a US functional currencies other than the US dollar. Exchange differences on net debt that hedges the net assets of entities with functional currencies other than thecurrency.
     However, certain US dollar are dealt with through equity. Alldebt and 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 gainsfinancial assets 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 onliabilities including intragroup balances are dealt withnot held in the income statement but are excluded from underlying earnings.
     The table below reflectsfunctional currency of the amounts of net debt and intragroup balances at the end of 2006, net of tax andoutside interests, that expose the Grouprelevant 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 would beaccounts for those assets and liabilities. These exchange gains and losses are recorded in the Group’s income statement. Thesestatement except to the extent that they can be taken to equity under the Group’s accounting policy which is explained in note 1 of the2007 Financial statements. Gains and losses on US dollar net debt and on intragroup balances will not remain constant during 2007, however,are excluded from underlying earnings. Other exchange gains and these numbers should therefore be used with care.

Rio Tinto 2006Form 20-F78

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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.

losses are included in underlying earnings.
The Group does not generally believe that active currency hedging of transactions 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. Asboard, typically hedging of capital expenditure and other significant financial items such as tax and dividends. There is a legacy of currency forward contracts used to hedge operating cash flow exposures which were acquired with Alcan and the North companies. Details of currency derivatives held at 31 December 2007 are set out in note 3234 to the 20062007 Financial statements.
     The sensitivities below give the estimated effect on underlying earnings, net earnings and equity of a ten per cent change in the full year closing US dollar exchange rate, assuming that each exchange rate moved in isolation. The sensitivities are based on financial assets and liabilities held at 31 December 2007, where balances are not denominated in the functional currency of the subsidiary. A strengthening of the US dollar would result in exchange gains based on financial assets and financial liabilities held at 31 December 2007. These balances will not remain constant throughout 2008, however, and therefore these numbers should be used with care.

     Effect on  Of which  Effect of  
     net  amount  items  
     earnings of  impacting  impacting  
  Closing  10% underlying  directly on  
  exchange rate  change  earnings  equity  
  US cents  US$m  US$m  US$m  








  
Functional currency of business unit:      
Australian dollar88 204 99 (20)
Canadian dollar101 (3)53  
South African rand15 14 12 (4)
Euro147 33 14 149 
New Zealand dollar78 (9)3  








 
(a)The sensitivities show the net sensitivity of US dollar exposures in Australian dollar functional currency companies, for example, and Australian dollar exposures in US dollar functional currency companies.
(b)The sensitivities indicate the effect of a ten per cent strengthening of the US dollar against each currency.

The Group has changed its disclosure of market risk sensitive instruments from a tabular basis to a sensitivity analysis basis for consistency with the requirements of IFRS 7, the international accounting standard on financial instrument disclosure which the Group has adopted in its financial statements this year.
     Sensitivities as at 31 December 2006 there were derivative contractsas shown below.

Rio Tinto 2007 Form 20-F103

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        Of which     
        amount  Effect of items  
      Effect on net  impacting  impacting  
  Closing  earnings of 10%  underlying  directly on  
  exchange rate  change  earnings  equity  
  US cents  US$m  US$m  US$m  








  
Functional currency of business unit:      
Australian dollar79 37 56 (30)
Canadian dollar86 (29)12 - 
South African rand14 (6)5 - 
New Zealand dollar71 (15)3 - 








 

In addition, some US dollar functional currency companies are exposed to exchange movements on local currency deferred tax balances. The only material exposure is to the Canadian dollar and buy A$550 million and NZ$520 million in respect of future trading transactions. A significant parta ten per cent strengthening of the above hedge bookUS dollar would reduce underlying earnings based on 2007 balances by US$96 million. This would offset the US$53 million gain shown above. There 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.no similar exposure at 31 December 2006.
      The functional currency of mostmany operations within the Rio Tinto Group is the local currency in the country of operation. Alcan’s aluminium and alumina producing operations use a US dollar functional currency including those in Canada and Australia. Foreign currency gains or losses arising on translation to US dollars of the net assets of thesenon US functional currency operations are taken to equityand, with effect from 1 January 2004, recorded in a currency translation reserve. A weakening of the US dollar would have a positive effect on equity. 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)




 
     2007 
     Effect on net assets 
  Closing  of 10% change in 
  exchange rate  closing rate 
  US cents  +/- US$m 




 
Australian dollar88 1,583 
Euro147 568 
Canadian dollar101 255 




 

These net assets will not remain constant, however, and therefore these numbers should be used with care.

Interest rates
Rio Tinto’s interest rate management policy is generally to borrow and invest cash at floating interest rates. Short term US dollar rates are normally lower than long term rates, resulting in lower interest costs toThis approach is based on the Group. Furthermore, cyclical
movements ofhistorical correlation between interest rates tend to compensate in the long term, to an extent, for those ofand commodity prices. In some circumstances, an element of fixed rate funding may be considered appropriate. Rio Tinto hedges interest rate and currency risk on most of its foreign currency borrowings by entering into cross currency interest rate swaps in order to convert fixed rate foreign currency borrowings to floating rate US dollar borrowings. At the end of 2006,2007, US$4.9 billion (2006: US$1.2 billionbillion) of the Group’s debt was at fixed rates after taking into account interest rate swaps.swaps and finance leases. Based on the Group’s net debt at 31 December 2006, and with other variables unchanged,2007, the approximate effect on the Group’s net earnings of a onehalf percentage point increase in US dollar LIBOR interest rates with all other variables held constant, would be a reduction of US$6 million.158 million (2006: US$3 million). These balances will not remain constant throughout 2008, however, and therefore these numbers should be used with care.

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 boardBoard 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. The Group may hedge certain commitments with some of its customers or suppliers. Details of commodity derivatives held at 31 December 2007 are set out in note 34 to the2007 Financial statements. 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. The aluminium forward contracts and embedded derivatives were acquired with Alcan.
      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 icedpriced 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 including iron ore and coal are generally agreed annually or for longer periods with customers, although volume commitments vary by product.
      Certain products, predominantly copper concentrate, are ‘provisionally priced’, ie 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

 

Rio Tinto 20062007 Form 20-F79104

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recognised based on estimates of 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 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 Metal Exchange and the value of product sold by the Group is directly linked to the form in which it is traded on that market. At the end of 2007 the Group had 270 million pounds of copper sales (2006: 324 million pounds) that were provisionally priced at 304 US cents per pound (2006: 287 US cents per pound). The final price of these sales will be determined in 2008. The impact on earnings of a ten per cent change in the price of copper for the provisionally priced sales would be US$58 million (2006: US$66 million).
Approximately 53 per cent of Rio Tinto’s 20062007 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      The Group continued to achieve high prices increased rapidlyfor its products in 2007, and its assessment of the economic and demand outlook remains very positive, despite recent unsettled conditions in the financial markets. The strong increases seen in global minerals demand are driven by demographic and economic fundamentals in fast growing countries like China and India, whose large populations continue to urbanise. These long term trends are driven by domestic developments in those countries, and are therefore insulated to a significant extent from any potential near term weakness in western economies.
      The approximate effect on the Group’s underlying and net earnings of a ten per cent change from the full year average market price in 2007 for the following products would be:

         Effect on underlying 
         and net earnings of 
      Average  US$ 10% change in 
      market price  full year average 
  Unit  for 2007  +/- US$m 






 
Copperpound 3.24 360 
Aluminium (a)pound 1.20 678 
Goldounce 691 64 
Molybdenumpound 30 69 
Iron oredmtu n/a 457 






 
(a)The above sensitivities are based on 2007 volumes except that a full year impact from Alcan has been included where indicated.

The sensitivities give the estimated impact on net 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.
      The table below summarises the impact of changes in the market price on the following commodity derivatives including those aluminium and option contracts embedded in electricity purchase contracts outstanding at 31 December 2007. The impact is expressed in terms of the resulting change in the Group’s net earnings for the year or, where applicable, the change in equity. The sensitivities are based on the assumption that the market price increases by ten per cent with all other variables held constant. The Group’s ‘own use contracts’ are excluded from the sensitivity analysis below as they are outside the scope of IAS 39. Own use contracts are contracts to buy or sell non financial items that can be net settled but were entered into and continue to be held for the purpose of the receipt or delivery of the non financial item in accordance with the business unit’s expected purchase, sale or usage requirements.
      These sensitivities should be used with care. The relationship between currencies and commodity prices is a complex one and changes in exchange rates can influence commodity prices and vice versa.

     Effect of items 
     impacting directly 
  Effect on underlying  on Rio Tinto share 
  and net earnings of  of equity of 10% 
  10% increase from  increase from 
  year end price  year end price 
  US$m  US$m 




 
Copper 40 
Coal 25 
Aluminium41 50 




 
 41 115 




 

Rio Tinto 2007 Form 20-F

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Sensitivities as at 31 December 2006 were as shown below:

Effect on underlyingEffect of items
and net earnings ofimpacting directly
10% increase fromon Rio Tinto share
year end priceof equity of 10%
increase from
year end price
US$mUS$m




Copper49
Coal20




69




Sales revenue
The table below shows published ‘benchmark’ prices for Rio Tinto’s commodities for the last three years where these 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, 2005, 2006 and 2006. Looking to 2007, there are2007. The Group’s sales revenue will not necessarily move in line with these benchmarks for a number of uncertaintiesreasons which are discussed below.

   2007 2006 2005 
CommoditySourceUnitUS$ US$ US$ 








 
AluminiumLMEpound1.20 1.16 0.86 
CopperLMEpound3.24 3.06 1.66 
GoldLBMAounce691 602 444 
Iron oreAustralian benchmark (fines) (a)dmtu (b)0.79 0.71 0.55 
MolybdenumMetals Week: quote for dealer oxide pricepound30 25 31 








 
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 inthe global economy, not leastFinancial Information by Business Unit in the direction2007 Financial statements.
     The sales revenues of inflation and interest ratesthe Iron Ore group increased by 27 per cent in major economies.2007 compared with 2006. There was a 9.5 per cent increase in the benchmark price, mainly effective from 1 April 2007 which resulted in an 11 per cent increase in the average Australian iron ore fines benchmark for the calendar year. Sales achieved the benchmark price throughout the year. The Group expects some moderation of global economic growth, although confidence in Japan and Europe is increasing. Growthprice outlook for the 2008 contract year remains very positive, with spot prices in China whichsubstantially above prevailing contract prices. In addition to higher prices, sales revenues at Hamersley Iron were higher from record production following completion of the second phase of the Dampier port upgrade and the Tom Price brownfield and Yandicoogina JSE mine expansions.
     At IOC, volumes were lower as a result of a seven week strike in the first and second quarters of the year and this was only partly mitigated by higher prices.
     The Australian iron ore fines benchmark increased by 19 per cent in April 2006. This together with higher volumes at Hamersley contributed to an increase in the Group’s iron ore revenue of 26 per cent in 2006 against 2005.
     A significant proportion of Rio Tinto’s coal production is criticalsold under long term contracts. In Australia, the prices applying to sales under the demand outlooklong 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 the movements 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.
     Asian seaborne thermal coal prices continued to rise sharply throughout 2007 mainly due to supply disruptions from key producing countries. Issues relating to infrastructure controlled by external parties are likely to maintain market tightness for manythe foreseeable future. Published thermal coal benchmarks in Australia improved by 33 per cent in the calendar year whilst coking coal benchmarks decreased by 13 per cent.
     Revenues of the Group’s products,Australian coal operations decreased by three per cent in 2007 with lower thermal coal sales largely attributable to infrastructure constraints and a severe weather event. In general, production at the Australian coal mines continued to be constrained by rail and port constraints in Queensland and New South Wales and reduced tonnage of rail and port allotments in Queensland, which curtailed mined production, despite the generally favourable market conditions.
     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 of market weakness and the delay in thermal coal shipments arising from congestion at Newcastle. Published market indications for Australian thermal coal showed a slight increase in thermal coal prices in 2006 and a seven per cent increase in the coking coal benchmark price.

Rio Tinto 2007 Form 20-F106

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     In the US, published market indications of spot prices for Wyoming Powder River Basin thermal coal 8800 BTU (0.80 sulphur) show a decrease of around 20 per cent for the average spot price in 2007 compared with 2006. However, Rio Tinto Energy America’s revenues increased by nine per cent in 2007 with improved realised prices. Rio Tinto Energy America has long term contracts and this increased revenue was primarily a result of the replacement of below market legacy contracts with new contracts at current market pricing in 2006 and earlier years. Revenues increased by 19 per cent in 2006 against 2005, with higher realised prices for Powder River Basin coal and increased volumes. Despite increased volatility in the spot market and a marginal decline in long term sales volumes the market sentiment for uranium remained positive through 2007. Supply from a number of producers fell short of expectations in 2007 while the outlook for demand increased as new-build programmes gathered pace, particularly in China. Higher utilisation rates were also experienced in the nuclear industry. These factors have contributed to tighter markets and an improvement in the longer term outlook for uranium demand.
     Large swings in the spot price, driven by speculative behaviour by hedge funds and investors, created a degree of uncertainty in the uranium market. The resultant effect was a de-linking of the spot and long term prices and a reduction in contracting as fuel buyers monitored movements in the market. Despite this, long term prices grew strongly in the early part of the year and remained firm thereafter. Information included in the RWE NUKEM Inc. Price Bulletin indicated price increases of 99 per cent in 2007 and 71 per cent in 2006 for uranium oxide. 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.
     The Group’s uranium revenue increased by 69 per cent in 2007 and 27 per cent in 2006 as a result of higher prices with Rössing, in particular, benefiting from positive market conditions and improved pricing. Prices at ERA continued to benefit from the gradual replacement of legacy contracts with newer contracts written in an environment of higher prices.

     The average aluminium price of 120 US cents per pound was three per cent above the 2006 average price. Global demand growth for 2007 is expected to remainexceed ten per cent. Rising LME inventories towards the end of 2007 and strong and well balanced.growth in global output pushed aluminium prices lower in the second half of the year. The Group continuesanticipates strong demand and growing supply constraints in China.
      The Aluminium group’s sales revenues are from aluminium and related products such as alumina and bauxite. Alcan’s sales revenue for the two months from acquisition, which includes revenue from Engineered Products, was US$3,798 million. Rio Tinto Aluminium’s sales revenue increased by one per cent in 2007 reflecting higher volume and price for bauxite and aluminium and lower volume and price for alumina. Revenue increased by 27 per cent in 2006. Average aluminium prices quoted on the LME increased by 35 per cent against 2005 but achieved spot alumina prices were lower than in 2005.
     The Copper group also produces gold and molybdenum as significant co-products. The average copper price of 324 US cents per pound was six per cent above the 2006 average price. The gold price averaged US$691 per ounce, an increase of 15 per cent on the prior year, whilst the average molybdenum price was US$30 per pound, an increase of 20 per cent compared with 2006. Total Copper Group sales revenues in 2007 increased by 20 per cent over 2006. Copper revenues increased by 17 per cent reflecting higher volumes at KUC and Escondida as well as higher prices. Gold revenue increased by 69 per cent with higher volumes at Kennecott Minerals and the Grasberg joint venture. Molybdenum revenue was nine per cent higher than in 2006 with lower volumes as a result of lower ore grade and higher limestone levels in the orebody partly offsetting the improved prices.
     The total Copper group sales revenues 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 Freeport more than offset the higher volumes at the other copper operations. A 22 per cent decrease in gold revenue was also attributable to viewlower grades at Freeport which outweighed the overalleffect 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.
     Industrial Minerals sales are made under contract at negotiated prices. Revenue from industrial minerals increased by 11 per cent in 2007 and five per cent in 2006. This was mainly attributable to higher sales volumes of titanium dioxide chloride feedstock.
     Diamonds prices realised by Rio Tinto depend on the size and quality of the diamonds in the product mix. Diamond sales revenue increased by 22 per cent in 2007 against 2006 with higher sales volumes and polished pink tender prices at Argyle, and higher volumes at Diavik. The tight supply outlook for commodities as positive, with pricesrough diamonds is expected to remain well abovesupport demand in 2008, especially for better quality rough diamonds produced by Diavik. 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 surplus rough diamonds being held in inventory at the end of the year.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Dual listed company reporting
As explained in detail in the Outline of dual listed companies’ structure and basis of financial statements in the2007 Financial statements, the consolidated financial statements of the Rio Tinto Group deal with the results, assets and liabilities of both of the dual listed companies, Rio Tinto plc and Rio Tinto Limited, and their long run averagessubsidiaries. In other

Rio Tinto 2007 Form 20-F107

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words, Rio Tinto plc and Rio Tinto Limited are viewed as a single parent company with their respective shareholders being the shareholders in 2007.that single company.
      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 as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December 2004 (the JORC code). Where relevant, the IFRS financial statements are based on the reserves, and in some cases mineral resources, determined under the JORC code.
     For the purposes of this combined Annual report on Form 20-F estimates of ore reserves have been computed in accordance with the SEC’s Industry Guide 7, rather than in accordance with the JORC code, and are shown on pages 32 to 42. Ore reserves (underpresented in accordance with SEC Industry Guide 7) presented on pages 23 to 337 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 three years to 30 June 2006,2007, or contracted prices where applicable. For this purpose, contract edcontracted 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 2006
and 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 average
market 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 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 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 as
defined 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 of
estimation may change significantly when new information becomes available.
     Changes in the forecast prices of commodities, exchange rates, production cost scosts 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.

Acquisition accounting
On the acquisition of a subsidiary, the purchase method of accounting is used whereby the purchase consideration is allocated to the identifiable assets, liabilities and contingent liabilities (identifiable net assets) on the basis of fair value at the date of acquisition.
     Rio Tinto acquired Alcan Inc during the year. The Group commissioned valuation consultants to advise on the fair values and asset lives of Alcan’s assets. The residue of the purchase price not allocated to specific assets and liabilities has been attributed to goodwill. The provisional values and asset lives incorporated in the2007 Financial statementswill be subject to revision within 12 months of the date of acquisition as permitted by IFRS 3 ‘Business Combinations’.

Asset carrying values
Events or changes in circumstances can give rise to significant impairment charges or reversals of impairment
provisions in a particular year. In 2007, the Group’s results included net impairment charges of US$58 million (US$113 million after tax and outside shareholders interests). An impairment charge was recognised at Argyle, which was partially offset by impairment reversals at Palabora and Tarong Coal. 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, thereThere were no significant impairment charges or reversals. Howeverreversals in 2004, the Group incurred a US$558 million impairment charge, (US$321 million net of tax and outside shareholders’ interests).2005.
     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.
     Recentother and over the last few years favourable changes in commodity prices have generally exceeded adverse shifts in exchange rates. Comparing average exchange rates in 20062007 against those in 2003,2004, the Australian dollar strengthened by 1614 per cent against the USdollar, the Canadian dollar strengthened by 24 per cent21 percent and the South African rand weakened by teneight per cent. OverIn the same period, commodity prices rose substantially: for example, copper prices increased by 281149 per cent, aluminium by 7954 per cent and gold by 6669 per cent.
     Reviews of carrying values relate to cash generating units which, in accordance with IAS 36 ‘Impairment“Impairment of Assets’

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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 mineralisationmineralised material that does not currentlyqualify for inclusion in provenproved 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 for forecasting 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 thesethe relevant 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 value in use calculations used in 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 value in use calculations 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, and associated smelters, concentrators and other long lived processing

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equipment generally relate to the expected life of the ore body.orebody. The life of the ore body,orebody, 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 ageaverage 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,Value in use and ore reserve estimates and value in use estimates are based on the exchange rates current at the time of the evaluation. In final feasibility studies and 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 the
net 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 provisionprovisions 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 canmay 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

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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 as
stripping. 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 provenproved 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 productsco-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 thean individual mine’s 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 2006,2007, production stage stripping costs incurred by subsidiaries and equity accounted operations exceededwere US$56 million higher than the amounts charged against pre tax profit which included(2006: production stage costs exceeded the amounts charged against pre-tax profit by US$20 million). In addition, US$117 million of deferred stripping was written off in 2007 as part of the Argyle impairment and there were net impairment reversals of US$36 million by US$56 million (2005: US$93 million).affecting deferred stripping in 2006. The net book value carried forward in property, plant and equipment and in investments in equity accounted unitsjointly controlled entities and associates at 31 December 20062007 was US$929884 million (2005:(2006: US$ 845929 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 2006,2007, 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 Actual stripping ratio for year Life of mine stripping ratio 
 
 
 




 




 
 2004 2005 2006 2004 2005 2006 2007 2006 2005 2007 2006 2005 


 
 
Kennecott Utah Copper (2019) (a) (b) 1.83 2.02 2.04 1.24 1.51 1.36 1.99 2.04 2.02 1.32 1.36 1.51 
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 3.47 3.01 3.12 3.05 2.63 2.43 
Diavik (2008) (c) 1.47 1.21 0.89 0.94 0.91 0.96 0.42 0.89 1.21 0.91 0.96 0.91 
Escondida (2042) (d) 0.11 0.09 0.08 0.11 0.12 0.12 
Escondida (2040) (d)0.07 0.08 0.09 0.10 0.12 0.12 


 
 
Notes
(a)StripStripping ratios shown are waste to ore.
(b)Kennecott’s life of mine stripstripping ratio decreased in 2006 as the latest mine plan provides for the pit wallsincluded higher metals prices, which made previously uneconomic material (waste) economic to be made steeper in an area within the mine which resulted in adding ore without adding waste.as ore.
(c)Diavik’s stripstripping ratio is disclosed as bankbench cubic metre per carat. The fall in actual ratio arises as the end of the pipe life nears.
(d)Escondida’s stripstripping ratio is based on waste tonnes to pounds of copper mined.

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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.

Functional currency
The determination of functional currency affects the carrying value of non current assets included in the balance sheet and, as a consequence, the amortisation of those assets included in the income statement. It also impacts exchange gains and losses included in the income statement.
     In 2006,The functional currency for each entity in the Group, adopted EITF Issue No. 04-06 'Accountingand for Stripping Costs Incurred during Productionjointly controlled entities and associates, is the currency of the primary economic environment in which it operates. For many of Rio Tinto’s entities, this is the Mining Industry' ('EITF 04-06') forcurrency of the country in which each operates. Alcan’s aluminium and alumina producing operations use a US GAAP. Under EITF 04-06, stripping costs incurred duringdollar functional currency including those in Canada and Australia. Transactions denominated in currencies other than the production phasefunctional currency are converted to the functional currency at the exchange rate ruling at the date of a surface minethe transaction unless hedge accounting applies. Monetary assets and liabilities denominated in foreign currencies are considered variable production costs that should be recorded directlyretranslated 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 componentwhole.
On consolidation, income statement items are translated into US dollars at average rates of production cost, except toexchange. Balance sheet items are translated into US dollars at year end exchange rates. Exchange differences on the extent they can be attributed to inventory in accordancetranslation of the net assets of entities with normal inventory valuation principles.
     As a consequence,functional currencies other than the US dollar, and any offsetting exchange differences on 1 January 2006 a cumulative adjustment of US$651 million (US$415 million net of taxation) attributable to subsidiaries wasdebt hedging those net assets, are recognised directly in US GAAP equity. A further US$94 millionthe 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 taxation relatedthe foreign currency translation reserve relating to equity accounted units was recognised directlyan 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 GAAP equity.dollars but 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. With the above exceptions, and except for derivative contracts which qualify as cash flow hedges, exchange differences are charged or credited to the income statement in the year in which they arise.

Deferred tax on mining rights
fair value adjustments

On transition to EU IFRS with effect from 1 January 2004, deferred tax was provided in respect of fair value
adjustments on acquisitions in previous years. No other adjustments were made to the assets and liabilities recognised in such prior year acquisitions and, accordingly, shareholders’ funds were reduced by US$720 million on transition to EU IFRS primarily as a result of deferred tax on fair value adjustments to mining rights. In general, these mining rights are not eligible for income tax allowances. In such cases, the provision for deferred tax was based on the difference between their carrying value and their nil income tax base. The existence of a tax base for capital gains tax purposes

Rio Tinto 2006 Form 20-F85

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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 such 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 theThe difference between the fair value of the plan assets (if any) of post retirement plans and the present value of the plan liabilitiesobligations is recognised as an asset or liability on the balance sheet andsheet. The Group has adopted the option under IAS 19 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 estateproperty 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’

Rio Tinto 2007 Form 20-F111

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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 4649 to the 2006 financial2007 Financial statements.
     For 20062007 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$200168 million. These charges includeThis charge included both pension and post retirement healthcare benefits. The charges arecharge is net of the expected return on assets which (net ofwas US$371 million after tax and minorities) was US$228 million under EU IFRS and US$209 million under US GAAP.minorities.
     In calculating the 2006 EU IFRS2007 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 4.6decrease to 3.7 per cent for 2007. For EU IFRS,2008 reflecting the increased weighting of lower inflation countries following the Alcan acquisition. The average discount rate used for the Group’s plans in 20062007 was 5.05.4 per cent and the average discount rate used in 20072008 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 5.25.6 per cent andreflecting the weighted average level of discount rate to be used in 2007 will be 5.4 per cent. This is also due to higher bond yields.rates following the Alcan acquisition.
      For both EU IFRS and US GAAP, theThe average expected long term rate of return on assets used to determine 20062007 pension cost was 6.36.9 per cent. This will increasedecrease to 6.96.4 per cent for 2007.2008. This is duereduction results mainly from a lower allocation to an increase in bond yields andequities as a change inresult of 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.Alcan acquisition.
      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 20072008 would be expected to decreaseincrease by some US$26198 million to US$132366 million. The impactmain reason for this increase is the inclusion 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.Alcan pension expense for the full year. 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 20062007 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.isolation although a change in one assumption is likely to result in some offset elsewhere.

Rio Tinto 2006 Form 20-F86IFRS
US$m



Sensitivity of Group’s 2007 net earnings to changes in:
Expected return on assets 
– increase of 1 percentage point 39
– decrease of 1 percentage point (39
Discount rate 
– increase of 0.5 percentage points 7
– decrease of 0.5 percentage points (6
Salary increases 
– increase of 0.5 percentage points (6
– decrease of 0.5 percentage points 6
Demographic – allowance for additional future mortality improvements 
– participants assumed to be one year older 7
– participants assumed to be one year younger (7




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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 underlying and 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 4649 to the 2006 financial statements.

2007Financial statements.

US deferred tax potentially recoverable
Rio Tinto’s US tax group have Alternative Minimum Tax (AMT) credits and temporary differences, which have the
potential 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, the
Group 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 the
Audit 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 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.
      The Group’s interpretation of these initial recognition rules has the result that no deferred tax asset is provided on the recognition of a provision for close down and restoration costs and the related asset, or on recognition of assets held under finance leases and the associated lease liability, except where these are recognised as a consequence of business combinations.

Rio Tinto 2006 Form 20-F87

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      On creation of thea 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 tax
asset 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

Rio Tinto 2007 Form 20-F112

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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 onbenefit to underlying and net earnings would have been US$21 million (2006: US$9 million) and shareholders’to equity would be as follows:have been US$185 million (2006: US$127 million).

        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%








 

US deferred tax potentially recoverable
The Group’s US tax group has alternative minimum tax credits and temporary differences that have the potential to reduce tax charges in future years. These ‘possible tax assets’ totalled US$182 million at 31 December 2007 (2006: US$162 million). Of these, US$119 million were recognised as deferred tax assets (2006: US$97 million), leaving US$63 million (2006: US$65 million) unrecognised, as recovery was not considered probable.
      During 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 previously unrecognised possible tax assets of US$335 million. Recoveries are dependent on future commodity prices, costs, financing arrangements and business developments in future years.
      During 2007, principally as a result of high commodity prices, US$170 million of these possible tax assets were utilised (2006: US$140 million).

Exploration
Under the Group’s accounting 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.
      The carrying values of exploration and evaluation assets are reviewed twice per annum by management and the results of these reviews are reported to theAudit committee. There may be only 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 undeveloped property. In some cases, the undeveloped properties are regarded as successors to orebodies currently in production and will therefore benefit from existing infrastructure and equipment.

Contingencies
Disclosure is made of material contingent liabilities unless the possibility of any loss arising is considered remote. Contingencies are disclosed in note 3335 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.2007 Financial statements.

Underlying earnings
The Group presents ‘Underlying earnings’“Underlying earnings” as an additional measure to provide greater understanding of the underlying
business performance of its operations. The adjustments made to net earnings to arrive at underlying earnings are explained above in the section on underlying earnings.

 

Rio Tinto 20062007 Form 20-F88113

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Item 6.Directors, Senior Management and Employees
  
Chairman and executive directors
AuditRemunerationNominationsCommittee on social 
committeecommitteecommitteeand environmental
    Committee on social
AuditNominationsRemunerationand environmental
committeecommitteecommitteeaccountability








Chairman    
Paul Skinner   
Chief executive    
Tom Albanese     
Finance director    
Guy Elliott     
Executive director   
Dick Evans     
Non executive directors    
Ashton Calvert AC *
Sir David Clementi *  
Vivienne Cox *   
Sir Rod Eddington *  
Michael Fitzpatrick * 
Yves Fortier *   
Michael Fitzpatrick *
Richard Goodmanson *   
Andrew Gould *  
Lord Kerr of Kinlochard *  
David Mayhew    
David MayhewSir Richard Sykes *   
Sir Richard SykesPaul Tellier *   








* Independent     


CHAIRMAN



Paul SkinnerBA (Hons) (Law), DpBA (Business Administration), age 62.63
Appointment and electionelection::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 stands for re-election in 2008. He is chairman of the Nominations committee (note b)c).

Skills and experienceexperience:
:
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 2003.2003
Director of the Tetra Laval Group since 2005.2005
Director of L’Air Liquide SA since 2006.
2006
Chairman of the International Chamber of Commerce (UK) since 2005.2005
Non executive member of the Defence Management Board of the UK Ministry of Defence since June 2006.2006
Member of the board of INSEAD business school since 1999.1999
Director of The “Shell” Transport and Trading Company plc from 2000 to 2003

CHIEF EXECUTIVE

Tom AlbaneseBS (Mineral Economics), MS (Mining Engineering), age 49.50
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since March 2006. Tom was elected by
shareholders in 2006.2006 and stands for re-election in 2008.
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

Rio Tinto 2007 Form 20-F114

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Leigh Clifford with effect from 1 May 2007.
External appointments (current and recent):

Director of Ivanhoe Mines Limited since November 2006.from 2006 to 2007
Director of Palabora Mining Company from 2004 to 2006.2006

Member of the Executive Committee of the International Copper Association from 2004 to 2006.2006

Rio Tinto 2006 Form 20-F89

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FINANCE DIRECTOR


Guy ElliottMA (Oxon), MBA (INSEAD), age 51.52
Appointment and election:Finance director of Rio Tinto plc and Rio Tinto Limited since 2002. Guy was last re-elected by shareholders in 2007.

Skills and experience:
Guy joined the Group in 1980 after gaining an MBA.MBA having previously been in investment banking. He has subsequently held a variety of commercial and management positions, including head of Business Evaluation and president of Rio Tinto Brasil.
External appointments (current and recent):
None.
Non executive director and member of the Audit committee of Cadbury Schweppes plc, since 2007

NON EXECUTIVE DIRECTORSDIRECTOR


Ashton CalvertDick EvansAC, BSc (Hons) (Tas)BS (Industrial Engineering) (Oregon State University), DPhil (Oxon)MS Management (Stanford Graduate School of Business), Hon DSc (Tas) age 61.60
AppointmentAppointments and election:Director of Rio Tinto plc and Rio Tinto Limited since 2005. Ashton was re-electedeffective 25 October 2007. Dick will stand for election by shareholders in 2007 (notes b, d and e).at the 2008 annual general meetings.
Skills and experience:Ashton retired as secretaryDick Evans joined Rio Tinto following the acquisition of the Department of Foreign Affairs and Trade of the Government
of 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,Alcan Inc where he was ambassador priorhad held several senior management positions including executive vice president and had been president and chief executive officer of Alcan from 2006 to his appointment as secretary. In these and other roles2007. Prior to Alcan, he developed extensive experience of the Asian countries which represent key markets for Rio Tinto.has held senior management positions with Kaiser Aluminum & Chemical Corporation.
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.AbitibiBowater Inc. since 2003
Director of The Australian Strategic Policythe International Aluminium Institute betweensince 2001 and 2005.

NON EXECUTIVE DIRECTORS

Sir David ClementiMA, MBA, FCA, age 57.59
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, cb and e).

Skills and experience:
Sir David is chairman of Prudential plc, prior to which he was Deputy Governor of the Bank of
England. 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 2002.2002
Member of the Financial Reporting Council since 2003.between 2003 and 2007

Vivienne CoxMA (Oxon), MBA (INSEAD), age 47.48
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2005. Vivienne was elected by shareholders in 2005 and stands for re-election in 2008. (notes a and e).

Skills and experience:
Vivienne is currently executive vice president of BP p.l.c. for Gas Power & Renewables.Alternative Energy. She is
a 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 2004.2004

Sir Rod EddingtonB.Eng M.EngB Eng, M Eng (University of Western Australia), D.PhilD Phil (Oxon), age 57.58
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2005. Sir Rod was elected by
shareholders in 2006 (notes b,c, 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.

Rio Tinto 2007 Form 20-F115

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External appointments (current and recent):

Director of News Corporation plc since 1999.1999
Director of John Swire & Son Pty Limited since 1997.1997

Non executive chairman of JPMorgan Australia and New Zealand since January 2006.2006
Director of CLP Holdings since January 2006.2006
Director of Allco Finance Group Limited since July 2006.2006
Chief executive British Airways Plc from 2000 until 2005.2005

Chairman of the EU/Hong Kong Business Co-operation Committee of the Hong Kong Trade Development Council from 2002 until March 2006.2006

Rio Tinto 2006 Form 20-F90

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Michael FitzpatrickB.B Eng (University of Western Australia), BA (Oxon), age 54.55
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since June 2006. Michael was elected byshareholders in 2007 (notes a, c
b and e).

Skills and experience:
Michael recently sold his interest in, and ceased to be a director of, Hastings Funds Management
Ltd., Ltd during 2006, the pioneering infrastructure asset management company which he founded in 1994. He is Chairmanchairman 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 commissionerchairman of the Australian Football League, having previously played the game professionally, and is a former chairman of the Australian Sports Commission.
External appointments (current and recent):

Chairman of the Victorian Funds Management Corporation since 2006
Chairman of Treasury Group Limited since 2005
Managing Directordirector of Hastings Funds Management Ltd from 1994 to 2006.
Chairman of the Victorian Funds Management Corporation since 2006.
Chairman of Treasury Group Limited since 2005.2006
Director of Pacific Hydro Limited from 1996 to 2004.2004
Director of Australian Infrastructure Fund Limited from 1994 to 2005.2005
Director of the Walter & Eliza Hall Institute of Medical Research since 2001.2001

Yves FortierCC, OQ, QC, LLD, Av Em, age 72
Appointments and election:Director of Rio Tinto plc and Rio Tinto Limited effective 25 October 2007. Yves will stand for election at the 2008 annual general meetings (notes c, d and e).
Skills and experience:
Yves Fortier was Ambassador and Permanent Representative of Canada to the United Nations from 1988 to 1992. He is chairman and a senior partner of the law firm Ogilvy Renault and was chairman of Alcan from 2002 until 2007.
External appointments (current and recent):

Chairman of Ogilvy Renault since 1992
Chairman and director of Alcan Inc. from 2002 until 2007
Director of NOVA Chemicals Corporation since 1998
Governor of Hudson’s Bay Company from 1998 to 2006
Director of Royal Bank of Canada from 1992 to 2005
Director of Novtel corporation from 1992 to 2005

Trustee of the International Accounting Standards Committee from 2000 to 2006

Richard GoodmansonMBA, (Columbia University), BEc and BCom, (University of Queensland)B Eng (Civil), B. Eng. – Civil (Royal Military College, Duntroon)
age 59.60

Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2004. He was elected by shareholders in 2005 and stands for re-election in 2008. Richard is chairman of the Committee on social and environmental accountability (notes c,b, 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 AmericanAmerica 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 1999.1999
Chairman of the United Way of Delaware since January 2006 (director since 2002).
Director of the Boise Cascade Corporation between 2000 and 2004.2004

Andrew GouldBA, FCA, age 60.61
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, cb and e).
Skills and experience:Andrew is chairman and chief executive officer of Schlumberger Limited, where he has held a
succession of financial and operational management positions, 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):

Rio Tinto 2007 Form 20-F116

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Chairman and Chief Executive Officer of Schlumberger Limited since 2003.2003
Member of the Advisory Board of the King Fahd University of Petroleum and Minerals in Dhahran, Saudi Arabia since January 2007.2007
Member of the commercialization advisory board of Imperial College of Science Technology and Medicine, London since 2002.2002
Member of the UK Prime Minister’s Council of Science and Technology from 2004 to February 2007.2007

Lord Kerr of KinlochardGCMG, MA, age 65.66
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 e).

Skills and experience:
An Oxford graduate, heLord Kerr was in the UK Diplomatic Service for 36 years an dand headed it from 1997 to 2002 as Permanent Under Secretary at the Foreign Office. On a secondment to the UK Treasury he was principal private secretary to two Chancellors of the Exchequer. 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 aan independent member of the House of Lords since 2004.
External appointments (current and recent):

Deputy Chairman of Royal Dutch Shell plc since 2005.2005
Director of The Scottish American Investment Trust plc since 2002
Advisory Board member, Scottish Power (Iberdrola) since 2007

Director of The “Shell” Transport and Trading Company plc from 2002 to 2005.
Director of The Scottish American Investment Trust plc since 2002.2005
Chairman of the Court and Council of Imperial College, London since 2005.2005

Trustee of the Rhodes Trust since 1997, The National Gallery since 2002, and the Carnegie Trust for the Universities of Scotland since 2005.2005

Rio Tinto 2006 Form 20-F91

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David Mayhewage 66.67
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2000. He was last re-elected byshareholders in 2006 (note b)c).

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 the
partner 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 2001.2001
Chairman of Cazenove Capital Holdings Limited since 2005.2005


Sir Richard SykesBSc (Microbiology), PhD (Microbial Biochemistry), DSc, Kt, FRS, FMedSci, age 64.
65
Appointment and election:
Director of Rio Tinto plc and Rio Tinto Limited since 1997. Sir Richard was appointed the senior non executive director in 2005 and is chairman of the Remuneration committee. Sir Richard was re-elected for a further one year term of office in 2007 but his intention is toand will retire afterat the conclusion of 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 Eurasian Natural Resources Corporation plc since 2007
Director of Lonza Group Limited since 2003, Deputy Chairman since 2005.2005
Chairman of the Healthcare Advisory Group (Apax Partners Limited) since 2002.2002
Chairman of Metabometrix Ltd since 2004.2004
Chairman of Merlion Pharmaceuticals Pte Limited since 2005.2005
Chairman of OmniCyte Ltd since 2006
Chairman of Circassia Ltd since 2007
Director of Abraxis BioScience Inc since 2006.from 2006 to 2007
Director of Bio*One Capital Pte Ltd since 2003
Rector of Imperial College London since 2001
Chairman of GlaxoSmithKline plc between 2000 and 2002.2002

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 2005.2005

DIRECTOR RETIRING AT CONCLUSION OF THE 2007 ANNUAL GENERAL MEETINGSPaul Tellierage 68
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited effective October 2007. Paul will stand for election at the 2008 annual general meetings (notes a, b and e).
Skills and Experience:Paul was Clerk of the Privy Council Office and Secretary to the Cabinet of the Government of Canada from 1985 to 1992 and was president and chief executive officer of the Canadian National Railway Company

Rio Tinto 2007 Form 20-F117

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from 1992 to 2002. Until 2004, he was president and chief executive officer of Bombardier Inc.
External appointments (Current and recent):
Director of Bell Canada since 1996. Director of BCE Inc since 1999.
Member of the Advisory Board of General Motors of Canada since 2005.
Trustee, International Accounting Standards Foundation since 2007.
Co-chair of the Prime Minister of Canada’s Advisory Committee on the Renewal of the Public Service since 2006.
President and Chief Executive Officer of Bombardier Inc. from 2003 to 2004. Non executive Director of Alcan Inc. from 1998 to 2007.
Director of McCain Foods since 1996.

Notes
(a)Audit committee
(Sir David Clementi, Vivienne Cox, Michael Fitzpatrick, Andrew Gould, Lord Kerr and Paul Tellier)
(b)Remuneration committee
(Sir David Clementi, Michael Fitzpatrick, Richard Goodmanson, Andrew Gould, Sir Richard Sykes and Paul Tellier)
(c)Nominations committee
(Sir Rod Eddington, Yves Fortier, David Mayhew, Paul Skinner and Sir Richard Sykes)
(d)Committee on social and environmental accountability
(Sir Rod Eddington, Yves Fortier, Richard Goodmanson and Lord Kerr)
(e)Independent
(Sir David Clementi, Vivienne Cox, Sir Rod Eddington, Michael Fitzpatrick, Yves Fortier, Richard Goodmanson, Andrew Gould, Lord Kerr, Sir Richard Sykes and Paul Tellier)

DIRECTORS WHO LEFT THE GROUP DURING 2007

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, who retired at the conclusion of the 2007 annual general meetings, graduated from the University of Melbourne as a mining engineer and gained a Master of Engineering Science degree from the same University.university. 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 Energygroup. He was a member of the Coal Industry Advisory Board of the International Energy Agency for a number of years and its chairman from 1998 to 2000.
External appointments (current and recent):
upon leaving the Group:

Director Barclays Bank plcPLC since 2004.2004
Chairman of the International Council on Mining & Metals since October 2006.
2006 Director of Freeport-McMoRan Copper & Gold Inc between 2000 and 2004.
2004 Appointed to Bechtel Board of Counsellors in May 2007.2007

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)

Ashton CalvertAC, BSc (Hons) (Tas), DPhil (Oxon), Hon DSc (Tas)
Appointment and election:Director of Rio Tinto plc and Rio Tinto Limited since 2005. Ashton was re-elected by shareholders in 2007 and resigned from the Group due to ill health on 7 November 2007.
Skills and experience:He retired as secretary of the Department of Foreign Affairs and Trade of the Government of 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) upon leaving the Group:
Director of Woodside Petroleum Limited between 2005 and 2007
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

EXECUTIVE COMMITTEE MEMBERS

Hugo BagueMA (Linguistics), age 47
Skills and experience:Hugo Bague joined Rio Tinto as Global Head of Human Resources in 2007. Previously he worked for six years for Hewlett Packard where he was the global vice president Human Resources for the Technology Solutions Group, based in the US. Prior to this he worked for Compaq Computers, Nortel Networks and Abbott Laboratories based out of Switzerland, France and Germany.
External appointments (current and recent):
Member of the Advisory Council of United Business Institutes in Brussels, Belgium since 1995.

 

Rio Tinto 20062007 Form 20-F92118


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GROUP EXECUTIVES

For accounting standards purposes (IAS 24 and AASB 124) the Group’s key management personnel as defined, comprises the directors and the product group chief executives. From 1 June 2007 they include the Group executive Technology and Innovation, and the Group executive Business Resources.

Preston ChiaroBSc (Hons) Environmental Engineering,(Environmental Engineering), MEng Environmental(Environmental Engineering), age 53.54
Skills and experience:Preston was appointed chief executive of the Energy group in September 2003. He heads2003 and upon a management re-organisation he also assumed responsibility for theGroup’s climate change and sustainable development leadership panels. Industrials Minerals group in November 2007. 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).
Director of Rössing Uranium Limited since 2004
Member of the Executive boardChairman of the Coal Industry Advisory Board to the International Energy Agency since 2004.between 2004 and 2006.
Director of Energy Resources of Australia Limited between 2003 and 2006
Director of Coal & Allied Industries Limited between 2003 and September 2006.
Director of Rössing Uranium Limited since 2004.
2006

Bret ClaytonBA (Accounting), age 44.46
Skills and experience:Bret was appointed chief executive of the Copper group in July 2006.2006 and upon a management re-organisation he also assumed responsibility for the Diamonds group in November 2007. He joined the Group in 1995 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 Group, Bret worked for PricewaterhouseCoopers for nine years, auditing and consulting to the mining industry.
External appointments (current and recent):
Director of Ivanhoe Mines Limited since 2007
Member of the Executive Committeeexecutive committee of the International Copper Association since July 2006.
Member of the Coal Industry Adviser Board to the International Energy Agency between 2003 and 2006.
Member of the board of directors of the US National Mining Association between 2002 and 2006.

Oscar GroeneveldDick EvansBE (Mining), MSc, DIC age 53.
Skills and experience:Oscar has been with the Group for over 30 years and was appointed chief executive of the
Aluminium group in October 2004. Oscar has qualifications in engineering, science and management anddirector, is also responsiblea member of the Executive Committee through his position of Product Group Chief Executive 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 Group from 1998 to 2004.
Alcan. Dick’s biography is shown on page 115.
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 45.46
Skills and experience:Keith was appointed Group executive Business Resources on 1 Juneduring 2007 having been chief executive, Diamonds since 2003. He holds degrees in mathematics and management 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 Rio Tinto Aluminium Mining and Refining (formerly Comalco Mining and Refining.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 Rio
Tinto 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.
None
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)FAus, IMM, age 57.58
Skills and experience:
Grant was appointed Group executive Technology and Innovation on 1 Juneduring 2007. After tertiary
study in mineral processing and metallurgy 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 the 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 President of the Queensland Resources Council from 2002 to 2004


Sam WalshB Com (Melbourne), age 57.58
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 of
management 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 Fellow of the Australian Institute of Management, the Australian Institute of Company Directors and the Australasian Institute of Mining and Metallurgy.
External appointments (current and recent):
Director of the Committee for Perth Ltd since 2006
Director of the Australian Mines and Metals Association, between 2001 and 2005.2005
Director of the Australian Chamber of Commerce and Industry, between 2003 and 2005.
Director of the Committee for Perth Ltd since 2006.2005

Rio Tinto 2007 Form 20-F119

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COMPANY SECRETARIES


Anette LawlessBen MathewsMA,BA (Hons), FCIS, age 50.41
Skills and experience:
AnetteBen joined Rio Tinto in 1998 and becameas company secretary of Rio Tinto plc in 2000. Before
joiningduring 2007. Prior to Rio Tinto, shehe spent 11five years with PearsonBG Group plc, fivetwo of whichthem as company secretary. She qualified as a chartered secretary in 1989He has previously worked for National Grid plc, British American Tobacco plc and becamePricewaterhouseCoopers LLP. Ben is a fellow of the ICSA in 1992. She also holds an MA from the Copenhagen Business School.Institute of Chartered Secretaries and Administrators.

External appointments (current and recent):
Member of the Regulatory Decisions Committee of the UK Financial Services Authority from 2001 to 2006.None

Stephen ConsedineB Bus, CPA, age 45.46
Skills and experience:Stephen joined Rio Tinto in 1983 and has held various positions in Accounting, Treasury, andEmployee Services before becoming company secretary of Rio Tinto Limited in 2002. He holds a bachelor of business degree and is a certified practising accountant.
External appointments (current and recent):
None.None

EMPLOYEES


Information on the Group’s employees including their costs, is on pages 71 to 74, and in notes 4 and 3436 to the 2006 financial statements2007 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 annualAnnual report on Form 20-F, Tables 3, 4 and 5 have been augmented to show share interests as at the latest practicable date.

REMUNERATION REPORT

Rio Tinto 2006Form 20-F94

Back to ContentsIntroduction

This report forms part of the Directors’ report and covers the following information: a description of the Remuneration reportcommittee and its duties;

Introduction
This report forms part of theDirectors’ reportand covers the following information:
a description of theRemuneration committeeand its duties;
a 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’ service contracts and non executivedirectors’executive directors’ letters of appointment;
details of each director’s and product group chief executive’s remuneration and awards under long term incentiveplansincentive plans 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.

Remuneration committee
The following independent, non executive directors were members of the committee during 2007:

Remuneration committee
The following independent, non executive directors were members of theRemuneration committeeduring 2006:
Sir Richard Sykes (chairman)
Sir David Clementi
Michael Fitzpatrick
Richard Goodmanson
Andrew Gould
Paul Tellier (effective 25 October 2007)
The committee met four times during 2006 and members’ attendance is set out on page 123. The committee’s responsibilities are set out in its Terms of Reference, which can be viewed on Rio Tinto’s website. They include:

The committee met five times during 2007 and members’ attendance is set out on page 147. The committee’s responsibilities are set out in its terms of reference which have been approved by the board and may be viewed on Rio Tinto’s website. They include:

recommending executive remuneration policy relating to the executives to the board;
reviewing and determining the remuneration packages of the executive directors, product group chief executives, and the company secretary ofRioof Rio Tinto plc;
reviewing and agreeing management’sthe remuneration strategy for remuneration and conditions of employment for managersothermanagers other than the executives;
monitoring the effectiveness and appropriateness of general executive remuneration policy and practice; and
reviewing the chairman’s fees.

Rio Tinto 2007 Form 20-F120

Jeffery Kortum,Back to Contents

The global head of Human Resources, Hugo Bague, and global practice leader Remuneration, attendsJeffery Kortum, attend committee meetings in an advisory capacity. As of December 2007, Jane Craighead, global practice leader Total Rewards, also attended the committee’s meetings in an advisory capacity. The chairman, Paul Skinner, the former chief executive, Leigh Clifford and Tom Albanese, the current chief executive, designate, alsoTom Albanese, participated in meetings at the invitation of the committee during 2007, but were not present when issues relating to their own remuneration were discussed. Anette Lawless,Ben Mathews, the company secretary of Rio Tinto plc, acts as secretary to the committee, but was not present when issues relating to herhis remuneration were discussed.
In 2004, the committee appointed     Kepler Associates, an independent remuneration consultancy, to provideprovided advice on executive remuneration matters.matters to the committee until November 2007. Apart from providing specialist remuneration advice, Kepler Associates has no links to the Group.
To carry out its duties in accordance with its Termsterms of Reference,reference, the committee monitors global remuneration
trends and developments 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, Hay Group, Mercer and Watson Wyatt.

Corporate governance
The committee reviewed its Termsterms of Referencereference in 20062007 and concluded that, in the course of its business, it had covered
the main duties set out in the 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 Code and the ASX Principles.
     The board considered the performance of the committee and confirmed that the committee had satisfactorilyperformed the duties set out in its Termsterms of Reference.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.report. The
Australian Corporations Act and International accounting standards (AASB 124 and IAS 24 respectively) both require additional disclosures for “key management personnel”. The Australian Corporations Act also 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”.level. 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.executives and the Group executive Business Resources. In 2006,2007, the five highest paid executives below board level in respect of whom disclosures are required arewere all product group chief executives.executives and the Group executive Business Resources. Throughout this report, the executive directors, and the product group chief executives and Group executive Business Resources will collectively be referred to as the executives.“executives”.

Board policy
Rio Tinto 2006Form 20-F

95operates in global, as well as local markets, where it competes for a limited resource of talented executives. It recognises 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 deliver 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.


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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. It
recognises 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.

 

The main principles of the Group’s executive remuneration policy are:

to provide total remuneration which is competitive in structure and quantum with comparator companies’practices in the regions and markets within which the Group operates;
to achieve clear alignment between total remuneration and delivered business and personal performance, withparticular emphasis on both short term business performance and long term shareholder value creation and performance in theandperformance relating to health, safety and environmental areas;the environment;
to link variable elements of remuneration to the achievement of challenging performance criteria that areconsistent 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 relativitiesinternal equity between executives within Rio Tinto in orderand to support executive placementstofacilitate the movement of executiveswithin Rio Tinto to meet the needs of the Group.

The composition of total remuneration packages for management, including the remuneration of the company secretaries, is designed to provide an appropriate balance between fixed and variable components. This is in line with Rio Tinto’s stated objective of aligning total remuneration with personal and business performance. Details of the executives’ remuneration composition are set out in Table 1 on pages 107134 to 108.
136. The Group’s return to shareholders over the last five years is set out in the table on page 101.
128.

Rio Tinto 2007 Form 20-F121

Remuneration componentsBack to Contents

Remuneration components
Base salary

Base salaries for executives are reviewed annually and adjusted as necessary, taking in tointo account 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 through the following long and short term
arrangements:

Short term incentive plan (STIP)
STIP is a cash bonus plan, designed to support overall remuneration policy by:
focusing participants on achieving calendar year performance goals which contribute to sustainable shareholdervalue; and
providing significant bonus differential based on performance against challenging personal, business, and othertargets, including safety.

TheRemuneration committeereviews and approves individual performance against relevant targets and objectives for ex ecutives annually. Executive directors’ and the Group executive Business Resources STIP payments are linked to three performance criteria: Group financial performance, Group safety performance, personal performance and, personalin the case of Dick Evans, who is also a product group executive, product group financial and safety 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 financial performance is partly measured on an actual underlying net earnings basis and partly on a basis normalised for fluctuations ofin market prices and exchange rates.
The target level of cash bonus for executives for 20072008 is 60 per cent of salary, the same as 2006.2007. Executives may receive up to twice their target (ie, up to 120 per cent of salary) for exceptional performance against all criteria.
Details relating to STIP awards for 20062007 are on page 104.
pages 128 to 129.

Long term incentives
Shareholders approved two long term incentives for senior employees including executivesincentive plans at the annual general
meetings in 2004, the Share Option Plan and the Mining Companies Comparative Plan.
These plans 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.
     In 2007 the committee introduced a restricted share plan for senior employees below director level (“MSP 2007”).
     The long term incentives are not pensionable. As foreshadowed in the 2006 Remuneration report, the committee intends to reviewreviewed the long term incentive structure and performance criteria overduring 2007 and 2008. Proposals for changes to the next 12 monthslong term incentive structure will be submitted to ensure continued relevance and effectiveness.Shareholders in 2009.
     The existing plans are:

Rio Tinto 2006Form 20-F96

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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 face value grant under the SOP is three times the base salary of the executive 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 theover five days preceedingpreceding the grant. No options are granted at a discount and no 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 116141 to 121.144.
     No options will become exercisable unless the Group has met stretching performance conditions. In addition,before approving any vesting and regardless of performance against the respective performance conditions, theRemuneration committeeretains discretion to satisfy itself that the TSR performance is a genuine reflection ofunderlying financial performance.
     Under the plan,SOP, vesting is subject to Rio Tinto’s TSR equalling or outperforming the HSBC Global Mining Indexover a three-year performance period. The HSBC Global Mining Index covers the mining industry in 26 countries.globally. Rio Tinto’s TSR is calculated as a weighted average of the TSR of Rio Tinto plc and Rio Tinto Limited. If TSR performance equals the index, the higher of one third of the originalactual grant or 20,000 options will vest (subject to the actual grant level not being exceeded).may vest. The full grant vestsmay vest if the TSR performance is equal to or greater than the HSBC Global Mining Index plus five per cent per annum. Historically, TSR performance at this level has been equivalent to the upper quartile of companies in the index. Between these points, options may vest on a sliding scale, with no options becoming exercisable for a three year TSR performance below the index.
     Options granted under the 2004 planSOP before 31 December 2006 will beare subject to a single fixed base re-test five years after grant if they havedo not vestedvest after the initial three year performance period, with optionsperiod. Options granted after31 December 2006 are not subject to any re-test. These latter optionsre-test and will therefore, lapse if they do not vest at the conclusion of the initial three year performance period.

Rio Tinto 2007 Form 20-F122

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     Prior to any options being releasedvesting (subject to participants for exercise,the committee’s discretion described above), the Group’s TSR performance against the criteriarelevant to the SOP is examined and verifiedcalculated independently by the external auditors.Watson Wyatt.
     If Rio Tinto were subject to a change of control or a company restructuring, options would become exercisablevest subject to the satisfaction of the performance condition measured at the time of the takeoverchange of control or restructure.restructuring. However, the committee may at its discretion, and with the agreement of participants, determine that options will be replaced by equivalent new options over shares of the acquiring company.
Where an option holder dies in service, qualifying optionssubsisting option grants vest immediately, regardless of whether the performance conditions have been satisfied. The estate will have 12 months in which to exercise the options.
All SOPoption 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 testingtested against the performance condition in 2007. The performance condition was not achieved and these options, have therefore, did not vested.
vest at that time. The 2004 SOP grant will, in accordance with the SOP Rules, be retested in 2009.
     The option grant made in 2005 was tested against the performance condition in 2008. The performance condition was achieved and these options will vest in full.
     Options may, upon exercise, be satisfied by treasury shares, the issue of new shares or the purchase of shares
on in the market. Currently it is Rio Tinto plc’s intention to satisfy exercises by transferring shares from treasury and Rio Tinto Limited’s intention to satisfy exercises by way of the transfer of existing shares.

Mining Companies Comparative Plan (MCCP)
Rio Tinto’s performance share plan, the MCCP, provides participants with a conditional right to receive shares. The maximum face value conditional award under the current MCCP is two times the base salary of individual participants, calculated using the average share price over
the previous financial year. Awards made to executive directors and product group chief executives are set out in Table 4 on pages 112139 to 115.140.
     The conditional awards will only vest if the performance conditions approvedcondition set by the committee areis satisfied. Again, were thereIn addition the committee retains discretion to besatisfy itself that performance is a genuine reflection of underlying financial performance.
     In the event of 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 takeoverchange of control 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 TSR with the TSR of a comparator group of 15 other international mining companies over the same four year period. The composition of this comparator group is reviewed regularly by the committee to provide continued relevanceensure that it continues to be relevant in a consolidating industry.sector. Due to consolidation in the sector, the comparator group for the 2004 conditional award has necessarily been reduced to ten companies (including Rio Tinto). The committee has determined that the revised comparator group remained adequate for purposes of measuring relative performance and constitutes the best basis of comparison for the Group. The members of this new group relevant to the 20062004 conditional award areawards listed at the bottom of the following ranking table below.table. The members of the comparator group for the 2007each conditional award will beis determined by the
Remuneration committeeprior to approvingmaking the conditional award.
     
The following table shows the percentage of each conditional award made in 2004 which will be received by executivesthose participants who were in executive director and product group chief executive roles at the date of grant. The vesting is based on Rio Tinto’s four year TSR performance relative to the remaining ten company comparator group for conditional awards made after 1 Januaryin 2004:

Rio Tinto 2006Form 20-F97

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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   
















 
Ranking in the remaining ten company comparator group        
 1st 2nd 3rd 4th 5th 6th-10th 












 
Percentage vesting150 121.3 92.5 63.8 35  












 

The historical ranking of Rio Tinto in relation to the relevant comparator group is shown in the following table:

Ranking of Rio Tinto versus comparator companies 
PeriodRanking out of 16


1993 - 974 out of 16
1994 - 984 out of 16
1995 - 992 out of 16
1996 - 002 out of 16
1997 - 012 out of 16
1998 - 023 out of 16
1999 - 037 out of 16
2000 - 0411 out of 16
2001 - 0510 out of 16
2002 - 0610 out of 16
2003 – 075 out of 10


NoteRio Tinto 2007 Form 20-F123

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Notes
1The revised comparator companies for the 2004 conditional award are: Alcoa, Anglo American, Barrick Gold, BHP Billiton, Freeport-McMoRan Copper & Gold, Grupo Mexico, Newmont, Rio Tinto, Teck Cominco and Xstrata. Of the original comparator group WMC Resources, Placer Dome, Falconbridge, Inco, Phelps Dodge and Alcan have all been subject to take-over during the performance period.
2Comparator companies for the 2006 Conditional Award2007 conditional award at time of grant were:
Alcan, Alcoa, Anglo American, Barrick Gold, BHP Billiton, Cameco Corporation, Cia Vale do Rio Doce (now Vale), Freeport-McMoRan Copper & G old,Gold, Grupo Mexico, INCO,Impala, Newmont, Peabody, Phelps Dodge,Potash Corp, Teck Cominco and Xstrata

BeforePrior to the vesting of conditional awards, are released to participants, the external auditors and Kepler Associates independently review the Group’s TSR performance compared to that ofagainst the comparator companies.performance condition contained in the MCCP is calculated independently by Watson Wyatt.
     Awards are released to participants as either Rio Tinto plc or Rio Tinto Limited shares or as an equivalentamount in cash. In addition, for MCCP Conditional Awardsconditional awards made after 1 January 2004, a cash payment equivalent to the dividends that would have accrued on the vested number of shares over the four year period will beis made to executives.
     Shares to satisfy the vesting may be treasury shares, shares purchasedthose participants who were 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 belowexecutive director and product group chief executive level. Theroles at the date of grant.
     Awards may, upon vesting, be satisfied by treasury shares, the issue of new shares or the purchase of shares in the market. Currently it is Rio Tinto plc’s intention to satisfy exercises by transferring shares from treasury and Rio Tinto Limited’s intention to satisfy exercises by way of the transfer of existing shares.

Management Share Plan 2007 (MSP 2007)
This plan is designed to support the Group’s ability to attract and retain key staff in an
increasingly tight and competitive labour market. Under the new plan, eligible employeesMSP 2007, certain senior management may receive a conditional award of shares which will vest, wholly or partly, when performance conditions laid down by theRemuneration committeeat the time of the award have been satisfied.is subject to a time-based vesting condition. Shares to satisfy thesethe awards will be purchased in the market. No directorsDirectors are not eligible to participate and no new shares will be issued to satisfy awards under this plan.

Proposed changes to incentive arrangements – 2009
As foreshadowed in the 2006 Remuneration report, the committee during 2007 and 2008 reviewed the incentive arrangements for executives and other senior management. This review focussed on evaluation of the existing incentive arrangements in the context of Rio Tinto’s overall remuneration strategy. As a consequence the committee may propose changes to incentive arrangements for approval by shareholders in 2009.

Post 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 Tom Albanese participate in the non contributory Rio Tinto Pension Fund, a funded occupationalpension scheme approved by HM Revenue and& Customs. The Fund provides both defined benefit and defined contribution benefits. In April 2005, the defined benefit section of the Fund was closed to new participants.
     Members of the 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 payment. Executives can take their pension benefits unreduced for early payment from the age of 60. Spouse and dependants’ pensions are also provided.Pensions paid from this 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.
     During 2006,2007, there was no requirement for Companycompany cash contributions to be paid into the Rio Tinto PensionFund. Fund, although cash contributions are required if the Company wishes to enhance the benefits for any individual member.
     Rio Tinto reviewed its pension policy in the light of the legislationlegislative 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 accruing 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 Fund.
     Rio Tinto plc exercised discretion to allow Tom Albanese to join the Rio Tinto Pension Fund as a member of the

Rio Tinto 2006Form 20-F98

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defined benefit section on 1 July 2006 in recognition of his participation in one of the US defined benefit pension arrangements offered by Rio Tinto prior to that date. He is accruing a pension payable from normal retirement age of 60 of two thirds of basic salary, payable at the normal retirement age of 60, subject to completion of 20 years’ service with the Group, inclusive of benefits accrued under the US pension arrangements. Proportionally lower benefits are payable for shorter serv iceservice or, if having attained 20 years’ service, retirement is taken prior to the age of 60. His benefits under the Rio Tinto Pension Fund are restricted to the fund specific limit, with the balance provided through unfunded arrangements.
     Dick Evans has been offered membership of the Rio Tinto International Pension Fund, a funded occupational pension scheme based in the UK established in accordance with the requirements of Section 615 of the Income Corporation and Taxes Act 1988. His membership will be effective from 25 October 2007. The fund provides both defined benefit and defined contribution benefits. Dick Evans will be a defined contribution member. The Company’s contribution will be 20 per cent of basic salary.

Australia
Until his retirement on 30 September 2007 Leigh Clifford is a member ofparticipated in the Rio Tinto Staff Superannuation Fund, a

Rio Tinto 2007 Form 20-F124

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funded superannuation fund regulated byAustralian legislation. The fund provides both defined benefit and defined contribution benefits. Leigh Clifford iswas a defined benefit member, accruing lump sums payable on retirement. Retirement benefits are limited to a lump sum multiple of up to seven times final basic salary at age 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.
Death in service and disablement62. Proportionally lower benefits are provided as lump sums and are equalpayable on leaving service or retirement prior to the prospective age 65 retirement benefit. Proportionate benefits are also payable on termination of employment for ill health or resignation.62.
     Executives are not required to pay contributions. During 2006,2007, 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
annual STIP awards are pensionablesuperannuable up to a maximum value of 20 per cent of basic salary. This results in a defined contribution payment equivalent to 20 per cent of the pensionablesuperannuable component of STIP and does not impact the defined benefit component. For the UK executive directors basic pay only is pensionable.
Details of directors’ pension and superannuation entitlements are set out in Table 2 on page 110.137.

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. They
include expatriate/secondment packages,elements and which may include items such as housing benefit, assistance with incremental school fees and tax equalisation. Other compensation includes medical insurance, the provision of a company car and fuel, or an allowance in lieu, 401k contributionsare detailed in the USA, annual leave accruals and professional advice.service contracts table on page 127. The total remuneration for executives shown in Table 1 includes these non performance related items, which are specific to the circumstances of each executive.
The performance related, or variable, elements are the short and long term incentive plans, which are linked toachievement of business and personal 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.executives and the Group executive Business Resources. Variable components comprise the Short Term Incentive Plan, the Share Option Plan and the Mining Companies Comparative Plan (STIP, SOP and MCCP)MCCP respectively).
The actual proportion of total direct remuneration provided by way of variable components is set out in Table 1 on pages 107 to 109the table below and may differ fromthese target percentages depending on Companycompany and personal performance. Fixed pay is represented by base salary, non monetary and other cash benefits, post employment benefits, other than long term benefits, termination benefits and voluntary share based awards. Variable pay is made up of the cash bonus and the values of the share based awards related to company performance.

Table showing remuneration mix       
 Fixed as % At-risk as % Options as % 
 of 2007 total of 2007 total of total 






 
Tom Albanese31.8 68.2 6.0 
Leigh Clifford72.9 27.1 12.2 
Guy Elliott19.6 80.4 6.7 
Dick Evans100   
Preston Chiaro19.2 80.8 7.5 
Bret Clayton42.9 57.1 4.9 
Oscar Groeneveld24.0 76.0 6.0 
Keith Johnson21.0 79.0 7.1 
Andrew Mackenzie25.8 74.2 7.8 
Sam Walsh19.3 80.7 6.4 






 

Dick Evans did not receive vested incentives in 2007.

Share based remuneration not dependent on performance
Executives may participate in share and share option plans that applyare available 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 in such plans 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 share option 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 Inlandapproved by HM Revenue approved.& Customs (HMRC). Grants made to executives are set out in Table 5 on pages 141 to 144.
Eligible UK employees, including some of the executives, may also participate in the Rio Tinto Share

Rio Tinto 2007 Form 20-F125

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Ownership Plan, an Inland RevenueHMRC 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 TintoThe Company 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. The Rio Tinto Shared Ownership Plan includes restrictions on transfer of shares while the shares are subject to the plan.
     Executives employed in the Rio Tinto Limited part of the Group may elect to participate in the Rio Tinto Limited
Share Savings Plan, also introduced in 2001, which is similar to the Rio Tinto plc Share Savings Plan. Grants made to executives are set out in Table 5 on pages 141 to 144. Executives, other than executive directors, may be eligible to participate in the MSP 2007 as described on page 124. No grants were made to executives during 2007.
Where, under an employee share plan operated by the Company, participants are the beneficial owners of the shares, but not the registered owner, the voting rights are normally exercised by the registered owner at the direction of the participant.

 

Rio Tinto 20062007Form 20-F99

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Service contracts
EachThe following table details the key aspects of the executives has aeach executive’s service contract with a Group company.
contract.
It is the Group’s policy that executives’ service contracts have no fixed term but are capable of termination
giving no less than 12 months’ notice. Notice periods for executives are as follows:

Service contract table                      
 Tom  Guy Dick Leigh Bret Preston Andrew Keith Oscar Sam 
 Albanese  Elliott Evans Clifford Clayton Chiaro Mackenzie Johnson Groeneveld Walsh 




















 
2007 roles held       Group Finance ED & Group CEO CEO Commenced  Group Chief CEO Iron 
andCEO Director CEO Rio CEO Copper & Energy & notice Executive Adviser Ore 
commencement   (1/5/07) (19/6/02)Tinto (30/3/04)Diamonds Industrial period Business (25/10/07)(1/11/04)
dates    Alcan   (15/11/07)Minerals (15/10/07)Resources     
    Director   (25/10/07)(until       (1/6/07)CEO   
  of Group     retirement CEO CEO CEO   Aluminium   
 Resources     30/09/07)Copper Energy Industrial CEO (1/10/04)  
    (7/3/06)       (1/6/06)(1/9/03)Minerals Diamonds     
             (1/8/04)(1/3/04)    




















 
Contract date       1/5/07 19/6/02 25/10/07 30/3/04 1/6/06 30/9/03 4/5/04 12/3/04 1/10/04 3/8/04 
  (contract                   
  disclosed                   
      8/5/07)                   




















 
Years of service26 27  Retired 13 16 3 16 33 16 
completed                    





















StandardPension or superannuation fund participation. 
contractSalary subject to annual review. 
conditionsMay participate in Rio Tinto Long Term Incentive Plans (LTIP). 
 Participates in employee car scheme in accordance with policy applicable in country of assignment. 
 Participates in medical benefits programs applicable to employees generally in country of origin. 
 Where applicable, receive expatriate secondment packages which may include a housing benefit, repatriation and tax equalization. 




















 
TermIt is the Group’s policy that executives’ service contracts generally have no fixed term, except for the contract for Dick Evans which has a two year term, but are capable of termination giving no less than the notice set out below. 




















 
Notice12 12 12 n/a 12 12 12 12 12 12 
    months months months  months months months months months months 




















 
ResignationOutstanding Long Term Incentive awards under the SOP and MCCP are forfeited as is any pro-rata STIP. 




















 
RetirementPro rata STIP paid based on portion of performance period worked. LTIPs subject to performance test at completion of normal performance period and options or performance shares may vest at that time to the extent provided by the performance condition. Options or performance shares held for less than 12 months at date of termination are reduced pro rata. 




















 
Termination by company – general including redundancyRio Tinto has retained the right to pay executives in lieu of notice. Given the wide variety of circumstances leading to early termination, the executive’s service contracts do not provide explicitly for compensation but, in the event of early termination, including redundancy, it is the Group’s policy to act fairly in all circumstances. Pre-existing entitlements may apply under redundancy policies generally applicable to employees in particular regions. Notice may be worked or fully or partly paid in lieu, at Company discretion, and additional capped service-related payments may apply. Compensation would not provide reward for poor performance. In the event of termination except for cause, the plans provide that STIP would be paid based on the portion of the performance period worked. LTIP’s would be subject to a performance test at completion of the normal performance period. Options and performance shares may vest at that time to the extent provided by the performance condition. Options or performance shares that have been held for less that 12 months at the date of termination would be reduced pro-rata. 




















 
Termination for causeEmployment may be terminated by the Company without notice and without payment of any salary or compensation in lieu of notice. Outstanding awards under the SOP and MCCP are forfeited as is any pro rata STIP. 




















 
Change of controlContractual entitlements to severance are not triggered by a change of control. LTIP rules approved by shareholders in 2004 provide the following in the event of a change of control: 




















 
 SOP: All outstanding performance periods end on the date of change of control and options may vest to the extent that the performance condition has been satisfied at that date. 




















 
 MCCP: All outstanding performance periods end on the date of change of control and performance shares may vest to the extent that the performance condition has been satisfied at that date. If a performance period ends within 12 months of grant, and vested awards will be reduced pro rata. 

Rio Tinto 2007Notice periods
Remaining
service period
Date ofNoticeif less than
NameAgreementperiod12 months






Executive directorsForm 20-F
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






127


Termination payments
Rio Tinto has retained the rightBack to pay executives in lieu of notice. Given the wide variety of possible circumstances
leading 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.Contents

Shareholding policy
In 2002, the committee decided that it would be appropriate to encourage executives to build up a substantial
shareholding, 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 2006138.

Share dealing policy
Executives participate in long term incentive plans which involve the awarding of Rio Tinto securities at a future date. The board has a policy prohibiting an executive from limiting his or her exposure to risk in relation to the securities. This is contained in the ‘Rules for dealing in Rio Tinto securities’ which is available on the companies’ website. All employees subject to the Rules receive regular training and information about this prohibition. The grants of shares and options under the plans are conditional upon compliance with the Rules.

REMUNERATION PAID IN 2007

Performance of Rio Tinto product groups and individual executives
20062007 was another year of strong operational performance and was the third successive year of record results for the Group.
     To illustrate the performance of the Companies relative to their markets, graphs showing the performance of Rio Tinto plc in terms of TSR over the last five years, compared to the FTSE 100 Index and Rio Tinto Limited compared to the ASX All Ordinaries Index are reproduced below. A graph showing Rio Tinto’s performance relative to the HSBCGlobal Mining Index is also included to illustrate the performance of Rio Tinto relative to other mining companies.

TSR (£) – Rio Tinto plc v FTSE 100
Total return basis Index 2001 = 100

Rio Tinto 2006 Form 20-F100

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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  
Rio Tinto shareholder return 2003-2007          
Yearpaid during the year Rio Tinto plc  Rio Tinto Limited      (TSR)  Dividends Share price – Share price – Total shareholder return 




 per share Rio Tinto plc Rio Tinto Limited A$    (TSR) 
   1 Jan 31 Dec 1 Jan 31 Dec plc  Limited Combined  paid during £ (pence)  (US$)     
US cents pence  pence  A$  A$  %  %  %  the year         


 (US cents     plc Ltd Group 
per share) 1Jan 31Dec 1Jan 31Dec % % % 


 
2007116.0 2,718 5,317 74.30 133.95 99.5 82.9 91.8 
2006191.5 2,655 2,718 69.00 74.30 6.3 12.2 7.6 191.5 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  83.5 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  66.0 1,543 1,533 37.54 39.12 1.7 7.4 13.0 
200360.5 1,240  1,543  33.95  37.54  27.9  14.7  24.8  60.5 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 performance during 2006,2007, and over relevant performance periods ending at 31 December 2006,2007, impacted executives’ remuneration as follows:

Share based awards: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 achieve2007 achieved the level required by theapplicable performance condition to vest 100 per cent.
MCCP – Rio Tinto ranked fifth in the ten company comparator group at the completion of the four-yearperformance period ending 31 December 2007, resulting in 35 per cent vesting of the conditional award made toexecutives who were directors or product group chief executives at the date of the conditional award. This groupincluded Tom Albanese, Leigh Clifford, Guy Elliott, Oscar Groeneveld, Preston Chiaro, Keith Johnson, AndrewMackenzie and Sam Walsh. The vesting shown in Table 4 on pages 139 to 140, is in accordance with theperformance condition applicable performance condition. Thisto the 2004 award and represents 35 per cent of the original awards for thosewho were in executive director or product group chief executive roles at the time of grant will therefore not vest in 2007, but will be subject to one retest after a further two years.of the conditionalaward.

Rio Tinto 2006 Form 20-F101

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Annual cash bonus
Cash bonuses (STIP) in respect of the 20062007 performance period, to be paid in March 2007,2008, are set out in Table 1 on page 108pages 134 to 136 and the percentages awarded to each executive (or forfeited) areis set out in the table on page 103.130. These bonuses were approved by the committee on the basis of delivered performance against financial, safety and personal (including operational and strategic) 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.

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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-financialnon financial performance and remuneration, eachexecutive director’s and the Group executive Business Resources STIP payment is calculated as a percentage of salary in accordance with the formula set out below:


 
 
 

 Business / financial Personal / non financial 
  (score = 0% to 133%) (score = 0% to 133%) 
Target

 
STIPx75% weight 25% weightx  
(60%) Group Group Personal targets 
  financial resultsnet earnings safety performance and 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 / financial Personal / non financial 
  (score = 0% to 133%) (score = 0% to 133%) 
Target





 
STIPx40% weight 60% weightx25% weight 75% weight 
(60%) Group Product group Product group Personal targets 
  financial results financial results safety and objectives 







 

Strong Group financial performance for 20062007 resulted in a STIP score at 117.2106 per cent of target for this component. Financial performance for each product group varied and theRemuneration committeeapproved STIP scores ranging from 8170 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.
     Group safety performance resulted in the Remuneration committee approving a score of 100 per cent of target (maximum is 133 per cent) for this component. Product group safety performance varied and STIP scores ranged from 9085 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 for
executives ranged from 68.713 per cent to 9293 per cent of salary (57(10.8 per cent to 7777.5 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,Group:

Tom Albanese
The committee assessed personal performance as wellabove target and the overall STIP award was 141.6 per cent of target (70.8 per cent of maximum).

Guy Elliott
The committee assessed personal performance as individual considerationsabove target and the overall STIP award was 136.6 per cent of target (68.3 per cent of maximum).

Dick Evans
Not eligible to participate in Rio Tinto STIP for 2007.

Preston Chiaro
The committee assessed product group financial and safety performance as outlined:below target and personal performance as on target. The overall STIP award was 83.3 per cent of target (41.6 per cent of maximum).
     The committee awarded a special bonus in light of substantial additional portfolio responsibilities during the last quarter of 2007. For this pro-rata bonus, product group financial performance was assessed as below target and safety and personal performance was on target. The overall pro rata STIP award was 93.1 per cent of target (46.5 per cent of pro rata maximum).

Bret Clayton
The committee assessed product group financial and personal performance as above target and safety performance as below target. The overall STIP award was 125 per cent of target (62.5 per cent of maximum).
     The committee awarded a special bonus in light of substantial additional portfolio responsibilities during the last quarter of 2007. For this pro rata bonus product group financial and personal performance as above target and safety performance as below target. The overall pro rata STIP award was 123.1 per cent of target (61.5 per cent of pro rata maximum).

Leigh Clifford
Leigh Clifford retired on 30 September 2007 and is eligible to receive a pro rata bonus for the proportion of the performance period worked prior to retirement. The pro rata bonus is based on personal performance to the date of

Rio Tinto 2007Leigh CliffordForm 20-F
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).

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retirement and Group financial and safety performance for the year.
The committee assessed personal performance as above target and the overall STIP award was 118.4 per cent of target (59.2 per cent of maximum) for the period worked.

Oscar Groeneveld
The committee assessed product group financial performance as below target, personal performance as above target and safety performance as on target. The overall STIP award was 105 per cent of target (52.5 per cent of maximum).

Keith Johnson
The committee assessed pro rata product group financial and personal performance as above target and product group safety performance as below target. The overall STIP award was 118.3 per cent of target (59.1 per cent of maximum).

Andrew Mackenzie
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 asaboveas below target. The overall STIP award was 147.621.6 per cent of target (73.8(10.8 per cent of maximum).

Sam Walsh
The committee assessed product group financial performance as slightly below target and safety and personal performance as above target. The overall STIP award was 126.6 per cent of target (63.3 per cent of maximum).

Rio Tinto 2006 Form 20-F102

BackRetention
Tom Albanese and Oscar Groeneveld were each awarded a conditional one-off three year retention bonus in October 2004, prior to Contents
their appointments as an executive director and product group chief executive Aluminium respectively, with a view to retaining their services. These retention bonuses of 100 per cent of salary as at 1 March 2007 were paid in October 2007. The values for Tom Albanese and Oscar Groeneveld were US$1,232,232 and US$1,195,766 respectively. These amounts have been expensed over the three year period on an accrual basis, adjusted for exchange rate fluctuations and reported in Table 1 under ‘Other long term benefits’ as US$477,000 for Tom Albanese and US$478,000 for Oscar Groeneveld.

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).

Share based payment – long term incentives granted in 20062007
Options over either Rio Tinto plc or Rio Tinto Limited shares, as appropriate, were granted to each executive except Dick Evans under the Share Option PlanSOP on 713 March 2006.2007. 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. ShareDetails of all options grantedoutstanding under SOP are included in Table 5 on pages 116141 to 121.144.
     A conditional award of performance shares in either Rio Tinto plc or Rio Tinto Limited shares was made to each executive except Dick Evans under the MCCP on 713 March 2006.2007. 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 20062007 and long term incentive grants vested in respect ofperformance periods endingwhich ended on 31 December 2006,2007, as well as the percentages forfeited because the relevant Companycompany 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 












 

Bonuses and grants made during or in respect of 2007

 STIP Cash1 SOP Options2 MCCP Shares3 












 
 % of % of % % % % 
 maximum maximum vested forfeited vested forfeited 
 vested forfeited         












 
Leigh Clifford4 59.2 40.8 100  35 65 
Guy Elliott68.3 31.7 100  35 65 
Tom Albanese70.8 29.2 100  35 65 
Preston Chiaro42.6 57.4 100  35 65 
Bret Clayton62.1 37.9 100  50 50 
Oscar Groeneveld52.5 47.5 100  35 65 
Keith Johnson59.1 40.9 100  35 65 
Andrew Mackenzie10.8 89.2 100  35 65 
Sam Walsh63.3 36.7 100  35 65 












 

Rio Tinto 2007 Form 20-F130

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Notes
1.Paid in March 20072008 in respect of 2006.2007.
2.There was no vestingVesting of the 20042005 SOP options in March 2008 for performance period ending 31December 2007.
3.Vesting of 2003 Conditional Award2004 conditional award in February 2008 for performance period ending 31December 2007.
4.Andrew Mackenzie joined in 2004 afterLeigh Clifford’s STIP, 2007 SOP option grant and 2007 MCCP conditional award were reduced proportionally to reflect the 2003 MCCP award had been made.actual proportion of 2007 he was an employee of the Group.

Rio Tinto 2006 Form 20-F103

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Minimum and maximum total bonuses and grants 20072008
The estimatedpotential maximum and minimum total value of bonuses and the face value share and option-basedoption based compensation for the 2007financial2008 financial year are set out below.

  STIP Cash1Potential SOP MCCP 
STIP Cash 1     range of bonus Options(% of Shares(% of 
Potential range of     payments in March March 2008 March 2008 
bonus payments in SOP Options MCCP Shares 2009 in respect of salary)2,3 salary)2,4 
March 2008 in (% of March (% of March  2008  
respect of 2007 2007 salary) 2,3 2007 salary) 2,4 
 


 Min Max Min Max Min Max 
Min Max Min Max Min Max 
 
US$ US$         


 
Leigh Clifford5 2,231,890  300  200 
Tom Albanese £1,089,000  300  200 
Dick Evans US$4,792,500  300  200 
Guy Elliott 1,449,432  200  140  £810,600  200  140 
Tom Albanese 1,451,788  300  200 
Preston Chiaro 792,000  300  200  US$870,000  300  200 
Bret Clayton 696,000  300  200  US$840,000  300  200 
Oscar Groeneveld 1,355,640  200  140  A$1,920,000  200  140 
Keith Johnson 930,936  200  140  £504,000  200  140 
Andrew Mackenzie 1,025,208  200  140  £522,000  200  140 
Sam Walsh 1,279,800  200  140  A$1,770,000  200  140 


 
 
 
Notes
1.Based on eligibility at 1 March 2007 at exchange rates of £1 = US$1.964 and A$1 = US$0.790.2008.
2.Grant/Conditional Awardaward based on the average share price during 2006.2007.
3.SOP Optionsoptions to be granted in 20072008 may, subject to achievement of the performance condition, vest in 2010.2011. 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)price of the shares).
4.MCCP performance shares to be awarded conditionally in 20072008 may, subject to achievement of the performance condition, vest in 2011.2012. 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 tomay be invited to become non executive directors of other companies. It is Rio Tinto believesTinto’s policy that such appointments can broaden their experience and knowledge, to the benefit of the Group. It is GroupThis policy to limitlimits each 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.company or equivalent.
     Consequently, where there is no likelihood that such directorships will give rise to conflictsa conflict of interests, theboardinterest, the board will normally give consent to the appointment, with theappointment. The executive is permitted to retain the fees earned. DetailsIn the course of fees earned are set outthe year Leigh Clifford received US$53,000 and Guy Elliott US$47,000 in the notes to Table 1 on pages 107 to 109.respect of their non Rio Tinto related directorships.
     Executives have agreed to waive any fees receivable from subsidiary and associated companies. One executive director waived US$1,39012,910 during the period (2005: Nil)(2006: US$1,390).

Company secretary remuneration
The broadremuneration policy described above applies to the company secretary of each of Rio Tinto plc and Rio Tinto Limited. ThesecretariesThey participate in the same performance based remuneration arrangements as the executives. The individual performance measures for the Company secretaries’ annual cash bonus comprise Group and personal measures. Their personalmeasurespersonal measures reflect the key responsibilities of the company secretarial role and includedinclude ensuring compliance withregulatorywith regulatory 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 1the table on pages 107 to 109.page 132. The board as a whole determines non executive directors’ fees, although non executive directors donotdo not 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

Rio Tinto 2007 Form 20-F131

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practice for similar companies, fees for committee chairmen and members were reviewed in December 2006.during the year. The new fees which took effect from 1 November 2007 are set out in the table below.
     It is Rio Tinto’s policy that the chairman should be remunerated on a competitive basis and at a level which reflects his contribution to the Group, as assessed by the board. The chairman is not present at any discussion regarding

Rio Tinto 2006 Form 20-F104

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his own remuneration and he does not participate in the Group’s incentive plans or pension arrangements. The fee for the chairman was reviewed during the year and the revised fee is set out in the table below.

Letters of appointment
Non executive directors have formal letters of appointment setting out their duties and responsibilities. These letters areavailableare available 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 subsequent election and periodic re-election by shareholders as detailed on page 124. Thereare146. There are 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.committee. It stipulates that he is expected to dedicate at least three days per week on average to carry outtheseout these duties. The letter envisages that Paul Skinner will continue in the role of chairman until he reaches the age of 65 in2009,in 2009, subject to re-election as a director by 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.

Shareholding policy
In 2006, the board recommended that non executive directors be encouraged to build up a shareholding equal in value to one year’s base fees. To help facilitate this, the Group put in place a non executive directors’ share purchase plan under which non executive directors can elect to invest a proportion of their fees net of tax on a regular basis to acquire shares on-market. During the year four directors purchased shares using these arrangements. Purchases were suspended following an unsolicited approach from BHP Billiton announced on 8 November 2007.

Remuneration components
The following table sets out the annual fees payable to the chairman and the non executive directors in £/A$, as appropriate.

 As at 31 Dec 2006 As at 1 Jan
31 Dec 200731 Dec 2006 




 
Base fees:  
Chairman£630,000693,000 £600,000630,000 
Other directors£60,000 / A$150,00070,000 £60,000 / A$150,000 
A$160,000A$150,000
Additional fees:  
Senior independent director£35,000 £35,000 
Audit committee chairman£30,000 £20,00030,000 
Audit committee member£15,000 / A$37,500 £10,000  £15,000
A$37,500$37,500 
Remuneration committee chairman£20,000 £15,00020,000 
Remuneration committee member£10,000 / A$25,000 £5,00010,000
A$25,000A$25,000
Nominations committee member£7,500 
Committee on social and environmental accountability chairman£20,000 £10,00020,000 
Committee on social and environmental accountability member£7,500 / A$18,750 £3,000 / A$7,500 
A$18,750A$18,750
Overseas meeting allowances:  
Long distance (flights over£4,000£4,000
10 hours per journey)£4,000 / A$10,000 £4,000 / A$10,000 
Medium distance (flights of£2,000£2,000
5-10 hours per journey)£2,000 / A$5,000 £2,000 / A$5,000 




 

There were eight scheduled board meetings (2006: eight) and 11 held at short notice (2006: one).
No additional fee is payable to the chairman or members of the
Nominations committeecommittee.although 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 tononto the chairman or non executive directors, nor do any of themparticipatethem participate 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 20062007
Details of the nature and amount of each element of remuneration paid to the chairman and non executive directorsduring 2006directors during 2007 are set out in Table 1 on pages 107the table below. Details of the aggregate remuneration, calculated in accordance with the Companies Act 1985, of the

Rio Tinto 2007 Form 20-F132

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directors of the parent companies are set out in note 43 to the 2007 financial statements. No post employment, long term or termination payments were paid and no share based payments made.

Auditable information
Under Part 3 of Schedule 7A to the United KingdomUK Companies Act 1985, the information included in respect of the non executive directors in the table immediately below, the information aboutand the directors’ short term employee benefits (excluding employment costs), defined contribution pension costs and termination benefits in Table 1, 4 and 5 are auditable.

     The Australian Securities InvestmentsInvestment 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 paragraph 25 of Australian Accounting Standard AASB 124 “Related Party Disclosures” (relating to “key management personnel” compensation) is also auditable. This information comprises Tables 1, 3, 4 and 5 and the disclosures provided under theheadingsthe headings Executive remuneration, Remuneration components, Remuneration paid in 20062007 and chairmanChairman and nonexecutivenon executive director remuneration.

Rio Tinto 2006 Form 20-F105

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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 




 

Annual general meetings
Shareholders will be asked to vote on this Remuneration report at the Companies’ forthcoming2008 annual general meetings1.meetings.

By order of the board

Anette LawlessBen Mathews
Secretary
Remuneration Committeecommittee
23 February 20075 March 2008

Note
1.The shareholders approved the 2006 Remuneration report at the 2007 Annual general meetings.

 

Rio Tinto 2006 2007Form 20-F106133

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Table 1 – Directors’ and senior management’s total remuneration

     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 
 


















 
Table 1 – Executives’ and non executive directors’ remuneration     
       Short term employee benefits Other Long term employee benefits 
             long       
             term       
             benefits       




















 
               Value of share based awards5 
   Base Cash Other Non Total   MCCP6 SOP7 Others8 
   salary bonus cash monetary           
       based benefits3           




















 
Stated in US$’0001                    
Chairman                    
Paul Skinner112007 1,282  34 160 1,476     
 2006 1,114  31 147 1,292     
Non executive directors12                   
Ashton Calvert2007 121  42  163     
 2006 119  60  179     
Sir David Clementi2007 174  16  190     
 2006 138  15  153     
Vivienne Cox2007 154  16  170     
 2006 129  7  136     
Sir Rod Eddington2007 133  15  148     
 2006 109  21  130     
Michael Fitzpatrick2007 164  46  210     
 2006 74  35  109     
Yves Fortier142007 32    32     
 2006          
Richard2007 184  28  212     
Goodmanson                    
 2006 138  18  156     
Andrew Gould2007 204  8  212     
 2006 156  15  171     
Lord Kerr2007 174  8  182     
 2006 135  7  142     
David Mayhew132007 150  8  158     
 2006 133  15  148     
Sir Richard Sykes2007 236  24  260     
 2006 202  15  217     
Paul Tellier142007 35    35     
 2006          
Executive directors                    
Tom Albanese112007 1,494 1,277 49 271 3,091 477 6,556 758 8 
 2006 899 842  (47)1,694 378 (115)599 13 
Leigh Clifford112007 1,401 1,008 718 558 3,685 1,582 103 911 3 
 2006 1,611 1,598 148 296 3,653  (1,162)1,090 3 
Guy Elliott2007 1,213 1,005 30 6 2,254  5,855 625 13 
 2006 1,016 1,011 28 6 2,061  (614)512 11 
Dick Evans2007 281  25 54 360     
 2006          
Other key management personnel                 
Preston Chiaro2007 650 422 21 536 1,629  5,015 557 16 
 2006 591 412 21 214 1,238  (119)444 7 
Bret Clayton2007 570 541  1,075 2,186  1,583 199 14 
 2006 429 349 50 430 1,258  64 102 12 
Oscar Groeneveld2007 1,261 877  86 2,224 478 5,292 528 4 
 2006 962 839  88 1,889 359 (606)418 2 
Keith Johnson2007 781 558 33 3 1,375  3,730 423 11 
 2006 663 644  35 1,342  (54)325 9 
Andrew Mackenzie2007 861 111 12 28 1,012  3,575 436 13 
 2006 737 723  32 1,492  57 267 11 
Sam Walsh2007 1,108 894  81 2,083  4,816 491 4 
 2006 887 664  57 1,608  (28)381 2 




















 

 

Rio Tinto 2006 2007Form 20-F107134

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Table 1 Executives’ and non executive directors’ remuneration (continued)          
  Post employment benefits9 Terminat Total   Currency 
     ion remuner   of actual 
     benefits ation   payment 












 
 Pension Other         
 and post         
  superann employment         
Stated in US$’000uation benefits         












 
Chairman            
Paul Skinner11   1,476 2007 £ 
    1,292 2006 £ 
Non executive directors12            
Ashton Calvert   163 2007 A$ 
    179 2006 A$ 
Sir David Clementi   190 2007 £ 
    153 2006 £ 
Vivienne Cox   170 2007 £ 
    136 2006 £ 
Sir Rod Eddington   148 2007 A$ 
    130 2006 A$ 
Michael Fitzpatrick   210 2007 A$ 
    109 2006 A$ 
Yves Fortier14   32 2007 £ 
     2006  
Richard Goodmanson   212 2007 £ 
    156 2006 £ 
Andrew Gould   212 2007 £ 
    171 2006 £ 
Lord Kerr   182 2007 £ 
    142 2006 £ 
David Mayhew13   158 2007 £ 
    148 2006 £ 
Sir Richard Sykes13   260 2007 £ 
    217 2006 £ 
Paul Tellier14   35 2007 £ 
     2006  
Executive directors            
Tom Albanese1,706   12,596 2007 £ 
 707     3,276 2006 £ 
Leigh Clifford10364  817 7,465 2007 £ 
 406    3,990 2006 £ 
Guy Elliott560   9,307 2007 £ 
 707     2,677 2006 £ 
Dick Evans56   416 2007 US$ 
     2006  
Other key management personnel            
Preston Chiaro190 7  7,414 2007 US$ 
 180 5  1,755 2006 US$ 
Bret Clayton82 3  4,067 2007 US$ 
 70 3  1,509 2006 US$ 
Oscar Groeneveld281  �� 8,807 2007 A$ 
 254   2,316 2006 A$ 
Keith Johnson422   5,961 2007 £ 
 385   2,007 2006 £ 
Andrew Mackenzie518   5,554 2007 £ 
 475   2,302 2006 £ 
Sam Walsh290   7,684 2007 A$ 
 252   2,215 2006 A$ 












 

Rio Tinto 2007Form 20-F135

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Table 1 – Directors’Executives’ and senior management’s totalnon executive directors’ remuneration (continued)

 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   
                 


   
Notes to Table 1
1.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 US$1 = £0.5432£0.4995 or alternatively into Australian dollars at the rate of US$1 = A$1.329,1.1959, each being the average exchange rate for 2006.2007. The annual cash bonus is payable under the STIP and this may be converted at the 20062007 year end exchange rate of US$1 = £0.5092£0.5005 to a scertainascertain the sterling equivalent or alternatively, US$1 = A$1.26531.141 to calculate the Australian dollar value.
2.Other cash and non cash based benefits for executives are described in the Remuneration report on page 95120 to 121.133. Cash based benefits include car, fuel, overseas meeting allowances and cash in lieu of holiday. The amounts showna car and fuel, cash in lieu of holiday and in the case of Tom Albanese only, the grossed up equivalent of re-imbursed costs following the cancellation of a holiday at short notice so as paid to non executive directors relate entirely to overseas meeting allowances. undertake company business.
3.Non monetary benefits for executives include heathcare,healthcare, 401K contributions in the US, the provision of a car, annual leave accruals and professional advice.
3.Secondmentsecondment costs comprisecomprising housing, education, professional advice, tax equalisation and relocation payments made to and on behalf of executive directors and product group chief executives living outside their home country. The figure in respectIn the case of Tom Albanese reflects a tax refund toonly, it also includes the Company during the coursegrossed up proportionate value of the year.
4.Employmentcompany provided transport. In previous years costs comprisewhich are not compensation were included in ‘Non monetary benefits’, namely social security contributions and accident insurance premiums in the UK and US and payroll taxestax in Australia paid byAustralia. These have not been included in 2007 and the employer as a direct additional costcomparative figures for 2006 have been restated to reflect this.
4.“Total short term benefits” represents the short term benefits total required under schedule 7A of hire.the UK Companies Act 1985 (UK) and total remuneration under the Australian Corporations Act 2001 and applicable accounting standards.
5.The value of share based awards has been determined in accordance with the recognition and measurement requirements of IFRS2 “Share-based“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) have been calculated at their dates of grant using an independent lattice based option valuation model provided by external consultants, Lane Clark and Peacock LLP. The fair value of awards granted under the Mining Companies Comparative Plan (the MCCP) has been based on the

Rio Tinto 2006 Form 20-F108

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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 ofOver 2007, the 2003 conditional awardincrease in Rio Tinto’s share price combined with an improvement in Rio Tinto’s TSR performance relative to vest for directors reduced the projected value of future awards, as calculated in accordance with the relevant accounting standards. This in turncomparator group, has led to a negativesignificant increases in the value attached to the MCCP value arising for certain individuals to offset earlier valuations which are now, under these accounting standards, considered over-valued.standards. Further details of the valuation methods and assumptions used for these awards ar eare included in the note 4548 (Share based payments). The non executive directors do not participateBased Payments) in the long term incentive share schemes.2007 Financial statements. 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 20062007 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 directorsexecutives under the SOP and SSP during the twelve month period up to 31 December 2006 are2007 is 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)6,006) 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)3,003) per annum. Under these plans Guy Elliott, Keith Johnson and Andrew Mackenzie each received a total of £4,500 (US$8,285)9,009) and Tom Albanese a total of £3,000 (US$6,006). American groupGroup product chief executives enjoy a Company matching of personal contribution for shares under the 401k arrangements up to a maximum of US$13,213.14,250. The Company matched personal contributions to the following values: Tom Albanese US$ 13,213, Preston Chiaro US$5,41014,250 and Bret Clayton US$11,534.13,500.
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 companycompany.
10.Remuneration mix showsLeigh Clifford resigned as a director on 30 April 2007 and retired from the proportionsGroup on 30 September 2007. His remuneration of US$7,465,000 represents his total remuneration comprising fixed and variable pay components andup to the percentagedate 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 uphis retirement, of the cash bonus and the values of the share based awardswhich US$1,684,000 related to company performance.
11.Tom Albanese was appointed an executivethe period of service as a director with effect from 7 March 2006, having previously been chief executive Copper and Exploration.US$5,781,000 related to the period of service thereafter. The aggregate figure of US$3,390,000 reported above represents his remuneration for the full year. The part year since his appointmentperiod of service as executivea director amounted to US$2,413,000 and is made up ofcomprises short term benefits and costs of US$1,388,000,1,286,000, share based awards of US$360,000197,000 and post employment costsbenefits of US$665,000. Michael Fitzpatrick201,000. The remuneration after Leigh’s resignation as a director includes two payments related to his retirement. He was appointedentitled to a long term benefit of US$1,582,000 which represents long service leave amounts required under Australian legislation and accrued by the Company during his 37 years of completed service. Upon retiring he was entitled to a termination benefit of US$817,000 related to his superannuation. This entitlement arose in respect of a benefit granted in 2004 when his contractual retirement age was reduced by the Company from 62 to 60. An additional benefit equivalent to the increase in the pension multiple at age 60 from 6.65 to 7.0 was rolled over to an Australian superannuation fund as a Transitional Termination Payment. This was grossed up for the resultant Australian tax liability to deliver the intended multiple. In 2006, allowance for this additional benefit was included in Table 2 – ‘Executive directors’ pension entitlements’.
11.The non-monetary benefit represents the grossed up proportionate value of company provided transport in 2007. The 2006 figures have been restated accordingly. The non executive director with effect from 6 June 2006. Bret Clayton became chief executive, Copper on 1 July 2006.monetary benefit also includes medical insurance.
12.The “Other cash based benefits” for non executive directors comprises an overseas meeting allowance only.
13.David Mayhew’s fees for the full year were paid to JP MorganJPMorgan Cazenove and Sir Richard Sykes’s fees for the period 1 January 2007 to 30 April 2007 were paid to Imperial College. Thereafter, they were paid direct to Sir Richard. The fees disclosed above include £10,000£15,000 (US$ 18,410)30,030) paid to JP MorganJPMorgan 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 AlbaneseYves Fortier and Preston Chiaro, whichPaul Tellier 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.appointed directors with effect from 25 October 2007.

 

Rio Tinto 20062007 Form 20-F109136

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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 




















 
Table 2 – Executive directors’ pension entitlements as at 31 December 2007        
Defined Benefit pensions               
    Accrued benefits   Transfer values   















 
 AgeYears 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 2006 2007 benefits benefit 2006 2007 personal change in 
        during the net of     contributions accrued 
        year inflation1       benefit 
        ended 31         net of 
        December         inflation1 
        2007           

















 
    £’000 pa £’000 pa £’000 pa £’000 pa £’000 £’000 £’000 £’000 
    pension pension pension pension         
                
UK directors               
Tom Albanese25026 126 183 57 52 882 1,634 752 725 
Guy Elliott25227 335 381 46 33 4,484 5,602 1,118 486 

















 
    A$’000 A$’000 A$’000 A$’000 A$’000 A$’000 A$’000 A$’000 
    Lump Lump Lump Lump         
    sum sum sum sum         
                    
Australian director                   
Leigh Clifford4,56037 14,559 15,990 1,431 1,139 14,559 15,990 1,431 1,139 

















 

Defined Contribution pension                  
    Company contributions             

















 
 AgeYears of At 31 At 31             
  service December December             
  completed 2006 2007             

















 
    US$’000 US$’000             
    pension pension             
                    
UK directors                   
Dick Evans660 n/a 56             

















 

Notes to Table 2
11.Price inflation is calculated as the increase in the relevant retail or consumer price index over the year to 31 December 2006.2007.
22.Transfer values are calculated in a manner consistent with “Retirement Benefit Schemes – Transfer Values (GN11)” published by the Institute of Actuaries and the Faculty of Actuaries.
33.Tom Albanese became a director of Rio Tinto plc and Rio Tinto Limited with effect from 7 March 2006; the figures shown cover the whole of 2006. He accrued pension benefits in the US plans for service up to 30 June 2006, and in the UK fund for subsequent service. The transfer value of his benefits in the US plans is represented by the Accumulated Benefit Obligation calculated on the accounting assumptions used for the Group’s post retirementpost-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.
44.Leigh Clifford retired on 30 September 2007, his transfer value and accrued benefit are therefore stated at 30 September 2007 to avoid showing a zero value at 31 December 2007. In addition, A$79,73088,093 was credited to the account belonging to Leigh Clifford in the Rio Tinto Staff Superannuation Fund (RTSSF) in relation to the pensionable element of his 20062007 performance bonus.
55.The figures shown for2006 Financial statementsshowed an accrued lump sum at the end of the year in respect of Leigh Clifford include allowance for an enhancement toof A$15,341,000, which is higher than the start of 2007 figure shown above. The start of year figure has been restated as the enhanced 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 7.0.7.0 to reflect the reduction to his contractual retirement age from 62 to 60, was paid as a termination benefit rather than as additional benefits from the Rio Tinto Staff Superannuation Fund and has been included in Table 1 – Executives’ remuneration.
6.Dick Evans became a director of Rio Tinto plc and Rio Tinto Limited with effect from 25 October 2007. The figures as atCompany contributions paid during 2007 represent contributions due to be paid for the period 25 October 2007 to 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$13,147,000.2007.

 

Rio Tinto 20062007 Form 20-F110137

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Table 3 – Directors’ and senior management’s beneficial interests in Rio Tinto shares   

     
Rio Tinto plc  Rio Tinto Limited Movement  
Table 3 – Executives’ beneficial interests in Rio Tinto sharesTable 3 – Executives’ 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   1 Jan 31 Dec 20 Mar 1 Jan 31 Dec 20 Mar Exercise of Compen- Other6 
        options4      20072 20073 2008 20072 20073 2008 options4 sation5  


 
 
Directors                          
Tom Albanese3,7,923,261  41,814  44,839       35,350 3,025 (19,640)
Tom Albanese7 41,814 44,970 56,658     14,531 313 
Ashton Calvert          735   735      889    889 
Sir David Clementi  147  308         308  147 454 454      307 
Leigh Clifford2,100  2,100  2,100  91,255  91,255  91,255     2,100 2,100  91,255 91,255  141,661  (141,661)
Vivienne Cox381  528  692         311  528 826 826      298 
Sir Rod Eddington                        
Guy Elliott747,827  48,033  48,644        357 470  
Michael Fitzpatrick3      2,100  2,100  2,100     
Guy Elliott6 48,033 49,024 59,682     10,845 804 
Dick Evansn/a   n/a      
Michael Fitzpatrick   2,100 2,100 2,100    
Yves Fortiern/a   n/a      
Richard Goodmanson  677  1,628         1,628  677 2,307 2,307      1,630 
Andrew Gould1,000  1,000  1,000           1,000 1,000 1,000       
Lord Kerr2,300  3,000  3,000         700  3,000 3,000 3,000       
David Mayhew2,500  2,500  2,500           2,500 2,500 2,500       
Paul Skinner5,409  5,598  5,657         248  5,598 5,696 5,696      98 
Sir Richard Sykes2,482  2,569  2,596         114  2,569 2,614 2,614      45 
Paul Telliern/a   n/a      
              
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  
Executives            
Preston Chiaro7 60,927 62,585 62,614    490 1,084 113 
Bret Clayton7 6,867 8,096 8,208      1,341 
Oscar Groeneveld3,000  3,000  3,000  79,502  66,790  66,790 171,000  (183,712)3,000 3,000 n/a 66,790 36,790 n/a 90,080  (120,080)
Keith Johnson72,236  17,536  18,882       43,426 2,446 (29,216)17,536 18,924 25,212     7,676  
Andrew Mackenzie1039,197  40,456  40,597        357 1,053  
Andrew Mackenzie7 40,456 40,639 n/a   n/a  183  
Sam Walsh      6,570  42,322  42,723 187,118 4,156 (155,121)   42,322 42,814 42,814   492 


 
 

Notes to Table 3
11.Under the Group’s shareholding policies the board recommends that non executive directors be encouraged to build up a shareholding equal in value to one year’s base fees and executives are encouraged to build up a shareholding equal in value to three times base salary.
2.Or date of appointment, if later.
23.Or 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.
44.Shares obtained through the exercise of options under the Rio Tinto Share Savings Plan or the Rio Tinto Share Option Plan. The number of shares retained may differ from the number of options exercised.
55.Shares obtained through the Rio Tinto Share Ownership Plan and/or vesting of awards under the Mining Companies Comparative Plan.
6.Share movements due to sale or purchase of shares, shares received under the Dividend Reinvestment Plan, shares purchased/sold through the Rio Tinto America Savings Plan or non executive directors share purchase plan.Non Executive Directors’ Share Purchase Plan.
77.These executives also have an interest in a trust fund containing 864879 Rio Tinto plc shares at 31 December 20062007 (1 January 2006: 8352007: 864 Rio Tinto plc shares) as potential beneficiaries of the Rio Tinto Share Ownership Trust. At 8 June 200720 March 2008 this trust fund contained 873879 Rio Tinto plc shares.
88.Shares in Rio Tinto plc are ordinary shares of ten pence each. Shares in Rio Tinto Limited are ordinary shares.
99.The 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.

 

Rio Tinto 20062007 Form 20-F111

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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 
          








           
 

Rio Tinto 2006Form 20-F112

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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 
     








       
 

Rio Tinto 2006Form 20-F113138

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Table 4 – Awards to executive directors and product group chief executivesExecutives’ awards 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     









   
 
      Mining Companies Comparative Plan Plan terms and conditions 
 












 






 
 Conditional Market 1 Jan Awarded Lapsed/ Vested 31 Dec Performance Date Market Monetary 
 award price at 2007 3,5 cancelled   2007 1 period award  price at value of 
 granted award2           concludes vests  vesting vested 
                     award 
                     US$’000 
 












 






 
Rio Tinto plc                      
Tom Albanese22 Apr 04 1,276p56,015  36,410 19,605  31 Dec 07 15 Feb 08 54.93 2,249 
 09 Mar 05 1,839p55,951    55,951 31 Dec 08       
 07 Mar 06 2,630p45,007    45,007 31 Dec 09       
 13 Mar 07 2,681p 44,124   44,124 31 Dec 10       
     








       
 
     156,973 44,124 36,410 19,605 145,082       2,249 
     








       
 
Preston Chiaro22 Apr 04 1,276p46,995  30,547 16,448  31 Dec 07 15 Feb 08 54.93 1,881 
 09 Mar 05 1,839p42,351    42,351 31 Dec 08       
 07 Mar-06 2,630p34,182    34,182 31 Dec 09       
 13 Mar 07 2,681p 25,679   25,679 31 Dec 10       
     








       
 
     123,528 25,679 30,547 16,448 102,212       1,881 
     








       
 
Bret Clayton22 Apr 04 1,276p13,315  6,658 6,657  31 Dec 07 15 Feb 08 54.93 731 
 09 Mar 05 1,839p11,539    11,539 31 Dec 08       
 07 Mar 06 2,630p10,767    10,767 31 Dec 09       
 13 Mar 07 2,681p 22,566   22,566 31 Dec 10       
     








       
 
     35,621 22,566 6,658 6,657 44,872       731 
     








       
 
Guy Elliott22 Apr 04 1,276p51,550  33,508 18,042  31 Dec 07 15 Feb 08 54.93 2,069 
 09 Mar 05 1,839p51,081    51,081 31 Dec 08       
 07 Mar 06 2,630p40,670    40,670 31 Dec 09       
 13 Mar 07 2,681p 30,837   30,837 31 Dec 10       
     








       
 
     143,301 30,837 33,508 18,042 122,588       2,069 
     








       
 
Keith Johnson22 Apr 04 1,276p30,387  19,752 10,635  31 Dec 07 15 Feb 08 54.93 1,220 
 09 Mar 05 1,839p33,556    33,556 31 Dec 08       
 07 Mar 06 2,630p26,508    26,508 31 Dec 09       
 13 Mar 07 2,681p 19,805   19,805 31 Dec 10       
     








       
 
     90,451 19,805 19,752 10,635 79,869       1,220 
     








       
 
Andrew Mackenzie22 Apr 04 1,276p16,270  10,576 5,694  31 Dec 07 15 Feb 08 54.93 653 
 09 Mar 05 1,839p37,638    37,638 31 Dec 08       
 07 Mar 06 2,630p29,413    29,413 31 Dec 09       
 13 Mar 07 2,681p 21,811   21,811 31 Dec 10       
     








       
 
     83,321 21,811 10,576 5,694 88,862       653 
     








       
 
Rio Tinto  Limited                        
                       
Leigh Clifford622 Apr 04 A$ 33.17 119,581    119,581 31 Dec 07       
 09 Mar 05 A$ 47.39 113,324    113,324 31 Dec 08       
 07 Mar 06 A$ 69.30 84,661    84,661 31 Dec 09       
 13 Mar 07 A$134.00  61,550 15,513  46,037 31 Dec 10       
     








         
     317,566 61,550 15,513  363,603         
     








         
Oscar Groeneveld22 Apr 04 A$ 33.17 43,785  28,461 15,324  31 Dec 07 15 Feb 08 137.10 1,921 
 09 Mar 05 A$ 47.39 45,024    45,024 31 Dec 08       
 07 Mar 06 A$ 69.60 36,460    36,460 31 Dec 09       
 13 Mar 07 A134.00  26,590   26,590 31 Dec 10       
     








       
 
     125,269 26,590 28,461 15,324 108,074       1,921 
     








       
 
Sam Walsh22 Apr 04 A$ 33.17 38,023  24,715 13,308  31 Dec 07 15 Feb 08 137.10 1,668 
 09 Mar 05 A$ 47.39 41,176    41,176 31 Dec 08       
 07 Mar 06 A$ 69.60 33,655 ��  33,655 31 Dec 09       
 13 Mar 07 A$134.00  25,103   25,103 31 Dec 10       
     








       
 
     112,854 25,103 24,715 13,308 99,934       1,668 
     








       
 

 

Rio Tinto 2006 2007Form 20-F114139

Back to Contents

Table 4 – Awards to executive directors and product group chief executivesExecutives’ awards under long term incentive plans (continued)

 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     









   
 
 Mining Companies Comparative Plan Plan terms and conditions 
 












 






 
 Conditional Market 1 Jan Awarded Lapsed/ Vested 20 Mar Performance Date Market Monetary 
 award price at 2008 3,5 cancelled   20081 period award price at value of 
 granted award2           concludes vests vesting vested 
                     award 
                     US$’000 
 












 






 
Rio Tinto plc                      
Tom Albanese09 Mar 05 1,839p55,951    55,951 31 Dec 08       
 07 Mar 06 2,630p45,007    45,007 31 Dec 09       
 13 Mar 07 2,681p44,124    44,124 31 Dec 10       
 10 Mar 08 5,255p49,040    49,040 31 Dec 11       
     








         
     194,122    194,122         
     








         
Preston Chiaro09 Mar 05 1,839p42,351    42,351 31 Dec 08       
 07 Mar-06 2,630p34,182    34,182 31 Dec 09       
 13 Mar 07 2,681p25,679    25,679 31 Dec 10       
 10 Mar 08 5,255p19,569    19,569 31 Dec 11       
     








         
     121,781    121,781         
     








         
Bret Clayton09 Mar 05 1,839p11,539    11,539 31 Dec 08       
 07 Mar 06 2,630p10,767    10,767 31 Dec 09       
 13 Mar 07 2,681p22,566    22,566 31 Dec 10       
 10 Mar 08 5,255p18,894    18,894 31 Dec 11       
     








         
     63,766    63,766         
     








         
Guy Elliott09 Mar 05 1,839p51,081    51,081 31 Dec 08       
 07 Mar 06 2,630p40,670    40,670 31 Dec 09       
 13 Mar 07 2,681p30,837    30,837 31 Dec 10       
 10 Mar 08 5,255p25,552    25,552 31 Dec 11       
     








         
     148,140    148,140         
     








         
Dick Evans10 Mar 08 5,255p40,489    40,489 31 Dec 11       
     








         
Keith Johnson09 Mar 05 1,839p33,556    33,556 31 Dec 08       
 07 Mar 06 2,630p26,508    26,508 31 Dec 09       
 13 Mar 07 2,681p19,805    19,805 31 Dec 10       
 10 Mar 08 5,255p15,887    15,887 31 Dec 11       
     








         
     95,756    95,756         
     








         
Rio Tinto                      
Limited                      
Sam Walsh09 Mar 05 A$ 47.39 41,176    41,176 31 Dec 08       
 07 Mar 06 A$ 69.60 33,655    33,655 31 Dec 09       
 13 Mar 07 A$134.00 25,103    25,103 31 Dec 10       
 10 Mar 08 A$126.48 21,366    21,366 31 Dec 11       
     








         
     121,300    121,300         
     








         
                       
Notes to Table 4
1.Or at the date of retirement or resignation if earlier.
2.Awards denominated in pence were for Rio Tinto plc ordinary shares of 10p each. Awardseach and awards denominated in A$ were for Rio TintoLimitedTinto Limited ordinary shares.
2.3.The fair value of conditional awards granted to executive directors and product group chief executives in 20062007 was 964p1396p for Rio Tinto plc and A$24.9637.64 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 2697p5,493p and A$75.60137.10 being the respective closing share prices for Rio Tinto plc and Rio Tinto Limited ordinary shares on 922 February 2007,2008, the latest practicable date prior to the publication of the 20062007 Annual report and financial statements.report. The amount in US dollars has been converted from sterling at the rate of US$11US$ = £0.5092£0.5005 and Australian dollars at the rate of US$1 = A$1.2653,1.141, being the year end exchange rate used elsewhere in this publication.Annual report.
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 84,66161,550 Rio Tinto Limited shares during the year.on 13 March 2007. 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 2007Form 20-F115140

Back to Contents

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

        Vested           
 Vested and Value of            and     Value of     
 exercisable options Market            exercisable    options Market  
 Vested on   exercised price on Date from      Vested     on    exercised price on Date from 
1 Jan during 31Dec 31 Dec  Option during date of which first Expiry 1 Jan   during   Lapsed/ 31 Dec 31 Dec Option during date of which first Expiry 
2006 Granted 2006 Exercised 2006 2006 price 20069exercise exercisable date 2007 Granted 2007 Exercised Cancelled10 2007 2007 price 20079 exercise exercisable date 


 
 
Rio Tinto plc Share Savings PlanRio Tinto plc Share Savings Plan       Rio Tinto plc Share Savings Plan 


 
 
Tom     1 Jan 7 Jan                   1 Jan 30 Jun 
Albanese530  530 530   1150p£8,072 2673p2006 2006 791      791 2,068p   2012 2012 
     1 Jan 30 Jun 
 
 791    791 2068p  2012 2012 

 
Preston     1 Jan 5 Jan                   1 Jan 5 Jan 
Chiaro490     490 1277p  2007 2007 490  490 490    1,277p £6,017 2,505p 2007 2007 
     1 Jan 6 Jan                ��  1 Jan 6 Jan 
 298    298 2088p  2009 2009 298      298 2,088p   2009 2009 


 
 
Bret     1 Jan 7 Jan                   1 Jan 5 Jan 
Clayton2530  530 530   1150p£8,072 2673p2006 2006 
Clayton 163     163 3,557p   2010 2010 


 
 
Guy     1 Jan 30 Jun                   1 Jan 30 Jun 
Elliott1,431     1,431 1107p  2009 2009 1,431      1,431 1,107p   2009 2009 


 
 
Keith     1 Jan 5 Jan                   1 Jan 30 Jun 
Johnson1,078  1,078 1,078   876p£21,528 2873p2007 2007 456      456 2,068p   2010 2010 
     1 Jan 6 Jan 
 456    456 2068p  2009 2009 


 
 
Andrew     1 Jan 30 Jun                   1 Jan 30 Jun 
Mackenzie1,021     1,021 1576p  2009 2009 1,021      1,021 1,576p   2011 2011 


 
 
Rio Tinto plc Share Option PlanRio Tinto plc Share Option Plan       Rio Tinto plc Share Option Plan 


 
 
Tom     27 May 27 May                   6 Mar 6 Mar 
Albanese11,142   11,142   820p£221,280 2806p2001 2008 102,718     102,718 102,718 1,265.6p   2005 2011 
     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                   13 Mar 13 Mar 
102,718    102,718 102,718 1265.6p  2005 2011 125,336     125,336 125,336 1,458.6p   2005 2012 
     13 Mar 13 Mar                   7 Mar 7 Mar 
125,336    125,336 125,336 1458.6p  2005 2012 139,165     139,165 139,165 1,263.0p   2006 2013 
     7 Mar 7 Mar                   22 Apr 22 Apr 
139,165  139,165  139,165 139,165 1263p  2006 2013 84,020      84,020 1,329.0p   2009 2014 
     22 Apr 22 Apr                   9 Mar 9 Mar 
84,020     84,020 1329p  2007 2014 83,926      83,926 1,826.2p   2008 2015 
     9 Mar 9 Mar                   7 Mar 7 Mar 
83,926     83,926 1826.2p  2008 2015 67,511      67,511 2,711.2p   2009 2016 
     7 Mar 7 Mar                   13 Mar 13 Mar 
 67,511    67,511 2711.2p  2009 2016  66,186     66,186 2,701.2p   2010 2017 


 
 
Preston     7 Mar 7 Mar                   7 Mar 7 Mar 
Chiaro37,160  37,160  37,160 37,160 1263p  2006 2013 37,160     37,160 37,160 1,263.0p   2006 2013 
     22 Apr 22 Apr                   22 Apr 22 Apr 
70,490     70,490 1329p  2007 2014 70,490      70,490 1,329.0p   2009 2014 
     9 Mar 9 Mar                   9 Mar 9 Mar 
63,527     63,527 1826.2p  2008 2015 63,527      63,527 1,826.2p   2008 2015 
     7 Mar 7 Mar                   7 Mar 7 Mar 
 51,274    51,274 2711.2p  2009 2016 51,274      51,274 2,711.2p   2009 2016 


                   13 Mar 13 Mar 
 38,519     38,519 2,701.2p   2010 2017 


 
Bret                  22 Apr 22 Apr 
Clayton13,315      13,315 1,329.0p   2009 2014 
                  9 Mar 9 Mar 
11,539      11,539 1,826.2p   2008 2015 
                  7 Mar 7 Mar 
10,767      10,767 2,711.2p   2009 2016 
                  13 Mar 13 Mar 
 33,850     33,850 2,701.2p   2010 2017 


 
Guy                  13 Mar 13 Mar 
Elliott61,703     61,703 61,703 1,458.6p   2005 2012 
                  7 Mar 7 Mar 
97,387     97,387 97,387 1,263.0p   2006 2013 
                  22 Apr 22 Apr 
73,700      73,700 1,329.0p   2009 2014 
                  9 Mar 9 Mar 
72,972      72,972 1,826.2p   2008 2015 
                  7 Mar 7 Mar 
58,100      58,100 2,711.2p   2009 2016 
                  13 Mar 13 Mar 
 44,052     44,052 2,701.2p   2010 2017 


 

 

Rio Tinto 2006 2007Form 20-F116141

Back to Contents

Table 5 – Directors’ and senior management’sexecutives’ options to acquire Rio Tinto plc and Rio Tinto Limited shares (continued)

   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         Vested             
13,315     13,315 1329p  2007 2014       and     Value of       
     9 Mar 9 Mar    exercisable options Market    
11,539     11,539 1826.2p  2008 2015  Vested on exercised price on Date from  
     7 Mar 7 Mar 1 Jan  during Lapsed/ 31 Dec 31 Dec Option during date of which first Expiry 
10,767     10,767 2711.2p  2009 2016 2007  Granted  2007 Exercised  Cancelled10 2007 2007 price 20079 exercise exercisable date 


 



 
Guy     13 Mar 13 Mar 
Elliott61,703    61,703 61,703 1458.6p  2005 2012 
Rio Tinto plc Share Option PlanRio Tinto plc Share Option Plan               





 
Keith            22 Apr 22 Apr 
Johnson43,500      43,500 1,329.0p  2009 2014 
     7 Mar 7 Mar             9 Mar 9 Mar 
97,387  97,387  97,387 97,387 1263p  2006 2013 47,937      47,937 1,826.2p  2008 2015 
     22 Apr 22 Apr             7 Mar 7 Mar 
73,700     73,700 1329p  2007 2014 37,869      37,869 2,711.2p  2009 2016 
     9 Mar 9 Mar             13 Mar 13 Mar 
72,972     72,972 1826.2p  2008 2015  28,294     28,294 2,701.2p  2010 2017 
     7 Mar 7 Mar 



 
Andrew            9 Mar 9 Mar 
Mackenzie853,769      53,769 1,826.2p  2008 2015 
 58,100    58,100 2711.2p  2009 2016             7 Mar 7 Mar 


 42,019      42,019 2,711.2p  2009 2016 
Keith     7 Mar 7 Mar 
Johnson3,855   3,855   965.4p68,488 2742p2005 2010 
            13 Mar 13 Mar 
 31,159     31,159 2,701.2p    2010 2017 





 
Rio Tinto Limited Share Savings PlanRio Tinto Limited Share Savings Plan             





 
Leigh         A$    30 Sep 31 Mar 
Clifford1,486  842  644 842 842 29.04   2007 2008 





 
Oscar         A$    1 Jan 30 Jun 
Groeneveld1,431      1,431 27.48   2009 2009 





 
Sam         A$    1 Jan 30 Jun 
Walsh601      601 40.92   2009 2009 





 
Rio Tinto Limited Share Option PlanRio Tinto Limited Share Option Plan             





 
Leigh         A$ A$ A4 28 May 28 May 
Clifford952,683   52,683    23.4382 4,145,720 102.13 2002 2009 
     6 Mar 6 Mar          A$ A$ A$ 7 Mar 7 Mar 
11,667   11,667   1265.6p172,252 2742p2005 2011 59,318   59,318    24.0690 4,630,422 102.13 2003 2010 
     13 Mar 13 Mar          A$ A$ A$ 7 Mar 7 Mar 
10,595   10,595   1458.6p135,976 2742p2005 2012 29,660   29,660    24.0690 2,409,940 105.32 2005 2010 
     7 Mar 7 Mar          A$    6 Mar 6 Mar 
16,231  16,231 16,231   1263p240,056 2742p2006 2013 241,430     241,430 241,430 33.1060   2005 2011 
     22 Apr 22 Apr          A$    13 Mar 13 Mar 
43,500     43,500 1329p  2007 2014 208,882     208,882 208,882 39.8708   2005 2012 
     9 Mar 9 Mar          A$    7 Mar 30 Sep 
47,937     47,937 1826.2p  2008 2015 254,132     254,132 254,132 33.3360   2006 2012 
     7 Mar 7 Mar          A$    22 Apr 30 Sep 
 37,869    37,869 2711.2p  2009 2016 179,370      179,370 34.4060   2009 2012 


          A$    9 Mar 30 Sep 
Andrew     9 Mar 9 Mar 
Mackenzie1053,769     53,769 1826.2p  2008 2015 
     7 Mar 7 Mar 169,987      169,987 47.0420   2008 2012 
 42,019    42,019 2711.2p  2009 2016          A$    7 Mar 30 Sep 


 126,992      126,992 71.0600   2009 2012 
Rio Tinto Limited Share Savings Plan       


          A$    13 Mar 30 Sep 
Leigh   A$  30 Sep 31 Mar 
Clifford111,486     1,486 29.04   2007 2008 
 92,325   41,230  51,095 74.5880   2010 2012 


 



 
Oscar   A$  1 Jan 30 Jun          A$ A$ A$   7 Mar 
Groeneveld1,431     1,431 27.48   2009 2009 90,080   90,080    33.3360 5,466,271 94.02   2013 
         A$    22 Apr 22 Apr 
62,600      62,600 34.4060   2009 2014 
         A$    9 Mar 9 Mar 
64,321      64,321 47.0420   2008 2015 
         A$    7 Mar 7 Mar 
52,086      52,086 71.0600   2009 2016 
         A$    13 Mar 13 Mar 
 37,987     37,987 74.5880   2010 2017 


 



 
Sam   A$ A$ A$ 1 Jan 30 Jun          A$    22 Apr 22 Apr 
Walsh1,078  1,078 1,078   25.57 53,787 75.465 2006 2006 54,400      54,400 34.4060   2009 2014 
   A$  1 Jan 30 Jun          A$    9 Mar 9 Mar 
601     601 40.92   2009 2009 58,823      58,823 47.0420   2008 2015 


          A$    7 Mar 7 Mar 
48,079      48,079 71.0600   2009 2016 
         A$    13 Mar 13 Mar 
 35,861     35,861 74.5880   2010 2017 





 

 

Rio Tinto 2006 2007Form 20-F117142

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Table 5 – Directors’ and senior management’sexecutives’ options to acquire Rio Tinto plc and Rio Tinto Limited shares (continued)

         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 






















 
           Vested             
           and     Value of       
           exercisable     options Market     
     Vested     on     exercised price on Date from    
 1 Jan   during   Lapsed/ 20 Mar 20 Mar Option during date of which first  Expiry 
 2008 Granted  2008 Exercised  Cancelled10 2008 2008 price 20089 exercise exercisable  date 
























 
Rio Tinto plc Share Savings Plan                     
























 
Tom                    1 Jan 30 Jun 
Albanese791      791 2,068p  2012 2012 
























 
Preston                    1 Jan 6 Jan 
Chiaro298      298 2,088p  2009 2009 
























 
Bret                    1 Jan 5 Jan 
Clayton163      163 3,557p  2010 2010 
























 
Guy                    1 Jan 30 Jun 
Elliott1,431      1,431 1,107p  2009 2009 
























 
Keith                    1 Jan 30 Jun 
Johnson456      456 2,068p  2010 2010 
























 
Rio Tinto plc Share Option Plan                     
























 
Tom                    6 Mar 6 Mar 
Albanese102,718     102,718 102,718 1,265.6p  2005 2011 
                     13 Mar 13 Mar 
 125,336     125,336 125,336 1,458.6p  2005 2012 
                     7 Mar 7 Mar 
 139,165     139,165 139,165 1,263.0p  2006 2013 
                     22 Apr 22 Apr 
 84,020      84,020 1,329.0p  2009 2014 
                     9 Mar 9 Mar 
 83,926  83,926   89,926 83,926 1,826.2p  2008 2015 
                     7 Mar 7 Mar 
 67,511      67,511 2,711.2p  2009 2016 
                     13 Mar 13 Mar 
 66,186      66,186 2,701.2p  2010 2017 
                     10 Mar 10 Mar 
  73,561     73,561 5,723.2p  2011 2018 
























 
Preston                    7 Mar 7 Mar 
Chiaro37,160     37,160 37,160 1,263.0p  2006 2013 
                     22 Apr 22 Apr 
 70,490      70,490 1,329.0p  2009 2014 
                     9 Mar 9 Mar 
 63,527  63,527   63,527 63,527 1,826.2p  2008 2015 
                     7 Mar 7 Mar 
 51,274      51,274 2,711.2p  2009 2016 
                     13 Mar 13 Mar 
 38,519      38,519 2,701.2p  2010 2017 
                     10 Mar 10 Mar 
  29,354     29,354 5,723.2p  2011 2018 
























 
Bret                    22 Apr 22 Apr 
Clayton13,315      13,315 1,329.0p  2009 2014 
                     9 Mar 9 Mar 
 11,539  11,539   11,539 11,539 1,826.2p  2008 2015 
                     7 Mar 7 Mar 
 10,767      10,767 2,711.2p  2009 2016 
                     13 Mar 13 Mar 
 33,850      33,850 2,701.2p  2010 2017 
                     10 Mar 10 Mar 
  28,342     28,342 5,723.2p  2011 2018 
























 
Guy                    13 Mar 13 Mar 
Elliott61,703     61,703 61,703 1,458.6p  2005 2012 
                     7 Mar 7 Mar 
 97,387     97,387 97,387 1,263.0p  2006 2013 
                     22 Apr 22 Apr 
 73,700      73,700 1,329.0p  2009 2014 
                     9 Mar 9 Mar 
 72,972  72,972   72,972 72,972 1,826.2p  2008 2015 
                     7 Mar 7 Mar 
 58,100      58,100 2,711.2p  2009 2016 
                     13 Mar 13 Mar 
 44,052      44,052 2,701.2p  2010 2017 
                     10 Mar 10 Mar 
  36,503     36,503 5,723.2p  2011 2018 
























 

 

Rio Tinto 2006 2007Form 20-F118143

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Table 5 – Directors’ and senior management’sexecutives’ options to acquire Rio Tinto plc and Rio Tinto Limited shares (continued)

          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 























 

           Vested             
           and     Value of       
           exercisable     options Market     
     Vested     on     exercised price on Date from    
 1 Jan   during   Lapsed/ 20 Mar 20 Mar Option during date of which first  Expiry 
 2008 Granted  2008 Exercised  Cancelled10 2008 2008 price 20089 exercise exercisable  date 
























 
Rio Tinto plc Share Option Plan                        
























 
Dick                    10 Mar 10 Mar 
Evans 60,733     60,733 5,723.2p  2011 2018 
























 
Keith                    22 Apr 22 Apr 
Johnson43,500      43,500 1,329.0p  2009 2014 
                     9 Mar 9 Mar 
 47,937  47,937   47,937 47,937 1,826.2p  2008 2015 
                     7 Mar 7 Mar 
 37,869      37,869 2,711.2p  2009 2016 
                     13 Mar 13 Mar 
 28,294      28,294 2,701.2p  2010 2017 
                     10 Mar 10 Mar 
  22,696     22,696 5,723.2p  2011 2018 
























 
Rio Tinto Limited Share Savings Plan                   
























 
Sam              A$     1 Jan 30 Jun 
Walsh601      601 40.92   2009 2009 
             
























 
Rio Tinto Limited Share Option Plan                   
























 
Sam              A$     22 Apr 22 Apr 
Walsh54,400      54,400 34.4060   2009 2014 
               A$     9 Mar 9 Mar 
 58,823  58,823   58,823 58,823 47.0420   2008 2015 
               A$     7 Mar 7 Mar 
 48,079      48,079 71.0600   2009 2016 
               A$     13 Mar 13 Mar 
 35,861      35,861 74.5880   2010 2017 
               A$     10 Mar 10 Mar 
  30,523     73,561 134.1760   2011 2018 
























 
                         
Rio Tinto 2006 Form 20-F119

Back to Contents

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

                Value of       
          Vested and     options Market     
      Vested   exercisable     exercised price on Date from   
  1 Jan   during   on 31 May 31 May Option  during date of which first Expiry 
  2007 Granted 2007 Exercised   2007 2007 price 20079   exercise exercisable date 























 
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

Back to Contents

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

                Value of       
          Vested and     options Market     
      Vested   exercisable     exercised price on Date from   
  1 Jan   during   on 31 May 31 May Option  during date of which first Expiry 
  2007 Granted 2007 Exercised   2007 2007 price 20079   exercise exercisable date 























 
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
11.Or at date of appointmentretirement or resignation if later.earlier.
2Bret Clayton was appointed chief executive of the Copper group on 1 July 2006.
32.All options are granted over ordinary shares. Rio Tinto plc – ordinary shares of 10p each stated in pence sterling; Rio Tinto Limited ordinary shares – stated in Australian dollars. Each option is granted over one share. The date of grant was 13 March 2007. The performance conditions for the SOP are detailed on page 122.
43.No options lapsed during the year.
5The closing price of Rio Tinto plc ordinary shares at 31 December 20062007 was 2718p (2005: 2655p)5317p (2006: 2718p) and the closing price of RioTintoRio Tinto Limitedshares at 31 December 20062007 was A$74.30 (2005:133.95 (2006: A$69.00)74.30). 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.
64.The option price represents the exercise price payable on the options. No amount was paid or payable by the recipient at thedate of grant. Noamounts are unpaid on any shares allocated on the exercise of the options.
75.Under the plans no options would be vested and unexercisable at the reporting date.date however, the exercise of options is subject to restrictions contained in the ‘Rules for dealing in Rio Tinto Securities’.
86.The fair value per option, granted during 2006,2007, at date of grant was as follows: Rio Tinto plc Share Savings Plan two year contract 676p;1028p; threeyear contract 812p1421p; four year contract 1263p and five year contract 944p;1368p; Rio Tinto Limited Share Savings Plan three year contract A$22.3734.19 and five year contract A$26.07.34.04. Rio Tinto plc Share Option Plan 740p;617p; Rio Tinto Limited Share Option Plan A$17.09.14.23.
97.The value of options exercised during 20062007 is calculated by multiplying the number of options exercised by the difference between the marketprice and the option price on date of exercise.
108.Andrew Mackenzie was granted 40,216 phantom options over Rio Tinto plc shares at a price of 1329p per share, exercisable betweenbetween 22 April2007 2009 and 22 April 2014. This grant will not vest in 2007, but will be subject to retest after a further two years.
11.9.Leigh Clifford was granted 92,325 options over 126,992 Rio Tinto Limited shares during the year.at a price of A$74.588 per share on 13 March 2007. 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 SavingsOption Plan, Leigh Clifford’soptions granted under that plan will bewere reduced proportionally and cancelled to reflect the actual portion of 2007 he was an employee of the Group.
10.No options lapsed for failure to satisfy a performance condition.

 

Rio Tinto 2006 2007Form 20-F121144

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CORPORATE GOVERNANCECorporate governance

The directors of Rio Tinto believe that high standards of corporate governance are centralessential to business integrityits objective to maximise the overall long term return to shareholders through a strategy of investing in large, cost competitive mines andperformance. businesses. The following describes how this philosophybelief is applied in practice.
     As Rio Tinto’s three main listings are in London, Melbourne and New York, the directors have referred to TheCombinedThe Combined Code on Corporate Governance, published by the UK Financial Reporting Council (the Code), the AustralianSecuritiesAustralian Securities Exchange (ASX) Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations (the ASX Principles), and the New York Stock Exchange (NYSE) Corporate Governance Standards(the (the NYSE Standards), as well as the Sarbanes-Oxley Act of 2002.
Rio Tinto complied fully with the detailed provisions of Section 1 of the Code See Controls and the ASX Principles as detailed further below. A statement on compliance with the NYSE Standards is set out below.

The board
The Companies have common boards of directors which are collectively responsible for the success of the Group and accountable to shareholders for the performance of the business. Throughout this report, they are described as the board.
The 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 agreed a formal schedule of matters specifically reserved for decision by the board, 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 outprocedures 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 are dedicated to in-depth discussions on Groupstrategy.
Directors receive timely, regular and necessary management169 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 buildingcompliance statements on the formal induction programmes, which all new non executive directors undertake, they are encouraged to take every opportunity to visit the Group’s operatinglocations. The full board also takes the opportunity to 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 atindividual business units and to meet local staff.
The chairman holds regular meetings with non executive directors without the executive directors being present.

Rio Tinto 2006 Form 20-F122

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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 board 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, the non executive directors assessed the chairman’s performance, taking into consideration the views of executive colleagues.
The 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 requirements of Clause A.6 of the Code,Principle 8 of the ASX Principles, and of the NYSE Standards.

Independence
The tests of director 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 director’s ability to act in the best interest of the Group. Where contracts in the ordinary course of business exist between Rio Tinto and a company in which a director has declared an interest, theseare reviewed for materiality to both the Group and the other party to the contract. 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 pages 89 to 92.

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Election and re-election
Directors are elected by shareholders at the first annual general meetings after their appointment and, after that, offer
themselves 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.page 150.

Chairman and chief executiveCommunication

The roles of the chairman and chief executive are separate and the division of responsibilities has been formally
approved by the board.

Board committees
There are four board committees, theAudit committee,Remuneration committee,Nominations committeeand theCommittee on social and environmental accountability. Each committee plays a vital role in ensuring that good corporate governance is maintained throughout the Group. Committee terms of reference are reviewed annually by the board and the committees to ensure they continue to be at the forefront of best practice; and are posted on the Group’s website. Minutes of all committee meetings are circulated to the board, with oral reports at the next board meeting. None of the executive directors are members of any of these committees.

Audit committee
TheAudit committee’smain responsibilities include the review of accounting principles, policies and practices adopted
in the preparation of public financial information, review with management of procedures relating to financial and capital expenditure controls, including internal audit plans and reports, review with external auditors of the scope and results of their audit, the nomination of auditors for appointment by 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. The committee has a number of training sessions which may cover new legislation and other relevant 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 129 to 130 and can be found on the 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 the
remuneration and benefits of individual executive directors and senior executives. Full disclosure of all elements of directors’ and relevant senior executives’ remuneration can be found in theRemuneration reporton pages 95 to 121, together with details of the Group’s remuneration policies. The committee is chaired by Sir Richard Sykes and itsmembers are Sir David Clementi, Michael Fitzpatrick, Richard Goodmanson and Andrew Gould.

Nominations committee
TheNominations committeeis chaired by the chairman of Rio Tinto, Paul Skinner. The committee is responsible, on
behalf of the board, for ensuring that a suitable process is in place to meet the recruitment requirements of the board. It reviews the mix, structure and experience of the board and the desired profiles of potential candidates for membership. In consultation with external search consultants it oversees the review and recruitment process to fill vacancies as they arise. The recruitment 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 full board for approval. On behalf of the board it also reviews proposals for senior executive appointments and succession planning.
The committee further reviews the time required to be committed to Group business by non executive directors and assesses whether non executive directors are devoting 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 theNominations 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
TheCommittee on social and environmental accountabilityreviews the effectiveness of management policies and
procedures in place to deliver those standards in our statement of business practice,The way we work,which are not covered by the 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 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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Executive directors’ other directorships
Executive directors are likely to be invited to become non executive directors of other companies. For full details of the
Group 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 by directors and employees. The policy, which prohibits dealings when in possession of price sensitive information and shortly before a results announcement, can be viewed on the website.

Communication
Rio Tinto recognises the importance of effective communication with shareholders and the generalwider investment community.
To ensure shareholders are keptthat trading in its securities takes place in an informed in a timely manner,market the Group has adoptedContinuous disclosure standardswhich are appended to theCorporate governance standardsand posted on its website. All information released to the website.markets is posted on the website immediately.

     In addition to statutory documents, Rio Tinto has a recently redesignedthe website featuringfeatures in-depth information on health, safety and the environment, as well as general investor information, publications and Group policies. Results presentationsFull and investor seminars are made available as they happenhalf year results as well as in the form of an archiveany major presentations are also webcast. Presentation material from investor seminars is also made available 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 inform shareholders of current developments and to 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 able 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 Limited annual general meeting. Rio Tinto plc’s auditors attend the annual general meeting in London and are available to respond to audit related shareholder questions.
questions.
     The main channels of communication with the general investment community are through the chairman, chief executive and finance director, who conducthave regular meetings with the Companies’ major shareholders. The senior
independent director and other non executive directors are also available as appropriate.

     The Group organises regular investor seminars which provide a 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.

The Board
The Companies have common boards of directors which are collectively responsible for the success of the Group and accountable to shareholders for the performance of the business. Throughout this report, they are described as ‘the board’.
The board currently consists of 15 directors: the chairman, three executive directors and eleven non executive directors. The Nominations committee continually 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 terms in office are shown in the biographical details on pages 114 to 118.

Statement of business practice
The way we workprovides the directorsrole and all Group employees with a summaryresponsibilities of the global policies and controls in placeboard
The role of the board is to help ensure that highprovide the Group with good governance and business standards are communicatedstrategic direction. The board also reviews the Group’s control and maintain ed throughout the
Group.
Global policies are adoptedaccountability framework. The directors have agreed a formal schedule of matters specifically reserved for decision or consideration by the board, after wide consultation, externallyincluding strategy, major investments and withinacquisitions. This is available in the Group. Once adopted, they are communicatedGovernance section of the Rio Tinto’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 business units worldwide, together with mandatory standardsshareholders for the performance of the business.
To ensure an efficient process, the board meets regularly and, guidance notes to support
implementation. Business units are required to devote the necessary effort by management to implementin 2007, had eight scheduled and report11 meetings at short notice. Details of directors’ attendance at board and committee meetings is set out on these policies and standards.page 147.

In 2006, Rio Tinto undertook a review of its global policies. The following policies are currently in place: access
to 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 expandingboard has regular scheduled discussions on the minimum expectations on topics such as antitrust, continuous disclosure, compliance, and health, safety and the environment. Many of these standards are supplemented by guidance notes. These policies and standards apply to all Rio Tinto managed businesses.
There is also a Groupwide “whistle blowing” programme calledSpeak-OUT.Employees are encouraged to report any concerns, including any suspicion of a violationaspects of the Group’s financial reportingstrategy, as well as two separate strategy review meetings, one half day and environmentalone two day meeting, which are dedicated to in-depth discussions on Group strategy.
Directors receive timely, regular and necessary management and other information to enable them to fulfil their duties and to have access to the advice and services of both company secretaries. The board has agreed a procedure for directors to obtain independent professional advice at the Group’s expense.
procedures, through an independent third partyIn addition to these formal processes, directors are in regular communication with senior executives from the

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product and without fearglobal support groups, at both formal and informal meetings, to ensure regular exchange of recrimination. A process has been established forknowledge and experience between management and non executive directors. To continue building on the investigation of any matters reported with clear lines of reporting and responsibility in each Group business.
Where the Group does not have operating responsibility for a business, Rio Tinto’s policies are communicated to
its business partners andformal induction programmes, which all new non executive directors undertake, they are encouraged to adopt similar policiestake every opportunity to make site visits to the Group’s operations and to meet local staff. The full board also takes the opportunity to combine attendance at the annual general meeting in Australia and at the two day strategy review meeting with site visits.
The chairman holds regular meetings with non executive directors without the executive directors being present.

Board performance
The board completes a formal annual process, facilitated by external consultants, to evaluate its effectiveness and that of the board committees and individual directors.
     Each director’s performance is appraised by the chairman and, in a meeting chaired by the senior independent non executive director, the non executive directors assess the chairman’s performance, taking into consideration the views of executive colleagues.
     The evaluation process aims to cover board dynamics, board capability, board process, board structure, corporate governance, strategic clarity and alignment and the performance of individual directors. The directors believe that, through this evaluation process, they comply with the requirements of Clause A.6 of the Code, Principle 2 of the ASX Principles, and the NYSE Standards.

Independence
The tests of director independence in the jurisdictions where Rio Tinto has listings are not wholly consistent. The board has, therefore, adopted a formal policy for the determination of the independence of directors. This policy, which contains the materiality thresholds approved by the board, has been posted on the website. Among the key criteria are independence of management and the absence of any business relationship which could materially interfere with the director’s independence of judgement and ability to provide a strong, valuable contribution to the board’s deliberations or which could interfere with the director’s ability to act in the best interest of the Group. Where contracts in the ordinary course of business exist between Rio Tinto and a company in which a director has declared an interest, these are reviewed for materiality to both the Group and the other party to the contract. Applying these criteria, the board is satisfied that the majority of the non executive directors: Sir David Clementi, Vivienne Cox, Sir Rod Eddington, Michael Fitzpatrick, Yves Fortier, Richard Goodmanson, Andrew Gould, Lord Kerr, Sir Richard Sykes and Paul Tellier are independent.
     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 support the board during a period of executive transition, and will retire at the conclusion of the 2008 annual general meetings. Sir Richard will be replaced by Andrew Gould as the senior independent director and chair of the Remuneration 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 NYSE Standards.
The directors’ biographies are set out on pages 114 to 118.

Election and re-election
Directors are elected by shareholders at the first annual general meetings after their own.appointment and, after that, offer themselves 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 in special circumstances, would not normally serve more than three such terms.

Chairman and chief executive
The roles of the chairman and chief executive are separate and the division of responsibilities has been formally approved by the board.

Executive directors’ other directorships
Rio Tinto’s reportExecutive directors are likely to be invited to become non executive directors of other companies. For full details of the Group policy and fees, see page 131.

Board committees
There are four board committees, the Audit committee, Remuneration committee, Nominations committee and the Committee on social and environmental matters followsaccountability. Each committee plays a vital role in ensuring that high standards of corporate governance are maintained throughout the guidelinesGroup. Committee terms of reference are reviewed annually by the Global Reporting Initiative
board and the Association of British Insurers. This report can be found on page 71. Details of the Group’s overall and individual businesses’ social and environmental performancecommittees to ensure they continue to be publishedat the forefront of best practice and are posted on the websiteGroup’s website. Minutes of all committee meetings are circulated to the board, with oral reports at the next board meeting. None of the executive directors are members of any of these committees.

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     The reports of the Audit and Nominations committees are on pages 151 to 152 and the report of the Remuneration committee is on pages 120 to 133.

Committee membership
AuditRemunerationNominationsCommittee on social and
committeecommitteecommitteeenvironmental accountability








ChairmenAndrew GouldSir Richard SykesPaul SkinnerRichard Goodmanson
MembersSir David ClementiSir David ClementiSir Rod EddingtonSir Rod Eddington
Vivienne CoxMichael FitzpatrickYves FortierYves Fortier
Michael FitzpatrickRichard GoodmansonDavid MayhewLord Kerr
Lord KerrAndrew GouldSir Richard Sykes
Paul TellierPaul Tellier








Notes
1Ahton Calvert resigned from theNominations committeeandCommittee on social and environmental accountabilityon 7 November 2007.
2Yves Fortier was appointed to theNominations committeeandCommittee on social and environmental accountabilityon 25 October 2007.
3David Mayhew attends theAudit committeein an advisory capacity.
4Paul Tellier was appointed to theAudit committeeandRemuneration committeeon 25 October 2007.
  
  
Directors’ attendance at board and committee meetings during 2007 
           Committee on 
           social and 
 Board Board – short Audit Remuneration Nominations environmental 
 – scheduled notice committee committee committee acountability 
 


 


 


 


 


 


 
 A B A B A B A B A B A B 
























 
Tom Albanese8 8 11 10                 
Ashton Calvert7 6 10 7         3 3  4 3 
Sir David Clementi8 8 11 8 7 7 5 5         
Leigh Clifford3 3 3 3                 
Vivienne Cox8 8 11 8 7 7             
Sir Rod Eddington8 8 11 11         4 4  4 3 
Guy Elliott8 8 11 11                 
Dick Evans1 1 2 2                 
Michael Fitzpatrick8 8 11 9 7 4 5 5         
Yves Fortier1 1 2 2         1 1     
Richard Goodmanson8 8 11 9     5 5      4 4 
Andrew Gould8 7 11 9 7 7 5 4         
Lord Kerr8 8 11 10 7 7          4 4 
David Mayhew8 8 11 11         4 4     
Paul Skinner8 8 11 10         4 4     
Sir Richard Sykes8 7 11 8     5 5 4 4     
Paul Tellier1 1 2 1 1 1 1          
























 
Notes
A =Maximum number of meetings the director could have attended
B =Number of meetings attended
Audit committee
The Group is required by the Code, the NYSE, and the ASX to establish an Audit committee. Each of the Code, the NYSE and the ASX lay down rules and guidelines for the composition of the committee and the work to be undertaken by it. The Audit committee is governed by a Charter which the committee reviews and assesses each year for adequacy and is approved by the board. The Charter is available on the website and is summarised below.
The primary function of the Audit committee is to assist the board in fulfilling its responsibilities by reviewing:
The financial information that will be provided to shareholders and the public;
The systems of internal control that the board and management have established;
The Group’s auditing, accounting and financial reporting processes.
In carrying out its responsibilities the committee has full authority to investigate all matters that fall within its Charter.
Accordingly, the committee may:
Obtain independent professional advice in the satisfaction of its duties at the cost of the Group;
Have such direct access to the resources of the Group as it may reasonably require including the external and internal auditors.

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TheAudit committee’s main responsibilities include the review of accounting principles, policies and practices adopted in the preparation of public financial information, review with management of procedures relating to financial and capital expenditure controls, including internal audit plans and reports, review with external auditors of the scope and results of their audit, the nomination of auditors for appointment by 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.
     To ensure the committee discharges its responsibilities, it meets not less than four times per year and has a number of training sessions which may cover new legislation and other relevant information. The Group’s finance director, other senior financial management, external auditors and internal auditor are available to attend all meetings.
     TheSustainable development review.Audit committeeis chaired by Andrew Gould who will be replaced by Sir David Clementi after the 2008 annual general meetings. The members of the committee are independent and free of any relationship that would interfere with impartiality in carrying out their responsibilities. They meet the requirements of the Code, the ASX Principles and the NYSE Code, as well as the composition, operation and responsibility requirements of the ASX.

Responsibilities of the directors

The directors are required to prepare financial statements for each financial period which give a true and fair view of the
state 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, the Australian Corporations Act 2001 and Australian Accounting Standard AASB 124 “Related Party Disclosures”.
     To ensure that these 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 2006 2007 Annual reportand financialFinancial statementspresent a true and fair view and have
been prepared in accordance with applicable accounting standards, using the most appropriate accounting policies for Rio Tinto’s business and supported by reasonable and prudent 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,Principles Recommendation 7.3, 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 executives, senior financial managers and other members of staff who are required to
exercise judgement in the course of the preparation of the financial statements are required to co nductconduct 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 Companies
Act 1985 and the Australian Corporations Act 2001. 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 integrity of the Group’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 such developments and, accordingly, the auditors accept no re sponsibilityresponsibility for any changes, should any be made, to the financial statements sinceafter they were initiallyare made available on the website.

Going concernPrincipal auditors

The financial statements have been prepared on the going concern basis. The directors report that they have satisfied themselves that the Companies and the Group are a going concern since they have adequate financial resources to continue in operational existence for the foreseeable future.

Board’s statement on internal control
Rio Tinto’s overriding corporate objective is to maximise long term shareholder value through responsible and sustainable investment in mining and related assets. The directors recognise that creating shareholder value is the
reward for taking and accepting risk.
The directors are responsible for the Group’s system of internal controls 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. Due to the limitations inherent in any such system, this isTinto has adopted policies designed to manage rather than eliminate risk and to provide reasonable but not absolute assurance against material misstatement or loss.
The directors have established a process for identifying, evaluating and managinguphold the significant risks faced by
the Group. This process was in place during 2006 and up to and including the date of approval of the 2006Annual report and financial statements. The process is reviewed annually by the directors and accords with the guidance set outinInternal Control: Guidance for Directors on the Combined Code.
Twoindependence 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. Details of these polices have been set out in the Directors’ report.
     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 44 to the2007 Financial statements.

Corporate Assurance
The Corporate Assurance function provides independent and objective assurance on the adequacy and effectiveness of the Group’s systems for risk management, committees,internal control, and governance together with ideas and recommendations to improve those systems. The function has adopted international auditing standards set by the Institute of Internal Auditors Inc.
     The function operates independently of management, under a mandate approved in March 2007 by theExecutiveAudit committeeand the CDisclosuresommittee on social and procedures committeeenvironmental accountabilityregularly review information related(CSEA) and has full access to all functions, records, property and personnel of the Group’s control framework.Group.
     This information is presentedmandate expands the function’s role from traditional financial based internal audit to cover all risk types. Progressively all assurance activities across the Group will be consolidated within Corporate Assurance.
     The head of Corporate Assurance reports functionally to both theAudit CommitteeandCSEA, providing each committee with information relevant to enable its memberstheir specific Charters.
     A risk based approach is used to assess the effectiveness of the internal controls. In addition, the boardfocus assurance activities on high risk areas and its 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 directors
receive 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 risksaudit plans are transferred to third parties in the international insurance markets, to the extent considered
appropriate.
Each year, the leaders of the 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 are
designed to capture and evaluate failings and weaknesses, if any exist, and take prompt action as appropriate. The results of this process are reviewed by the executive committee and it is then presented to theAudit committeeand board as a further part of their review of the Group’s internal controls. This process is continually reviewed andstrengthened as appropriate.
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 comply
with Rio Tinto standards or objectives. Accordingly, the review of their internal controls is less comprehensive than that of the Group’s managed operations.

 

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annually to theAudit CommitteeandCSEAfor approval.

Disclosure controlsRemuneration committee
TheRemuneration committeeis responsible for determining the policy for executive remuneration and procedures
for the remuneration and benefits of individual executive directors and senior executives. Full disclosure of all elements of directors’ and relevant senior executives’ remuneration can be found in the Remuneration report on pages 120 to 133, together with details of the Group’s remuneration policies. The common managementcommittee is chaired by Sir Richard Sykes who will be replaced by Andrew Gould at the conclusion of eachthe 2008 annual general meetings.

Nominations committee
TheNominations committeeis chaired by the chairman of Rio Tinto, plcPaul Skinner. The committee is responsible, on behalf of the board, for ensuring that a suitable process is in place to meet the recruitment requirements of the board. It reviews the mix, structure and Rio Tinto Limited,experience of the board and the desired profiles of potential candidates for membership. In consultation with external search consultants it oversees the review and recruitment process to fill vacancies as they arise. The recruitment 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 full board for approval. On behalf of the board it also reviews proposals for senior executive appointments and succession planning.
     The committee further reviews the time required to be committed to Group business by non executive directors and assesses whether non executive directors are devoting sufficient time to carry out their duties.
     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 theNominations 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 participation of their common chief executiveCode.

Committee on social and finance director, have evaluatedenvironmental accountability
TheCommittee on social and environmental accountability, which is chaired by Richard Goodmanson, reviews the effectiveness of management policies and procedures in place to deliver those standards in our statement of business practice,The way we work, which are not covered by the designother board committees and, operationin 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 and to develop the necessary clear accountability on these practices.

Business practice
Statement of business practice
The way we workprovides the directors and all Group employees with a summary of the global policies and controls in place to help ensure that high governance and business standards are communicated and maintained throughout the Group. Group businesses then put them into practice through local codes of conduct and report on their implementation.
     Global policies are adopted by the board after wide consultation, externally and within the Group. Once adopted, they are communicated to business units worldwide, together with mandatory standards and guidance notes to support implementation. Business units are required to devote the necessary effort by management to implement and report on these policies and standards.
     The following global policies are currently in place: access to land; communities; corporate governance; employment; environment; human rights; information management; occupational health; political involvement; risk; safety and sustainable development. To complete the suite of policies, the following are being revised: business integrity; information systems security management and information technology; internal controls and reporting; and transparency. Each of these policies is supported by standards expanding on the minimum expectations on topics such as antitrust, continuous disclosure, compliance, cultural heritage and health, safety and the environment. Many of these standards are supplemented by guidance notes. These policies and standards apply to all Rio Tinto managed businesses.
     Where the Group does not have operating responsibility for a business, Rio Tinto’s policies are communicated to its business partners and they are encouraged to adopt similar policies of their own.

‘Whistle blowing’ programme
There is also a Groupwide ‘whistle blowing’ programme calledSpeak-OUT. Employees are encouraged to report any concerns, including any suspicion of a violation of the Group’s disclosure controlsfinancial reporting or environmental procedures, through an independent third party and procedures aswithout fear of 31 December 2006recrimination. A process has been established for the investigation of any matters reported with clear lines of reporting and have concluded that these disclosure controlsresponsibility in each Group business.

Sustainable development
Rio Tinto’s report on Sustainable development follows the guidelines of the Global Reporting Initiative and procedures were effectivethe Association of British Insurers. This report can be found in the 2007 Annual report. Details of the Group’s overall and individual businesses’ social and environmental performance continue to provide reasonable assurance thatbe published on the website.

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Dealing in Rio Tinto securities
The Group has a policy in place to govern the dealing in Rio Tinto securities by directors, executives and employees. The policy, which prohibits dealings when in possession of price sensitive information itand shortly before a results announcement, can be viewed on the website.

COMPLIANCE STATEMENTS

The Code
By virtue of its UK listing, Rio Tinto is required to disclose is reported fairly aswhether it has complied with the provisions set out in Section 1 of the Code and when required.
to provide an explanation where it does not.
     TheDisclosure and procedures committeeis taskedRio Tinto confirms that it has continued to comply fully with reviewing the adequacy and effectivenessdetailed provisions of Group controls and procedures overSection 1 of the public disclosure of financial and related information. The committee has been presenting the results of this processCode.

ASX Principles
Pursuant to the directors since its establishment in 2002Listing Rules of the ASX, Rio Tinto is required to report the extent to which it complies with the ASX Principles and will continuethe reasons for any non compliance.
     Rio Tinto confirms that it has continued to do so.

Management’s report on internal control over financial reporting has been set out on page 147.comply fully with the ASX Principles.

New York Stock ExchangeNYSE Standards

Rio Tinto plc, as a foreign issuer with American Depositary Shares listed on the NYSE, is obliged by the NYSE
Standards 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 its 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 independent directors and with written terms of reference which, in addition to identifying 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 aNominations committee, information about which is set out on page 128.149. 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 Limited is also listed on the New Zealand Stock Exchange (“NZX”)(NZX) which has introduced a Corporate
Governance 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 XASX 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 auditorsGoing concern

The remunerationdirectors report that the financial statements have been prepared on a going concern basis as they have satisfied themselves that the Companies and the Group are a going concern with adequate financial resources to continue in operational existence for the foreseeable future.

Board’s statement on internal control
Rio Tinto’s overriding objective is to maximise the overall long term return to shareholders through a strategy of investing in large, cost competitive mines and businesses. The directors recognise that creating shareholder return is the reward for taking and accepting risk. A description of some of the risks is found on pages 5 to 7 in Risk factors.
     The directors are responsible for the Group’s system of internal controls 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. The directors confirm that they have completed their annual review for 2007. Due to the limitations inherent in any such system, this is designed to manage rather than eliminate risk and to provide reasonable but not absolute assurance against material misstatement or loss. 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 considered appropriate.
     The directors have established a process for identifying, evaluating and managing the material business risks faced by the Group. This process was in place during 2007 and up to and including the date of approval of the 2007 Annual report andFinancial statements. The process is reviewed annually by the directors and accords with the guidance set out in Internal Control: Guidance for Directors on the Combined Code.
     Two of the Group’s principal auditors for audit servicesmanagement committees, the Executive committee and other services, as well as remuneration
payable to other accounting firms, has been set out in note 41 to the 2006 financial statements.
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 accountingDisclosures 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 some other specific services are pre-approved annually by theAuditprocedures committee. Each engagement of the Group’s principal auditors to provide other permitted services is subject to the specific approval of theAudit committee
or its chairman.
Prior to the commencement of each financial year, the Group’s finance director submits to theAudit committeea
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 regularly review reports related to the Group’s normal tender procedures. However, in exceptional circumstancescontrol framework. This information is presented to the finance director is authorisedAudit committee to engageenable its members to assess the effectiveness of the internal controls and the management of material business risk. In addition, the board and its committees monitor 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 Code, the ASX Principles and the NYSE Standards. The Group also meets the composition, operation and responsibility requirements in respect of audit committees mandated by the ASX. TheAudit committeeis governed by a written charter approved by the board, which theAudit committeereviews and reassesses each year for adequacy. A copy of this charter is reproducedmaterial business risks on page 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 of the committee are independent and are free of any relationship that would interfere with impartial judgement in carrying out their responsibilities. David Mayhew attends the meetings in an advisory capacity.ongoing basis.

 

Rio Tinto 2006 2007 Form 20-F127150

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ReportThese reports and risk management processes satisfy Recommendation 7.2 of the ASX Principles.
     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 directors receive 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.
     Each year, the leaders of the 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 are designed to capture and evaluate failings and weaknesses, if any exist, and take prompt action as appropriate. The results of this process are reviewed by the Executive committee, then presented to the Audit committee and the board as a further part of their review of the Group’s internal controls. This process is continually reviewed and strengthened as appropriate.

     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 comply with Rio Tinto standards or objectives. Accordingly, the review of their internal controls is less comprehensive than that of the Group’s managed operations.

Controls and procedures
See controls and procedures on page 169 for details of the Group’s disclosure controls and procedures, management’s report on internal control over financial reporting and changes in internal control over financial reporting.

REPORT OF THE AUDIT COMMITTEE

TheAudit committeemet seven times in 2006.2007. It monitors developments in corporate governance in the UK, Australiaand the US, to ensure the Group continues to apply high and appropriate standards.
     TheAudit committeecharter reproduced on page 129, is subject to regular discussion and 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 services for the Group at the most advantageous price.     The 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. TheAudit committeeadvised the directors that it is satisfied that the provision of non audit services by the external auditors during2006 2007 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 committees’ financial experts and the Code and ASX Principles requirement that at least one committee member should have recent and relevant financial experience. Following a detailed review, theThe committee recommended to the board that Michael Fitzpatrick, Andrew Gould and Sir David Clementi be identified as theAudit committee’sfinancial experts in the 20062007 Annual report and financial statementsreport.. The boardcommitee has also concluded that Michael Fitzpatrick, Andrew Gould and Sir David Clementi possess the requisite skills, experience and background to qualify for the purpose of clause C.3.1 of the Code.

2006 financial2007 Financial statements
TheAudit committeehas reviewed and discussed with management the Group’s audited financial statements for the
year ended 31 December 2006.2007.

     We haveThe committee discussed with the external auditors the matters described in the American Institute of Certified Public
Accountant Auditing Standard No. 90,Audit committeeCommittee communications, and in theInternational Standard on Auditing (UK and Ireland) 260,Communication of Audit Matters with those charged with governance (ISA 260),including their judgements regarding the quality of the Group’s accounting principles and underlying estimates.
The committee has discussed with the external auditors their independence, and received and reviewed their written disclosures, as required by the US Independence Standards Board’s Standard No. 1, Independence Discussions with Audit Committees and ISA 260.
Based on the reviews and discussions referred to above, the committee has recommended to the board of
directors that the financial statements referred to above be included in the 2006Annual report and financial statements.approved.

Andrew Gould(Chairman)
Sir David Clementi
Vivienne Cox
Michael Fitzpatrick
Lord Kerr
Paul Tellier

Rio Tinto 2007 Form 20-F151

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Report of the Nominations committeeREPORT OF THE NOMINATIONS COMMITTEE

TheNominations committee’scommittee’s activities during 20062007 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 successionsucceeded Leigh Clifford as chief executive in May 2007. Following the acquisition of Alcan Inc., Yves Fortier, Paul Tellier and Dick Evans were appointed directors with effect from 25 October 2007. Dick Evans also became the Chief executive of the combined aluminium group, Rio Tinto Alcan.
     Michael Fitzpatrick is an Australian independent director, who bringsEach of the new directors bring extensive AustralianNorth American and international business experience to the board. A short biography of each is set out on pages 89114 to 92.118.
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
Yves Fortier
David Mayhew
Sir Richard Sykes

 

Rio Tinto 2006 2007 Form 20-F128152

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AUDIT 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 the
Audit committee is to assist the boards of directors in fulfilling their responsibilities by reviewing: The financial information that will be provided to shareholders and the public;
The systems of internal controls that the boards and management have established;
The Group’s auditing, accounting and 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:
Obtain independent professional advice in the satisfaction of its duties at the cost of the Group;
Have such direct access to the resources of the Group as it may reasonably require including the external internal auditors.

Composition
The Audit committee shall comprise three or more non executive directors, all 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’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 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 committee minutes will be confirmed at the following meeting of the committee and tabled as soon as practicable at a meeting of
the boards.
     The Company’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. The Audit committee is accountable to the boards. The internal auditor is accountable to the Audit committee and the finance director.
To fulfil its responsibilities the committee shall:

Charter
Review and, if appropriate, update this Charter at least annually.
Financial Reporting and Internal Financial Controls
Review with management and the external auditors the Group’s financial statements, Form 20-F, stock exchange and media releases in respect of each half year and full year.
Review with management and the external auditors the accounting policies and practices adopted by the company and their compliance with accounting standards, stock exchange listing rules and relevant legislation.
Discuss with management and the external auditors management’s choice of accounting principles and material judgments, including whether they are aggressive or conservative and whether they are common or minority practices.
Recommend to the boards that the annual and interim financial statements and Form 20-F reviewed by the committee (or the chairman representing the committee for this purpose) be included in the Group’s annual report.
Review the regular reports prepared by the internal auditor including the effectiveness of the Group’s internal financial controls.
External auditors
Review and recommend to the boards the external auditors to be proposed to shareholders, following a commercial tender if deemed necessary.
Review with the external auditors the planned scope of their audit and subsequently their audit findings including any internal control recommendations.

Rio Tinto 2006 Form 20-F129

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Periodically consult with the external auditors out of the presence of management about the quality of the Group’s accounting principles, material judgments and any other matters that the committee deems appropriate.
Periodically review the performance of the external auditors and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements.
Review and approve the fees and other compensation to be paid to the 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 a written statement outlining all of its professional relationships with the Group including the provision of services that may affect their objectivity or independence. Review and discuss with the external auditors all significant relationships they have with the company to determine their independence.
Internal auditor
Review the qualifications, organisation, strategic focus and resourcing of internal audit.
Review and approve the internal audit plans.
Review internal audit performance.
Periodically consult privately with the internal auditor about any significant difficulties encountered including 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 processes for determining and managing key risk areas.
Ensure the Company has an effective risk management system and that macro risks are reported at least annually to the 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
Address the effectiveness of the Company’s internal control system with management and the internal and external auditors.
Evaluate the process the Company has in place for assessing and continuously improving internal controls, particularly 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 the Group’s tax planning and compliance.
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.government or natural person. Except as discussed in the Chairman’s statement on page 48, Rio Tinto plc does not know of any arrangements which may result in a change in its control. As of 8 June 2007,20 March 2008, the total amount of the voting securities owned by the directors of Rio Tinto plc as a group wa s 112,964was 134,737 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 136158 to 139,161, is not directly or indirectly owned or controlled by another corporation or by any
government. As of 8 June 2007,20 March 2008, the only person known to Rio Tinto Limited as beneficially 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 37.4837.45 per cent of its issued capital. Except as discussed in the Chairman’s statement on page 48, Rio Tinto Limited does not know of any arrangements which may result in a change in its control. As of 8 June 200720 March 2008 the total amount of the voting securities owned by the directors of Rio Tinto Limited as a group was 96,1902,100 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 111.138. 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 136158 to 137,161, the Group’s
major shareholders have the same voting and other rights as other shareholders.
     As at 8 June 200720 March 2008 there were 250263 shareholders who had registered addresses in the US holding 157,241160,442 shares in
Rio Tinto plc, and 255264 who had registered addresses in the US holding 342,609323,215 shares in Rio Tinto Limited.

SUBSTANTIAL SHAREHOLDERS

Under the ListingUK Disclosure and Transparency Rules and the Australian Corporations Act, any shareholder of Rio Tinto plc with a beneficial interestvoting rights of more than three per cent or more or any person with voting power of five per cent or more in Rio Tinto Limited, with a beneficial interest of more than five per cent, is required to provide the Companiescompanies with notice. Excluding the interest held by Tinto Holdings Australia Pty Limited in Rio Tinto Limited, the shareholders towho have provided such, or an equivalent, notice are:

Rio Tinto plcDate of Number of Percentage Date of Number of Percentage 
notice shares of issued notice shares of issued 
      share capital     share capital 


 
 
Barclays PLC12 Jul 2006 42,129,019 4.02 12 Jul 2006 42,129,019 4.02 
The Capital Group Companies, Inc13 Jun 2006 41,031,494 3.90 13 Jun 2006 41,031,494 3.90 
AXA S.A.29 Jan 2008 48,493,873 4.86 
Shining Prospect Pte. Ltd2 Feb 2008 119,705,134 12.00 
Legal & General plc5 Oct 2005 33,539,570 3.13 18 Mar 2008 49,923,595 5.00 


 
 
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 LimitedDate of notice Number of Percentage 
 notice sharesShares1 of issued 
     share capital1 






 
NoneShining Prospect Pte. Ltd4 Feb 2008 
Alcoa Inc13 Feb 2008   






 
NoteNotes
1.Shining Prospect Pte. Ltd, a Singapore based entity owned by Chinalco (Aluminum Corporation of China) with funding from Alcoa Inc, acquired 119,705,134 Rio Tinto plc shares on 1 February 2008. Through the operation of Corporations Act as modified, this gives these entities voting power of 9.33 per cent in the Rio Tinto Group on a joint decision matter, making them substantial shareholders of Rio Tinto Limited as well as of Rio Tinto plc.
2.As far as it is known, Rio Tinto is not directly or indirectly owned or controlled by another corporation or by any government.
3.Except as discussed in the chairman’s statement on page 48, Rio Tinto is not aware of any arrangement which may result in a change in its control.

 

Rio Tinto 20062007 Form 20-F131153

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ANALYSIS OF ORDINARY SHAREHOLDERS

As at 922 February 20072008

      Rio Tinto plc       Rio Tinto Limited     Rio Tinto plc     Rio Tinto Limited 
No of % Shares % No of % Shares % No of % Shares % No of % Shares % 
accounts          accounts          accounts       accounts      


 
 
1 to 1,000 shares38,405 71.07 14,822,316 1.46 82,340 80.40 29,578,002 10.35 37,849 73.08 13,898,832 1.30 101,921 83.59 32,380,143 7.09 
1,001 to 5,000 shares12,810 23.70 25,735,953 2.53 17,665 17.25 34,745,068 12.16 11,307 21.83 22,648,550 2.11 17,750 14.56 34,739,877 7.60 
5,001 to 10,000 shares1,098 2.03 7,540,348 0.74 1,489 1.45    10,395,908 3.64 1,016 1.96 6,950,363 0.65 1,401 1.15 9,707,172 2.12 
10,001 to 25,000 shares560 1.04 8,800,248 0.86 597 0.58 8,920,489 3.12 544 1.05 8,400,701 0.79 579 0.47 8,621,357 1.89 
25,001 to 125,000 shares550 1.02 31,301,789 3.07 225 0.22 11,279,596 3.95 560 1.08 32,980,105 3.08 196 0.16 9,699,188 2.12 
125,001 to 250,000 shares204 0.38 37,073,012 3.64 40 0.04 6,602,885 2.31 183 0.35 33,914,101 3.16 31 0.02 5,401,969 1.18 
250,001 to 1,250,000 shares273 0.50 148,918,025 14.63 36 0.04 20,609,086 7.21 210 0.41 121,814,991 11.36 34 0.03 20,035,350 4.39 
1,250,001 to 2,500,00071 0.13 124,513,650 12.23 8 0.01 15,088,234 5.28 60 0.12 105,482,635 9.84 8 0.01 15,235,651 3.34 
2,500,001 and over68 0.13 515,236,968 50.61 10 0.01 148,524,155 51.98 61 0.12 725,779,627 67.71 11 0.01 320,995,236 70.27 
ADRs  104,131,792 10.23       94,920,868 8.85     


 
 
Publicly held shares54,309 100 1,018,074,101 100 102,411 100 285,743,423 100 51,790 100 1,071,869,905 100 121,931 100 456,815,943 100 
Shares held in treasury      53,607,337                  74,167,852          
Tinto Holdings Australia Pty Limited                  171,072,520                171,072,520  


 
 
      1,071,681,438          456,815,943        1,071,869,905     456,815,943 1,071,869,905  


 
 
Number of holdings less than marketable parcel of A$500.Number of holdings less than marketable parcel of A$500.       1,378          Number of holdings less than marketable parcel of A$500.     1,111      

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  Number of Percentage 
   of issued  shares of issued 
 Number of share   share 
 shares capital   capital 


 
 
1Tinto Holdings Australia Pty Limited171,072,520 37.45 Tinto Holdings Australia Pty Limited171,072,520 37.45 
2National Nominees Limited38,626,816 8.46 HSBC Custody Nominees (Australia) Limited39,237,31 8.59 
3J P Morgan Nominees Australia Limited36,164,864 7.92 National Nominees Limited35,659,231 7.81 
4Westpac Custodian Nominees Pty Limited33,163,997 7.26 JP Morgan Nominees Australia Limited31,302,302 6.83 
5Citicorp Nominees Pty Limited10,141,523 2.22 Citicorp Nominees Pty Limited15,172,117 3.32 
6ANZ Nominees Limited8,209,196 1.80 ANZ Nominees Limited9,488,839 2.16 
7Cogent Nominees Pty Limited6,320,939 1.38 Cogent Nominees Pty Limited6,240,454 1.37 
8Queensland Investment Corporation6,151,422 1.35 Queensland Investment Corporation4,341,895 0.95 
9HSBC Custody Nominees (Australia) Limited4,006,203 0.88 AMP Life Limited2,905,395 0.64 
10Citicorp Nominees Pty Limited3,186,324 0.70 Merrill Lynch (Australia) Nominees Pty Ltd2,761,366 0.60 
11Westpac Financial Services Limited2,552,871 0.56 UBS Wealth Management Australia Nominees Pty Ltd2,553,987 0.56 
12Australian Foundation Investment Company Limited2,438,414 0.53 Australian Foundation Investment Company Limited2,443,414 0.53 
13AMP Life Limited2,424,837 0.53 HSBC Custody Nominees (Australia) Limited2,269,520 0.50 
14UBS Wealth Management Australia Nominees Pty Ltd2,332,068 0.51 UBS Nominees Pty Ltd2,127,402 0.47 
15Citicorp Nominees Pty Limited2,125,342 0.47 HSBC Custody Nominees (Australia) Limited1,985,586 0.43 
16RBC Dexia Investor Services Australia Nominees Pty Ltd1,793,472 0.39 RBC Dexia Investor Services Australia Nominees Pty Limited1,777,687 0.39 
17Citicorp Nominees Pty Limited1,397,217 0.31 Citicorp Nominees Pty Limited1,703,340 0.37 
18Argo Investments Limited1,298,920 0.28 Citicorp Nominees Pty Limited1,532,859 0.34 
19RBC Dexia Investor Services Australia Nominees Pty Ltd1,277,964 0.28 Argo Investments Limited1,395,843 0.31 
20Suncorp Custodian Services Pty Limited1,240,193 0.27 HSB Custody Nominees (Australia) Limited-GSI ECSA1,240,252 0.27 


 
 
  335,925,102 73.55  337,471,139 73.87 


 
 
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 4245 to the 2006 financial statements.2007 Financial statements.

 

Rio Tinto 20062007 Form 20-F132154

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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 material effect on either Company’s financial position or profitability.
     Contingencies are disclosed in note 35 to the2007 Financial statements.

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 CompaniesCompanies’ Structure on pages 136 to 139.page 158.

Dividend policy
The aim of Rio Tinto’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
The majority of the Group’s sales are transacted in US dollars, making this the most reliable measure for the Group’s global business performance. It is Rio Tinto’s main reporting currency 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.
     On request, shareholders of Rio Tinto plc can elect to receive dividends in Australian dollars and shareholders of Rio Tinto Limited can elect to receive dividends in sterling. Shareholders requiring further information should contact Computershare.

20062007 dividends
The 20062007 interim and final dividends were determined at 40.052.0 US cents and at 64.084.0 US cents per share respectively and the applicable translation rates were US$1.86742.0321 and US$1.961451.9476 to the pound sterling and US$0.76220.8568 and US$0.77255
0.90305 to the Australian dollar.
     Final dividends of 32.6343.13 pence per share and of 82.8493.02 Australian cents per share werewill be paid on 1311 April 2007.2008. A final dividend of 256336 US cents per Rio Tinto plc ADR (each representing four shares) waswill be paid by JPMorgan Chase Bank NA to ADR holders on 1614 April 2007.2008.
The tables below set out the amounts of interim, final and special 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 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 










 

 

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Rio Tinto plc and Rio Tinto Limited – US cents per ADS 
 2006 2005 2004 2003 2002 
Rio Tinto Group – US cents per share2007 2006 2005 2004 2003 


 
 
Interim 160 154 128 120 118 52.0 40.0 38.5 32.0 30.0 
Final 256 166 180 136 122 84.0 64.0 41.5 45.0 34.0 
Special  440      110.0   


 
 
Total 416 760 308 256 240 136.0 104.0 190.0 77.0 64.0 


 
 
Rio Tinto plc – UK pence per share2007 2006 2005 2004 2003 


 
Interim25.59 21.42 21.75 17.54 18.45 
Final43.13 32.63 23.35 23.94 18.68 
Special  61.89   


 
Total68.72 54.05 106.99 41.48 37.13 


 
Rio Tinto Limited – Australian cents per share2007 2006 2005 2004 2003 


 
Interim60.69 52.48 50.56 45.53 45.02 
Final93.02 82.84 54.86 58.29 44.68 
Special  145.42   


 
Total153.71 135.32 250.84 103.82 89.70 


 
Rio Tinto plc – US cents per ADS2007 2006 2005 2004 2003 


 
Interim208 160 154 128 120 
Final336 256 166 180 136 
Special  440   


 
Total544 416 760 308 256 


 

Dividend reinvestment plan (DRP)
Rio Tinto offers a DRP to registered shareholders, which provides the opportunity to use cash dividends to purchase Rio
Tinto shares in the market free of commission. See Taxation on page 143165 for an explanation of the tax consequences. Due 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 xeight times Normal Market Size (NMS). Rio Tinto plc has an NMS of 100,000 shares. Publication of

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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. In addition, share prices are 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. Calls are currently charged at 60p per minute plus VAT, in addition to any mobile phone charges.
     Rio Tinto plc has a sponsored American Depositary Receipt (ADR) facility with JPMorgan Chase Bank NA (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 18 February 20 052005 when JPMorgan became Rio Tinto plc’s depository. The ADRs evidence Rio Tinto plc American Depositary Shares (ADS), each 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’.
     Rio Tinto plc shares are also listed on Euronext and on Deutsche Börse.
     The following table shows share prices for the period indicated, the reported high and low middle marketquotations, which represent an average of bid and asked 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 share Rio Tinto plc ADS 
 High Low High Low 








 
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 
20075,784 2,505 478.35 193.60 








 
Aug 20073,445 2,929 278.05 234.65 
Sep 20074,228 3,430 343.40 284.10 
Oct 20074,576 4,050 375.00 343.30 
Nov 20075,685 4,197 478.35 351.46 
Dec 20075,784 5,012 477.71 401.45 
Jan 20085,370 4,159 428.30 394.10 
Feb 20085,850 5,222 464.00 409.37
Mar 2008 (to 20 Mar 2008)5,807 4,800 461.00 387.50








 
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 
Second quarter3,916 2,888 311.50 230.60 
Third quarter4,228 2,929 343.40 234.65 
Fourth quarter5,784 4,050 478.35 334.30 








 

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134

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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 








 

As at 8 June 2007,20 March 2008, there were 25.9 million Rio Tinto plc ADSs in issue, representing 103.6 million Rio Tinto plc shares which were held of record by 380 ADR holders and which represented 10.35 per cent of the publicly held shares. There were 53,48251,480 holders of record of Rio Tinto plc’s shares of whom 250shares. Of these holders, 263 had registered addresses in the US holding 157,241and held a total of 160,442 Rio Tinto plc shares, representing 0.016 per cent of the total number of Rio Tinto plc shares issued and outstanding as at such date. In addition, 94.36 million Rio Tinto plc shares were registered in the name of a custodian account in London which represented 0.0169.457 per cent of the publicly held shares.Rio Tinto plc shares issued and outstanding. These shares were represented by 25.30 million Rio Tinto plc ADSs held of record by 382 ADR holders. 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 Securities Exchange (ASX) and the New Zealand Securities
Exchange. 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 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 had an ADR facility with JPMorgan Chase Bank NA under a Deposit Agreement, dated
6 June 1989, as amended on 1 August 1989, as further amended and restated on 2 June 1992 and as further amended and restated on 7 July 2005 when JPMorgan became Rio Tinto Limited’s depository.
     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 in 2006 decided that, due to the relative size of the Rio Tinto Limited ADR programme, it should be terminated. In February 2006 formal notice of termination of the 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 001 (800) 990 1135.
     The following table sets out, for the periods indicated, the high and low closing sale prices of Rio Tinto Limited

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shares based upon information provided by the ASX. There is no established trading market in the US for Rio Tinto Limited’s shares.

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A$ per   A$ per 
Rio Tinto Limited share Rio Tinto Limited share 
High Low High Low 


 
 
200241.35 29.05 
200337.54 28.17 37.54 28.17 
200440.20 31.98 40.20 31.98 
200569.10 38.82 69.10 38.82 
200687.97 65.38 87.97 65.38 
2007146.90 69.50 


 
 
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 
Aug 200793.52 81.16 
Sep 2007108.22 93.52 
Oct 2007113.50 104.43 
Nov 2007145.19 108.50 
Dec 2007146.90 128.00 
Jan 2008134.00 101.00 
Feb 2008137.10 121.77 
Mar 2008 (to 20 Mar 2008 )136.00 116.29 


 
 
2006         
First quarter78.85 67.50 78.85 67.50 
Second quarter87.97 70.90 87.97 70.90 
Third quarter78.56 65.38 78.56 65.38 
Fourth quarter82.00 68.01 82.00 68.01 


 
 
2007         
First quarter80.11 69.50 80.11 69.50 
Second quarter101.15 77.20 
Third quarter108.22 81.16 
Fourth quarter146.90 104.43 


 
 

As at 8 June 2007,20 March 2008, there were 104,491120,552 holders of record of Rio Tinto Limited’s shares of whom 255Limited shares. Of these holders, 264 had registered addresses in the US holding 342,609and held a total of 323,215 Rio Tinto Limited shares, which represented 0.12representing approximately 0.071 per cent of the publicly held shares.total number of Rio Tinto Limited shares issued and outstanding as of such date. In addition, certainnominee 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 JPMorgan as to how the shares represented by their ADRs should be voted.
     Registered holders of ADRs will have theAnnual reviewreportandSummary financial statementsand interim reports mailed to them at their record address.address and other ADR holders willcan receive theAnnual reviewreportandSummary financial statementsand interim reports on request.
     Rio Tinto is subject to the US Securities and Exchange Commission (SEC) reporting requirements for foreign companies. A Form 20-F, which corresponds with the Form 10-K in US public companies, will be filed with the SEC. Rio Tinto’sThis Form 20-F and other filings can be viewed on the Rio Tinto website as well as on the SEC web sitewebsite 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
the income derived from them can go down as well as up, and investors may not get back the amount they invested.

Item 10.Additional Information

DUAL LISTED COMPANIES STRUCTURE


In 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 to 39 per cent by the end of 2005. Consistent with the commitments made to the Australian Government in 1995, the Rio Tinto plc shareholding in Rio Tinto Limited has been reduced over time and it now stands at approximately 37.5 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 to ensure that the businesses of Rio Tinto plc and Rio Tinto

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Limited are managed on a unified basis, to ensure that the boards of directors of each Company is the same, and 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

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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 unchanged at 1:1. The Sharing Agreement has provided for this ratio to be revised in special 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 Class Rights Action approval procedure described under Voting 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 Rio Tinto, as a Group, aims to comply with the strictest applicable level.
     Consistent with the creation of a single combined enterprise under the DLC merger, directors of each Companyact in the best interests of Rio Tinto as a whole. When matters may involve a conflict of interests between the shareholders of each Company they must be approved under the Class Rights Action approval procedure.
     To ensure that the boards of both Companies are identical, resolutions to appoint or remove directors must be putto shareholders of both as a joint electorate as Joint Decisions as described under Voting rights, and it is a requirement that a person can only be a director of one Company if that person is also a director of the other Company. So, for example, if a person was removed as a director of Rio Tinto plc, he or she would also cease to be a director of 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 equalised
dividend or the equalised capital distribution, it would be entitled to receive a top up payment from the other Company. The top up payment could be made as a dividend on the DLC Dividend Share, 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 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 funds
management 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’s overall resources.

Voting rights
In principle, the Sharing Agreement provides for the public shareholders of Rio Tinto plc and Rio Tinto Limited to vote
as a joint electorate on all matters which affect shareholders of both Companies in similar ways. These are referred to as Joint 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 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 Company differently, by requiring their separate approval. For example, fundamentalelements of the DLC merger cannot be changed unless approved by shareholders under the Class Rights Action 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 or a Class Rights 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 Rio
Tinto 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.

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     In exceptional circumstances, certain public shareholders of the Companies can be excluded from voting at the respective Company’s general meetings because they have acquired shares in one Company in excess of a giventhreshold without making an offer for all the shares in the other Company. If this should occur, the votes cast by these excluded shareholders will be disregarded.
     Following the Companies’ general meetings the overall results of the voting on Joint Decisions and the results ofvoting on separate decisions werewill be 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 2008 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’ meeting at which a Joint Decision will be considered, each Rio Tinto plc share will
carry 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’ meeting at which a Joint Decision will be considered, each Rio Tinto Limited
share will carry one vote and, together with the Rio Tinto Limited ordinary shares held by Tinto Holdings Australia, 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 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 the
surplus 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 shall be made, to the extent permitted by applicable law, such that the amount available for distribution on each share 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.
     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 restrictions and obligations on persons who control interests
in public quoted companies in excess of defined thresholds that, under certain 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 law 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 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 may not attend or vote at general meetings of the relevant Company, may not receive dividends or other distributions from the relevant Company, and 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

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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 out 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, the 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 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 and the obligations
of other persons which are guaranteed by the other 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 resolutionresolutions passed during April 2007 waswere 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.

Introduction
As explained on pages 136158 to 139161 under the terms of the 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 withregistered number 719885 and Rio Tinto Limited is incorporated under the name “Rio Tinto Limited” and is registered in Australia with ABN 96 004 458 404.
     No holder of shares, which may be held in either certificated or uncertificated form, will be required to make anyadditional 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;

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to amalgamate with and co-operate with or assist or subsidise any company, firm or person and to purchase orotherwiseor otherwise acquire or undertake all or any part of the business property or liabilities of any person, body orcompanyor company carrying on any business which this Company is authorised to carry on;
to promote the Company;

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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,all minerals, metals and substances;
to carry on business as proprietors of and to purchase, take on, lease or in exchange or otherwise acquire andcontroland control mineral and other properties, lands and hereditaments of any tenure, mines and other rights or optionsthereon;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 garageproprietors,garage proprietors, carriers and hauliers, bankers, storekeepers, wharfingers, cartage, storage, building and generalcontractorsgeneral 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 ofallof all kinds and merchants generally; and
to guarantee the payment of premiums on any sinking fund or endowment policy or policies taken out by anycompanyany 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 underresponsibilityunder 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 issuedtheissued 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 CompanytheCompany 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 95120 to 121133 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 rewere 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.

 

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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 orotherwise made use of by the board for the benefit of the Company until claimed or otherwise disposed of according 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 137159 to 138.160. 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,financial statements, the cumulative annual payment of dividends, the appointment of auditors, the increase of authorisedshareauthorised 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 of Rio Tinto plc or the Constitution of Rio Tinto Limited, disapplying statutory pre-emption rights orchangingor changing the Company’s name; and
an extraordinary resolution, which includes resolutions modifying the rights of any class of the Group’s shares ataat a meeting of the holders of such class of shares or relating to certain matters concerning the winding up of eitherCompany.either Company.
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 137159 to 138.160.
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, 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

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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 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 third in nominal value of the issued shares of the class.
The Sharing Agreement provides for the protection of the public shareholders of both Companies and so anyvariations 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, whet herwhether statutorily preferred creditors ornormalor 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 on page 138.160.

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 plc's Memorandum and
Articles of Association or Rio Tinto Limited's Constitution, on the rights of non residents or foreign persons to hold or vote the Group’s ordinary shares or ADSs that would not apply generally to all shareholders.

MATERIAL CONTRACT

Rio Tinto plc, Rio Tinto Canada Holding Inc. and Rio Tinto Finance plc entered into a facility agreement dated 12 July 2007 (the ‘Facility Agreement’) with Credit Suisse, Deutsche Bank AG, London Branch, The Royal Bank of Scotland plc and Société Générale. The Facility Agreement comprises two term facilities and two revolving facilities (including a swingline facility) up to a total amount of US$ 40 billion. The funds made available under the Facility Agreement will be used, among other things, to finance or refinance, directly or indirectly the consideration or other amounts payable in respect of the Group’s purchase for cash of all the outstanding shares of Alcan Inc.
     Advances under the term and revolving facilities bear interest at rates per annum equal to the margin (which is dependent on the Group’s long term credit rating as determined by Moody's and Standard & Poors) plus LIBOR plus any mandatory cost.
     The Facility Agreement contains covenants and restrictions on the Group, including that it be required to observe certain customary covenants including but not limited to (i) maintenance of authorisations; (ii) compliance with laws; (iii) change of business; (iv) negative pledge (subject to certain carve outs); (v) environmental laws and licences; and (vi) subsidiaries incurring financial indebtedness.
     The term facilities are to be repaid on the termination of their respective 364 day (subject to exercise of the extension option), and five year and one business day terms. No amounts repaid by the Group under the term facilities may be re-borrowed. Facilities B and C will cease to be available one month prior to their respective three year and five year termination dates. All loans made under Facilities B and C are to be repaid on their respective termination dates.

EXCHANGE CONTROLS

Rio Tinto plc
There are no UK 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 the conduct of Rio Tinto plc’s operations. The
Bank of England, however, administers financial sanctions against specified targets related to certain regimes.
     There are no restrictions under Rio Tinto plc’s memorandum and articles of association or under UK law that limit the right of non resident owners to hold or vote Rio 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 certain
financial 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 to

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terrorists 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 no restrictions under the constitution of Rio Tinto Limited that limit the right of non residents to hold or vote Rio Tinto Limited shares.
     However acquisitions of interests in shares in Australian companies by foreign interests are subject to review and
approval by the Treasurer of the Commonwealth of Australia under the Foreign Acquisitions and Takeovers Act 1975 (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
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 account of the tax credit, produces a further tax liability of 25 per cent of the dividend 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
available 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 that
income, 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.

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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 residentsresident 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 and Rio Tinto Limited shares ‘the(‘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,organisation, 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, (‘the Code’) 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

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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 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.

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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 inheritance 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
In general, taking into account the earlier assumptions that each obligation of the Deposit Agreement and any related agreement will be performed according to its terms, 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 ADRs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to United States 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 discussionTaxation of US federal tax issues contained or referred to in this report or any document referred to herein is not intended or writtenDividends

to be used, and cannot be used by holders for the purpose of avoiding penalties that may be imposed on them underUnder 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 discussed
below, if you are a United States Holder, the gross amount of any dividend that we paythe Group pays out of ourits current or accumulated earnings and profits (as determined for USUnited States federal income tax purposes) is subject to United States federal income taxation. If you are a non-corporate United States Holder, dividends paid to you in taxable years beginning before January 1, 2011 that constitute qualified dividend income will be taxable to you at a maximum tax rate of 15% provided that, in the case of shares or ADSs, you hold the shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Dividends we pay with respect to the shares or ADSs will generally be treated asqualified dividend income for purposes of US Federal income tax. Inincome.
You must include any Australian tax withheld from the case of Rio Tinto Limited, the income will be the net dividend plus,payment in the event of a dividend being subject to withholding tax, the withholding tax.this gross amount even though you do not in fact receive it. 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 The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received deduction allowedfrom other United States corporations. The amount of the dividend distribution that you must include in your income as a United States Holder will be the U.S. dollar value of the non-U.S. dollar payments made, determined at the spot UK pound/U.S. dollar rate (in the case of Rio Tinto plc) or the spot Australian dollar/U.S. dollar (in the case of Rio Tinto Limited) on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to US corporations.the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for USUnited States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the shares or ADSs and thereafter as capital gain.

     DividendsSubject to certain limitations, any Australian tax withheld in accordance with the Australia-United States Tax Treaty and paid by Qualified Foreign Corporations (QFCs)over to Australia will be creditable or deductible against your United States federal income tax liability.

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Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to athe maximum rate of income15% 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.rate.

     Dividends will be income from sources outside the US, but dividendsUnited States. 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 theyour 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

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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’s quantitative and qualitative disclosures about market risk, its policies for currency, interest rate and commodity price exposures, and the use of derivative financial instruments are discussed in the Operating and financial reviewreport on pages 76100 to 81. In addition, the Group’s quantitative and qualitative disclosures about market risk are set out in Note 32 to the 2006 financial statements.107. The discussion regarding market risk contains certain forward looking statements and attention is drawn to the Cautionary statement on page 6.7.

Item 12.Description of Securities other than Equity Securities

Not applicable.

 

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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

There are no material modifications to the rights of security holders.

Item 15.Controls and Procedures

Disclosure controls and procedures
The Group maintains disclosure controls and procedures as such term is defined in Exchange Act Rule 13a-15(e). 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 pursuant to Exchange Act Rule 13a-15(b) as of 31 December 2006the end of the period covered by this report and have concluded that these disclosure controls and procedures were effective to provideat a reasonable assurance that the information it is required to disclose is reported fairly as and when required.level.

Management’s report on internal control over financial reporting
The common management of each of Rio Tinto plc and Rio Tinto Limited is responsible for establishing and
maintaining 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 regarding 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.IFRS.
Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance, and may not prevent or detect all misstatements whether caused by error or fraud, if any, within each of Rio Tinto plc and Rio Tinto Limited.
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.
     Management conducted an assessment of the effectiveness of internal control over financial reporting as of 31 December 2006, based on the
Internal 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 authorisationauthorisations of managementmanagemement and the directors of each of the Companies; and provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the Company’sGroup’s assets that could have a material effect on our financial statements.
Management conducted an assessment of the effectiveness of internal control over financial reporting as of 31 December 2007, based on theInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and concluded that it was effective.
Our independent registered public accounting firms, PricewaterhouseCoopers LLP and PricewaterhouseCoopers, the auditors of Rio Tinto plc and Rio Tinto Limited respectively, have auditedindependently assessed the 2006 financial statements, and have also audited management’s assessmenteffectiveness of the Group's internal controlscontrol over financial reporting and the internal controls over financial reporting as of 31 December 2006 andreporting. They have issued theiran attestation report, which is included herein.on page A-73 of this Annual report on Form 20-F.

Changes in internal control over financial reporting
There has beenwere no changechanges in Rio Tinto’sthe internal controlcontrols over financial reporting that occurred during the year ended 31 December 2006period covered by this Annual report on Form 20-F that hashave materially affected or isare reasonably likely to materially affect Rio Tinto’sthe internal controlcontrols over financial reporting.reporting of each of Rio Tinto plc and Rio Tinto Limited.

Item 16A.

Audit Committee Financial Expert

See Corporate governance on page 128151 for information regarding the identification of theAudit committeefinancialexpert.

 

Rio Tinto 2006 2007Form 20-F147169

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Item 16B.Code of Ethics

The way we work, Rio Tinto’s statement of business practice, summarises the Group’s principles and policies for all directors and employees.
     The way we workand the supplementary guidance documents are discussed more fully under Corporate
governance on pages 122145 to 130 and in Group society and environment on pages 71 to 74.152. They can be viewed on Rio Tinto’s website: www.riotinto.com and will be provided to any person without charge upon written request received by one the company secretaries.

Item 16C.

Principal Accountant Fees and Services

The remuneration of the Group’s principal auditors including audit fees, audit related fees, tax fees and all other fees, as well as remuneration payable to other accounting firms, has been set out in note 4144 to the 2006 financial statements.2007 Financial statements.
     
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 taxpursuant to legislation, taxation services and certain limited other services are pre approved. EachAny engagement of the Group’s principal auditors to provide other permitted services is subject to the specific approval of theAudit committeeor its chairman.
     Prior to the commencement of each financial year the Group’s Financefinance director and its principal auditors submit
to theAudit committeea schedule of the types of services that are expected to be performed during the following yearfor its approval. TheAudit committeemay impose a US dollar limit on the total value of other permitted services that can be provided. Any non audit service provided by the Group’s principal auditors, where the expected fee exceeds apre determined level, must be subject to the Group’s normal tender procedures. However, in
In exceptional circumstances the Financefinance 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 $250,000US$250,000 then the chairman of the auditAudit committeemust approve the engagement.
     
TheAudit committeehas adopted policies for the pre approval of permitted services provided by the Group’s principal auditors. Engagementsauditors during 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 theAudit committee. The directors are satisfied that the provision of non audit services by PricewaterhouseCoopers in accordance with this procedure is compatible with the general standard of independence for auditors imposed by relevant regulations, including the Australian Corporations Act 2001.

Item 16D.

Exemptions from the Listing Standards for Audit Committees

Not applicable.

Rio Tinto 2007Form 20-F170

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Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 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 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 














 
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 6,600,000 231,099 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 Apr2,464,008 61.02 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 30 Jun2,475,000 76.17 2,475,000 62,610 81.63  1,729 
1 Jul to 31 Jul2,190,000 80.63 2,190,000 17,301 86.42   
1 Aug to 31 Aug   5,160 75.47   
1 Sep to 30 Sep137,859 73.75  471,422 82.02   
1 Oct to 31 Oct   17,453 95.78   
1 Nov to 30 Nov   276,005 105.19   
1 Dec to 31 Dec   6,981 127.04   














 
Total28,151,867 59.50 27,700,000 1,977,980 84.87   














 
2008              
1 Jan to 31 Jan   283,994 106.59   
1 Feb to 28 Feb   499,215 120.57   
1 Mar to 20 Mar   79,472 58.37   














 
Rio Tinto 2006 Form 20-F148

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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 














 
 
Notes
1.Rio Tinto plc ordinary shares of 10p each; Rio Tinto Limited shares.
2.The average prices paid have been translated into US dollars at the exchange 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.
4.The share buy back programme was discontinued on 12 July 2007 on the announcement of Rio Tinto’s recommended all cash offer to acquire all of the outstanding common shares in Alcan Inc.

No further shares were bought back between 1 January 2008 and 20 March 2008. During this period, Rio Tinto plc issued 70,244 shares in connection with employee share plans, and reissued 467,697 ordinary shares from treasury and Rio Tinto Limited’s registrars purchased on market and delivered 810,663 shares.
Awards over 2,195,740 Rio Tinto plc ordinary shares and 1,932,977 Rio Tinto Limited shares were granted in connection with employee share plans during 2007, and as at 20 March 2008 there were options outstanding over 7,227,437 Rio Tinto plc ordinary shares and 5,959,274 Rio Tinto Limited shares. Upon exercise, options may be satisfied by the issue of new shares, the purchase of shares on market, or, in the case of Rio Tinto plc, from treasury shares.
     There were no changes to the authorised capital of Rio Tinto plc during the year.

Rio Tinto 2007Form 20-F171

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PART III

Item 17.Financial Statements

Not applicable.

Item 18.Financial Statements

The 2006 financial2007 Financial statements of the Rio Tinto Group and the separate 2006 financial2007 Financial statements of Minera EscondidaLimitadaEscondida Limitada (Rio Tinto: 30 per cent), which exceeded certain tests of significance under Rule 3-09 of Regulation S-X, are included as the “A” pages in this annualAnnual report on Form 20-F.

Item 19.Exhibits

Exhibits marked “*” have been filed as exhibits to this annualAnnual report on Form 20-F and other exhibits have been incorporated by reference as indicated.

INDEX

Exhibit 
NumberDescription
  
1.1*1.1Memorandum and Articles of Association 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*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, 29 April 2005 and 27 April 2007)
2.1Facility Agreement, dated 12 July 2007, among Rio Tinto, Credit Suisse, Deutsche Bank AG, London Branch, The Royal Bank of Scotland plc, and Societe Generale (incorporated by reference to Exhibit (b)(1) to the Schedule TO-T filed by Rio Tinto plc and Rio Tinto Canada Holding Inc. on 24 July 2007, 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 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 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)

Rio Tinto 2006Form 20-F4.01*149

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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 (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 2003, File No. 1-10533)
4.07Service Agreement dated 12 April 20064 May 2007 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 the financial year ended 31 December 2005, File No. 1-10533)
4.08 *4.02*Memorandum effective 1 March 20072008 to Service Agreement dated 12 April 2006 between Mr T Albanese and Rio Tinto London Limited
4.094.03Service 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)
4.104.04Supplemental letter dated 30Memorandum effective 1 March 20042007 to Service Agreement dated 30 March 2004 between Mr R L Clifford and Rio Tinto Limited (incorporated by reference to Exhibit 4.234.13 of Rio Tinto plc's Annual report on Form 20-F for the financial year ended 31 December 2004,2006, File No. 1-10533)
4.11Memorandum 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 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)
4.13*Memorandum effective 1 March 2007 to Service Agreement dated 30 March 2004 between Mr R L Clifford and Rio Tinto Limited
4.144.05Service 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 (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)
4.17Memorandum 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 Form 20-F for the financial year ended 31 December 2004, File No. 1-10533)
4.18Memorandum 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 financial year ended 31 December 2005, File No. 1-10533)
4.19*4.06*Memorandum effective 1 March 20072008 to Service Agreement dated 19 June 2002 between Mr G R Elliott and Rio Tinto London Limited

4.20Rio Tinto 2007 Form 20-FMining Companies Comparative172

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4.07*Service Agreement dated 25 October 2007 between Mr R B Evans and Rio Tinto plc
4.08*Novation dated 29 January 2008 of Service Agreement dated 25 October 2007 between Mr R B Evans and Rio Tinto plc to Rio Tinto London Limited
4.09*Memorandum effective 1 March 2008 to Service Agreement dated 25 October 2007 between Mr R B Evans and Rio Tinto London Limited
4.10Rio Tinto plc - Share Option Plan 2004 (incorporated by reference to Exhibit 4.654.3 of Rio Tinto plc's Annual reportTinto’s Registration statement on Form 20-F for the financial year ended 31 December 2000,S-8, File No. 1-10533)333-147914)
4.214.11Share OptionRio Tinto plc - Mining Companies Comparative Plan 2004 (incorporated by reference to Exhibit 4.664.4 of Rio Tinto plc's Annual reportTinto’s Registration statement on Form 20-F for the financial year ended 31 December 2000,S-8, File No. 1-10533)333-147914)
4.224.12Rio Tinto Limited - Share Option Plan 2004 (incorporated by reference to Exhibit 4.6 of Rio Tinto’s Registration statement on Form S-8, File No. 333-147914)
4.13Rio Tinto Limited - Mining Companies Comparative Plan 2004 (incorporated by reference to Exhibit 4.7 of Rio Tinto’s Registration statement on Form S-8, File No. 333-147914)
4.14Medical 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)
4.234.15Pension 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)

Rio Tinto 2006Form 20-F150

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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 iscertifications are not deemed filed for purpose of Section 18 of the Exchange Act and not incorporated by reference within 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 and effectiveness of internal control over financial reporting of 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.

 

Rio Tinto 20062007 Form 20-F151173

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SIGNATURE

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

Rio Tinto plc Rio Tinto Limited
(Registrant) (Registrant)
   
   
   
   
/s/ Anette LawlessBen Mathews /s/ Anette LawlessBen Mathews
Name:Anette LawlessBen Mathews Name:Ben MathewsAnette Lawless
Title: Secretary Title: Assistant Secretary
   
Date: 27 June 200731 March 2008 Date: 27 June 200731 March 2008

 

Rio Tinto 20062007 Form 20-F152174

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GLOSSARY

NON MINING DEFINITIONS

Throughout this document, the collective expressions Rio Tinto, Rio Tinto Group and Group are used for convenienceonly.convenience only. 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 owninvestments,own investments, all of which are separate and distinct legal entities.

Unless the context indicates otherwise, the following terms have the meanings shown below:

Adjusted earnings An additional measure of earnings reported by Rio Tinto with its UK GAAP results which excludes exceptional items of such magnitude that their exclusion is necessary to reflect the underlying performance of the Group.
ADR American Depositary Receipt evidencing American Depositary Shares (ADS).
Australian dollars Australian currency. Abbreviates to A$.
Australian GAAP Generally accepted accounting principles in Australia.
A IFRSAIFRS International Financial Reporting Standards as adopted in Australia.
Billion One thousand million.
Canadian dollars Canadian currency. Abbreviates to C$.
Company / Company/Companies Rio Tinto plc and/or Rio Tinto Limited, as the context so requires.
DLC merger Dual listed companies merger (1995).

EU IFRS

International Financial Reporting Standards as adopted by the European Union.

IFRS

 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 the 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 Rio Tinto Limited, and, where the context permits, its subsidiaries and associated companies.
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 LimitedThe agreement, dated 21 December 1995, between Rio Tinto plc, Rio Tinto Limited, RTL
Shareholder Voting AgreementShareholder SVC Limited and the Law Debenture Trust Corporation p.l.c. relating to the voting rights of the Rio Tinto plc Special Voting Share at meetings of shareholders of Rio Tinto plc.
Rio Tinto Limited shares share 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 /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 Group 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 AgreementThe agreement, dated 21 December 1995, between Rio Tinto plc, Rio Tinto AustralianHoldings Limited, RTP Shareholder SVC Pty Limited, Rio Tinto Limited and the Law Debenture Trust Corporation p.l.c. relating to the voting rights of the Rio Tinto Limited shares held by the Rio Tinto plc 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.
Rio Tinto plc / plc/
RTP DLC Dividend Share
The DLC Dividend Share of 10p in Rio Tinto plc.
Rio Tinto plc/
RTP Special Voting Share
 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 plc relating to the regulation of the relationship between Rio Tinto Limited and Rio Tinto plc following the DLC merger.

Rio Tinto 2007Form 20-F175

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NON MINING DEFINITIONS (continued)

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 or 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 the 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 shaped 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 which aluminium 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 and 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 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, which involves separating ore minerals from unwanted waste rock. Concentrates require subsequent processing (such as smelting or leaching) to break down or dissolve the ore minerals and obtain the desired elements, usually metals.
Cutoff grade The lowest grade of mineralised material considered economic to process. It is used in the calculation 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 is 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 fresh water that a ship can carry.
Flotation A method of separating finely ground minerals using a froth created in water by specific reagents. In the flotation process certain mineral particles are induced to float by becoming attached to bubbles of 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 this document as per cent, grammesgrams 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 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 coking coal.
Ore A rock from which a metal(s) or mineral(s) can be economic allyeconomically 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.
Pressure oxidation A method of treating sulphide ores. In the case of refractory gold ores, the object is to oxidise the sulphides to sulphates and hence liberate the gold for subsequent cyanide leaching. The technique involves reaction of the ore with sulphuric acid under pressure in the presence of oxygen gas.

 

Rio Tinto 2006 2007Form 20-F154176

Back to Contents

MINING AND TECHNICAL DEFINITIONS (continued)

Probable ore reserves Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.
Proven ore reserves Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well 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 only 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 electrical 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 into solution; the resulting solution is then purified in the solvent extraction process; the solution is then treated in an electro-chemical process (electro-winning) to recover cathode copper.
TailingsTailing The rock wastes which are rejected from a concentrating process after the recoverable valuable minerals have been extracted.
Titanium dioxide feedstock A feedstock rich in titanium dioxide, produced, in Rio Tinto’s case, by smelting ores containing titanium minerals.
Zircon Zirconium mineral (ZrSiO4).
 
CONVERSION OF WEIGHTS AND MEASURES
   
  1 troy ounce = 31.1 grams
  1 kilogram = 32.15 troy ounces
  1 kilogram = 2.2046 pounds
  1 metric tonne = 1,000 kilograms
  1 metric tonne = 2,204.6 pounds
  1 metric tonne = 1.1023 short tons
  1 short ton = 2,000 pounds
  1 long ton = 2,240 pounds
  1 gram per metric tonne = 0.02917 troy ounces per short ton
  1 gram per metric tonne = 0.03215 troy ounces per metric tonne
  1 kilometre = 0.6214 miles

Rio Tinto 2007Form 20-F177

Back to Contents

EXCHANGE RATES

The following table shows,tables show, 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                     Australian dollars         
Year ended 31 December Period Average High Low Year ended 31 December Period Average High Low Period Average High Low Year ended 31 December Period Average High Low 
 end rate          end rate       end rate       end rate    


 
 
20071.99 2.00 2.11 1.92 2007 0.878 0.839 0.937 0.772 
2006 1.96 1.84 1.98 1.72 2006 0.788 0.753  0.791  0.706 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 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 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 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 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.

FINANCIAL CALENDAR
16 January 2008Fourth quarter 2007 operations review
13 February 2008Announcement of results for 2007
20 February 2008Rio Tinto plc and Rio Tinto Limited shares and Rio Tinto plc ADRs quoted “ex-dividend” for 2007 final dividend
22 February 2008Record date for 2007 final dividend for Rio Tinto plc shares and ADRs
26 February 2008Record date for 2007 final dividend for Rio Tinto Limited shares
19 March 2008Plan notice date for election under the dividend reinvestment plan for the 2007 final dividend
11 April 2008Payment date for 2007 final dividend to holders of Ordinary shares
14 April 2008Payment date for 2007 final dividend for holders of Rio Tinto plc ADRs
16 April 2008First quarter 2008 operations review
17 April 2008Annual general meeting for Rio Tinto plc
24 April 2008Annual general meeting for Rio Tinto Limited
16 July 2008Second quarter 2008 operations review
26 August 2008Announcement of half year results for 2008
3 September 2008Rio Tinto plc and Rio Tinto Limited shares and Rio Tinto plc ADRs quoted “ex-dividend” for 2008 interim dividend
5 September 2008Record date for 2008 interim dividend for Rio Tinto plc shares and ADRs
9 September 2008Record date for 2008 interim dividend for Rio Tinto Limited shares
11 September 2008Plan notice date for election under the dividend reinvestment plan for the 2008 interim dividend
2 October 2008Payment date for 2008 interim dividend to holders of Ordinary shares
3 October 2008Payment date for 2008 interim dividend for holders of Rio Tinto plc ADRs
15 October 2008Third quarter 2008 operations review
January 2009Fourth quarter 2008 operations review
February 2009Announcement of results for 2008

 

Rio Tinto 20062007 Form 20-F155178

20062007 Financial statements

CONTENTS

ContentsPage
 
Page
Primary financial statements
Group income statementA-2
Group cash flow statementA-3
Group balance sheetA-4
A-5
Reconciliation with Australian IFRSA-5A-6
A-6
  
Notes to the 2006 financial2007 Financial statements
Note 1 - Principal accounting policiesA-7
  
Group income statement
Note 2 -2 – Reconciliation of net earnings to underlying earningsA-17
Note 3 -3 – Net operating costsA-18A-17
Note 4 -4 – Employment costsA-18
Note 5 -5 – Impairment (charges)/reversals and chargesA-19A-18
Note 6 -6 – Share of profit after tax of equity accounted unitsA-19
Note 7 -7 – Interest receivable and payableA-19
Note 8 – Tax on profitA-19
Note 9 – Earnings per ordinary shareA-20
Note 8 -Tax on profitA-20
Note 9 -Earnings per ordinary share10 – DividendsA-21
Note 10 -DividendsA-22
  
Group balance sheet
Note 11 -11 – GoodwillA-22
Note 12 – Intangible assetsA-23
Note 12-Intangible assets13 – Property, plant and equipmentA-24
Note 13 -Property, plant and equipment14 – Investments in equity accounted unitsA-25
Note 14 -Investments in15 – Net debt of equity accounted unitsA-25
Note 16 – InventoriesA-25
Note 17 – Trade and other receivablesA-26
Note 15 -Net debt of equity accounted units (excluding amounts due to Rio Tinto)18 – Deferred taxationA-27
Note 16 -InventoriesA-27
Note 17 -Trade and other receivablesA-31
Note 18 -Deferred taxation19 – Assets held for saleA-28
Note 19 -20 – Other financial assetsA-28
Note 21 – Cash and cash equivalentsA-28
Note 22 – BorrowingsA-29
Note 20 -Cash and cash equivalentsA-29
Note 21 -BorrowingsA-30
Note 22 -23 – Capitalised finance leasesA-30
Note 23 -24 – Consolidated net debtA-30
Note 24 -25 – Trade and other payablesA-31
Note 25 -26 – Other financial liabilitiesA-31
Note 26 -27 – Provisions (not including taxation)A-32
  
Page
Capital and reserves
Note 27 -28 – Share capital – Rio Tinto plcA-33
Note 28 -29 – Share capital Rio Tinto LimitedA-34A-33
Note 29 -30 – Changes in equity, share premium and reservesA-35A-34
  
Additional disclosures
Note 30 -31 – Primary segmental analysis (by product group)A-37A-36
Note 31 -32 – Secondary segmental analysis (by geographical segment)A-40A-38
Note 32 -33 – Financial instrumentsrisk managementA-41A-39
Note 33 -34 – Financial instrumentsA-44
Note 35 – Contingent liabilities and commitmentsA-50
Note 34 -36 – Average number of employeesA-51
Note 35 -37 – Principal subsidiariesA-52
Note 36 -38 – Principal jointly controlled entitiesA-53
Note 37 -39 – Principal associatesA-53A-54
Note 38 -40 – Principal jointly controlled assets and other proportionally consolidated unitsA-54
Note 39 -Sales41 – Purchases and purchasessales of subsidiaries, joint ventures, associates and other interests in businessesA-55
Note 40 -Directors’ and key management remuneration42 – Sales agreements after the balance sheet dateA-56
Note 41 -Auditors’43 – Directors’ and key management remunerationA-57
Note 42 -Related party transactions44 – Auditors’ remunerationA-58
Note 43 -Exchange rates in US$A-58
Note 44 -Bougainville Copper Limited (BCL)A-58
Note 45 -Share based payments– Related party transactionsA-59
Note 46 -46 – Exchange rates in US$A-59
Note 47 – Bougainville Copper Limited (BCL)A-59
Note 48 – Share based paymentsA-60
Note 49 – Post retirement benefitsA-63A-65
Note 47 -Financial50 – Rio Tinto financial information by business unitA-67
Note 48 -Reconciliation to US Accounting PrinciplesA-69
  
Australian Corporations Act - Summary of ASIC relief
A-87A-72
Report of independent registered public accounting firms
A-73


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Group income statement
Years ended 31 December
  
    2007 2006 2005 
  Note US$m US$m US$m 










 Consolidated sales revenue  29,700 22,465 19,033 
 Net operating costs (excluding line items shown separately)3 (20,752)(13,655)(12,186)
 Impairment (charges)/reversals5 (58)396 3 
 Profit on disposal of interests in businesses  2 5 322 
 Exploration and evaluation costs (a)12 (321)(237)(250)










 Operating profit  8,571 8,974 6,922 
 Share of profit after tax of equity accounted units6 1,584 1,378 776 










 Profit before finance items and taxation  10,155 10,352 7,698 
 Finance items     
 Net exchange gains/(losses) on external net debt and intragroup balances24 194 46 (128)
 Net gains/(losses) on currency and interest rate derivatives not qualifying for hedge accounting  57 35 (51)
 Interest receivable and similar income7 134 106 82 
 Interest payable and similar charges7 (538)(160)(173)
 Amortisation of discount  (166)(139)(116)










    (319)(112)(386)










 Profit before taxation  9,836 10,240 7,312 
 Taxation8 (2,090)(2,373)(1,814)










 Profit for the year  7,746 7,867 5,498 










 – attributable to outside equity shareholders  434 429 283 
 – attributable to equity shareholders of Rio Tinto (Net earnings)  7,312 7,438 5,215 










          
 Basic earnings per ordinary share9 568.7c557.8c382.3c
 Diluted earnings per ordinary share9 566.3c555.6c381.1c
          
 Dividends paid during the year (US$m)10 1,507 2,573 1,141 
 Dividends per share: paid during the year��    
 – regular dividends10 116.0c81.5c83.5c
 – special dividend10  110.0c 
 Dividends per share: proposed in the announcement of the results for the year     
 – final dividends – regular10 84.0c64.0c41.5c
 – final dividends – special10   110.0c










Report
(a)Exploration and evaluation costs are stated net of Independent Registered Public Accounting FirmsA-88gains on disposal of undeveloped properties totalling US$253 million (2006: US$46 million; 2005: nil)

A-1


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Group income statement
Years ended 31 December

  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 notes on pages A-7 to A-68A-71 form part of these accounts. Material variations from accounting principles generally accepted in the United States are set out on pages A-69 A-86.

A-2



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Group cash flow statement
Years ended 31 December

  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 







 

Group cash flow statement
Years ended 31 December
    2007 2006 2005 
  Note US$m US$m US$m 










 Cash flow from consolidated operations (a)  10,805 9,196 7,431 
 Dividends from equity accounted units  1,764 1,727 600 










 Cash flow from operations  12,569 10,923 8,031 
 Net interest paid  (489)(128)(128)
 Dividends paid to outside shareholders  (168)(193)(169)
 Tax paid  (3,421)(2,799)(1,017)










 Cash flow from operating activities  8,491 7,803 6,717 
       
 Cash used in investing activities     
 (Acquisitions) less disposals of subsidiaries, joint ventures and associates41 (37,526)(279)321 
 Purchase of property, plant and equipment and intangible assets  (5,000)(3,992)(2,590)
 Sales of financial assets  49 293 133 
 Purchases of financial assets  (273)(167)(231)
 Other investing cash flows  8 56 110 










 Cash used in investing activities  (42,742)(4,089)(2,257)
          
 Cash flow before financing activities  (34,251)3,714 4,460 
       
 Cash from/(used in) financing activities     
 Equity dividends paid to Rio Tinto shareholders  (1,507)(2,573)(1,141)
 Own shares purchased from Rio Tinto shareholders  (1,624)(2,370)(877)
 Proceeds from issue of ordinary shares in Rio Tinto  13 31 100 
 Additional borrowings  39,195 483 388 
 Repayment of borrowings  (1,034)(1,102)(893)
 Other financing cash flows  54 142 12 










 Cash from/(used in) financing activities  35,097 (5,389)(2,411)










 Effects of exchange rates on cash and cash equivalents  (27)30 (8)










 Net increase / (decrease) in cash and cash equivalents  819 (1,645)2,041 










 Opening cash and cash equivalents less overdrafts  722 2,367 326 










 Closing cash and cash equivalents less overdrafts21 1,541 722 2,367 










       
(a)Cash flow from consolidated operations     
 Profit for the period  7,746 7,867 5,498 
 Adjustments for:     
  Taxation  2,090 2,373 1,814 
  Finance items  319 112 386 
  Share of profit after tax of equity accounted units  (1,584)(1,378)(776)
  Depreciation and amortisation  2,115 1,509 1,338 
  Profit on disposal of interests in businesses  (2)(5)(322)
  Impairment charges/(reversals)5 58 (396)(3)
  Provisions27 308 60 202 
 Utilisation of provisions27 (162)(194)(52)
 Utilisation of provision for post retirement benefits  (121)(77)(209)
 Change in inventories  130 (454)(249)
 Change in trade and other receivables  (385)(394)(530)
 Change in trade and other payables  375 116 303 
 Other items  (82)57 31 










    10,805 9,196 7,431 










The notes on pages A-7 to A-68A-71 form part of these accounts. Material variations from accounting principles generally accepted in the United States are set out on pages A-69 A-86.

A-3



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Group balance sheet
At 31 December

  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 





 

 Group balance sheet
At 31 December
        
    2007 2006 
   Note US$m US$m 








 Non-current assets      
 Goodwill11 15,497 841 
 Intangible assets12 7,910 384 
 Property, plant and equipment13 45,647 22,207 
 Investments in equity accounted units14 7,038 2,235 
 Loans to equity accounted units  245 136 
 Inventories16 178 99 
 Trade and other receivables17 1,862 983 
 Deferred tax assets18 585 225 
 Tax recoverable  6 135 
 Other financial assets20 580 374 








    79,548 27,619 
 Current assets      
 Inventories16 5,382 2,540 
 Trade and other receivables17 6,479 2,938 
 Assets held for sale19 7,024  
 Loans to equity accounted units  117 15 
 Tax recoverable  250 79 
 Other financial assets20 946 567 
 Cash and cash equivalents21 1,645 736 








    21,843 6,875 
 Current liabilities      
 Bank overdrafts repayable on demand21 (104)(14)
 Borrowings22 (8,109)(1,490)
 Trade and other payables25 (6,667)(2,693)
 Liabilities of disposal groups held for sale19 (2,632) 
 Other financial liabilities26 (878)(193)
 Tax payable  (494)(1,024)
 Provisions27 (783)(366)








    (19,667)(5,780)








 Net current assets  2,176 1,095 








 Non-current liabilities      
 Borrowings22 (38,614)(2,007)
 Trade and other payables25 (503)(362)
 Other financial liabilities26 (496)(233)
 Tax payable  (66)(86)
 Deferred tax liabilities18 (6,486)(2,339)
 Provision for post retirement benefits27 (3,195)(770)
 Other provisions27 (6,040)(3,532)








    (55,400)(9,329)








 Net assets  26,324 19,385 








 Capital and reserves      
 Share capital      
 – Rio Tinto plc28 172 172 
 – Rio Tinto Limited (excl. Rio Tinto plc interest)29 1,219 1,099 
 Share premium account30 1,932 1,919 
 Other reserves30 2,416 641 
 Retained earnings30 19,033 14,401 








 Equity attributable to Rio Tinto shareholders30 24,772 18,232 
 Attributable to outside equity shareholders30 1,552 1,153 








 Total equity  26,324 19,385 








The notes on pages A-7 to A-68A-71 form part of these accounts. Material variations from accounting principles generally accepted in the United States are set out on pages A-69 A-86.

A-4



Back to Contents

Group 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 IFRS
The Group’s financial statements have been prepared in accordance with IFRS as adopted by the European Union ('EU IFRS') which differs in certain respects from the 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. Under EU IFRS, goodwill on acquisitions prior to 1998, which was eliminated directly against equity in the Group's UK GAAP financial statements, has not been reinstated. 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 netting of goodwill against equity. As a consequence, shareholders' funds under Australian IFRS include the residue of such goodwill, which amounted to US$740 million at 31 December 2006 (US$743 million at 31 December 2005).

Save for the exception described above, the Group's financial statements drawn up in accordance with EU IFRS are consistent with the requirements of Australian IFRS.

 Group statement of recognised income and expense (SORIE)
        
  Attributable   Year to 31 
  to   December 
  shareholders Outside 2007 
  of Rio Tinto Interests Total 
  US$m US$m US$m 








 Currency translation adjustment1,886 135 2,021 
 Cash flow hedge fair value losses(201)(223)(424)
 Gains on available for sale securities49 2 51 
 Cash flow hedge losses transferred to the income statement89 76 165 
 Gains on available for sale securities transferred to the income statement(16) (16)
 Actuarial gains on post retirement benefit plans135 6 141 
 Net tax recoverable recognised directly in equity153 40 193 








 Net income recognised directly in equity2,095 36 2,131 
 Profit after tax for the year7,312 434 7,746 








 Total recognised income for the year9,407 470 9,877 








        
  Attributable   Year to 31 
  to   December 
  shareholders Outside 2006 
  of Rio Tinto Interests Total 
  US$m US$m US$m 








 Currency translation adjustment824 42 866 
 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)
 Actuarial gains on post retirement benefit plans338 35 373 
 Net tax recoverable recognised directly in equity19 83 102 








 Net income recognised directly in equity1,076 39 1,115 
 Profit after tax for the year7,438 429 7,867 








 Total recognised income for the year8,514 468 8,982 








        
  Attributable   Year to 31 
  to   December 
  shareholders Outside 2005 
  of Rio Tinto Interests 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 recoverable recognised directly in equity56 1 57 








 Net income recognised directly in equity(338)(64)(402)
 Profit after tax for the year5,215 283 5,498 








 Total recognised income for the year4,877 219 5,096 








The notes on pages A-7 to A-68A-71 form part of these accounts. Material variations from accounting principles generally accepted in the United States are set out on pages A-69 A-86.

A-5



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Outline of dual listed companies structure and basis of financial statements

The Rio Tinto Group
These are the financial statements of the Rio Tinto Group (the 'Group'), formed through 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 in accordance with both United Kingdom and Australian legislation and regulations.

Reconciliation with Australian IFRS
The Group’s financial statements have been prepared in accordance with IFRS as adopted by the European Union (‘EU IFRS’), which differs in certain respects from the 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. Under EU IFRS, goodwill on acquisitions prior to 1998, which was eliminated directly against equity in the Group’s UK GAAP financial statements, has not been reinstated. 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 netting of goodwill against equity. As a consequence, shareholders’ funds under Australian IFRS include the residue of such goodwill, which amounted to US$736 million at 31 December 2007 (2006: US$740 million).
Save for the exception described above, the Group’s financial statements drawn up in accordance with EU IFRS are consistent with the requirements of Australian IFRS.
Outline of dual listed companies structure and basis of financial statements
The Rio Tinto Group
These are the financial statements of the Rio Tinto Group (the ‘Group’), formed through 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 in accordance with both United Kingdom and Australian legislation and regulations.
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'(‘DLC’) merger. This was effected by contractual arrangements between the companies and amendments to Rio Tinto plc'splc’s Memorandum and Articles of Association and Rio Tinto Limited'sLimited’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 companies 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 of economic interests of Rio Tinto plc and Rio Tinto Limited was 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 did not restate business combinations that occurred before the transition date of 1 January 2004. As a result, the DLC merger of economic interests described above continues to be accounted for as a merger under EU IFRS.
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 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. 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 shareholders in that single company). As a result the amounts attributable to both Rio Tinto plc and Rio Tinto Limited public shareholders are included in the amounts attributed to equity shareholders on the balance sheet, income statement and statement of recognised income and expense.

Accounting standards
The financial statements have been drawn up in accordance with International Financial Reporting Standards both as adopted by the European Union (‘EU IFRS’) and as issued by the International Accounting Standards Board (‘IFRS’). The merger of economic interests of Rio Tinto plc and Rio Tinto Limited was 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 did not restate business combinations that occurred before the transition date of 1 January 2004. As a result, the DLC merger of economic interests described above continues to be accounted for as a merger under EU IFRS.
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 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. 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 shareholders in that single company). As a result the amounts attributable to both Rio Tinto plc and Rio Tinto Limited public shareholders are included in the amounts 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'(‘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'(‘EU IFRS’); and
to include a reconciliation from EU IFRS to the Australian equivalents of IFRS (see page A-5)A-6).
For further details of the ASIC Class Order relief see page A-87.A-72

Elimination of Separate financial statements


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 IFRS. Accordingly, the Group is following the same method of accounting for the DLC in its 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 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.

A-6


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Notes to the 2006 financial2007 Financial statements

1PRINCIPAL ACCOUNTING POLICIES

The basis of preparation and accounting policies used in preparing the financial statements for the year ended 31 December 2006 are set out below.
The financial statements are prepared in accordance with International Financial Reporting Standards adopted by the EU ('EU IFRS'). These standards are subject to Interpretations issued from time to time by the International Financial Reporting Interpretations Committee (‘IFRIC’).

The basis of preparation and accounting policies used in preparing the financial statements for the year ended 31 December 2007are set out below.
The financial statements are prepared in accordance with International Financial Reporting Standards both as adopted by the EU (‘EU IFRS’) and as issued by the International Accounting Standards Board (‘IFRS’). These standards are subject to Interpretationsissued from time to time by the International Financial Reporting Interpretations Committee (‘IFRIC’).
Basis of preparation
The financial statements for the year ended 31 December 20062007 have been prepared on the basis of all IFRSs and Interpretations adoptedInterpretationsadopted by the European Union that are mandatory for periods ending 31 December 20062007 and in accordance with applicable UnitedapplicableUnited Kingdom law, applicable Australian law as amended by the Australian Securities and Investments Commission Orde datedOrderdated 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 2005,2006, except for the following:
IFRS 7 ‘Financial Instruments: Disclosures’. This standard requires disclosures that enable users of the financial statements toevaluate the significance of the Group’s financial instruments and the nature and extent of risks arising from those financialinstruments. The new disclosures are primarily contained in note 33 to the financial statements. This standard does not have anyimpact on the classification and valuation of the Group’s financial instruments.
Amendment to IAS 1 ‘Presentation of Financial Statements’. This amendment requires the Group to make new disclosures toenable users of the financial statements to evaluate the Group’s objectives, policies and processes for managing capital. The newdisclosures are included within note 33.
the adoptionGroup has adopted weighted average cost as its method of IFRIC 4 'Determining whether an arrangement contains a lease'.

a change toinventory valuation. This method of inventory valuation is morewidely used by companies in the Group's policy on accounting for exploration and evaluation expenditure.mining industry. Previously, the Group capitalised exploration and evaluation expenditurevalued its inventories on acquisitionthe basis 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.
First In, First Out(“FIFO”). The effect of the above adjustmentsthis adjustment is not material to Group earnings or to shareholders'shareholders’ funds in the current or prior periods.periods.Therefore, prior period information has not been restated.
The following interpretations and standards were adopted in 2007:
IFRIC 8 ‘Scope of IFRS 2 – Share based payments’
IFRIC 9 ‘Reassessment of Embedded Derivatives’
IFRIC 10 ‘Interim Financial Reporting and Impairment’
IAS 23 ‘(Amendment) Borrowing Costs’
The effect of the above interpretations and standards is not material to Group earnings or to shareholders’ funds in the current or priorperiods. Therefore, prior period information has not been restated.
 
The Group has not applied the following pronouncements: those which are expected to be most relevant to the Group are IFRS 8 and IAS 27 (revised).
IFRS 8 Operating Segments – mandatory for year 2009. The segmental information reported under the standard is that which the chief operating decision maker uses internally for evaluating the performance of operating segments and allocating resources to those segments.
IAS 27 (revised) Consolidated and separate financial statements – mandatory for year 2009. The standard requires the effects of all increases or decreases in the ownership of subsidiaries to be recorded in equity if there is no change in control. They will therefore no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost.
IFRIC 11 (IFRS 2) Group and Treasury share transactions – mandatory for year 2008.
IFRIC 12 – Service concession arrangements – mandatory for year 2008.
IFRIC 14 (IAS 19) The limit on a defined benefit asset, minimum funding requirements and their interaction – mandatory foryear 2008.
IAS 1 Presentation of financial statements (revised) – mandatory for year 2009.
IFRS 3 (Amendment) Business combinations – mandatory for year 2009.
IFRS 2 (Amendment) Share based payment – Vesting conditions and cancellations – mandatory for year 2009.
The Group is evaluating the impact of the above pronouncements. The effect of the revision to IAS 27 will depend on the extent ofrelevant future transactions. Otherwise, the above changes are not expected to be material to the Group’s earnings or toshareholders’ funds.
Certain prior year information has been reclassified to conform with the current year presentation. Exploration and evaluationandevaluation costs charged against income were previously included in 'Cash‘Cash used in investing activities'activities’ but are now included within 'Cashincludedwithin ‘Cash flow from operating activities'activities’. As a result, exploration and evaluation costs expensed of US$226273 million and US$187 million have beenhavebeen reclassified in the comparative figures for 2005 and 2004 respectively,full year 2006, 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 estimatesandestimates are based on management'smanagement’s best knowledge of the relevant facts and circumstances, having regard to previous experience,previousexperience, but actual results may differ from the amounts included in the financial statements. Information about such judgementssuchjudgements and estimation is contained in the accounting policies and/or the Notes to the financial statements, and the key areas areareasare 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'(‘DLC’) structure (page A-6).
Estimation of asset lives, including those relating to newly acquired companies – note 1 (e and i).
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-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
2.

A-7



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Notes to the 2006 financial2007 Financial statements

1PRINCIPAL ACCOUNTING POLICIES CONTINUEDcontinued
  
Key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year are:
Revision of provisional fair values allocated on acquisition – note 1(b) and note 41.
Estimation of close down and restoration costs and the timing of expenditure - note 1(k) and note 2627.
Review of asset carrying values and impairment charges and reversals note 1(e) and (i), note 5 and note 1111.
Estimation of environmental clean up costs and the timing of expenditure - note 1(k) and note 2627.
Recoverability of potential deferred tax assets - note 1 (m) and note 18(d).
Estimation of liabilities for post retirement costs - note 4649.
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 2006,2007, and for the related comparative periods,period, 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'‘the Companies’) and their respective subsidiaries (together 'the Group'‘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. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Companies and their subsidiaries after eliminating intercompany balances, transactions and transactions.unrealised gains. For partly owned subsidiaries, the net assets and net earnings attributable to outside shareholders are presented as 'Amounts‘Amounts attributable to outside equity shareholders'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'sGroup’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'sGroup’s share of the associate'sassociate’s results less any impairment of goodwill and any other changes to the associate'sassociate’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. 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 joint venture partners. The Group has two types of joint venturesventures:
  
 Jointly controlled entities ('JCEs'(‘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 whichthat in substance form part of the Group'sGroup’s net investment.
  
 Jointly controlled assets ('JCAs'(‘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'sGroup’s proportionate interest in the assets, liabilities, revenues, expenses and cash flows of JCAs are incorporated into the Group'sGroup’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‘Equity accounted units'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.
  
Acquisitions
On the acquisition of a subsidiary, the purchase method of accounting is used whereby the purchase consideration is allocated to the identifiable assets, liabilities and contingent liabilities (identifiable net assets) of the subsidiary on the basis of fair value at the date of acquisition. Provisional fair values allocated at a reporting date are finalised within twelve months of the acquisition date.
 The results of businesses acquired during the year are brought into the consolidated financial statements from the date aton which control, joint control or significant influence commences and taken out of the financial statements from the date aton which control, joint control or significant influence ceases.
  
 From 1 January 2005, Disposals
Individual non-currentnon current assets or 'disposal groups' (i.e.‘disposal groups’ (ie groups of assets and liabilities) to be disposed of, by sale or otherwise in a single transaction, are classified as 'held‘held for sale'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.


A-8


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Notes to the 2006 financial2007 Financial statements

1PRINCIPAL ACCOUNTING POLICIES CONTINUEDcontinued
  
(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 presentedarepresented separately on the face of the balance sheet with the related assets and liabilities being presented as a single asset and aanda single liability respectively. Comparative balance sheet information is not restatedrestated. Disposal groups acquired with a view toresale are held at fair value determined at the acquisition date and no profits or losses are recognised between acquisition date anddisposal date.
  
 For a disposal group held for sale whichthat continues to be carried at its carrying amount, the profit on disposal, calculated as netnet salesproceeds less the carrying amount, is recognised in the income statement in the period during which completion ofcontrol passes to the sale takes place. buyer.Where the fair value less costs to sell of a disposal group is lower than the carrying amount, the resulting charge is recognisedrecognised inthe income statement in the period during which the disposal group is classified as held for sale. On classification as held for sale,forsale, the assets are no longer depreciated.
  
 If the disposal group or groups represent a separate major line of business or geographical area of operations, andor are part ofa single co-ordinatedcoordinated plan to dispose of disposala separate major line of business or geographical area of operations, or are subsidiaries acquired exclusivelyacquiredexclusively with a view to resale, they are classified as discontinued operations. The net results attributable to such discontinued operationsdiscontinuedoperations are shown separately and comparative figures in the income and cash flow statements are restated.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 revenuesalesrevenue where the Group is responsible for carriage, insurance and freight. All shipping and handling costs incurred by the Group areGroupare recognised as operating costs. If the Group is acting solely as an agent, amounts billed to customers are offset against therelevant costs. Revenue from services is recognised as services are rendered and accepted by the relevant costs.customer.
  
 Sales revenue excludes any applicable sales taxes. Mining royalties are presented as an operating cost or, where they are in substanceinsubstance 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-productCo-product revenues are included in sales revenue.revenue .
  
 A large proportion of Group production is sold under medium to long term contracts, but sales revenue is only recognised onindividual 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 thegoods 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 whenthe product is delivered to the destination specified by the customer, which is typically the vessel on which it will be shipped,shipped, thedestination port or the customer'scustomer’s premises.
  
 Sales revenue is commonly subject to adjustment based on an inspection of the product by the customer. In such cases, sales revenuesalesrevenue is initially recognised on a provisional basis using the Group'sGroup’s best estimate of contained metal, and adjusted subsequently.adjustedsubsequently.
  
 Certain products are 'provisionally priced'‘provisionally priced’, i.e.ie the selling price is subject to final adjustment at the end of a period normally rangingfrom 30 to 180 days after delivery to the customer, based on the market price at the relevant quotation point stipulated in thecontract.
Revenue on provisionally priced sales is recognised based on estimates of the fair value of the consideration receivable based onforward market prices. At each reporting date provisionally priced metal is marked to market based on the forward selling pricefor thequotational period stipulated in the contract. For this purpose, the selling price can be measured reliably for those products, such ascopper, for which there exists an active and freely traded commodity market such as the London Metals Exchange and the value of productofproduct 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 primaryeconomic environment in which it operates. For mostmany entities, this is the currency of the country in which it operates. Transactions they operate. Transactionsdenominated in other currencies are converted to the functional currency at the exchange rate ruling at the date of the transaction unlesstransactionunless hedge accounting applies. Monetary assets and liabilities denominated in foreign currencies are retranslated at year end exchangeendexchange rates.
   
 The US dollar is the currency in which the Group'sGroup’s Financial statements are presented, as it most reliably reflects the global businessglobalbusiness performance of the Group as a whole.
   
 On consolidation, income statement items are translated from the functional currency into US dollars at average rates of exchange. BalanceexchangeBalance sheet items are translated into US dollars at year end exchange rates. Exchange differences on the translation of the net assetsnetassets of entities with functional currencies other than the US dollar, and any offsetting exchange differences on net debt hedging thosehedgingthose net assets, are recognised directly in the foreign currency translation reserve.reserve via the statement of recognised income andexpense.
   
 Exchange gains and losses which arise on balances between Group entities are taken to the foreign currency translation reserve wherereservewhere the intra group balance is, in substance, part of the Group'sGroup’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 statementincomestatement at the time of the disposal.


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Notes to the 2007 Financial statements

1PRINCIPAL ACCOUNTING POLICIEScontinued
  
 The Group finances its operations primarily in US dollars but a substantial part of the Group'sGroup’s US dollar debt is located in subsidiaries having functionalhavingfunctional currencies other than the US dollar. Except as noted above, exchange gains and losses relating to such US dollar debt aredebtare charged or credited to the Group'sGroup’s income statement in the year in which they arise. This means that the impact of financing in USinUS dollars on the Group'sGroup’s income statement is dependent on the functional currency of the particular subsidiary where the debt is located.islocated.
  
 Except as noted above, or in note (p) below relating to derivative contracts, all exchange differences are charged or credited to the incometheincome 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 contingentandcontingent liabilities acquired. Goodwill is initially determined based on provisional fair values. Fair values are finalisedwithin 12 months of the acquisition date. Goodwill on acquisition of subsidiaries is separately disclosed and goodwill on acquisitions ofacquisitionsof associates and JCEs is included within investments in equity accounted units. For non wholly owned subsidiaries, minorityinterests are initially recorded based on the minorities’ proportion of the fair values for the assets and liabilities recognised atacquisition.
  
 In 1997 and previous years, goodwill was eliminated against reserves in the year of acquisition as a matter of accounting policy, as wasaswas then permitted under UK GAAP. Such goodwill was not reinstated under subsequent UK accounting standards or on transition to IFRS.toIFRS.
  
 Goodwill is not amortised; rather it is tested annually for impairment. Goodwill is allocated to the cash generating unit or group of cashofcash generating units expected to benefit from the related business combination for the purposes of impairment testing. Goodwill impairmentsGoodwillimpairments cannot be reversed.
  
Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if the asset is separableor arises from contractual or legal rights, and the fair value can be measured reliably on initial recognition.
 
 Finite lifePurchased intangible assets are initially recorded at cost and finite life intangible assets are amortised over their useful economic liveseconomiclives 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 whichhaving indefinite lives and intangible assetsthat are not yet ready for use are not amortised and are reviewed annually for impairment.
 
Intangible assets are considered to have indefinite lives when, based on an analysis of all of the relevant factors, there is noforeseeable limit to the period over which the asset is expected to generate cash flows for the Group. The factors considered inmaking this determination include the existence of contractual rights for unlimited terms; or evidence that renewal of the contractualrights without significant incremental cost can be expected for indefinite periods into the future in view of the Group’s futureinvestment intentions. The life cycles of the products and processes that depend on the asset are also considered.
Amortisation is calculated on a straight line basis. The following useful lives have been determined for the classes of intangible assets.
Internally generated intangible assets and computer software: 2 to 5 years.
Other intangible assets: 2 to 20 years.
Trademarks: 14 to 20 years.
Patented and non patented technology: 10 to 20 years.
Power contracts: 2 to 39 years.
Other purchase and customer contracts: 5 to 15 years.
  
(f)Exploration and evaluation
 Exploration and evaluation expenditure comprises costs whichthat are directly attributable to:
 researching and analysing existing exploration datadata;
 conducting geological studies, exploratory drilling and samplingsampling;
 examining and testing extraction and treatment methods; and/or
 compiling pre-feasibilityprefeasibility and feasibility studies.
  
Exploration expenditure relates to the initial search for deposits with economic potential. Evaluation expenditure arises from adetailed assessment of deposits that have been identified as having economic potential.
 
 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.Expenditure on exploration activity is not capitalised.
  
 Capitalisation of exploration and evaluation expenditure commences when there is a high degree of confidence in the project'sproject’s viability and hence it isitis probable that future economic benefits will flow to the Group.
  
 Capitalised exploration andSuch capitalised evaluation expenditure is reviewed for impairment at each balance sheet date. In the case of undeveloped properties,undevelopedproperties, there may be only inferred resources to form a basis for the impairment review. The carrying values of these assets are reviewedarereviewed twice per annum by management and the results of these reviews are reported to the Audit Committee.committee. The review is based onbasedon a status report regarding the Group'sGroup’s intentions for development of the undeveloped property. In some cases, the undeveloped propertiesundevelopedproperties are regarded as successors to ore bodies currently in production. It is intended that these will be developed and go into productionintoproduction 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.theproject. If a project does not prove viable, all irrecoverable costs associated with the project andnet of any related impairment provisions areprovisionsare written off.

 

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Notes to the 2006 financial2007 Financial statements

1PRINCIPAL ACCOUNTING POLICIES CONTINUEDcontinued
  
(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 locationthelocation and condition necessary for it to be capable of operating in the manner intended by management and the estimated close downclosedown 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‘Mining properties and leases'leases’ together with anywithany amount transferred from 'Exploration‘Exploration and evaluation'evaluation’.
  
 In open pit mining operations, it is necessary to remove overburden and other barren waste materials to access ore from which minerals can economicallymineralscan be extracted.extracted economically. The process of mining overburden and waste materials is referred to as stripping. During the developmentthedevelopment of a mine (or pit), before production commences, stripping costs are capitalised as part of the investment in constructioninconstruction of the mine (or pit).mine.
  
 Costs associated with commissioning new assets, in the period before they are capable of operating in the manner intended by management,bymanagement, are capitalised. Development costs incurred after the commencement of production are capitalised to the extent they aretheyare expected to give rise to a future economic benefit. Interest on borrowings related to construction or development projects is capitalisediscapitalised until the point when substantially all the activities that are necessary to make the asset ready for its intended use are complete.arecomplete.
  
(h)Deferred stripping
 As noted above, stripping costs incurred in the development of a mine (or pit) before production commences are capitalised as part ofpartof 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 costsstrippingcosts are accounted for separately by reference to the ore from each separate pit. If, however, the pits are highly integrated for theforthe purpose of mine planning, the second and subsequent pits are regarded as extensions of the first pit in accounting for strippingforstripping costs. In such cases, the initial stripping (i.e.(ie overburden and other waste removal) of the second and subsequent pits ispitsis considered to be production phase stripping relating to the combined operation.
 
The Group’s determination of whether multiple pit mines are considered separate or integrated operations depends on eachmine’s specific circumstances. The following factors would point towards the stripping costs for the individual pits being accountedfor 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 thanas 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 theseveral 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 strippingcosts 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 factpattern appears to be similar. To the extent the determination is different, the resulting accounting would also be different.
  
 The Group defers stripping costs incurred subsequently, during the production stage of its operations, for those operations where thiswherethis is the most appropriate basis for matching the costs against the related economic benefits and the effect is material. This is generallyisgenerally the case where there are fluctuations in stripping costs over the life of the mine (or pit), and the effect is material. The amountTheamount of stripping costs deferred is based on the ratio ('Ratio'(‘Ratio’) obtained by dividing the tonnage of waste mined either by thebythe quantity of ore mined or by the quantity of minerals contained in the ore. Stripping costs incurred in the period are deferred to thetothe extent that the current period Ratio exceeds the life of mine (or pit) Ratio. Such deferred costs are then charged against reported profitsreportedprofits 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 (ormine(or pit) Ratio is based on proved and probable reserves of the mine (or pit).
  
 The life of mine (or pit) waste-to-ore Ratioratio is a function of the pit design(s), and therefore changes to that design will generally resultgenerallyresult in changes to the Ratio. Changes in other technical or economic parameters that impact on reserves will also have an impact onimpacton 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.forprospectively.
  
 In the production stage of some mines (or pits), further development of the mine (or pit) requires a phase of unusually high overburdenhighoverburden removal activity that is similar in nature to preproduction mine development. The costs of such unusually high overburdenhighoverburden removal activity are deferred and charged against reported profits in subsequent periods on a units of production basis. Thisbasis.This accounting treatment is consistent with that for stripping costs incurred during the development phase of a mine (or pit), before productionbeforeproduction commences.
  
 If the Group were to expense production stage stripping costs as incurred, there would be greater volatility in the year to year results fromresultsfrom operations and excess stripping costs would be expensed at an earlier stage of a mine'smine’s operation.
  
 Deferred stripping costs are included in 'Mining‘Mining properties and leases'leases’ within property, plant and equipment or in investments in equityinequity accounted units, as appropriate. These form part of the total investment in the relevant cash generating unit, which is reviewed forreviewedfor impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. Amortisation of deferredofdeferred stripping costs is included in net operating costs or in the Group'sGroup’s share of the results of its equity accounted units, as appropriate.asappropriate.


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Notes to the 2007 Financial statements

1PRINCIPAL ACCOUNTING POLICIEScontinued
   
(i)Depreciation and impairment
Depreciation of non current assets
 Property, plant and equipment is depreciated over its useful life, or over the remaining life of the mine if shorter. The major categoriesmajorcategories 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:
   
 Buildings105 to 40 years50 years.
 Plant and equipment3 to 35 yearsyears.
Power assets25 to 100 years.
 LandNot depreciateddepreciated.

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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 residualestimatedresidual values or useful lives are accounted for prospectively. In applying the units of production method, depreciation is normally calculatednormallycalculated using the quantity of material extracted from the mine in the period as a percentage of the total quantity of material to be extractedbeextracted in current and future periods based on proved and probable reserves and, for some mines, other mineral resources. Suchresources.Such non reserve material may be included in depreciation calculations in limited circumstances and where there is a high degree ofdegreeof confidence in its economic extraction. Development costs that relate to a discrete section of an ore body and which only provide benefitprovidebenefit over the life of those reserves, are depreciated over the estimated life of that discrete section. Development costs incurred whichincurredwhich 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 partImpairment of a disposal group held for sale, is not depreciated.
non current assets
 Property, plant and equipment and finite life intangible assets are reviewed for impairment if there is any indication that the carrying amountcarryingamount 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 lessvalueless 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‘value in use' (being theuse’ (beingthe net present value of expected future cash flows of the relevant cash generating unit) and 'fair‘fair value less costs to sell'sell’. Where thereWherethere is no binding sale agreement or active market, fair value less costs to sell is based on the best information available to reflect thereflectthe amount the Group could receive for the cash generating unit in an arm'sarm’s length transaction. The estimates used for impairment reviewsimpairmentreviews are based on detailed mine plans and operating plans, modified as appropriate to meet the requirements of IAS 36 'Impairment‘Impairment of Assets'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'sGroup’s assessment of the long term average price,averageprice, 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 expectedflowsexpected to be realised from extraction, processing and sale of mineral resources that do not currently qualify for inclusion in provedinproved or probable ore reserves. Such non reserve material is included where there is a high degree of confidence in its economic extraction.economicextraction. This expectation is usually based on preliminary drilling and sampling of areas of mineralisation that are contiguous withcontiguouswith existing reserves. Typically, the additional evaluation to achieve reserve status for such material has not yet been done becausedonebecause 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 accounttakesaccount of all relevant characteristics of the ore body, including waste to ore ratios, ore grades, haul distances, chemical and metallurgicalandmetallurgical properties of the ore impacting on process recoveries and capacities of processing equipment that can be used. The mineThemine plan is therefore the basis for forecasting production output in each future year and the related production costs.
  
 Rio Tinto'sTinto’s cash flow forecasts are based on assessments of expected long term commodity prices, which for most commodities arecommoditiesare derived from an analysis of the marginal costs of the producers of these commodities. These assessments often differ from currentfromcurrent 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 salesexistingsales 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 impairmentForimpairment reviews, recent cost levels are considered, together with expected changes in costs that are compatible with the current conditioncurrentcondition of the business and which meet the requirements of IAS 36. IAS 36 includes a number of restrictions on the future cash flowscashflows that can be recognised in value in use assessments in respect of future restructurings and improvement related capital expenditure.capitalexpenditure.
  
 The discount rate applied is based upon the Group'sGroup’s weighted average cost of capital with appropriate adjustment for the risks associatedrisksassociated 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.functionalcurrency. The great majority of the Group’s sales are based on prices denominated in US dollars. To the extent that the currencies ofcurrenciesof countries in which the Group produces commodities strengthen against the US dollar without commodity price offset, cash flows and,flowsand, therefore, net present values are reduced.
  
 When calculating 'value‘value in use'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.theassessment.

 

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Notes to the 2006 financial2007 Financial statements

1PRINCIPAL ACCOUNTING POLICIES CONTINUEDcontinued
  
(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 accordanceinaccordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December 2004December2004 (the JORC code). Reserves, and for certain mines, other mineral resources, determined in this way are used in the calculation ofcalculationof depreciation, amortisation and impairment charges, the assessment of life of mine stripping ratios and for forecasting the timing oftimingof 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 degreehighdegree 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 changeestimationmaychange 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.beingrestated.
  
(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 andmaterialsand remediation of disturbed areas. Estimated close down and restoration costs are provided for in the accounting period when thewhenthe obligation arising from the related disturbance occurs, whether this occurs during the mine development or during the productiontheproduction phase, based on the net present value of estimated future costs. Provisions for close down and restoration costs do notdonot include any additional obligations which are expected to arise from future disturbance. The costs are estimated on the basis of aofa closure plan. The cost estimates are calculatedupdated annually during the life of the operation to reflect known developments, e.g. updatedeg revisions to 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 isexpenditureis incurred at the end of the life of the mine. Although the ultimate cost to be incurred is uncertain, the Group's businesses estimate theirGroup’s businessesestimatetheir respective costs based on feasibility and engineering studies using current restoration standards and techniques.
  
 The amortisation or 'unwinding'‘unwinding’ of the discount applied in establishing the net present value of provisions is charged to the income statementincomestatement in each accounting period. The amortisation of the discount is shown as a financing cost, rather than as an operating cost.operatingcost.
  
 The initial closure provision together with other movements in the provisions for close down and restoration costs, including those resultingthoseresulting from new disturbance, updated cost estimates, changes to the estimated lives of operations and revisions to discount rates arediscountratesare capitalised within property, plant and equipment. These costs are then depreciated over the lives of the assets to which they relate.theyrelate.
  
 Where rehabilitation is conducted systematically over the life of the operation, rather than at the time of closure, provision is made forprovisionis madefor the estimated outstanding continuous rehabilitation work at each balance sheet date and the cost is charged to the income statement.incomestatement.
  
 Provision is made for the estimated present value of the costs of environmental clean up obligations outstanding at the balance sheetbalancesheet date. These costs are charged to the income statement. Movements in the environmental clean up provisions are presented aspresentedas an operating cost, except for the unwind of the discount which is shown as a financing cost. Remediation procedures may commencemaycommence soon after the time the disturbance, remediation process and estimated remediation costs become known, but can continuecancontinue 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 factorsmanyfactors including changes to the relevant legal requirements, the emergence of new restoration techniques or experience at other mineothermine sites. The expected timing of expenditure can also change, for example in response to changes in ore reserves on productionorproduction rates. As a result there could be significant adjustments to the provision for close down and restoration and environmentalandenvironmental clean up, which would affect future financial results.
  
(l)Inventories
 Inventories are valued at the lower of cost and net realisable value, primarily on a firstweighted average cost basis. Average costsarecalculated by reference to the cost levels experienced in first out ('FIFO') basis.the current month together with those in opening inventory. Cost for raw materialsrawmaterials and stores is purchase price and for partly processed and saleable products is generally the cost of production. For this purposeForthispurpose 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 ofprocessingof ore; and
 production overheads.
  
 Stockpiles represent ore that has been extracted and is available for further processing. If there is significant uncertainty asuncertaintyas to when thewhenthe stockpiled ore will be processed it is expensed as incurred. Where the future processing of this ore can be predicted with confidence, e.g.withconfidence, eg because it exceeds the mine'smine’s cut off grade, it is valued at the lower of cost and net realisable value. If the oretheore will not benotbe processed within the 12 months after the balance sheet date it is included within non-currentnon current assets. Work in progress inventory includesinventoryincludes ore stockpiles and other partly processed material. Quantities are assessed primarily through surveys and assays.

 

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Notes to the 2006 financial2007 Financial statements

1PRINCIPAL ACCOUNTING POLICIES CONTINUEDcontinued
  
(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 substantivelyenactedorsubstantively enacted by the balance sheet date. It includes adjustments for tax expected to be payable or recoverable in respect of previousofprevious 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. Full provisionis made fordeferred taxation on all temporary differences existing at the balance sheet date with certain limited exceptions. The main exceptions toexceptionsto 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 exceptforexcept where Rio Tinto is able to control the remittance of profits and it is probable that there will be no remittance in the foreseeabletheforeseeable 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 taxableortaxable profit and is not a business combination, such as on the recognition of a provision for close down and restoration costs and theandthe related asset or on the inceptionrecognition of new finance leases. Furthermore, with the exception of the unwind of discount, deferred tax istaxis not recognised on subsequent changes in the carrying value of such assets and liabilities, for example where they arethe related assetsare depreciated ofor 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 – this is consideredrecovered. Recoverability isassessed having regard to the reasons why the deferred tax asset has arisen and projected future taxable profits for the relevant entityrelevantentity (or group of entities).
  
 Deferred tax is provided in respect of fair value adjustments on acquisitions. These adjustments may relate to assets such as mining rightsminingrights that, in general, are not eligible for income tax allowances. In such cases, the provision for deferred tax is based on the differencethedifference between the carrying value of the asset and its nil income tax base. The existence of a tax base for capital gains tax purposestaxpurposes is not taken into account in determining the deferred tax provision relating to such mineral rights because it is expected that thethatthe carrying amount will be recovered primarily through use and not from the disposal of mineral rights. Also, the Group is only entitledonlyentitled to a deduction for capital gains tax purposes if the mineral rights are sold or formally relinquished.
  
 Current and deferred tax relating to items recognised directly in equity are recognised in equity and not in the income statement.
  
(n)Post 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 theofthe plan liabilities is recognised as an asset or liability on the balance sheet. Any asset recognised is restricted, if appropriate, to thetothe present value of any amounts the Group expects to recover by way of refunds from the plan or reductions in future contributions. Actuarialcontributions.Actuarial gains and losses arising in the year are taken to the Statementstatement 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 becausearisingbecause 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 servicepastservice cost and the effect of any curtailment or settlements. The interest cost less the expected return on assets is also charged to thetothe income statement. The amount charged to the income statement in respect of these plans is included within operating costs or inorin the Group'sGroup’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 discountthediscount rate and the mortality assumptions. The long term rate of return on plan assets is used to calculate interest income on pensiononpension assets, which is credited to the Group'sGroup’s income statement. The discount rate is used to determine the net present value or future liabilities and eachvalueoffuture liabilities. Each year, the unwinding of the discount on those liabilities is charged to the Group'sGroup’s income statement as the interestastheinterest cost. The mortality assumption is used to project the future stream of benefit payments, which is then discounted to arrive atarriveat a net present value of liabilities.
  
 The values attributed to plan liabilities are assessed in accordance with the advice of independent qualified actuaries.
  
 The Group'sGroup’s contributions to defined contribution pension plans are charged to the income statement in the period to which the contributionsthecontributions relate.
  
(o)Cash and cash equivalents
 Cash and cash equivalents are carried in the balance sheet at amortised cost. For the purposes of the balance sheet, cash and cashandcash equivalents comprise cash on hand, deposits held on call with banks and short-term,short term, highly liquid investments that are readilyarereadily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. For the purposes of theofthe cash flow statement, cash and cash equivalents are net of bank overdrafts whichthat are repayable on demand.

 

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Notes to the 2006 financial2007 Financial statements

1PRINCIPAL ACCOUNTING POLICIES CONTINUEDcontinued

(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.
   
 (i) Financial assets
 Fair value: WhereThe Group classifies its financial instruments are accounted forassets in the following categories: at fair value this isthrough profit or loss, loans and receivables,available-for-sale and held to maturity investments. The classification depends on the amount atpurpose for 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 independentthe financial institutions, or by discounting expected cash flows at prevailing market rates. The fair values ofassetswereacquired. Management determines 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 classclassification of financial instrument is given below.assets at initial recognition.
   
 (a) 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 recognisedthrough profit or loss
Derivatives are included in equity untilthis category unless they are designated as hedges. Assets in this category are classified as currentassets. Generally, the investment is disposed of. Impairment charges and exchange gains and losses on such investments are recognised directlyGroup does not acquire financial assets for the purpose of selling 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.short term.
   
 Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensedin the income statement.
 
(b) Loans and receivables
Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an activemarket. They are classified as current assets or non current assets based on their maturity date. Loans and receivables areclassified as either ‘trade and other receivables’ or ‘other financial assets’ in the balance sheet. Loans and receivables arecarriedat amortised cost less any impairment.
(c) Available-for-sale financial assets
Available-for-sale financial assets are non derivatives that are either designated as available for sale or not classified in any of theother categories. They are included in non-current assets unless the Group intends to dispose of the investment within 12 monthsof the balance sheet date.
Changes in the fair value of financial assets denominated in a currency other than the functional currency of the holder and classifiedas available-for-sale are analysed between translation differences and other changes in the carrying amount of the security.Exchange differences on retranslation of the cost of the security and any impairment charges are recognised in profit or loss,whileother changes in fair value are recognised in equity.
When financial assets classified as available-for-sale are sold, the accumulated fair value adjustments recognisedin equity are included in the income statement within ‘net operating costs’.
Dividends on available-for-sale equity instruments are also recognised in the income statement within ‘interest receivable andsimilar income’ when the Group’s right to receive payments is established.
Financial assets not carried at fair value through profit and loss are initially recognised on the transaction date at fair value plustransaction costs.
Financial assets are derecognised when the investments mature or are sold, and substantially all the risks and rewards ofownership have been transferred.
Borrowings:(ii) Financial liabilities From 1 January 2005, borrowings
Borrowings and other financial liabilities are recognised initially at fair value, net of transaction costs incurred and are subsequently statedsubsequentlystated at amortised cost.initial book value. Any difference between the amounts originally received (net of transaction costs) and the redemptiontheredemption 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.
   
 (iii) Derivative financial instruments and hedge accounting
The Group’s policy with regard to ‘Financial risk management’ is set out in note 33. When the Group enters into derivative contractsthese transactions are designed to reduce exposures related to assets and liabilities, firm commitments or anticipatedtransactions.
 
 Commodity based contracts that meet the 'expected purchase, sale or usage' requirementsdefinition of a derivative in IAS 39 but are entered into in accordance with the Group’sexpected purchase or sales requirements are recognised in earnings as described in note c)1(c) Sales revenue above.
   
 From 1 January 2005, allAll other derivatives are initially recognised at their fair value on the date the derivative contract is entered into and are subsequently remeasuredsubsequentlyremeasured subject to IAS 39 at their fair value at each balance sheet date. The method of recognising the resulting gain or loss dependslossdepends on whether or not the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Grouphedged.TheGroup designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or of firm commitments (fair value(fairvalue 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 theare recorded inthe income statement, together with any changes in the fair value of the hedged asset or liability or firmcommitmentfirm commitment that is attributableisattributable to the hedged risk. Where derivatives are held with different counterparties to theunderlyingthe underlying asset or liability or firm commitment,liabilityor firmcommitment, the fair valuevalues of the derivative isassets and liabilities are shown separately in the balance sheeassheet as there is no legal rightlegalright of offset. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognisedin the income statement within ‘interest payable and similar charges’.
   
 Cash flow hedges:The effective portionsportion of changes in the fair value of derivatives that are designated and qualify ascash flowas cashflow hedges areis recognised in equity. The gain or loss relating to the ineffective portion is recognised immediatelyin the income statement.immediately in theincome statement within ‘net operating costs’. Amounts accumulated in equity are recycled in the income statement in theperiods when the periods when thehedgedhedged item will affectaffects profit or loss, (for instance,for example when the forecast sale that is being hedged takes place)place.The realised gain or loss relating to the effective portion of forward foreign exchange or commodity contracts hedging salesis recognised in the income statement within ‘sales revenue’. When the forecast transaction that is being hedged results inthe recognition of a non financial asset the gains and losses previously deferred in equity are transferred from equity andadjust the cost of the asset. The gains and losses are recognised subsequently in the income statement within ‘netoperating costs’ when the non financial asset is amortised.


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Notes to the 2007 Financial statements

1PRINCIPAL ACCOUNTING POLICIEScontinued
(iii) Derivative financial instruments and hedge accounting continued
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, althoughthe forecasted transaction is still expected to occur, any cumulative gain or loss relating to the instrument which is held inequity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the incomestatement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported inequity is immediately transferred to the income statement.
   
 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 otherAny derivative contracts that do not qualify for hedge accounting, are markedaremarked to market at thebalancethe balance sheet date. In respect of currency swaps, the gain or loss on the swap and the offsetting gain orgainor loss on the financialfinancial asset or liability against which the swap forms an economic hedge are shown in separate lines in theincome statement within the income statement. Inrespectline ‘net gains on currency and interest rate derivatives not qualifying for hedge accounting’.In respect of other derivatives, the mark to market willmay 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. These charges or credits would berecognised in the line ‘net gains on currency and interest rate derivatives not qualifying for hedge accounting’ if they relate to currency or interest rate swaps or in ‘net operating costs’ if they relate to commodity derivatives.
   
 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. In some cases, theembedded derivatives may be designated as hedges and will be accounted for as described above.
  
Prior to 1 January 2005, derivative financial instruments were accounted for as follows
Amounts receivable and payable in respect of interest rate swaps were recognised as adjustments to net interest over the life of the contract.
Derivative contracts which had been entered into by the Group in respect of its firm commitments or anticipated transactions in order to hedge its exposure to fluctuations in exchange rates against the US dollar or to fluctuations against commodity prices and which were located in the entity with the exposure, were accounted for as hedges: gains and losses were deferred and subsequently recognised when the hedged transaction occurred. Where such contracts were not located in the entity with the exposure they were fair valued at the balance sheet date. This gave rise to charges or credits to the income statement in periods before the transaction against which the derivative was held as an economic hedge was recognised.

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Notes to the 2006 financial statements

1PRINCIPAL ACCOUNTING POLICIES CONTINUED(iv) Fair value
  
(p)Fair value is the amount at which a financial instrument could be exchanged in an arm’s length transaction between informed andwilling parties. Where relevant market prices are available, these have been used to determine fair values. In other cases, fair valueshave been calculated using quotations from independent financial institutions, or by using valuation techniques consistent withgeneral market practice applicable to the instrument.
(i)The fair values of cash, short term borrowings and loans to joint ventures and associates approximate to their carrying values,as a result of their short maturity or because they carry floating rates of interest.
(ii)The fair values of medium and long term borrowings is calculated as the present value of the estimated future cash flows usingan appropriate market based yield curve. The carrying value of the borrowings is amortised cost.
(iii)Derivative financial assets and liabilities are carried at fair value based on published price quotations for the period for which a liquid active market exists. Beyond this period, Rio Tinto’s own assumptions are used.
The fair values of the various derivative instruments used for hedging purposes are disclosed in note 34. Movements on the hedgingreserve within shareholders’ equity are shown in note 30. The full fair value of a derivative that qualifies for hedge accounting isclassified as a non current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a currentasset or liability, if the remaining maturity of the hedged item is less than 12 months.
Financial instruments (continued)(v) Trade receivables
 Where contractsTrade receivables are recognised initially at fair value and are subsequently reduced by any provision for impairment. A provision forimpairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amountsdue. Indicators of impairment would include financial instruments contained embedded derivatives,difficulties of the derivative element was not treated asdebtor, likelihood of the debtor’s insolvency, default in paymentor 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 itemssignificant deterioration in credit worthiness. Any impairment is recognised in the income statement. Where currency swaps were held with different counterparties tostatement within ‘net operating costs’.When a trade receivable is uncollectable, it is written off against the underlying borrowing, the fair valueallowance account. Subsequent recoveries of the swaps was shown separatelyamounts previouslywritten off are credited against ‘net operating costs’ in the balance sheet as there was no legal right of offset.income statement.
  
(vi) Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interestmethod.
 
(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 betweenliabilitybetween accounting dates are recognised as an expense. The grant date fair value of the awards is taken to be the market value of theofthe shares at the date of award reduced by a factor for anticipated relative Total Shareholder Return ('TSR'(‘TSR’) performance. Fair values arevaluesare subsequently remeasured at each accounting date to reflect the number of awards expected to vest based on the current and anticipatedandanticipated TSR performance. If any awards are ultimately settled in shares, the liability is transferred direct to equity as the considerationpart of theconsideration for the equity instruments issued.
 
 The Group'sGroup’s equity-settled share plans are settled either by the issue of shares by the relevant parent company, by the purchase of sharesofshares on market or by the use of shares previously acquired as part of a share buyback. The fair value of the share plans is recognisedisrecognised as an expense over the expected vesting period with a corresponding entry to retained earnings for Rio Tinto plc plans andplansand to other reserves for Rio Tinto Limited plans. If the cost of shares acquired to satisfy the plans exceeds the expense charged, the excesstheexcess is taken to the appropriate reserve. The fair value of the share plans is determined at the date of grant, taking into account any marketanymarket based vesting conditions attached to the award (e.g.(eg Total Shareholder Return). The Group uses fair values provided by independentbyindependent actuaries calculated using a lattice based option valuation model.
 
 
 Non market based vesting conditions (e.g.(eg earnings per share targets) are taken into account in estimating the number of awards likelyawardslikely 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 whichatwhich point the estimate is adjusted to reflect the actual awards issued. No adjustment is made after the vesting date even if the awardstheawards are forfeited or not exercised.
 
 
 Further information about the treatment of individual share based payment plans is provided in note 45.48.

 

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Notes to the 20062007 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 












 

      Outside Net Net Net 
  Pre-tax Taxation interests amount amount amount 
  2007 2007 2007 2007 2006 2005 
 Exclusions from Underlying earningsUS$m US$m US$m US$m US$m US$m 














 Profits less losses on disposal of interests in businesses (a)2 (1) 1 3 311 
 Impairment (charges)/reversals (b) (note 5)(58)18 (73)(113)44 4 
 Exchange differences and gains/(losses) on derivatives:            
 – Exchange gains/(losses) on US dollar net debt and intragroup balances (c)201 (37)(8)156 (14)(99)
 – Gains/(losses) on currency and interest rate derivatives not qualifying for hedge accounting (d), (e)52 (19)1 34 30 (40)
 Other exclusions (f)(308)99  (209)37 84 














 
Total excluded from Underlying earnings
(111)60 (80)(131)100 260 














 
Net earnings
9,836 (2,090)(434)7,312 7,438 5,215 














 
Underlying earnings
9,947 (2,150)(354)7,443 7,338 4,955 














              
'Underlying earnings'‘Underlying earnings’ is an additionalalternative 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(Additional information on these disposals is included in note 39.41.)
(b)CreditsCharges and chargescredits relating to impairment of non-current assets other than undeveloped properties.
(c)Exchange gains and losses on US dollar net debt and intragroup balances. This includes amounts relating to equity accounted units.
(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.
Other charges excluded from Underlying earnings, in 2007, primarily resulted from the acquisition of Alcan. These include the non recurring impact of US$213 million on pre-tax profit of revaluing inventories on acquisition based on selling price, together with integration costs.

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.
3NET OPERATING COSTS        
          
    2007 2006 2005 
  Note US$m US$m US$m 










 Raw materials and consumables  6,096 3,207 2,860 
 Amortisation of intangible assets12 114 27 19 
 Depreciation of property, plant & equipment13 2,001 1,482 1,319 
 Employment costs4 3,827 2,459 2,162 
 Repairs and maintenance  1,393 1,257 985 
 Shipping costs  1,874 1,149 1,141 
 Other freight costs  509 333 283 
 Decrease / (Increase) in inventories  110 (139)(79)
 Royalties  1,093 1,004 822 
 Amounts charged by jointly controlled entities mainly for toll processing  1,362 1,196 1,128 
 Other external costs  2,346 1,936 1,649 
 Provisions27 308 60 202 
 Research and development  69 15 20 
 Costs included above qualifying for capitalisation  (78)(69)(83)
 Other operating income  (272)(262)(242)










 
Net operating costs (excluding items shown separately)
  20,752 13,655 12,186 










          
(a)Total net operating costs includes the impact of Alcan from the period 24 October 2007 to 31 December 2007 totalling US$3,691million.
(b)Information on auditors’ remuneration is included in note 44.

 

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Notes to the 20062007 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 








 
4EMPLOYMENT COSTS
          
    2007 2006 2005 
  Note US$m US$m US$m 










 Employment costs        
 – Wages and salaries  3,618 2,337 2,093 
 – Social security costs  106 83 84 
 – Net post retirement cost (a)49 240 189 167 
 – Share option costs (b)48 220 32 48 










    4,184 2,641 2,392 
 Less: charged within provisions  (357)(182)(230)










  3 3,827 2,459 2,162 










          
(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 benefitdefinedbenefit plans, net of the related expected return on plan assets. Additional detail of the amount charged to the income statementincomestatement in respect of post retirement plans, and the treatment of actuarial gains and losses, is shown in note 46.49.
 
(b)Further details of the Groups'Group’s share options and other share based payment schemesplans are given in note 45.48.
(c) Employment costs includes the impact of Alcan for the period 24 October 2007 to 31 December 2007, amounting to US$635million.
  
5IMPAIRMENT (CHARGES) / REVERSALS
              
      Outside Net Net Net 
  Pre-tax Taxation interests amount amount amount 
  2007 2007 2007 2007 2006 2005 
 Cash generating unitUS$m US$m US$m US$m US$m US$m 














 Argyle Diamonds (a)(466)138  (328)(289) 
 Palabora (b)272 (99)(73)100 (2) 
 Tarong coal mine (c)166 (32) 134 (152) 
 Kennecott Utah Copper (KUC) (d)    381  
 Iron Ore Company of Canada (IOC) (e)    111  
 Other(30)11  (19)(5)4 














  (58)18 (73)(113)44 4 














(a)The impairment of Argyle in 2006 followed adverse changes in assumptions about future prices, capital and operating costs. The value in use was assessed by reference to cash flows forecast in real terms and discounted at a pre-tax rate of 8 per cent. The 2006 impairment provision included goodwill of US$223 million.
Further deterioration in value during the first half of 2007, relating mainly to large increases in the estimated capital cost of Argyle’s underground project, triggered another assessment of its recoverable amount. Impairment of property, plant and equipment was assessed by reference to fair value less costs to sell. The determination of fair value less costs to sell was based on the estimated amount that would be obtained from sale in an arm’s length transaction between knowledgeable and willing parties. This estimate was derived from discounting projections of cash flows, using valuation assumptions that a buyer might be expected to apply. The US dollar amount of the impairment is US$14 million higher than reported at the half year as a result of retranslation from Australian dollars at the average exchange rate for the full year.
(b)An increase in the Group’s long term copper price assumption triggered an assessment of the recoverable amount of Palabora. The value in use was based on cash flows forecast in real terms and discounted at a pre-tax rate of 12 per cent. This led to a full reversal of the remainder of the impairment provision recognised in 2004.
(c)During 2006, 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 per cent. During 2007, the sale of Tarong was announced for an amount that led to full reversal of the remainder of the provision recognised in the previous year.
(d)In 2006, 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 per cent. This led to a full reversal of the remainder of the impairment provision recognised in 2002.
(e)In 2006, 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 per cent. This led to a full reversal of the impairment provision recognised in 2002, which had aligned the carrying value with the value negotiated between shareholders during that year as part of a financial restructuring exercise.

 

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Notes to the 20062007 Financial statements

6SHARE OF PROFIT AFTER TAX OF EQUITY ACCOUNTED UNITS      
  2007 2006 2005 
  US$m US$m US$m 








 Sales revenue (a)3,818 2,975 1,709 
 Operating costs(1,261)(771)(504)








        
 Profit before finance items and taxation2,557 2,204 1,205 
        
 Exchange gains/(losses) on external net debt7 3 (17)
 Losses on currency and interest rate derivatives not qualifying for hedge accounting(5)  
 Net interest payable(49)(45)(40)
 Amortisation of discount(9)(14)(11)








 Profit before taxation2,501 2,148 1,137 








 Taxation(917)(770)(361)








 Profit for the year (Rio Tinto share)1,584 1,378 776 








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.

7INTEREST RECEIVABLE AND PAYABLE        
    2007 2006 2005 
  Note US$m US$m US$m 










 Interest receivable and similar income from:     
 – Equity accounted units  28 27 19 
 – Other investments (a)  101 69 55 










    129 96 74 
 Other interest receivable  5 10 8 










 Total interest receivable and similar income  134 106 82 










 Interest payable and similar charges (b)  (660)(220)(201)
 Amounts capitalised13 122 60 28 










 Total interest payable and similar charges  (538)(160)(173)










(a)Interest income from other investments comprises US$80 million (2006: US$58 million; 2005: US$34 million) of interest income from bank deposits and US$21 million (2006: US$11 million; 2005: US$21 million) from other financial assets.
(b)Interest payable and similar charges comprises US$685 million (2006: US$175 million; 2005: US$196 million) of interest on bank loans and other borrowings and US$25 million gain (2006: US$45 million loss; 2005: US$5 million loss) from interest rate swaps.

8TAX ON PROFIT        
          
   2007 2006 2005 
  Note US$m US$m US$m 










 UK taxation   
 Corporation tax at 30%   
 – Current tax charge  98 86 137 
 – Deduct: relief for overseas taxes  (98)(72)(134)
 – Deferred tax (credit)/charge  (150)27 (22)










    (150)41 (19)










 Australian taxation   
 Corporation tax at 30%   
 – Current tax charge  1,396 1,517 1,026 
 – Deferred tax (credit)/charge  (18)(97)30 










    1,378 1,420 1,056 










 Other countries taxation   
 – Current tax charge  897 896 684 
 – Deferred tax (credit)/charge  (35)16 93 










    862 912 777 










 Total taxation charge   
 – Current taxation charge  2,293 2,427 1,713 
 – Deferred taxation (credit)/charge8 (203)(54)101 










    2,090 2,373 1,814 











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Notes to the 20062007 Financial statements

8TAX ON PROFITcontinued      
        
 2007 2006 2005 
 US$m US$m US$m 








 Prima facie tax reconciliation   
 Profit before taxation9,836 10,240 7,312 
 Deduct: share of profit after tax of equity accounted units(1,584)(1,378)(776)








 Parent companies’ and subsidiaries’ profit before tax8,252 8,862 6,536 
 Prima facie tax payable at UK and Australian rate of 30%2,476 2,659 1,961 
 Impact of items excluded in arriving at Underlying earnings (c)(28)201 (102)
     
 Other permanent differences   
 Additional recognition of deferred tax assets (a) (335) 
 Utilisation of previously unrecognised deferred tax assets (140)(83)
 Adjustments to deferred tax liabilities following changes in tax rates (b)(392)(46) 
 Other tax rates applicable outside the UK and Australia271 242 214 
 Resource depletion and other depreciation allowances(173)(187)(164)
 Research, development and other investment allowances(81)(21)(21)
 Other17  9 








 Total taxation charge2,090 2,373 1,814 








7INTEREST RECEIVABLE AND PAYABLE
   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)A benefit of US$335 million was recognised in 2006 (2005: US$20 million; 2004: US$15 million) for US AMT credits and operating losses that are expected to be recovered in future years. Of this benefit US$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)(a)The "Additional“Additional recognition of deferred tax assets"assets” of US$335 million reflectsin 2006 reflected improved prospects for future earnings from the Group'sGroup’s US operationsoperations.
(c)
(b)The "Adjustments“Adjustments to deferred tax liabilities following changes in tax rates"rates”, totalling US$392 million (2006: US$46 million,million; 2005: nil), result largely from a reduction in Canadian tax rates.
(d)The tax reconciliations for all years analyse US tax on a regular tax 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)(c)An analysis of the impact on the tax reconciliation 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)






 
  2007 2006 2005 
  US$m US$m US$m 








 Impairment (charges)/reversals(1)157 (1)
 Disposal of interests in businesses  (86)
 Exchange gains/(losses) on external debt, intragroup balances and derivatives not designated as hedges(19)55 11 
 Other exclusions(8)(11)(26)








  (28)201 (102)








(f)
(d)This tax reconciliation relates to the parent companies, subsidiaries and subsidiaries.proportionally consolidated units. The Group'sGroup’s share of profit of equity accounted units is net of tax charges of US$917 million (2006: US$770 million (2005:million; 2005: US$361 million; 2004: US$262 million).

9EARNINGS PER ORDINARY SHARE      
  2007 2006 2005 








 Weighted average number of ordinary shares in issue (millions) (b)1,285.8 1,333.4 1,364.1 
 Effect of dilutive securities (share options)5.5 5.4 4.4 








 Diluted weighted average number of ordinary shares in issue (millions) (c)1,291.3 1,338.8 1,368.5 








 Net earnings (US$ millions)7,312 7,438 5,215 
 Basic earnings per share attributable to ordinary shareholders of Rio Tinto (US cents)568.7c 557.8c 382.3c 
 Diluted earnings per share attributable to ordinary shareholders of Rio Tinto (US cents) (c)566.3c 555.6c 381.1c 








 Underlying earnings (US$ millions)7,443 7,338 4,955 
 Basic Underlying earnings per share attributable to ordinary shareholders of Rio Tinto (US cents)578.9c 550.3c 363.2c 
 Diluted Underlying earnings per share attributable to ordinary shareholders of Rio Tinto (US cents) (c)576.4c 548.1c 362.1c 








 

9EARNINGS 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 areis calculated from underlying earnings, detailed information on which is given in note 2.
(b)The weighted average number of shares is calculated as the average number of Rio Tinto plc shares outstanding not held as treasury shares (1,047.71,000.1 million (2006: 1,047.7 million) plus the average number of Rio Tinto Limited shares outstanding not held by Rio Tinto plc (285.7of 285.7 million (2006: 285.7 million).
(c)For the purposes of calculating diluted earnings per share, the effect of dilutive securities is added to the weighted average number of shares described in (b) above. This effect is calculated under the treasury stock method.

 

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Notes to the 20062007 Financial statements

10 DIVIDENDS      
  2007 2006 2005 
  US$m US$m US$m 








 Rio Tinto plc previous year Final dividend paid (b)646 442 481 
 Rio Tinto plc previous year Special dividend paid (b) 1,171  
 Rio Tinto plc Interim dividend paid (b)518 417 412 
 Rio Tinto Limited previous year Final dividend paid (b)198 118 140 
 Rio Tinto Limited previous year Special dividend paid (b) 312  
 Rio Tinto Limited Interim dividend paid (b)145 113 110 








 Dividends paid during the year1,507 2,573 1,143 








  Dividends Dividends Dividends 
  per share per share per share 
  2007 2006 2005 








 Rio Tinto plc previous year Final and Special (pence) (b)32.63p 85.24p 23.94p 
 Rio Tinto plc Interim (pence) (b)25.59p 21.42p 21.75p 
 Rio Tinto Limited previous year Final and Special – fully franked at 30% (Australian cents) (b)82.84c 200.28c 58.29c 
 Rio Tinto Limited Interim – fully franked at 30% (Australian cents) (b)60.69c 52.48c 50.56c 








        
  Number Number Number 
  of shares of shares of shares 
  2007 2006 2005 
  (millions) (millions) (millions) 








 Rio Tinto plc previous year Final and Special (b)1,007.3 1,063.9 1,068.0 
 Rio Tinto plc Interim (b)996.7 1,042.7 1,069.3 
 Rio Tinto Limited previous year Final and Special – fully franked at 30% (b)285.7 285.7 311.9 
 Rio Tinto Limited Interim – fully franked at 30% (b)285.7 285.7 285.4 








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 dividends paid in 20062007 are based on the following US cents per share amounts: 2006 final – 64.0 cents, 2007 interim – 52.0 cents (2006 dividends paid: 2005 final 41.5 cents, 20052006 special 110 –110 cents, 2006 interim 40.0 cents (2005cents; 2005 dividends paid: 2004 final 45.0 cents, 2005 interim 38.5 cents; 2004 dividends paid: 2003 final 34.0 cents, 2004 interim 32.0 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. The number of shares on which Rio Tinto plc dividends are based excludeexcludes those held as treasury shares.
(c)In addition, the directors of Rio Tinto announced a final dividend of 64.084 US cents per share on 113 February 2007.2008. This is expected to result in payments of US$0.91.1 billion (Rio Tinto plc: US$0.70.8 billion, Rio Tinto Limited US$0.20.3 billion). The dividends will be paid on 1311 April 20072008 to Rio Tinto plc shareholders on the register at the close of business on 9 March 200722 February 2008 and to Rio Tinto Limited shareholders on the register at the close of business on 14 March 2007.26 February 2008.
(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 2007.2008.
(e)The approximate amount of the Rio Tinto Limited consolidated tax group'sgroup’s retained profits and reserves that could be distributed as dividends and franked out of credits, that arose from net payments of income tax in respect of periods up to 31 December 2006200 7 (after deducting franking credits expected to be utilised on the 20062007 final dividend declared), is US$4,4707,759 million.

 

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Notes to the 20062007 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$394
  2007 2006 
  US$m US$m 






 Net book value  
 At 1 January841 1,020 
 Adjustment on currency translation114 49 
 Additions14,542  
 Disposals (5)
 Impairment charges (223)






 At 31 December15,497 841 






  cost15,758 1,077 
  accumulated impairment(261)(236)






 At 1 January  






  cost 1,034 
  accumulated impairment (14)






Impairment Tests for Goodwill
Goodwill, including that related to equity accounted units, is reviewed annually for impairment. The amounts as at 31 December 2007 disclosed above include goodwill of US$14,533 million (2006: nil) relating to the 2007 acquisition of Alcan Inc., goodwill relating to Australian Iron Ore of US$437 million (2006: US$394 million) and goodwill of US$231 million (2006: 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.

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.

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.

The Group acquired Alcan Inc. on 23 October 2007. The recoverable amount of its provisionally determined goodwill has been assessed by reference to fair value less cost to sell, as determined from the observable purchase price paid by the Group. The allocation of the cost of the acquisition was based on the advice of expert valuers. This allocation was determined over the months following the acquisition, and no diminution in its value is considered to have occurred since the date of acquisition. The allocation of the goodwill to cash generating units, will be completed within one year of the acquisition.

The recoverable amount of the goodwill relating to Australian Iron Ore has been assessed by reference to value in use. 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. Therefore, the projections generally cover periods well in excess of five years.

Assumptions about selling prices, operating costs, exchange rates, and discount rates are particularly important in these valuations.

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 producers of each commodity. Forecasts of operating costs are based on detailed mine plans which take account of all relevant characteristics of the ore body.

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 has been reviewed applying a discount rate of 6.5 per cent to the post-tax cash flows expressed in real terms.

The recoverable amount of the goodwill at RTEA has been assessed by reference to fair value less costs to sell. The determination of fair value less costs to sell was based on the estimated amount that would be obtained from sale in an arm’s length transaction between knowledgeable and willing parties. This estimate was derived by discounting projections of cash flows, using valuation assumptions that a buyer might be expected to apply.

 

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Notes to the 20062007 Financial statements

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)






 
         
   Trademark/ Contract   
  Exploration patented and based Other  
  and non patented intangible intangible  
  evaluation (a) technology assets (b) assets Total 
 Year ended 31 December 2007US$m US$m US$m US$m US$m 












 Net book value     
 At 1 January 2007196   188 384 
 Adjustment on currency translation9 12 7 22 50 
 Acquisition of subsidiary (note 41)9 579 6,867 12 7,467 
 Expenditure during year194   209 403 
 Amortisation for the year (8)(28)(78)(114)
 Impairment   (21)(21)
 Disposals, transfers and other movements(256) (1)(2)(259)












 At 31 December 2007152 583 6,845 330 7,910 












 – cost152 591 6,874 566 8,183 
 – accumulated amortisation (8)(29)(236)(273)













    Trademark/ Contract   
  Exploration patented and based Other  
  and non patented intangible intangible  
  evaluation (a) technology assets assets Total 
 Year ended 31 December 2006US$m US$m US$m US$m 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)












 At 1 January 2006        












 – cost113   327 440 
 – accumulated amortisation   (220)(220)












(a)All of the net book value is related to intangible assets with finite lives. The following useful lives have been determined for the classes of intangible assets:
  
(a)Exploration and evaluation: useful life not determined until transferred to property, plant & equipmentequipment. See note 1(e) for useful lives relating to the other categories of intangible assets.
  
Other(b)The Group acquired Alcan Inc. on 23 October 2007. Alcan Inc. benefits from certain intangible assets: 2assets including power supply contracts, customer contracts and water rights. The water rights are expected to 20 yearscontribute to the efficiency and cost effectiveness of operations for the foreseeable future: accordingly, these rights are considered to have indefinite lives and are not subject to amortisation. These water rights constitute the majority of the amounts in the column of the above table entitled ‘Contract based intangible assets’.
(b)
The intangible assets with indefinite lives have been valued based on the advice of expert valuation consultants, and no diminution in their value is considered to have occurred since the date of acquisition.
(c)There are no intangible assets either pledged as security or held under restriction of title.
(c)
Exploration and evaluation expenditure
The estimated aggregate amortisation expensecharge for eachthe year and the net amount of intangible assets capitalised during the next five years is generally consistent with that recognised in 2006.year are as follows:

  2007 2006 2005 
  US$m US$m US$m 








 Cash expenditure in year (net of proceeds on disposal of undeveloped properties) (d)576 345 264 
 Changes in accruals (including non-cash proceeds on disposal of undeveloped properties)(61)(36)24 
 Amount capitalised during year(194)(72)(38)








 Charge for the year321 237 250 








(d)Exploration and evaluation costs are stated net of gains on disposal of undeveloped properties totalling US$253 million (2006: US$46 million; 2005: nil)

Exploration and evaluation expenditure


The charge for the year and the net amount of intangible assets capitalised during the year are as follows:

 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 




 

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Notes to the 20062007 Financial statements

13PROPERTY, PLANT AND EQUIPMENT
 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 










 
           
  Mining Land Plant Capital  
  properties and and works in  
  and leases (a) buildings equipment progress Total 
 Year ended 31 December 2007US$m US$m US$m US$m US$m 












 Net book value     
 At 1 January 20076,127 2,540 10,839 2,701 22,207 
 Adjustment on currency translation511 261 1,163 266 2,201 
 Capitalisation of additional closure costs (note 27)284   9 293 
 Interest capitalised (b)  91 31 122 
 Acquisition of subsidiary (note 41)598 4,415 11,485 1,784 18,282 
 Other additions207 169 1,754 2,462 4,592 
 Depreciation for the year(496)(191)(1,314) (2,001)
 Impairment (charges)/reversals(203)11 297 (189)(84)
 Disposals(12)(33)(38) (83)
 Transfers and other movements (c)484 (183)1,428 (1,611)118 












 At 31 December 20077,500 6,989 25,705 5,453 45,647 












 – cost11,280 8,952 38,015 5,813 64,060 
 – accumulated depreciation(3,780)(1,963)(12,310)(360)(18,413)












 Fixed assets held under finance leases (d) 30 42  72 
 Other fixed assets pledged as security (e)31  1,792  1,823 












  Mining Land Plant Capital  
  properties and and works in  
  and leases (a) buildings equipment progress Total 
 Year ended 31 December 2006US$m US$m US$m US$m 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 27)619    619 
 Interest capitalised (b)5  3 52 60 
 Other additions436 194 986 2,278 3,894 
 Depreciation for the year (a)(432)(159)(891) (1,482)
 Impairment (charges)/reversals(166)90 752 (2)674 
 Disposals(25)(13)(50)(21)(109)
 Transfers and other movements (c)205 321 950 (1,410)66 












 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)












 At 1January 2006     












 – cost7,686 3,824 19,382 1,838 32,730 
 – accumulated depreciation(2,462)(1,805)(10,704)(139)(15,110)












 Fixed assets held under finance leases (d) 39 38  77 
 Other fixed assets pledged as security (e)35  1,154  1,189 












(a)Mining properties at 31 December 2007 include deferred stripping costs of US$718 million (2006: US$778 million). Amortisation of deferred stripping costs of US$34 million (2005:(2006: US$69940 million; 2005: US$4 million) is included within ‘Depreciation for the year’.
(b)Interest is capitalised at a rate based on the Group'sGroup’s cost of borrowing or at the rate on project specific debt, where applicable.
(c)'Transfers‘Transfers and other movements'movements’ includes reclassifications between categories.
(d)The finance leases under which these assets are held are disclosed in note 22.23.
(e)Excludes assets held under finance leases. Fixed assets pledged as security represent amounts pledged as collateral against US$339291 million (2005:(2006: US$354339 million) of loans, which are included in note 21.22.
(f)At 31 December 2007 the net balance sheet amount for land and buildings includes amounts as follows:freehold US$6,821 million (2006:US$2,445 million); long leasehold US$163 million (2006: US$92 million); and short leasehold US$5 million (2006: US$3 million).
  2006 2005 
  US$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.    

 

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Notes to the 20062007 Financial statements

14INVESTMENTS IN EQUITY ACCOUNTED UNITS    
      
  2007 2006 
 Summary balance sheet (Rio Tinto share)US$m US$m 






 Rio Tinto’s share of assets  
    Non-current assets (c)9,462 3,654 
    Current assets1,643 1,029 






  11,105 4,683 






 Rio Tinto’s share of liabilities  
    Current liabilities(1,154)(763)
    Non-current liabilities(2,913)(1,685)






  (4,067)(2,448)






 Rio Tinto’s share of net assets7,038 2,235 






14INVESTMENTS 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 3638 and 37.39.
(b)At 31 December 2006,2007, the quoted value of the Group’s share in associates having shares listed on recognised stock exchanges was US$410 million (2006: US$368 million (2005: no such associates)million).
(c)Investments in equity accounted units at 31 December 2007 include goodwill of US$2,822 million (2006: US$39 million), which primarily relates to Alcan Inc. and is based on a provisional allocation of the cost of the acquisition on 23 October 2007.

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 








 
          
    Rio Tinto   Rio Tinto 
  Rio Tinto share of Rio Tinto share of 
  percentage net debt percentage net debt 
  2007 2007 2006 2006 
  % US$m % US$m 










 Jointly controlled entities      
 Minera Escondida Limitada30.0 285 30.0 300 
 Sohar Aluminium Company L.L.C.20.0 205   
 Queensland Alumina Limited (QAL)80.0 29 38.6 44 
 Halco Mining Inc.45.0 39   
 Alcan Ningxia Aluminum Company Limited50.0 39   
        
 Associates      
 Tisand (Pty) Limited49.0 100 49.0 100 
 Port Waratah Coal Services27.6 150 27.6 122 
 Mineracao Rio do Norte S.A.12.5 23   
          
 Other equity accounted units (157) (107)










    713   459 










(a)In accordance with IAS 28 and IAS 31, the Group includes its net investment in equity accounted units in its consolidated balance sheet. This investment is net of the Group'sGroup’s share of the net debt of such units, which is set out above.
(b)Some of the debt of equity accounted units is subject to financial and general covenants.
(c)At 31 December 2007, US$255 million of the debt shown above is with recourse to Rio Tinto. This was part of the subsidiary acquired during the year.
16INVENTORIES
  2007 2006 
  US$m US$m 






 Raw materials and purchased components1,078 448 
 Consumable stores1,054 581 
 Work in progress1,727 459 
 Finished goods and goods for resale1,701 1,151 






  5,560 2,639 






 Comprising:    
 Expected to be used within one year5,382 2,540 
 Expected to be used after more than one year178 99 






  5,560 2,639 






 

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Notes to the 20062007 Financial statements

17TRADE AND OTHER RECEIVABLES        
          
  Non-current Current Non-current Current 
  2007 2007 2006 2006 
  US$m US$m US$m US$m 










 Trade receivables 4,927 56 2,133 
 Provision for doubtful debts (70)(20)(6)
 Amounts due from equity accounted units 249  156 
 Other debtors266 900 35 479 
 Pension surpluses (note 49)705 31 329 31 
 Prepayment of tolling charges to jointly controlled entities (a)555  492  
 Other prepayments and accrued income336 442 91 145 










  1,862 6,479 983 2,938 










16INVENTORIES
 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)No inventories were pledged as security for liabilities at 31 December 2006 or 2005.

17TRADE AND OTHER RECEIVABLES
 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)Rio Tinto Aluminium has made certain prepayments to jointly controlled entities for toll processing of bauxite and alumina. These prepayments will be charged to Group operating costs as processing takes place.
(b)There is no material element of trade and other receivables that is interest bearing.
(c)Due to their short term maturities, the fair value of trade and other receivables approximates to their carrying value.
As of 31 December 2007, trade receivables of US$70 million (2006: US$56 million) were impaired. The amount of impairment was US$70 million (2006: US$26 million). The ageing of these receivables is greater than 90 days overdue.
As of 31 December 2007, trade receivables of US$364 million (2006: US$46 million) were past due but not impaired. The ageing of these receivables is as follows:
  2007 2006 
  US$m US$m 






 less than 30 days overdue270 31 
 between 30 and 60 days overdue62 9 
 between 60 and 90 days overdue29 2 
 greater than 90 days3 4 






   
 These relate to a number of customers for whom there is no recent history of default and other indicators of impairment.
  
 With respect to trade receivables that are neither impaired nor past due, there are no indications as of the reporting date that the debtors will not meet their payment obligations.
  
 The carrying amounts of the Group’s trade receivables (net of provisions for doubtful debts) are denominated in the following currencies:
   
  2007 2006 
  US$m US$m 






 United States dollar3,329 1,713 
 Sterling134 2 
 Australian dollar90 101 
 Canadian dollar13 43 
 South African rand25 31 
 Euro904 55 
 Japanese yen97 118 
 New Zealand dollar17 27 
 Other248 73 






 Total4,857 2,163 






     
 The provision for doubtful trade receivables increased by US$44 million in 2007, of which US$40 million was due to the acquisition of Alcan Inc. and US$4 million from increases in provisions charged within other external costs.

 

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Notes to the 20062007 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 










 
  2007 2006 
  US$m US$m 






 At 1 January2,114 2,142 
 Adjustment on currency translation278 97 
 Deferred tax of acquired companies3,954  
 Credited to the income statement(203)(54)
 Credited to SORIE (a)(203)(94)
 Other movements (b)(39)23 






 At 31 December5,901 2,114 






 Comprising:  
 – deferred tax liabilities (c)6,486 2,339 
 – deferred tax assets (c)(585)(225)






Deferred tax balances for which there is a right of offset within the same jurisdiction are presented net on the face of the balance sheet as permitted by IAS12. The closing deferred tax liabilities and assets, prior to this offsetting of balances, are shown below.
    Other   
  UK Australian countries’ Total Total 
  tax tax tax 2007 2006 
  US$m US$m US$m US$m US$m 












 Deferred tax liabilities arising from:     
 Accelerated capital allowances96 1,986 6,479 8,561 3,181 
 Post retirement benefits118 3 4 125 94 
 Unremitted earnings  330 330 226 
 Other temporary differences3 275 318 596 121 












  217 2,264 7,131 9,612 3,622 












 Deferred tax assets arising from:     
 Capital allowances    (100)
 Provisions(112)(542)(1,141)(1,795)(735)
 Post retirement benefits(76)(2)(861)(939)(285)
 Tax losses(162) (706)(868)(301)
 Other temporary differences (109) (109)(87)












  (350)(653)(2,708)(3,711)(1,508)












 (Credited)/charged to the income statement     
 (Decelerated)/accelerated capital allowances9 165 (266)(92)280 
 Provisions(7)(192)(20)(219)(5)
 Post retirement benefits1 (1)59 59 16 
 Tax losses utilised/(generated)(148) 43 (105)(280)
 Tax on unremitted earnings  34 34 (2)
 Other temporary differences(5)10 115 120 (63)












  (150)(18)(35)(203)(54)












(a)The amounts credited directly to the SORIE relate to thetax relief on share options, provisions for tax on exchange differences on intra-groupintragroup 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'‘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$2,3396,486 million (2005:(2006: US$2,1972,339 million) includes US$1,7646,238 million (2005:(2006: US$1,6781,764 million) due in more than one year. The deferred tax asset of US$225585 million (2005:(2006: US$55225 million) includes US$139240 million (2005(2006: US$18139 million) receivable in more than one year.
(d)US$7631,360 million (2005:(2006: US$1,399763 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$1,7111,921 million (2005:(2006: US$1,0991,711 million) would be payable.
(f)There is a limited time period for the recovery of US$nil (2005:US$5 million)62 million (2006: nil) of tax losses which have been recognised as deferred tax assets in the accounts.

 

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Notes to the 20062007 Financial statements

19ASSETS HELD FOR SALE
Assets and liabilities held for sale comprise the Alcan Packaging group and the Tarong Coal mine, which was in the Energy product group. In the announcement of Rio Tinto’s offer for Alcan on 12 July 2007, it was stated that Rio Tinto and Alcan had agreed to divest the Packaging business of Alcan. As the Packaging group was acquired with a view to resale, its results are excluded from the Group Income Statement. The Tarong mine was sold on 31 January 2008 for an amount in excess of its carrying value.
20OTHER 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.
          
  Non-current Current Non-current Current 
  2007 2007 2006 2006 
  US$m US$m US$m US$m 










 Currency and commodity contracts: designated as hedges34 100 42 36 
 Derivatives and embedded derivatives not related to net debt: not designated as hedges (a) 480  122 
 Derivatives related to net debt 39 3 352 
 US Treasury bonds21  20  
 Equity shares and quoted funds53 321 125 51 
 Other investments, including loans472  184  
 Other liquid resources (non-cash equivalent) 6  6 










  580 946 374 567 










  
(a)Derivatives and embedded derivatives not designated as hedges include amounts of US$117 million (2006: US$82 million) which mature beyond one year.
      
21CASH AND CASH EQUIVALENTS    
      
  2007 2006 
  US$m US$ 






 Cash at bank and in hand579 555 
 Short term bank deposits1,066 181 






  1,645 736 






 Bank overdrafts repayable on demand (unsecured)(104)(14)






 Balance per Group cash flow statement1,541 722 






  
(a)Cash and cash equivalents include US$93 million (2006: US$55 million) for which there are restrictions on remittances.

 

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 note 48 Reconciliation to US Accounting Principles.

A-29



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Notes to the 20062007 Financial statements

22BORROWINGS          
             
     Non-current Current Non-current Current 
     2007 2007 2006 2006 
   Note US$m US$m US$m US$m 












 Borrowings at 31 December          
            
 Syndicated bank loans (a)  33,263 4,466   
            
 Other bank loans  97 1,749 157 156 
            
 Commercial paper   644   
            
 Other loans          
  Finance leases23 104 19 96 25 
  Rio Tinto Finance (USA) Limited Bonds 2.625% 2008(d) swapped   596 586  
  Rio Tinto Finance (USA) Limited Bonds 7.125% 2013  100  100  
  Colowyo Coal Company L.P. Bonds 9.56% 2011  32 8 40 7 
  Colowyo Coal Company L.P. Bonds 10.19% 2016  100  100  
  Alcan, Inc. Debentures 6.25% due 2008   203   
  Alcan, Inc. Debentures 6.45% due 2011  415    
  Alcan, Inc. Global Notes 4.875% due 2012(d) swapped  489    
  Alcan, Inc. Global Notes 4.50% due 2013  476    
  Alcan, Inc. Global Notes 5.20% due 2014  492    
  Alcan, Inc. Global Notes 5.00% due 2015(d) swapped  479    
  Alcan, Inc. Debentures 7.25% due 2028  110    
  Alcan, Inc. Debentures 7.25% due 2031  441    
  Alcan, Inc. Global Notes 6.125% due 2033  736    
  Alcan, Inc. Global Notes 5.75% due 2035  280    
  European Medium Term Notes (c)  384 76 430 1,195 
  Other secured loans  346 27 241 7 
  Other unsecured loans  270 321 257 100 












 Total borrowings  38,614 8,109 2,007 1,490 












21BORROWINGS
(a)In support of its acquisition of Alcan Inc., the Group arranged for US$40 billion in term loans and revolving credit facilities, whichwere fully underwritten and subsequently syndicated (the ‘Syndicated bank loans’). The Syndicated bank loans are dividedinto four facilities, as follows:
   Non-current Current Non-current Current 
   2006 2006 2005 2005 
 Note US$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 










 
          
  Facility A Facility B Facility C Facility D 










 Facility amount (US$ billions)15 10 5 10 
 TypeTerm Loan Revolving Revolving Term Loan 
    Credit Facility Credit Facility   
 DueOctober 2008 (b) October 2010 October 2012 October 2012 
 RepaymentBullet Bullet Bullet Bullet 










(a)
As at 31 December 2007, facilities A, B and D have been fully drawn, and US$2.14 billion remains undrawn on facility C. The amounts outstanding under these facilities are shown net of the unamortised costs of obtaining the facilities.
Facilities A and B are subject to mandatory prepayment to the extent of the net proceeds from disposals of assets and from the raising of funds through capital markets, under specific thresholds and conditions.
(b)The Group has the option to extend final maturity on the outstanding balance of Facility A for an additional year.
(c)Rio Tinto has a US$10 billion (2006: US$3 billionbillion) European Medium Term Note (EMTN) programme for the issuance of debt, of which approximately US$1.60.4 billion was drawn down at 31 December 2006.2007 (2006: US$1.6 billion). The Group’s EMTNs are swapped to US dollars. The fair value of currency swaps at 31 December 2007 was a liability of US$7 million. Details of the major currency swaps are shown in note 34 (d). In 2007, other EMTNs of US$31 million relate to Alcan Inc.
(b)
(d)CertainUS$1.2 billion of these fixed rate borrowings shown above areis swapped to floating rates. DetailsThe fair value of the interest rate and currency swaps and of available standby credit are shown in note 32.swap at 31 December 2007 was US$31 million.
(c)
(e)Of the Group'sThe Group’s borrowings of US$46.7 billion (2006: US$3.5 billion borrowings,billion) include some US$4.7 billion (2006: US$0.7 billionbillion) which relates to non-recourse borrowings of subsidiaries that are without recourse to the Group, some of which are subject ofto various financial and general covenants with which the respective borrowers are in compliance as of 31 December 2006.2007.

 

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)




 

A-30



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Notes to the 20062007 Financial statements

23CAPITALISED FINANCE LEASES    
      
  2007 2006 
  US$m US$m 






 Present value of minimum lease payments  
 Total minimum lease payments129 141 
 Effect of discounting(6)(20)






  123 121 






    
 Payments under capitalised finance leases  
 Due within one year19 25 
 Between 1 year and 5 years67 52 
 More than 5 years37 44 






  123 121 






      
24CONSOLIDATED NET DEBT    
      
  Net debt Net debt 
  2007 2006 
  US$m US$m 






 Analysis of changes in consolidated net debt  
 At 1 January(2,437)(1,313)
 Adjustment on currency translation(223)(56)
 Exchange gains credited to the income statement136 38 
 Gains on derivatives related to net debt11 44 
 Debt of acquired companies(5,465) 
 Cash movements excluding exchange movements(37,332)(1,146)
 Other movements158 (4)






 At 31 December(45,152)(2,437)






      






 Reconciliation to balance sheet categories  
 Borrowings (note 22)(46,723)(3,497)
 Bank overdrafts repayable on demand (note 21)(104)(14)
 Cash and cash equivalents (note 21)1,645 736 
 Other liquid resources (note 20)6 6 
 Derivatives related to net debt (note 34)24 332 






 Balances per above(45,152)(2,437)






      






 Exchange gains on US dollar net debt and intragroup balances  
 Exchange gains on US dollar net debt163 38 
 Exchange gains/(losses) on intragroup balances11 (5)
 Exchange losses on loans from equity accounted units(2) 
 Exchange gain on settlement of dividend22 13 






 Credited to income statement194 46 






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 information relating to the currency and interest rate exposures arising from net debt and related derivatives is given in note 3234 on Financial Instruments.

 


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Notes to the 2007 Financial statements

2425TRADE AND OTHER PAYABLES
 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 








 
  Non-current Current Non-current Current 
  2007 2007 2006 2006 
  US$m US$m US$m US$m 










 Trade creditors 3,145  1,291 
 Amounts owed to equity accounted units 219  143 
 Other creditors (a)176 575 190 212 
 Employee entitlements 915  187 
 Royalties and mining taxes 325  264 
 Accruals and deferred income126 1,481 107 595 
 Government grants deferred201 7 65 1 










  503 6,667 362 2,693 










(a)'Other creditors'‘Other creditors’ include deferred consideration of US$179209 million (2005:(2006: US$179 million) relating to certain assets 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 other accounts payable and accruals are non-interestnon interest bearing.
(b)Due to their short term maturities, the fair value of trade and other payables approximates to their carrying value.

2526OTHER 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 








 
  Non-current Current Non-current Current 
  2007 2007 2006 2006 
  US$m US$m US$m US$m 










 Forward commodity contracts: designated as hedges490 283 214 162 
 Derivatives related to net debt6 9 19 4 
 Other derivatives and embedded derivatives: not designated as hedges 537  27 
 Other financial liabilities 49   










  496 878 233 193 










(a)Detailed information relating to other financial liabilities is given in note 32.34.

 

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Notes to the 20062007 Financial statements

2627
PROVISIONS (NOT INCLUDING TAXATION)
 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 












 
  Pensions   Close down       
  and post Other and       
  retirement employee restoration/   Total Total 
  healthcare entitlements environmental Other 2007 2006 
  US$m US$m US$m US$m US$m US$m 














 At 1 January770 393 3,359 146 4,668 4,186 
 Adjustment on currency translation59 36 211 14 320 113 
 Amounts capitalised  293  293 619 
 Acquisition of subsidiary (note 41)2,550 126 1,518 444 4,638  
 Charged/(credited) to profit:            
    – new provisions 1 9 9 19 25 
    – increases to existing provisions102 259 127 10 498 277 
    – unused amounts reversed (5)(200)(4)(209)(242)
 Amortisation of discount 1 164 1 166 137 
 Utilised in year(119)(49)(82)(33)(283)(271)
 Transfer to liabilities of disposal groups held for sale (12)(124) (136) 
 Liability incurred as a result of acquisition   189 189  
 Actuarial gains recognised in equity(87)   (87)(245)
 Transfers and other movements  (4)(54)(58)69 














 At 31 December3,275 750 5,271 722 10,018 4,668 














 Balance sheet analysis:            
 Current80 304 215 184 783 366 
 Non-current3,195 446 5,056 538 9,235 4,302 














 Total3,275 750 5,271 722 10,018 4,668 














(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 given in note 46.49.
(b)The provision for other employee entitlements includes a provision for long service leave of US$107 million(2006:US$86 million (2005: US$122 million), based on the relevant entitlements in certain Group operations. It also includes the provisions relating to theGroup’s cash-settled share-based payment plans of US$219 million (2006: US$43 million), which are described in note 48.
(c)The Group'sGroup’s policy on close down and restoration costs is described in note 1(k). Close down and restoration costs are a normal consequencenormalconsequence of mining, and the majority of close down and restoration expenditure is incurred at the end of the relevant operation. Remainingoperation.Remaining lives of mines and infrastructure range from 1 to over 50 years with an average, weighted by closure provision, of around 14 years (2005: 16 years).around19 years. Although the ultimate cost to be incurred is uncertain, the Group'sGroup’s businesses estimate their respective costs based on feasibilityonfeasibility and engineering studies using current restoration standards and techniques. Provisions of US$3,3595,271 million (2005: (2006:US$2,6933,359 million) for close down and restoration costs and environmental clean up obligations, include estimates of the effect of futureoffuture inflation and have been adjusted to reflect risk.
These estimates have been discounted to their present value at an averagerate of approximately 5five per cent (2005: 5.5 per cent) per annum, being an estimate of the long term, risk free, pre-tax cost of borrowing. Excluding the effectstheeffects of future inflation, butand before discounting, this provision is equivalent to some US$8.1 billion (2006:US$4.7 billion (2005: US$4.0 billion).
(d)Some US$214 million (2006: US$50 millionmillion) of environmental clean up expenditure is expected to take place within the next five years.fiveyears. The remainder includes amounts for the operation and maintenance of remediation facilities in later years. The provision for environmentalforenvironmental clean up expenditure includes the issue described in (e) below.
(e)In 1995, Kennecott Utah Copper ('KUC'(‘KUC’) agreed with the US Environmental Protection Agency ('EPA'(‘EPA’) and the State of Utah to completetocomplete certain source control projects and perform specific environmental studies regarding contamination of ground water inwaterin the vicinity of the Bingham Canyon mine. A remedial investigation and feasibility study on the South Zone ground water contamination,watercontamination, completed in March 1998, identified a range of alternative measures to address this issue. Additional studies werestudieswere conducted to refine the workable alternatives. A remedial design document was completed in 2002. A joint proposal andproposaland related agreements with the State of Utah Natural Resource Damage Trustee, the State of Utah and the Jordan Valley WaterValleyWater Conservancy District were approved in 2004. KUC also anticipates enteringentered into a formal agreement with the EPA in 2007 on the remedialtheremedial action.
The provision was reduced by US$37101 million during 2006 (2005:2007 (2006: US$8437 million) following a reassessment of the expectedtheexpected cost of remediation and the expected timing of the expenditure to reflect recent experience. The ultimate cost of remediation remains uncertain, being dependent ondependenton the responsiveness of the contamination to pumping and acid neutralisation.
(f)Other provisions deal with a variety of issues and include US$22191 million (2005: US$33 million) relating to amounts received from employees for accommodation at some sites which are refundable in certain circumstances.the Rio Tinto Alcan Foundation commitmentin Canada, involving payments of C$200 million over a five year period.
(g)Provisions for close down, restoration and environmental obligations increased by US$279 million (2005: US$207 million)in 2006 as athe result of a reductionareduction in the discount rate. Of this amount, US$221 million (2005: US$172 million) is included in 'Amounts capitalised'‘Amounts capitalised’.

 

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Notes to the 20062007 Financial statements

2728SHARE CAPITAL - RIO TINTO PLC
 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 








 
              
  2007 2006 2005 2007 2006 2005 
  Number (m) Number (m) Number (m) US$m US$m US$m 














 Issued and fully paid up share capital            
 At 1 January1,071.49 1,071.02 1,068.02 172 172 172 
 Ordinary shares issued (a)0.31 1.27 3.00    
 Own shares purchased and cancelled (b) (0.80)    














 At 31 December1,071.80 1,071.49 1,071.02 172 172 172 














 shares repurchased and held in treasury (b)74.55 47.82 2.60       
 shares held by public997.25 1,023.67 1,068.42       
 Special Voting share of 10p (d)1 only 1 only 1 only       
 DLC Dividend Share of 10p (d)1 only 1 only 1 only       








      
 Shares held by public            








      
 At 1 January1,023.67 1,068.42 1,068.02       
 Ordinary shares issued (a)0.31 1.27 3.00       
 Own shares purchased and cancelled (b) (0.80)       
 Shares reissued from treasury0.97 1.12        
 Shares repurchased and held in treasury (b)(27.70)(46.34)(2.60)      








      
 At 31 December997.25 1,023.67 1,068.42       








      
 Unissued share capital            
 Ordinary shares of 10p each349.43 349.74 350.21 51 51 51 
 Equalisation Share of 10p (d)1 only 1 only 1 only    














 Total authorised share capital1,421.23 1,421.23 1,421.23 223 223 223 














(a)1,265,570311,458 Ordinary shares were issued, and 1,117,021969,435 Ordinary shares reissued from treasury during the year resulting from the exercise of options under Rio Tinto plc employee share option schemesbased payment plans at contracted prices between 808.8p and 1,925p (2005: 3,000,1552,799p (2006: 2,382,591 shares issued at prices between 809p808.8p and 1,459p)1,925p).
(b)At the 20062007 annual general meeting, the shareholders renewed the general authority for the Company to buy back up to 10ten per cent of its Ordinary shares of 10p each for a further period of 12 months. The share buyback programme was suspended on 12 July 2007 at the time the Alcan offer was announced. Rio Tinto is seeking renewal of this approval at its annual general meeting in 2007.2008. During the year to 31 December 2006, 46,340,0002007, 27,700,000 shares were bought back and held in treasury (2005: 2,600,000)(2006: 46,340,000) at an average buy back price of £27.27£30.05 per share (2005: £22.47), and(2006: £27.27). No shares were cancelled during the year ended 31 December 2007 (2006: 800,000 (2005: nil) shares were bought back at an average buy back price of £27.36 (2005: nil) and cancelled.cancelled). The total consideration paid was US$1,648 million (2006: US$2,394 million (2005: US$103 million).
(c)The aggregate consideration received for shares issued during 20062007 was US$13 million (2006: US$31 million (2005: US$66 million ).million). The aggregate consideration received for treasury shares reissued was US$24 million (2005: nil)(2006: US$24 million).
(d)The 'Special‘Special Voting Share'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 shareEqualisation Share if that is required under the terms of the DLC Merger Sharing Agreement. The 'DLC‘DLC Dividend Share'Share’ was issued to facilitate the efficient management of funds within the DLC structure.
(e)Information relating to share options and other share based incentive schemes is given in note 4548 on share based payments.

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Notes to the 2006 Financial statements

2829SHARE 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   








 
  2007 2006 2005 2007 2006 2005 
  Number (m) Number (m) Number (m) US$m US$m US$m 














 Share capital account            
 At 1 January285.75 285.75 311.90 1,099 1,019 1,133 
 Adjustment on currency translation      120 80 (65)
 Own shares purchased (a)  (27.29)  (83)
 Share issues (b)  1.14   34 














 At 31 December285.75 285.75 285.75 1,219 1,099 1,019 














 Share capital held by Rio Tinto plc171.07 171.07 171.07       
 – Special Voting share of 10p (c)1 only 1 only 1 only       
 – DLC Dividend Share of 10p (c)1 only 1 only 1 only       








      
 Total share capital (c)456.82 456.82 456.82       








      
(a)In May 2006, shareholders authorised Rio Tinto Limited to buy back ordinary shares during the following 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 Limited shares during that 12 month period. Rio Tinto Limited is also authorised to buy back Rio Tinto Limited shares held by Tinto Holdings Australia Pty Limited (a wholly owned subsidiary of Rio Tinto plc). The share buyback programme was suspended on 12 July 2007 at the time the Alcan acquisition was announced. Rio Tinto Limited is seeking renewal of these approvals at its annual general meeting in 2007.2008.
 No shares were bought back during the yearsyear to 31 December 2006.2007 (2006: nil). During the year to 31 December 2005, 27,294,139 shares were bought back 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 2006.2007 (2006: nil). The aggregate consideration received for shares issued during 2005 was US$34 million.


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Notes to the 2007 Financial statements

29SHARE CAPITAL RIO TINTO LIMITEDcontinued
(c)Total share capital in issue at 31 December 2006 was 456.82 million plus one special voting share and one DLC dividend share (31 December 2005: 456.82 million plus one special voting share and one DLC dividend share . The 'Special‘Special Voting Share'Share’ was issued to facilitate the joint voting by shareholders of Rio Tinto Limited and Rio Tinto plc on Joint 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)Share options exercised during the year to 31 December 20062007 under various Rio Tinto Limited employee share option schemes were satisfied by the on-market purchase of Rio Tinto Limited shares by a third party on the Group'sGroup’s behalf. During the year to 31 December 2005, 1,138,006 shares were issued, 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 Mining Companies Comparative Plan.
(e)Information relating to share options and other share based incentive schemes is given in note 4548 on share based payments.

A-34


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Notes to the 2006 Financial statements

29CHANGES 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 






 
30 CHANGES IN EQUITY, SHARE PREMIUM AND RESERVES
              
      Year ended      Year ended  
  Attributable   31 Attributable   31 
  to   December to   December 
  shareholders Outside 2007 shareholders Outside 2006 
 Summary statement ofof Rio Tinto interests Total of Rio Tinto interests Total 
 changes in equityUS$m US$m US$m US$m US$m US$m 














 Opening balance18,232 1,153 19,385 14,948 791 15,739 
 Total recognised income for the year9,407 470 9,877 8,514 468 8,982 
 Dividends (note 10)(1,507)(164)(1,671)(2,573)(193)(2,766)
 Own shares purchased from Rio Tinto shareholders:            
 – Under capital management programme (a)(1,348) (1,348)(2,658) (2,658)
 – To satisfy share options(64) (64)(49) (49)
 Ordinary shares issued13  13 31  31 
 Outside interests in acquired companies 55 55    
 Shares issued to outside interests 38 38  69 69 
 Employee share options charged to income statement39  39 23  23 
 Other movements   (4)18 14 














 Closing balance24,772 1,552 26,324 18,232 1,153 19,385 














        
      Year ended 
  Attributable   31 
  to   December 
  shareholders Outside 2005 
  of Rio Tinto interests Total 
 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 (a)(877) (877)
 – To satisfy share options   
 Ordinary shares issued100  100 
 Outside interests in acquired companies   
 Shares issued to outside interests 4 4 
 Employee share options charged to income statement24  24 
 Other movements 4 4 








 Closing balance14,948 791 15,739 








        
(a)SharesThe charge to equity for shares bought back includein 2006 included US$288 million in respect of a commitment entered into before the financial year end to purchase, from a bank, Rio Tinto plc shares that the bank could buy in the market during the period up to the preliminary announcement of the Group's results, when the Group is unable to purchase its own shares.Group’s results. The commitment was settled during 2007.
        
  Total Total Total 
  2007 2006 2005 
  US$m US$m US$m 








 Share premium account      
 At 1 January1,919 1,888 1,822 
 Premium on issues of ordinary shares13 31 66 








 At 31 December1,932 1,919 1,888 








 Retained earnings (a)      
 At 1 January14,401 11,893 8,388 
 Parent and subsidiaries’ profit for the year7,058 7,440 4,853 
 Equity accounted units’ retained profit for the year254 (2)362 
 Actuarial gains135 338 179 
 Dividends(1,507)(2,573)(1,143)
 Own shares purchased from Rio Tinto shareholders under capital management programme(1,348)(2,658)(794)
 Employee share options charged to income statement19 12 13 
 Tax recognised directly in statement of recognised income and expense21 (45)35 
 Other movements (4) 








 At 31 December19,033 14,401 11,893 








A-35



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Notes to the 20062007 Financial statementsstatement

29CHANGES IN EQUITY, SHARE PREMIUM AND RESERVES CONTINUED
 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)




 
30CHANGES IN EQUITY, SHARE PREMIUM AND RESERVEScontinued
        
  Total Total Total 
  2007 2006 2005 
  US$m US$m US$m 








 Hedging reserves(b)      
 At 1 January(133)(77)29 
 Parent and subsidiaries’ net cash flow hedge fair value losses(197)(178)(122)
 Equity accounted units’ cash flow hedge fair value gains/(losses)(4) 6 
 Parent and subsidiaries’ net cash flow hedge losses transferred to the income statement89 63 (18)
 Equity accounted units’ cash flow hedge losses transferred to the income statement  18 
 Tax on the above71 59 10 








 At 31 December(174)(133)(77)








 
Available for sale revaluation reserves (c)
      
 At 1 January31 20 70 
 Gains on available for sale securities49 14 32 
 Gains on available for sale securities transferred to the income statement(16)(4)(88)
 Tax on the above(7)1 6 








 At 31 December57 31 20 








 Other reserves(d)      
 At 1 January8 42 31 
 Own shares purchased from Rio Tinto shareholders to satisfy share options(64)(49) 
 Employee share options: value of services20 11 11 
 Deferred tax on share options55 4  








 At 31 December19 8 42 








 
Foreign currency translation reserve (e)
      
 At 1 January735 (9)322 
 Currency translation adjustments1,796 748 (411)
 Exchange losses(30)(8)75 
 Currency translation reclassified on disposal 4  
 Tax on exchange adjustments13  5 








 At 31 December2,514 735 (9)








        








 
Total other reserves per balance sheet
2,416 641 (24)








        
(a)Retained profit and movements in reserves of subsidiaries include those arising from the Group'sGroup’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 areis recorded in retained earnings.
(e)Exchange differences arising on the translation of the Group'sGroup’s net investment in foreign controlled companies are taken to the foreign currency translation reserve, as described in note 1(d), (net of translation adjustments relating to Rio Tinto Limited share capital). Amounts are recognised inThe cumulative differences relating to an investment would be transferred to the income statement whenif the investment iswere disposed of.

A-36

A-35


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Notes to the 20062007 Financial statementsstatement

30PRIMARY 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 












 
31PRIMARY SEGMENTAL ANALYSIS (BY PRODUCT GROUP)
              
  2007 2006 2005 2007 2006 2005 
  % % % US$m US$m US$m 














 Sales revenue            
 Iron ore29.6 30.9 28.9 8,799 6,938 5,497 
 Energy15.0 18.1 19.4 4,454 4,070 3,693 
 Aluminium23.8 15.5 14.4 7,055 3,493 2,744 
 Copper17.6 19.6 18.0 5,238 4,396 3,433 
 Diamonds and Industrial Minerals12.8 14.9 18.2 3,787 3,339 3,450 
 Other1.2 1.0 1.1 367 229 216 














 Consolidated sales revenue100.0 100.0 100.0 29,700 22,465 19,033 














              


 Consolidated profit before finance items and taxation
 Iron ore47.6 42.9 41.5 4,083 3,847 2,872 
 Energy (c)10.8 8.9 15.4 929 801 1,064 
 Aluminium9.5 11.9 7.3 813 1,069 502 
 Copper (c)36.7 37.1 28.2 3,143 3,333 1,949 
 Diamonds and Industrial Minerals (c)3.4 3.4 11.7 293 311 813 
 Exploration and evaluation0.7 (1.1)(2.7)58 (101)(193)
 Other(8.7)(3.1)(1.4)(748)(286)(85)














 
Operating profit (segment result)
100.0 100.0 100.0 8,571 8,974 6,922 














              














 Share of profit after tax of equity accounted units
 Copper      1,542 1,271 660 
 Other      42 107 116 














 
Profit before finance items and taxation
      10,155 10,352 7,698 














              














Depreciation and amortisation
(excluding share of equity accounted units)
 Iron ore25.8 25.6 23.5 546 387 315 
 Energy15.8 19.6 20.9 335 296 279 
 Aluminium21.5 9.5 9.0 455 143 121 
 Copper17.6 19.5 18.8 372 295 251 
 Diamonds and Industrial Minerals16.5 23.6 24.4 349 356 326 
 Exploration and evaluation0.2 0.2 0.2 4 3 3 
 Other2.6 2.0 3.2 54 29 43 














 Product group total100.0 100.0 100.0 2,115 1,509 1,338 














              
(a)The product groups shown above reflect the Group'sGroup’s management structure and are the Group'sGroup’s primary segments in accordance with IAS14.IAS 14. 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 isproduct groups are consistent with those identified in the financial information by business unit data included in Note 50 on pages A-67 and A-68.A-69 to A-71. However, that information includes the results of equity accounted units and presents different financial measures. The Alcan businesses are included within the Aluminium product group except for Packaging which is classified as held for sale at the year end.
(b)As detailed below, the analysis of profit before finance costs and taxation includes the profit on disposal of interests in businesses (including investments) and impairment (reversals)(charges)/charges,reversals, which are excluded from Underlying earnings.
(c)The aboveAn analysis of depreciation and amortisation includes the following impairment (charges)/reversals and charges.
        
  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,reported in the operating profitincome of the Coppereach product group included the benefit of an exceptional reduction in environmental provisions of US$37 million (2005: US$84 million; 2004: US$nil).is shown below:
  Total Total Total 
  2007 2006 2005 
  US$m US$m US$m 








 Impairment (charges)/reversals by product group      
 Iron Ore 298  
 Energy145 (188)(13)
 Aluminium(9)  
 Copper272 610  
 Diamonds and Industrial Minerals(466)(324)16 








  (58)396 3 








A-37



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Notes to the 20062007 Financial statements

3031PRIMARY SEGMENTAL ANALYSIS (BY PRODUCT GROUP) CONTINUEDcontinued
 
 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 








 
  2007 2006 2007 2006 
  % % US$m US$m 










 Segment Assets (subsidiaries and proportionally consolidated units)        
 Iron ore16.4 33.8 13,634 10,151 
 Energy6.7 16.5 5,588 4,965 
 Aluminium61.6 12.9 51,192 3,863 
 Copper6.0 16.0 5,012 4,814 
 Diamonds and Industrial Minerals7.6 17.6 6,307 5,260 
 Other1.7 3.2 1,353 959 










 Product group total100.0 100.0 83,086 30,012 










          










 Equity accounted units (a)        
 Copper25.3 58.0 1,873 1,385 
 Aluminium72.2 36.8 5,346 878 
 Other2.5 5.2 181 123 










 Total100.0 100.0 7,400 2,386 










 Assets held for sale    7,024  
 Deferred tax assets    585 225 
 Current tax recoverable    256 214 
 Pension surpluses    736 360 
 Derivative assets    653 555 
 Cash and liquid resources    1,651 742 










 Total assets    101,391 34,494 










(a)The analysis of the Group'sGroup’s investment in equity accounted units includes loans to 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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Notes to the 2006 Financial statements

          
  2007 2006 2007 2006 
  % % US$m US$m 










 Segment Liabilities (subsidiaries and proportionally consolidated units)      
 Iron ore16.9 21.1 (2,358)(1,467)
 Energy10.5 21.3 (1,462)(1,480)
 Aluminium46.2 10.7 (6,450)(745)
 Copper10.1 23.8 (1,406)(1,653)
 Diamonds and Industrial Minerals7.6 12.6 (1,055)(878)
 Other8.7 10.5 (1,231)(730)










 Total100.0 100.0 (13,962)(6,953)










 Liabilities held for sale    (2,632) 
 Borrowings and bank overdrafts    (46,827)(3,511)
 Current tax payable    (560)(1,110)
 Deferred tax liabilities    (6,486)(2,339)
 Derivative liabilities    (1,325)(426)
 Post retirement benefit liabilities    (3,275)(770)










 Total liabilities    (75,067)(15,109)










          
  2007 2006 2005 2007 2006 2005 
  % % % US$m US$m US$m 














 Capital additions (a)           
 Iron ore7.9 48.4 44.0 2,465 2,303 1,291 
 Energy1.9 12.4 20.6 583 591 604 
 Aluminium84.6 5.3 5.0 26,376 253 147 
 Copper1.0 15.9 11.5 314 758 337 
 Diamonds and Industrial Minerals3.3 14.4 15.0 1,027 688 441 
 Other1.3 3.6 3.9 394 170 114 














 Total capital additions100.0 100.0 100.0 31,159 4,763 2,934 














             
    Note        














 Analysis of capital additions           
 Property, plant & equipment – cash expenditure      22,870 3,800 2,523 
 Capitalised closure costs and other provisions  13   293 619 346 
 Capitalised interest  13   122 60 28 
 Intangible assets – cash expenditure      7,667 120 29 
 Exploration & evaluation capitalised  12   203 72 38 
 Finance leases taken out       2 64 
 Movement in payables for capital expenditure      4 90 (94)














 Capital additions per above      31,159 4,763 2,934 














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-currentnon current assets shown above, measured on an accruals basis, in accordance with IAS 14. Capital additions include the relevant non current assets of the acquired companies at the date of acquisition. These figures exclude capital additions of equity accounted units.

A-39



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Notes to the 20062007 Financial statements

3132SECONDARY 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       










 
 By destination2007 2006 2005 2007 2006 2005 
  % % % US$m US$m US$m 














 Gross sales revenue by destination         
 North America (a)22.6 21.9 21.7 7,582 5,575 4,499 
 Europe19.8 17.2 20.5 6,641 4,378 4,260 
 Japan16.8 19.6 19.1 5,633 4,986 3,954 
 China18.0 16.0 15.0 6,021 4,062 3,112 
 Other Asia12.2 13.5 12.8 4,105 3,438 2,663 
 Australia and New Zealand5.6 5.8 6.7 1,892 1,477 1,400 
 Other5.0 6.0 4.2 1,644 1,524 854 














 Total100.0 100.0 100.0 33,518 25,440 20,742 














 Less: share of equity accounted units’ sales revenue      (3,818)(2,975)(1,709)














 Consolidated sales revenue      29,700 22,465 19,033 














           
 Consolidated sales revenue by destination         
 North America (a)24.5 23.9 22.3 7,262 5,358 4,235 
 Europe20.3 17.5 20.8 6,027 3,929 3,968 
 Japan16.9 19.6 19.0 5,012 4,402 3,620 
 China18.0 16.2 15.4 5,342 3,648 2,932 
 Other Asia10.9 12.0 12.4 3,238 2,691 2,366 
 Australia and New Zealand6.0 6.3 7.0 1,771 1,412 1,336 
 Other3.4 4.5 3.1 1,048 1,025 576 














 Total100.0 100.0 100.0 29,700 22,465 19,033 














           
 Gross sales revenue by country of origin         
 North America (a)29.8 29.6 30.8 9,992 7,529 6,397 
 Australia and New Zealand45.5 49.9 51.2 15,243 12,703 10,613 
 South America9.5 10.5 6.3 3,195 2,679 1,302 
 Africa5.9 5.7 5.5 1,975 1,461 1,149 
 Indonesia1.4 1.6 3.4 461 396 702 
 Europe and other countries7.9 2.7 2.8 2,652 672 579 














 Total100.0 100.0 100.0 33,518 25,440 20,742 














 Less: share of equity accounted units’ sales revenue      (3,818)(2,975)(1,709)














 Consolidated sales revenue      29,700 22,465 19,033 














      
  Segment assets Capital additions 
  2007 2006 2007 2006 2005 
  US$m US$m US$m US$m US$m 












 Assets and capital additions by location (excluding equity accounted units)          
 North America (a)37,522 10,302 16,251 1,430 830 
 Australia and New Zealand27,931 17,097 7,506 2,993 1,914 
 South America589 151 272 19 37 
 Africa2,142 1,168 501 204 62 
 Indonesia669 605 76 49 68 
 Europe14,069 855 6,509 68 23 
 Other countries900 194 44   












  83,822 30,372 31,159 4,763 2,934 
            
 Investments in equity accounted units (b)          
 North America (a)1,033 408       
 Australia and New Zealand2,501 937       
 South America1,567 993       
 Other countries2,299 48       






  7,400 2,386       
            
 Assets held for sale7,024        
 Deferred tax assets585 225       
 Current tax recoverable256 214       
 Derivative assets653 555       
 Cash and liquid resources1,651 742       






 Total assets101,391 34,494       






(a)The United States of America and Canada have been combined to form the 'North America'‘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'sGroup’s share of net assets plus loans to equity accounted units, which are shown separately on the face of the balance sheet.

 

A-40



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Notes to the 20062007 Financial statements

3233FINANCIAL INSTRUMENTS

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.
     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. 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.

Foreign exchange risk
Rio Tinto’s shareholders' equity, 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 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 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 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 are 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 finance 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.
     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.

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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.
     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.
     The major balance sheet line items affected were financial assets: increase of US$287 million, financial liabilities: increase of US$66 million, and borrowings: 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 those of equity accounted units.
     Trade and other receivables/payables are included only in the currency analysis. The information is grouped in the following 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 above currency forward contracts were acquired with companies purchased in 2000 and were entered into by those companies in order to reduce their exposure to the US dollar through 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 the 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.

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Notes to the 2006 Financial statements

32FINANCIAL INSTRUMENTS CONTINUEDRISK MANAGEMENT
  
b)Options relatingThe Group’s policies with regard to trading transactions: designatedfinancial risk management are clearly defined and consistently applied. They are a fundamental part of the Group’s long term strategy covering areas such 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 and were entered into by those companies in order to reduce their exposure to the US dollar forecast sales.

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.

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Notes to the 2006 Financial statements

32FINANCIAL INSTRUMENTS CONTINUEDforeign exchange risk, interest rate risk, commodity price risk, credit risk and liquidity risk and capital management.
  
d)CurrencyGenerally, the Group only sells commodities it has produced but may purchase commodities to satisfy customer contracts from time to time 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 










 

These currency and interest rate contracts are used to fix the US 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 a currency other than the functional currency of the individual entity that holds the debt.

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Notes to the 2006 Financial statements

32FINANCIAL INSTRUMENTS CONTINUEDbalance the loading on production facilities. In the long term, natural hedges operate in a number of ways to help protect and stabilise earnings and cash flow. From 1 January 2008, Rio Tinto Alcan has adopted the Rio Tinto Group policy on trading and hedging.
  
 
B)CURRENCY EXPOSURESThe 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 the long term. These natural hedges significantly reduce the necessity for using derivatives or other forms of synthetic hedging. Such hedging is therefore undertaken to a strictly limited degree, as described below. 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.
  
Treasury operates 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 internal controls. Senior management is advised of corporate debt and currency, commodity and interest rate derivatives through a monthly reporting framework.
 
a)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 and cross currency interest rate swaps in conjunction with longer term funds raised in the capital markets to achieve a predominantly floating rate obligation which is consistent with the Group’s interest rate policy, primarily US dollar LIBOR.
Currency exposures arising(i) Foreign exchange risk
Rio Tinto’s shareholders’ equity, 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 Canadian dollars and the Euro are the most important currencies (apart from the Group'sUS dollar) influencing costs.
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, Canadian dollars and the Euro, in order to meet short term operational and capital commitments and, for the Australian dollar, dividend payments. The Group finances its operations primarily in US dollars, either directly or using cross currency interest rate swaps. A substantial part of the Group’s US dollar debt is located in subsidiaries having a US dollar functional currency.
Certain US dollar debt and other financial assets and liabilities (excluding non debt derivatives)
Certain financial assets and liabilitiesincluding intragroup balances 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 exchange gains and losses are recorded in the GroupGroup’s income statement except to the extent that they can be taken to equity under the Group'sGroup’s accounting policy which is explained in note 1.1(d). Gains and losses on US dollar net debt and intragroup balances are excluded from Underlying earnings. Other exchange gains and losses are included in Underlying earnings.
 
As noted above, Rio Tinto hedges interest rate and currency risk on most of its foreign currency borrowings by entering into cross currency interest rate swaps, and/or interest rate swaps when required. These have the economic effect of converting fixed rate foreign currency borrowings to floating rate US dollar borrowings. See section B (d) of note 34 – Financial Instruments for the details of currency and interest rate contracts relating to borrowings.
  
 After taking into account relevant derivativeswap instruments, almost all of the Group'sGroup’s net debt is either denominated in US dollars or in the functional currency of the entity holding the debt.
The tablestable below set outsummarises 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.
 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.
by currency.
  
 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 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.
  2007 2006 
 (Net debt)/net funds by currencyUS$m US$m 






 United States dollar(44,737)(2,213)
 Australian dollar(256)(291)
 South African rand103 2 
 UK sterling(112)(30)
 Euro(150)67 
 Canadian dollar(62)(14)
 Other62 42 






 Total(45,152)(2,437)






 

A-45



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Notes to the 20062007 Financial statements

3233FINANCIAL INSTRUMENTS CONTINUEDRISK MANAGEMENT continued
Currency hedging
The Group does not generally believe that active currency hedging of transactions 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, typically hedging of capital expenditures and other significant financial items such as tax and dividends. There is a legacy of currency forward contracts used to hedge operating cash flow exposures which was acquired with Alcan and the North companies. Refer to section B ((a) to (d)) of note 34 – Financial Instruments for the currency forward and option contracts used to manage the currency risk exposures of the Group at 31 December 2007.
Foreign exchange sensitivity: Risks associated with exposure to financial instruments
The sensitivities below derive from the estimated impact of a ten per cent change in the full year closing US dollar exchange rate on the value of financial instruments. The impact is expressed in terms of the effect on net earnings, Underlying earnings and equity , assuming that each exchange rate moves in isolation. The sensitivities are based on financial assets and liabilities held at 31 December 2007, where balances are not denominated in the functional currency of the subsidiary. A strengthening of the US dollar would result in exchange gains based on financial assets and financial liabilities held at 31 December 2007. These balances will not remain constant throughout 2008, however, and therefore these numbers should be used with care.
           
 At 31 December 2007         











       Of which Impact directly 
     Effect on amount on equity of 
   Closing net earnings impacting 10% change 
   exchange of 10% Underlying in full year 
   rate change earnings closing rate 
 Functional currency US cents +/– US$m +/– US$m +/– US$m 











 Australian dollar (a) 88 204 99 (20)
 Canadian dollar 101 (3)53  
 South African rand 15 14 12 (4)
 Euro 147 33 14 149 
 New Zealand dollar 78 (9)3  











           
 At 31 December 2006         











       Of which Impact directly 
     Effect on amount on equity of 
   Closing net earnings impacting 10% change 
   exchange of 10% Underlying in full year 
   rate change earnings closing rate 
 Functional currency US cents +/– US$m +/– US$m +/– US$m 











 Australian dollar (a) 79 37 56 (30)
 Canadian dollar 86 (29)12  
 South African rand 14 (6)5  
 New Zealand dollar 71 (15)3  











(a)The sensitivities show the net sensitivity of US$ exposures in A$ functional currency companies, for example, and A$ exposures in US$ functional currency companies.
   
 (b)The sensitivities indicate the effect of a 10 per cent strengthening of the US dollar against each currency.
  
b)Currency exposures arising from the Group's net receivables and payables(ii) Interest rate risk
 The table below sets outInterest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instruments will fluctuate due to changes in market interest rates. Rio Tinto’s interest rate management policy is generally to borrow and invest at floating interest rates. This approach is influenced by the historical correlation between interest rates and commodity prices. In some circumstances, an element of fixed rate funding may be considered appropriate. As noted above, Rio Tinto hedges interest rate and currency exposures arising fromrisk on most of its foreign currency borrowings by entering into cross currency interest rate swaps and interest rate swaps in order to convert fixed rate foreign currency borrowings to floating rate US dollar borrowings. See section B (d) of note 34 – Financial Instruments for the Group's net receivablesdetails of currency and payables, that are not denominated in the functional currencyinterest rate contracts relating to borrowings. At 31 December 2007, US$4.9 billion (2006: US$1.2 billion) of the relevant subsidiary. GainsGroup’s debt was at fixed rates after taking into account interest rate swaps and losses resulting from such exposures are recorded in the income statement.finance leases.
  
 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 assetsA monthly Treasury report is provided to senior management which summarises corporate debt exposed to currency and financial liabilities
The interest rate compositionrisks and, where applicable, the offsetting derivatives. See section B (d) of note 34 – Financial Instruments for the Group'sdetails of currency and interest bearing financial assets and liabilities is shown below. This table deals withrate contracts relating to borrowings. See note 22 – Borrowings for the carrying valuesdetails of the financial instruments in the balance sheet, with the values of derivatives shown separately
Atdebt outstanding 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 which swap the fixed 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 Group's net investment in the jointly controlled entity.
(c)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 5.36 per cent (2005: 4.5 per cent).
(d)The above table excludes US$176 million (2005: US$72 million) of equity shares and quoted funds, which are not interest bearing.2007.

 

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Notes to the 20062007 Financial statements

3233FINANCIAL INSTRUMENTS CONTINUEDRISK MANAGEMENT continued
  
 
AtBased on net debt and other floating rate financial instruments outstanding as at 31 December 20052007, the effect on net earnings of a half percent movement in US dollar LIBOR interest rates, with all other variables held constant, is estimated to be US$158 million (2006: US$3 million). These balances will not remain constant throughout 2008, however, and therefore these numbers should be used with care.
  
 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(iii) Commodity price risk
 Fixed rate liabilitiesThe 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 base and the Group does not convertedgenerally believe commodity price hedging would provide long term benefit to floating rate by meansshareholders. The Group may hedge certain commitments with some of interest rate swaps are summarised below.its customers or suppliers.
  
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 (LME) 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 including iron ore and coal are generally agreed annually or for longer periods with customers, although volume commitments vary by product.
 
 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)AsCertain products, predominantly copper concentrate, are ‘provisionally priced’, ie the selling price is subject to final adjustment at the end of a consequenceperiod 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 acquisitions during 2000,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 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 Metal Exchange and the value of product sold by the Group holds a numberis directly linked to the form in which it is traded on that market.
The marking to market of interest rate swapsprovisionally priced sales contracts is recorded as an adjustment to receivesales revenue.
At the end of 2007, the Group had 270 million pounds of copper sales (2006: 324 million pounds) that were provisionally priced at US$ floating rates and pay304 cents per pound (2006: US$ fixed rate which have been included287 cents per pound). The final price of these sales will be determined in 2008. A ten per cent change in the totalprice of fixed rate liabilities shown above.
(b)The Group hascopper realised on the provisionally priced sales would increase or reduce net earnings by US$12158 million of finance leases (2005:(2006: US$11266 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).
  
Alcan is the counterparty to certain forward metal sales contracts with Novelis, a company which was spun-off from Alcan in early 2005. Alcan has in substance fixed the LME price for a portion of its future aluminium sales. At 31 December 2007, these contracts had a positive fair value of US$45 million.
 
(iii)Commodity price sensitivity: Risks associated with derivatives
The table below summarises the impact of changes in the market price on the following commodity derivatives including those aluminium and option contracts embedded in electricity purchase contracts outstanding at 31 December 2007. The impact is expressed in terms of the resulting change in the Group’s net earnings for the year or, where applicable, the change in equity. The sensitivities are based on the assumption that the market price increases by ten per cent with all other variables held constant. The Group’s ‘own use contracts’ are excluded from the sensitivity analysis below as they are outside the scope of IAS 39. Such contracts are to buy or sell non financial items that can be net settled but were entered into and continue to be held for the purpose of the receipt or delivery of the non financial item in accordance with the business unit’s expected purchase, sale or usage requirements.
These sensitivities should be used with care. The relationship between currencies and commodity prices is a complex one and changes in exchange rates can influence commodity prices and vice versa.
       
 At 31 December 2007     







 Products Effect on Underlying and net earnings of 10%
Increase from year end price
+/– US$m
 Effect directly on equity attributable to Rio Tinto of 10%
Increase from year end price
+/– US$m
 







 Copper  40 
 Coal  25 
 Aluminium 41 50 







 Total 41 115 







       
 At 31 December 2006     







 Products Effect on Underlying and net earnings of 10%
Increase from year end price
+/– US$m
 Effect directly on equity attributable to Rio Tinto of 10%
Increase from year end price
+/– US$m
 







 Copper  49 
 Coal  20 







 Total  69 







Fixed rate assets(iv) Credit risk
 Total fixed rateCredit risk is the risk that a counterparty will not meet its obligations under a financial assets for theinstrument or customer contract, leading to a financial loss. The Group at 31 December 2006 were US$20 million,is exposed to credit risk from its operating activities (primarily from customer receivables) and from its financing activities, including deposits 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).banks and financial institutions, foreign exchange transactions and other financial instruments.

 

A-47



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Notes to the 20062007 Financial statements

3233FINANCIAL INSTRUMENTS CONTINUEDRISK MANAGEMENT continued
  
D)Credit risks related to receivables
Customer credit risk is managed by each business unit subject to Rio Tinto’s established policy, procedure and control relating to customer credit risk management. Credit limits are established for all customers based on internal or external rating criteria. Where customers are rated by an independent credit rating agency, these ratings are used to set credit limits. In circumstances where no independent credit rating exists, the credit quality of the customer is assessed based on an extensive credit rating scorecard. Outstanding customer receivables are regularly monitored and any credit concerns highlighted to senior management. High risk shipments to major customers are generally covered by letters of credit or other forms of credit insurance.
At 31 December 2007, the Group had approximately 140 customers (2006: 75 customers) that owed the Group more than US$5 million each and accounted for approximately 81 per cent (2006: 70 per cent) of all receivables owing. There were 33 customers (2006: 20 customers) with balances greater than US$20 million accounting for just over 48 per cent (2006: 34 per cent) of total amounts receivable. A balance of approximately US$254 million relates to one customer group.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets mentioned on page A-44. The group does not hold collateral as security.
Credit risk related to financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by Group Treasury in accordance with a Board approved policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Rio Tinto Board on an annual basis, and may be updated throughout the year subject to approval of the Rio Tinto Finance Committee. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty failure.
No material exposure is considered to exist by virtue of the possible non performance of the counterparties to financial instruments.
LIQUIDITY(v) Liquidity and capital risk management
The maturity profile of the Group's financial liabilitiesGroup’s total capital is defined as Rio Tinto’s shareholders’ funds plus funds attributable to outside equity shareholders plus net debt, and financial assets, other than trade and other receivables and payables, is as follows:amounted to US$71 billion at 31 December 2007 (31 December 2006: US$22 billion).
 
The Group’s over-riding objectives when managing capital are to safeguard the business as a going concern; to maximise returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure in order to reduce the cost of capital.
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. Rio Tinto plc and Rio Tinto Limited continue to maintain solid investment grade credit ratings from Moody’s and Standard and Poor’s, despite the credit rating downgrade announced on completion of the Alcan acquisition. These ratings continue to provide access to global debt capital markets in significant depth.
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. Following the acquisition of Alcan, the Group has publicly stated an objective to reduce its debt/equity ratio from current levels through a targeted asset divestment programme to a level consistent with a ‘single-A’ credit rating. 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.
On 2 February 2006 the Group announced a US$4 billion capital management programme which was subsequently increased to US$7 billion in October 2006. The capital return was comprised of a US$1.5 billion special dividend (US$1.10 per share) paid in April 2006 and an initial US$2.5 billion share buyback programme (increased to US$5.5 billion) to be completed over the remaining period to the end of 2007. The programme was suspended on 12 July 2007 at the time the Alcan offer was announced, by which time US$3.9 billion had been returned under the US$7 billion capital management programme, bringing the total cash returned to shareholders under announced capital management programmes since 2005 to US$6.4 billion.
The Group maintains backup liquidity for its commercial paper programmes and other debt maturing within 12 months by way of bank standby credit facilities, of which US$3.7 billion was undrawn as at 31 December 2007. The Group’s committed bank standby credit facilities contain no financial undertakings relating to interest cover and are not affected to any material extent (other than an increase in interest margin) by a reduction in the Group’s credit rating.
The main covenant in the Rio Tinto Group relates to a financial covenant over corporate debt drawn under the Syndicated Acquisition Facility, for which a compliance certificate must be produced attesting a certain ratio of Net Borrowings to EBITDA. There are no covenants relating to corporate debt which are under negotiation at present.
The Group’s policy is to centralise debt and surplus cash balances whenever possible.
 Borrowings Derivatives Other Total Total 
 before related to financial 2006 2005 
 swaps net debt liabilities US$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 










 


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Notes to the 2007 Financial statements

33 FINANCIAL RISK MANAGEMENTcontinued
         
 The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the balancesheet date to the contractual maturity date. As the amounts disclosed in the table are the contractual undiscounted cash flows , thesebalances will not necessarily agree with the amounts disclosed in the balance sheet.
         
 At 31 December 2007      














        Expected     Total 
   Trade Borrowings future Derivatives Other financial 
   and other before interest related to financial liabilities 
   payables swaps payments net debt liabilities 2007 
   US$m US$m US$m US$m US$m US$m 














 Financial liabilities      
  Within 1 year, or on demand(5,303)(8,263)(2,310)(5)(810)(16,691)
  Between 1 and 2 years (10,628)(1,862)(4)(309)(12,803)
  Between 2 and 3 years (10,441)(1,322)(6)(222)(11,991)
  Between 3 and 4 years (37)(892) (190)(1,119)
  Between 4 and 5 years (13,298)(768) (187)(14,253)
  After 5 years (4,352)(2,084) (174)(6,610)














   (5,303)(47,019)(9,238)(15)(1,892)(63,467)














         
 At 31 December 2006      














        Expected     Total 
   Trade Borrowings future Derivatives Other financial 
   and other before interest related to financial liabilities 
   payables swaps payments net debt liabilities 2006 
   US$m US$m US$m US$m US$m US$m 














 Financial liabilities      
  Within 1 year, or on demand(2,233)(1,504)(148)(3)(320)(4,208)
  Between 1 and 2 years (723)(96)(15)(288)(1,122)
  Between 2 and 3 years (107)(71)(2)(148)(328)
  Between 3 and 4 years (478)(44)(3)(43)(568)
  Between 4 and 5 years (68)(39) (31)(138)
  After 5 years (631)(42) (68)(741)














   (2,233)(3,511)(440)(23)(898)(7,105)














(a)Interest payments have been projected using interest rates applicable at 31 December, including the impact of interest rate swap agreements, where appropriate.
(b)Much of the debt is subject to variable interest rates. Future interest payments are therefore subject to change in line with market rates.
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 2006,2007, the Group had unutilised standby credit facilities totalling US$3.7 billion (2006: US$2.3 billion.billion). These facilities which are summarised below,have terms of between 4 and 5 years, are for back-up support for the Group’s commercial paper programmes and for general corporate purposes:purposes. US$1.6 billion is available to be drawn under the US$2.3 billion provided under Bilateral facility agreements, while the balance of US$2.1 billion is available under the US$40 billion syndicated facility agreement.

 


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A-48Notes to the 2007 Financial statements


34FINANCIAL INSTRUMENTS
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 those of equity accounted units. The information is grouped in the following sections:
A – Financial assets and liabilities by categories
B – Derivative financial instruments
C – Fair values
 (A) Financial assets and liabilities by categories
         
 At 31 December 2007       












        Other 
     Available  financial 
   Loans and for sale Held at assets and 
  Total receivables securities fair value liabilities 
  US$m US$m US$m US$m US$m 












 Financial Assets       
 Cash and cash equivalent assets (Note 21)1,645 1,645    
 Trade and other receivables (Note 17) (a)6,272 6,272    
 US Treasury bonds (Note 20)21  21   
 Equity shares and quoted funds (Note 20)374  374   
 Other investments, including loans (Note 20)472 472    
 Other liquid resources (Note 20)6    6 
 Currency and commodity contracts: designated as hedges (Note 20)134    134 
 Currency and commodity contracts: not designated as hedges (Note 20)480   480  
 Derivatives related to net debt (Note 20)39   39  
 Loans to equity accounted units including quasi equity loans746 746    












 Total financial assets10,189 9,135 395 519 140 












 Financial liabilities       
 Trade and other payables (Note 25)(b)(5,303)   (5,303)
 Short term borrowings and bank overdrafts (Note 21 and 22)(8,213)   (8,213)
 Medium and long term borrowings (Note 22)(38,614)   (38,614)
 Deferred consideration (Note 25)(209)   (209)
 Other financial liabilities (Note 26)(1,374)  (1,374) 












 Total financial liabilities(53,713)  (1,374)(52,339)












         
 At 31 December 2006       












        Other 
     Available  financial 
   Loans and for sale Held at assets and 
  Total receivables securities fair value liabilities 
  US$m US$m US$m US$m US$m 












 Financial Assets       
 Cash and cash equivalent assets (Note 21)736 736    
 Trade and other receivables (Note 17) (a)2,833 2,833    
 US Treasury bonds (Note 20)20  20   
 Equity shares and quoted funds (Note 20)176  176   
 Other investments, including loans (Note 20)184 184    
 Other liquid resources (Note 20)6    6 
 Currency and commodity contracts: designated as hedges (Note 20)78    78 
 Currency and commodity contracts: not designated as hedges (Note 20)122   122  
 Derivatives related to net debt (Note 20)355   355  
 Loans to equity accounted unit including quasi equity loans379 379    












 Total financial assets4,889 4,132 196 477 84 












 Financial liabilities       
 Trade and other payables (Note 25)(b)(2,233)   (2,233)
 Short term borrowings and bank overdrafts (Note 21 and 22)(1,504)   (1,504)
 Medium and long term borrowings (Note 22)(2,007)   (2,007)
 Deferred consideration (Note 25)(179)   (179)
 Other financial liabilities (Note 26)(426)  (426) 












 Total financial liabilities(6,349)  (426)(5,923)













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Notes to the 20062007 Financial statements

3234FINANCIAL INSTRUMENTS CONTINUEDcontinued
  
  
Unutilised standby credit facilities2006 2005 
 US$m US$m 




 
Between 4 and 5 years2,300 2,300 




 
E)(a)FAIR VALUES
The carrying values and the fair valuesThis excludes pension surpluses, prepayment of Rio Tinto's financial instruments, other than tradetolling charges to jointly controlled entities and other receivablesprepayments 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 interestaccrued income.
  (b)Trade and other payables includes trade creditors, amounts owed to equity accounted units, other creditors excluding deferred consideration shown separately and accruals.
(B)Derivative financial instruments
The Group‘s derivatives, including embedded derivatives, as at 31 December 2007, are summarised below:
a) Forward contracts relating to operating transactions: designated as hedges
 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)  








 
       
 Assets (note 20) Total fair Total fair 
   value value 
   2007 2006 
 Buy Australian dollar; sell US dollar US$m US$m 







 Less than 1 year 34 26 
 Between 1 and 5 years 25 36 







 Total 59 62 







 Other currency forward contracts 2  







 Total currency forward contracts 61 62 







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







 Less than 1 year 25  







 Total 25  







       
 Coal (API #2) forward contracts     







 Less than 1 year 30 4 
 Between 1 and 5 years 8  







 Total 38 4 







       







 Total commodity forward contracts 63 4 







       







 Total assets related to forward contracts designated as hedges  124 66 







       
 The above aluminium forward contracts are net metal sales contracts which are primarily hedging cashflow exposures associated with underlying variable third party metal sales contracts. These contracts reduce the Company’s exposure to movements the aluminium price. Coal forward contracts have been entered into in order to reduce exposure to movements in the coal price.
       
 Liabilities (note 26) Total fair Total fair 
   value value 
   2007 2006 
 Copper forward contracts US$m    US$ 







 Less than 1 year (153)(149)
 Between 1 and 5 years (344)(184)
 More than 5 years (34)(18)







 Total (531)(351)







     
 Coal (API #2) forward contracts   







 Less than 1 year (83)(9)
 Between 1 and 5 years (39)(9)







 Total (122)(18)







     
 Coal (GC NewC) forward contracts   







 Less than 1 year (25)(2)
 Between 1 and 5 years (9)(2)







 Total (34)(4)







 Aluminium price exposures embedded In electricity purchase contracts (26) 
 Other commodity contracts (3)(3)







 Total liabilities designated as hedges (716)(376)







       
 The above copper forward contracts were entered into as a condition of the refinancing of Palabora in 2005, and result in a reduction in the Group‘s exposure to movements in the copper price. Coal forward contracts have been entered into in order to reduce exposure to movements in the coal price.
       
 Aluminium price exposures are embedded within certain aluminium smelter electricity purchase contracts. These contracts reduce the Company’s exposure to movements in the aluminium price.

 

A-49



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Notes to the 20062007 Financial statements

34FINANCIAL INSTRUMENTS continued    
      
 b) Options relating to operating transactions: designated as hedges
      
 Assets (note 20)    
  Total Total 
  fair value fair value 
  2007 2006 
 Bought A$ call optionsUS$m US$m 






 Less than 1 year10 8 
 Between 1 and 5 years 4 






 Total10 12 






The above currency option contracts were acquired with companies purchased in 2000 and were entered into by those companies in order to reduce their exposure to the US dollar through forecast sales.
     
 Liabilities (note 26)   
  Total fair Total fair 
  value value 
  2007 2006 
 Aluminium options embedded In electricity purchase contractsUS$m US$m 






 Less than 1 year(7) 
 Between 1 and 5 years(50) 






 Total(57) 






Embedded options exist within an electricity purchase contract for a smelter. These derivatives reduce the Company’s exposure to movements in the aluminium price. A number of put and call options were combined to form synthetic forward contracts that weredesignated as hedges of variable priced aluminium sales.
      
 Reconciliation to Balance Sheet categories for derivatives designated as hedges2007 2006 
  US$m US$m 






 – non-current assets (note 20)34 42 
 – current assets (note 20)100 36 
 – current liabilities (note 26)(283)(162)
 – non-current liabilities (note 26)(490)(214)






 Total derivatives designated as hedges, detailed above(639)(298)






The hedged forecast transactions denominated in foreign currencies and the hedged commodity purchase or sales contracts are expected to occur in line with the maturity dates of the derivatives hedging these particular exposures. Gains and losses recognised in equity will be recycled into the income statement in the period during which the hedged transaction affects the income statement. Where the hedged transaction relates to capital expenditures, the gain or loss on the derivative will be recognised in the income statement with in ‘depreciation’ as the fixed asset is amortised.
Gains and losses recognised in the hedging reserve in equity, net of tax and outside interests, for the year to 31 December 2007 amountedto losses of US$102 million including equity accounted units (2006:US$124 million) and the amount reclassified from equity and included in the income statement for the period amounted to US$61 million (2006: US$68 million).
The ineffective portion recognised in the profit or loss that arises from cash flow hedges amounts to a loss of US$1 million (2006: nil).


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Notes to the 2007 Financial statements

3334CONTINGENT LIABILITIES AND COMMITMENTSFINANCIAL INSTRUMENTS continued
c) Forward and option contracts relating to operating transactions: not designated as hedges
 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 




 
      
 Assets    






  Total fair Total fair 
  value value 
 Forward contracts2007 2006 
 Buy New Zealand dollar; sell US dollarUS$m US$ 






 Less than 1 year40 32 
 Between 1 and 5 years63 75 






 Total103 107 






      
 The above currency forward contracts relating to the New Zealand dollar were taken out to manage exposures impacting on operating costs.
      
 Aluminium forward contracts    






 Less than 1 year225  
 Between 1 and 5 years17  






 Total242  






      
 The above aluminium forward contracts were taken out to manage exposure to movements in the aluminium price. These contracts are not designated as hedges as they are predominantly offset by other aluminium forward contracts.
      






 Buy EUR; sell USD    
 Less than 1 year7  
      
 Buy GBP; sell USD    
 Less than 1 year1  






 Total8  






 Options embedded in contracts    
 Aluminium options embedded in electricity purchase contracts    






 Less than 1 year11  
 Between 1 and 5 years56  
 More than 5 years17  






 Total84  






 Others:    
 Embedded derivatives13 10 
 Other commodity contracts5 1 
 Other currency forward contracts and swaps5 4 
 Other option contracts20  






 Total assets relating to derivatives not designated as hedges (note 20) 480 122 






The above aluminium options embedded in electricity purchase contracts reduce exposure to movements in the aluminium price.


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Operating leases
The aggregate amount of minimum lease payments under non-cancellable operating leases are 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:

 2006 2005 
 US$m US$m 




 
Within 1 year903 935 
Between 1 and 2 years713 691 
Between 2 and 3 years498 575 
Between 3 and 4 years343 438 
Between 4 and 5 years317 329 
After 5 years826 1,096 




 
 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 relatingNotes to the Group's tolling arrangements.2007 Financial statements

 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 




 
34FINANCIAL INSTRUMENTS continued
    
 Liabilities  






  Total fair Total fair 
  value value 
 Forward contracts2007 2006 
 Aluminium forward contractsUS$m US$m 






 Less than 1 year(212) 
 Between 1 and 5 years(16) 






 Total(228) 






    
 The above aluminium forward contracts were taken out to manage exposure to movements in the aluminium price. These contracts are not designated as hedges as they are predominantly offset by other aluminium forward contracts.
    
 Option contracts  
 Aluminium options embedded in electricity purchase contracts  






 Less than 1 year(39) 
 Between 1 and 5 years(161) 
 More than 5 years(59) 






 Total(259) 






 Others:  
 Other currency derivative contracts(5) 
 Other embedded derivatives(35)(26)
 Other commodity contracts(5)(1)
 Other derivatives(5) 






 Total liabilities relating to derivatives not designated as hedges (note 26)(537)(27)






The above aluminium options embedded in electricity purchase contracts reduce exposure to movements in the aluminium price.
d) Currency and interest contracts relating to borrowings
      
  Total fair Total fair 
  value value 
  2007 2006 
 AssetsUS$m US$m 






 Buy Euro: sell US dollars  
 Less than 1 year 338 
    
 Buy Sterling: sell US dollars  
 Less than 1 year 6 
 Between 1 and 5 years 3 
    
 Liabilities  






 Buy Japanese yen: sell US dollars  
 Less than 1 year(1)(3)
      
 Other currency swaps(6) 






 Total currency swaps(7)344 






 – designated as fair value hedges(7)341 
 – not designated as hedges 3 






 Interest contracts relating to borrowings: assets39 7 
 Interest contracts relating to borrowings: liabilities(8)(19)






 Total derivatives related to net debt24 332 






      
 Reconciliation to Balance Sheet categories for currency and interest derivatives2007 2006 
  US$m US$m 






 – non-current assets (note 20) 3 
 – current assets (note 20)39 352 
 – current liabilities (note 26)(9)(4)
 – non-current liabilities (note 26)(6)(19)






 Total currency and interest rate contracts, detailed above24 332 







Back to Contents

Notes to the 2007 Financial statements

34FINANCIAL INSTRUMENTScontinued
  
 These currency contracts are used to fix the US dollar value of non US dollar denominated external debt. The interest rate contracts are used to convert certain fixed rate obligations to a floating rate.
  
 The ineffective portion recognised in the profit or loss that arises from fair value hedges amounts to a gain of US$1 million ( 2006: nil).
  
 (C) Fair values
   
 The carrying values and the fair values of Rio Tinto’s financial instruments, other than trade and other receivables and payables, at 31 December are shown in the following table. 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.
      
   2007 2006 









   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 20)21 21 20 20 
 Equity shares and quoted funds (note 20)374 374 176 176 
 Other investments including loans (note 20)472 472 184 184 
 Cash and cash equivalent assets (note 21)1,645 1,645 736 736 
 Other liquid resources (note 20)6 6 6 6 
 Short term borrowings and bank overdrafts (notes 21 and 22)(8,213)(8,225)(1,504)(1,507)
 Medium and long term borrowings (note 22)(38,614)(38,627)(2,007)(2,025)
 Loans to equity accounted units including quasi equity746 746 379 379 
 Deferred consideration (note 25)(209)(209)(179)(179)
 Other financial liabilities (note 26)(49)(49)  









   (43,821)(43,846)(2,189)(2,210)
 Derivatives:    
  Forward contracts: designated as hedges (Section B (a) of note 34)(592)(592)(310)(310)
  Option contracts: designated as hedges (Section B (b) of note 34)(47)(47)12 12 
  Forward contracts and option contracts not designated as hedges (Section B (c) of note 34)(57)(57)95 95 
  Currency swaps hedging borrowings (Section B (d) of note 34)(7)(7)344 344 
  Interest rate swap agreements (Section B (d) of note 34)31 31 (12)(12)










 Total(44,493)(44,518)(2,060)(2,081)











Back to Contents

Notes to the 2007 Financial statements

35CONTINGENT LIABILITIES AND COMMITMENTS    
      
  2007 2006 
   US$m US$m 





 Capital commitments (excluding those related to joint ventures and associates)    
 Contracted capital expenditure: property, plant and equipment2,857 1,912 
 Other commitments75 163 





 Capital commitments relating to joint ventures and associates(a)    
 Capital commitments incurred by the Group238 155 
 Capital commitments incurred jointly with other venturers (Rio Tinto share)808 183 






 Operating leases    
 The aggregate amount of minimum lease payments under non-cancellable operating leases are as follows:
       
   2007 2006 
   US$m US$m 






  Within 1 year283 62 
  Between 1 and 5 years985 123 
  After 5 years514 242 






   1,782 427 






      
 Unconditional purchase obligations    
 The aggregate amount of future payment commitments under unconditional purchase obligations outstanding at 31 December was: 
      
  2007 2006 
   US$m US$m 





  Within 1 year1,525 903 
  Between 1 and 2 years814 713 
  Between 2 and 3 years757 498 
  Between 3 and 4 years561 343 
  Between 4 and 5 years518 317 
  After 5 years3,096 826 





   7,271 3,600 





      
 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.
  2007 2006 
  US$m US$m 






 Contingent liabilities (excluding those relating to joint ventures and associates)    
 Indemnities and other performance guarantees235 79 






      






 Contingent liabilities relating to joint ventures and associates(a)    
 Share of contingent liabilities of joint ventures6 5 
 Incurred in relation to interests in joint ventures435 372 
 Incurred in relation to other venturers’ contingent liabilities63 45 






(a)Amounts disclosed include those arising as a result of the Group'sGroup’s investments in both jointly controlled assets and jointly controlled entities.
(b)The disagreement with the Australian tax office relating to certain transactions undertaken in 1997 to acquire franking credits was settled on 14 June 2007, resulting in an additional tax charge of US$46 million for the year to 31 December 2007.
(c)There are a number of legal claims currently outstanding against the Group. No material loss to the Group is expected to result from these claims. On 22 February 2008, Alcan Inc. and certain of its subsidiaries (‘Alcan’) were served with a Statement of Objections by the European Commission alleging an infringement of Article 82 EC Treaty in relation to the licensing of smelter cell technology. Alcan contests the allegation that its conduct has been anti-competitive and will continue to co-operate with the Commission’s investigation.

 

A-50



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Notes to the 20062007 Financial statements

36AVERAGE NUMBER OF EMPLOYEES  
    
  Subsidiaries and proportionally 
  consolidated units 
  2007 2006 2005 








 The principal locations of employment were:      
 Australia and New Zealand14,065 11,636 9,927 
 North America13,363 10,201 9,375 
 Africa5,548 4,269 3,958 
 Europe4,623 1,468 1,504 
 South America1,348 874 834 
 Indonesia2,125 1,969 1,920 
 Other countries286 225 306 
 Discontinued operations5,680   








  47,038 30,642 27,824 








        
  Equity accounted units 
  (Rio Tinto share) (a) 
  2007 2006 2005 








 The principal locations of employment were:      
 Australia and New Zealand2,289 2,192 1,910 
 North America376 311 257 
 Africa585 521 494 
 Europe367 507 529 
 South America905 1,072 840 
 Other countries117   








  4,639 4,603 4,030 








        
  Group Total  
  2007 2006 2005 








 The principal locations of employment were:      
 Australia and New Zealand16,354 13,828 11,837 
 North America13,739 10,512 9,632 
 Africa6,133 4,790 4,452 
 Europe4,990 1,975 2,033 
 South America2,253 1,946 1,674 
 Indonesia2,125 1,969 1,920 
 Other countries403 225 306 
 Discontinued operations5,680   








  51,677 35,245 31,854 








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 proportionally consolidated and equity accounted units are proportional to the Group'sGroup’s interest. Average employee numbers include a part year effect for companies acquired or disposed of during the year.
(b)Part-timePart 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.
(d)Rio Tinto Alcan’s employees are shown on a pro rata basis.

 

A-51



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Notes to the 20062007 Financial statements

3537PRINCIPAL 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 









 
         
 At 31 December 2007       
         
 Company and country of Class of Proportion of Group 
 incorporation/operationPrincipal activitiesshares held class held % interest % 









 Australia     
 Argyle Diamond MinesMining and processing of diamonds(a) 100 100 
 Coal & Allied Industries LimitedCoal miningOrdinary 75.71 75.71 
 Rio Tinto Aluminium (Holdings)
Limited
Bauxite mining; alumina production;
primary aluminium smelting
Ordinary 100 100 
     
 Dampier Salt LimitedSalt productionOrdinary 68.40 68.40 
 Energy Resources of Australia LimitedUranium miningClass A 68.39 68.39 
 Hamersley Iron Pty LimitedIron ore miningOrdinary 100 100 
 Queensland Coal Pty Limited (b)Coal miningOrdinary 100 100 









 Canada     
 Iron Ore Company of Canada IncIron ore mining; iron ore pelletsSeries A & E 58.72 58.72 
 QIT-Fer et Titane IncTitanium dioxide feedstock; high
purity iron and steel
Common shares 100 100 
  Class B preference shares 100 100 
 Alcan Inc. (c)Bauxite mining; alumina refining; production of specialty alumina; aluminium smelting, manufacturing and recycling; engineered products; flexible and specialty packagingCommon shares 100 100 









 France     
 Talc de Luzenac S.A.Mining, refining and marketing of talcE 15.25 100 100 









 Indonesia     
 P.T. Kelian Equatorial MiningGold miningOrdinary US$1 90 90 









 Namibia  }  
 Rössing Uranium Limited (d)Uranium miningB N$1 71.1668.58 
   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 72.03 57.67 
 Richards Bay Iron and Titanium (Pty) LimitedTitanium dioxide feedstock; high purity ironR1 50.5 50 
     









 United States of America     
 

Kennecott Holdings Corporation
(including Kennecott Utah Copper,
Kennecott Minerals, Kennecott
Land and Kennecott Exploration)

Copper and gold mining, smelting and refining, land development and exploration activities
Common US$0.01 100 100 
 Rio Tinto Energy America Inc.Coal miningCommon US$0.01 100 100 
 U.S. Borax Inc.Mining, refining and marketing of boratesCommon US$1 100 100 
      










Back to Contents

Notes to the 2007 Financial statements

37PRINCIPAL SUBSIDIARIES continued
(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 3840 of Hail Creek, Blair Athol and Kestrel.
(c)On 23 October 2007, the Rio Tinto Group acquired a controlling 79.42 per cent interest in the issued share capital of Alcan Inc. The remaining 20.58 per cent was acquired by 14 November 2007. See Note 41.
(d)The Group'sGroup’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)
(e)The results of Bougainville Copper Limited are not consolidated, seeconsolidated. See note 44.47.
(e)
(f)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.
(f)
(g)The Group'sGroup’s principal subsidiaries are held by intermediate holding companies and not directly by Rio Tinto plc or Rio Tinto Limited.
(g)
(h)All companiesCompanies operate mainly in the countries in which they are incorporated.

A-52


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Notes to the 2006 Financial statements

3638PRINCIPAL 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 











 
 At 31 December 2007        
           
 Company and country of  Number of Class of Proportion of Group 
 incorporation/operation Principal activities shares held shares held class held % interest % 











 Australia        
 Boyne Smelters LimitedAluminium smelting153,679,560 Ordinary 59.4 59.4 
 Leichhardt Coal Pty. Limited (b)Coal mining20,115,000 Ordinary 44.7 44.7 
 Queensland Alumina LimitedAlumina production1,769,600 Ordinary 80 80 











 Chile        
 Minera Escondida Limitada (c)Copper mining and refining    30 30 











 China        
 Alcan Ningxia Aluminium Company LimitedAluminium smelting, alloy production, aluminium product manufacture459,500,000 RBMY 50 50 
        
         











 New Zealand        
 
New Zealand Aluminium Smelters Limited
Aluminium smelting24,998,400 Ordinary 79.36 79.36 











 Norway        
 Sor-Norge Aluminium A.S.Aluminium smelting500,000 Ordinary 50 50 











 Oman        
 Sohar Aluminium Company L.L.C.Aluminium smelting / power generation37,500 OMR1 20 20 











 United Kingdom        
 Anglesey Aluminium Metal LimitedAluminium smelting13,387,500 Ordinary £1 51 51 
 Hydrogen EnergyAlternative energy125,000 Ordinary £1 50 50 











 United States of America        
 DeckerCoal mining  (d)   50 
 Halco (Mining) Inc.(e)4,500 Common 45 45 
 Pechiney Reynolds Quebec Inc.(f)100 Ordinary 50}50.3 
   1 Preferred 100  











(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 38.40.
(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 it is therefore classified as a jointly controlled entity.
(e)Halco has a 51 per cent interest in Compagnie des Bauxites de Guinée, a Bauxite mine, the core assets of which are located in Guinea.
(f)Pechiney Reynolds Quebec has a 50.1 per cent interest in the Aluminerie de Becancour aluminium smelter, which is located in Canada.
(g)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)
(h)The Group'sGroup’s principal jointly controlled entities are held by intermediate holding companies and not directly by Rio Tinto plc or Rio Tinto Limited.
(g)
(i)AllWith the exception of (e) and (f) above, all jointly controlled entities operate mainly in the countries in which they are incorporated.

 


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Notes to the 2007 Financial statements

3739PRINCIPAL 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 











 
          
 At 31 December 2007        
           
 Company and country of  Number of Class of Proportion of Group 
 incorporation/operation Principal activitiesshares held shares held class held % interest % 











 Brazil        
 Mineração Rio do Norte SA (a)Bauxite mining25,000,000 Ordinary 12.5}12.0 
   47,000,000 Preferred 11.8  











 Cameroon        
 Compagnie CamerounaiseAluminium smelting8,114,979,600 XAF 46.7 46.7 
    de l’Aluminum        











 Canada        
 Ivanhoe Mines Ltd (b)Copper and gold mining37,089,883 Common 9.95 9.95 











 South Africa        
 Tisand (Pty) LimitedIlmenite, rutile and zircon mining7,353,675 R1 49 50 
         











 United States of America        
 Cortez (c)Gold mining  (d)   40 











 
(a)Mineração Rio do Norte SA is accounted for as an associated company because the Group has significant influence through representation on its Board of Directors.
(b)Ivanhoe Mines Ltd is accounted for as an associated company having regard to Rio Tinto'sbecause the Group has significant influence through representation on its Board of Directors and onparticipation in the technical committee that will be responsible for its Oyu Tolgoi project. Rio Tinto has the ability to increase progressively its stake to 43 per cent over the next four years at predetermined prices involving an additional investment of US$2 billion.
(b)
(c)See footnote (a) of note 42.
(d)This operation is unincorporated.
(c)
(e)The Group'sGroup’s principal associates are held by intermediate holding companies and not directly by Rio Tinto plc or Rio Tinto Limited.
(d)
(f)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)
(g)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.

A-53


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Notes to the 2006 Financial statements

3840PRINCIPAL JOINTLY CONTROLLED ASSETS AND OTHER PROPORTIONALLY CONSOLIDATED UNITS
     
 
At 31 December 20062007
     
Name and countryPrincipal activities Group 
of operation Principal activitiesinterest % 





 
Australia   
 Tomago Aluminium Joint VentureAluminium smelting51.6 
BengallaBengallaCoal mining30.3 
Blair Athol Coal (b)Coal mining71.2 
Hail CreekCoal mining82 
KestrelKestrelCoal mining80 
Mount ThorleyCoal mining60.6 
WarkworthWarkworthCoal mining42.1 
Northparkes MineCopper/gold mining and processing80 
Gladstone Power StationPower generation42.1 
Robe River Iron AssociatesIron ore mining53 
Hope Downs Joint VentureIron ore mining50 
HIsmelt®HIsmelt®Iron technology60 





Brazil 
Consórcio de Alumínio MaranhãoAlumina production10





Canada   
 
DiavikMining and processing of diamonds60 





 
Indonesia   
 
Grasberg expansionCopper and gold mining40 





 
United States of America   
 
Greens Creek (c)Silver, gold, zinc and lead mining70.3 






Back to Contents

Notes to the 2007 Financial statements

40PRINCIPAL JOINTLY CONTROLLED ASSETS AND OTHER PROPORTIONALLY CONSOLIDATED UNITS continued
 
(a)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 proportionally consolidated units that have a more significant impact on the profit or operating assets of the Group.
(b)The Group has a direct interest of 57.2 per cent in Blair Athol Coal, and an additional 14 per cent interest through its investment in Leichhardt Coal Pty Limited, which is disclosed as a jointly controlled entity in note 36.38.
(c)See footnote (b) of note 42.
(d)The Group'sGroup’s proportionally consolidated units are held by intermediate holding companies and not directly by Rio Tinto plc or Rio Tinto Limited.

A-54


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Notes to the 2006 Financial statements

3941SALESPURCHASES AND PURCHASESSALES OF SUBSIDIARIES, JOINT VENTURES, ASSOCIATES AND OTHER INTERESTS IN BUSINESSES
2007 Acquisitions
Alcan acquisition
On 23 October 2007, the Rio Tinto Group acquired a controlling 79.42 per cent interest in the issued share capital of Alcan Inc. The remaining 20.58 per cent was acquired by 14 November 2007. The total purchase price to acquire Alcan Inc. amounted to US$38.7 billion.
Alcan Inc. is the parent company of an international group of companies involved in bauxite mining, alumina refining, aluminium smelting, engineered products, flexible and specialty packaging, as well as related research and development.
The Group has decided to dispose of Alcan Packaging, which is presented in the balance sheet in the lines: ‘Assets held for sale’ and ‘Liabilities of disposal groups held for sale’. Therefore, the income and cash flow statements for the year exclude amounts relating to Alcan Packaging.
The fair values of the identifiable assets and liabilities of Alcan Inc. as at the date of acquisition were provisionally estimated as follows:
   IFRS   Provisional 
  carrying Fair value fair value 
  values adjustments to Group 
  US$m US$m US$m 








 Intangible assets804 6,663 7,467 
 Property, plant & equipment11,579 6,703 18,282 
 Equity method investments1,415 2,770 4,185 
 Inventories2,643 213 2,856 
 Assets held for sale6,984  6,984 
 Cash991  991 
 Deferred tax assets223 5 228 
 Other assets4,353 231 4,584 
 Loans and borrowings(5,580)115 (5,465)
 Liabilities of disposal groups held for sale(2,642) (2,642)
 Deferred tax liabilities(461)(3,721)(4,182)
 Provisions for liabilities and charges(4,581)(57)(4,638)
 Other liabilities(4,265)(211)(4,476)
 Minority interest(55) (55)
 Goodwill2,055 12,478 14,533 








 Net attributable assets including goodwill13,463 25,189 38,652 








     








 Total consideration:   
 Cost of shares  37,996 
 Acquisition costs  74 
 Liabilities assumed  132 
 Loans to acquired subsidiary  450 








 Total consideration – Alcan  38,652 








 Other subsidiaries and equity accounted units acquired  54 








 Total consideration  38,706 








 Cash outflow on acquisitions:   
 Total consideration  38,706 
 Net cash of acquired companies  (991)
 Liabilities assumed  (132)
 Other (including disposal proceeds of US$13 million)  (57)








 Net acquisitions per cash flow statement  37,526 









Back to Contents

Notes to the 2007 Financial statements

41PURCHASES AND SALES OF SUBSIDIARIES, JOINT VENTURES, ASSOCIATES AND OTHER INTERESTS IN BUSINESSES continued
The future economic benefits represented by the goodwill include those associated with synergies, future development andexpansion projects and the assembled workforce. As a result of the size of the acquisition and complexity of the valuationprocess, the above fair values are provisional. These will be subject to further review during the 12 months from theacquisition date.
For the period since acquisition, sales revenue of US$3,544 million (excluding equity accounted units) and profit after tax ofUS$293 million attributable to continuing operations are included in the consolidated income statement.
The following pro forma summary presents the Group as if Alcan Inc. had been acquired on 1 January 2007. The pro forma amountsinclude the results of the acquired group, recognising the amortisation of the fair values attributed to the assets acquired and theinterest expense on debt incurred as a result of the acquisition. The proforma interest charge for the whole of 2007 on theacquisition debt has been based on the one month LIBOR rate as at 31 December 2007, of 4.6 per cent. The pro forma amounts donot take account of synergies anticipated as a result of the acquisition; but include non recurring costs borne by Alcan Inc. relating tothe acquisition and suffer the costs of financing assets held for sale. The pro forma information does not necessarily reflect theactual results that would have occurred, nor is it necessarily indicative of future results of operations of the combined companies.
          











2007
US$m











Gross sales revenue45,590
Profit for the year (including amounts attributable to outside equity shareholders)7,727











2006 Acquisitions         
Name of operation

Location

Principal activities

Ownership




      acquiredOwnership Date of 
 Name of operation LocationPrincipal activitiesacquired % acquisition 











Associates         
Ivanhoe Mines Canada Copper and gold mining 9.95 18 October 2006 











Proportionally consolidated units         
Hope Downs Joint Venture Australia Iron ore mining 50 16 March 2006 











          
2006 Disposals         











Ownership
PrincipaldisposedDate of
Name of operation Location Principal activities OwnershipDate of
disposed % disposal 











Jointly Controlled Entitiescontrolled entities         
Eurallumina SpA Italy Alumina production 56.16 2 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)‘(Acquisitions) / disposals of subsidiaries, joint ventures and associates'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 of cash and cash equivalents transferred on sale of subsidiaries.
 US$167 million included in 'purchase‘Purchase of financial assets'assets’.
(c)Non-cashNon cash disposal proceeds of US$23 million were received during the year.

2005 Disposals         
Name of operation Location Principal activities Ownership   
     Principal disposed Date of 
 Name of operation Locationactivitiesof % disposal 











Associates         
Lihir Gold Limited Papua New Guinea Gold mining 14.46 30 November 2005 











Other investments         
Labrador Iron Ore Royalty         
Income Fund Canada Investing 19 30 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‘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‘sales of other financial assets'assets’.
42SALES AGREEMENTS AFTER THE BALANCE SHEET DATE
(a)On 5 March2008, the Group completed the sale of its interest in the Cortez gold mine (previously in the Copper product group) for cash consideration of US$1,695 million. The Group will benefit from a deferred additional payment in the event of a significant discovery of additional reserves and resources at the Cortez mine and will also retain a contingent royalty interest in the future production of the property.
(b)On 12 February 2008, the Group announced an agreement to sell its joint venture interest in the Greens Creek mine to Hecla Mining Company. Greens Creek, which mines silver, gold, zinc and lead, is currently part of the Copper product group. The sale price is US$750 million, comprising a cash component of US$700 million with the balance in the common stock of the buyer. Closing is subject to customary conditions, including expiration of the waiting period under the Hart-Scott-Rodino Act.

 

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Notes to the 20062007 Financial statements

43DIRECTORS’ AND KEY MANAGEMENT REMUNERATION      
        
 Aggregate remuneration, calculated in accordance with the Companies Act 1985, of the directors of the parent companies was as follows: 
        
  2007 2006 2005 
  US$’000 US$’000 US$’000 








 Emoluments11,103 9,852 7,523 
 Long term incentive plans9,573 255 2,298 








  20,676 10,107 9,821 








 Pension contributions: defined contribution plans130 60 58 
 Gains made on exercise of share options 1,260 5,763 
40DIRECTORS' AND KEY MANAGEMENT REMUNERATION
 For 2007, a total of US$6,607,100 (2006: US$3,713,900; 2005: US$8,024,100) 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$14,014,000 (2006: US$12,124,400 annualised pension value; 2005: US$712,100 annualised pension value).
Aggregate
The aggregate remuneration calculatedincurred by Rio Tinto plc in accordancerespect of its directors was US$13,678,000 (2006: US$7,296,800; 2005: US$12,270,000). The aggregate pension contribution to defined contribution plans was US$56,000 (2006 and 2005: 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$7,128,500 (2006: US$4,130,600; 2005: US$3,372,000). The aggregate pension contribution to defined contribution plans was US$74,000 (2006: US$60,000; 2005: US$58,000).
During 2007, three directors (2006: three; 2005: three) accrued retirement benefits under defined benefit arrangements, and one director (2006: one; 2005: one) accrued retirement benefits under defined contribution arrangements.
Emoluments included in the table above have been translated from local currency at the average rate for the year with the Companies Act 1985,exception of bonus payments which, together with amounts payable under long term incentive plans, have been translated at the year end rate.
More detailed information concerning directors’ remuneration, shareholdings and options is shown in the Remuneration report, including Tables 1 to 5, on pages 120 to 144.
Aggregate compensation, representing the expense recognised under IFRS, of the Group’s key management, including directors, of the parent companies was as follows:
 200620052004 
  US$’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 

     For 2006, a total of US$3,576,100 (2005: US$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$12,124,400 (2005: US$712,100 annualised pension value; 2004: US$712,400 annualised pension value).
The aggregate remuneration incurred by Rio Tinto plc in respect of its directors was US$7,151,400 (2005: US$12,270,000; 2004: US$7,756,000). There were no pension 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$3,992,900 (2005: US$3,372,000; 2004: US$4,794,000). The aggregate pension contribution to defined contribution plans was US$60,000 (2005: US$58,000; 2004: US$87,000 to defined contribution plans).
During 2006, three directors (2005: three; 2004: four) accrued retirement benefits under defined benefit arrangements, and 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, 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 5, on pages 95 to 121.
Aggregate compensation, representing the expense recognised under EU IFRS, of the Group'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 benefits1,129 
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, including Tables 1 to 5, on pages 95 to 121.

        
  2007 2006 2005 
  US$’000 US$’000 US$’000 








 Short-term employee benefits and costs25,826 20,663 19,204 
 Post-employment benefits4,480 3,444 2,325 
 Other long-term benefits2,537 737 737 
 Termination benefits817  1,129 
 Share-based payments41,540 1,631 12,154 








  75,200 26,475 35,549 








The figures shown above include employment costs which comprise social security and accident premiums in the UK and US and payroll taxes in Australia paid by the employer as a direct additional cost of hire. In total, they amount to US$2,481,000 and although disclosed here, are not included in Table 1 of the Remuneration report.
More detailed information concerning the remuneration of key management is shown in the Remuneration report including Tables 1 to 5 on pages 120 to 144.

 

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Notes to the 20062007 Financial statements

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.

44AUDITORS’ REMUNERATION
         
   2007 2006 2005 
   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 3.0 2.8 2.0 
 – the audit of the accounts of the Group’s subsidiaries (b) 27.7 8.0 6.3 









   30.7 10.8 8.3 
         
 Other services       
 – other services supplied pursuant to legislation (c)  2.4 3.0 
 – taxation services (d) 0.8 0.8 1.6 
 – other services (e) 10.2 0.9 2.4 









   11.0 4.1 7.0 
 Fees in respect of pension scheme audits  0.1 0.2 









   41.7 15.0 15.5 









         
 Remuneration payable to other accounting firms(f)       
         
 Non-Audit Services       
 – the auditing of accounts of the Group’s subsidiaries pursuant to legislation 0.4 0.3 0.2 
 – taxation services 3.7 2.8 3.1 
 – financial systems design and implementation 0.3 0.3 1.2 
 – internal audit 4.4 4.2 3.3 
 – litigation services 0.1 0.1  
 – other services (g) 7.0 7.1 9.7 









   15.9 14.8 17.5 
 Fees in respect of pension scheme audits 0.3 0.2  









   16.2 15.0 17.5 









   57.9 30.0 33.0 









         
(a)The remuneration payable to PricewaterhouseCoopers, the Group Auditors, is approved by the Audit committee. The committee sets the policy for the award of non-auditnon audit work to the auditors and approves 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, together with the Group'sGroup’s share of the payments made by proportionally consolidated units.
(b)Fees payable for the 'audit‘audit of the accounts of the Group's subsidiaries pursuant to legislation'Group’s subsidiaries’ includes the statutory audit of subsidiaries and other audit work performed to support the audit of the Group financial statements. This includes the full costs relating to the 2007 audit of Alcan Inc. and its subsidiaries of US$18.8 million.
(c)'Other‘Other services supplied pursuant to legislation'legislation’ primarily relates to preparatory work relating to compliance with the Sarbanes-Oxley Act.
(d)'Taxation services'‘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.pricing.
(e)'Other services' includes advice on accounting matters (including‘Other services’ include fees in connection with the IFRS restatement in 2005)acquisition of Alcan Inc., and assurance services in relation to issues of loan notes.the Group’s divestment programme.
(f)'Remuneration‘Remuneration payable to other accounting firms'firms’ does not include fees for similar services payable to suppliers of consultancy services other than accountancy firms.
(g)'Other services'‘Other services’ in respect of other accounting firms includes pension fund and payroll administration, advice on accounting matters, secondments of accounting firms'firms’ staff, forensic audit, advisory services in connection with Section 404 of the Sarbanes-Oxley Act and other consultancy.

 

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Notes to the 20062007 Financial statements

4245RELATED PARTY TRANSACTIONS
 
Information about material related party transactions of the Rio Tinto Group is set out below:

Subsidiary companies and proportionally consolidated units
Details of investments in principal subsidiary companies are disclosed in note 35.
Information relating to proportionally consolidated units can be found in note 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
Information relating to pension fund arrangements is disclosed in note 46.

Directors and key management
Details of directors' and key management remuneration are set out in note 40 and in the remuneration report on page xx to xx.

43EXCHANGE RATES IN US$
 Subsidiary companies and proportionally consolidated units
Details of investments in principal subsidiary companies are disclosed in note 37.
Information relating to proportionally consolidated units can be found in note 40.
The principal exchange rates used in the preparation
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 the 2006 financial statements are:bauxite and alumina. Sales relate largely to charges for supply of coal to jointly controlled marketing entities for onsale to third party customers.
  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 













 
  2007 2006 2005 
 Income statement itemsUS$m US$m US$m 








 Purchases from equity accounted units(1,538)(1,364)(1,259)
 Sales to equity accounted units1,338 1,497 1,296 








 Balance sheet items      






  
 Investments in equity accounted units (note 14) (a)7,038 2,235   
 Loans to equity accounted units362 151   
 Loans from equity accounted units(174)(65)  
 Trade and other receivables: amounts due from equity accounted units (note 17)804 648   
 Trade and other payables: amounts due to equity accounted units (note 25)(219)(143)  






  
 Cash flow statement items      








 (Funding of)/repayments from equity accounted units(216)(47)17 








  
(a)Further information about investments in equity accounted units is set out in Notes 38 and 39.
44Pension funds
Information relating to pension fund arrangements is disclosed in note 49.
Directors and key management
Details of directors’ and key management remuneration are set out in note 43 and in the Remuneration report, including Tables 1 to 5, on pages 120 to 144.
46EXCHANGE RATES IN US$
              
 The principal exchange rates used in the preparation of the 2007 financial statements are:
              
  Annual Annual Annual Year Year Year 
  Average Average Average end end end 
  2007 2006 2005 2007 2006 2005 














 Sterling2.00 1.84 1.82 1.99 1.96 1.73 
 Australian dollar0.84 0.75 0.76 0.88 0.79 0.73 
 Canadian dollar0.93 0.88 0.83 1.01 0.86 0.86 
 South African rand0.142 0.148 0.157 0.147 0.143 0.158 
 Euro1.37 1.26 1.24 1.47 1.32 1.18 














              
47BOUGAINVILLE COPPER LIMITED ('BCL'(‘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'smine’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$1 million for the financial year (2005: US$nil; 2004:(2006: US$1 million)million; 2005: nil). This is based upon actual transactions for the financial year.
The aggregate amount of capital and reserves reported by BCL as at 31 December 20062007 was US$129147 million (2005:(2006: US$112129 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 2006,2007, the number of shares in BCL held by the Group, multiplied by the share price, resulted in an amount of US$281 million (2006: US$119 million.

million).

 

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Notes to the 20062007 Financial statements

4548SHARE BASEDSHARE-BASED PAYMENTS
 
Rio Tinto plc and Rio Tinto Limited (“the Companies”) have a number of share-based payment plans, which are described in detail in the Remuneration Report.Report on pages 120 to 133. These plans have been accounted for in accordance with the fair value recognition provisions of IFRS‘IFRS 2 'Share-based Payments'Share-based Payment’, 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'sTinto’s share-based compensation plans, and related liabilities,liability (for cash-settled plans), are set out in the table below.
   Expense recognised for the year Liability at the end of the year 
        
   2007  2006  2005  2007  2006  
   US$m  US$m  US$m  US$m  US$m  













 Equity-settled plans 39 25 26   
 Cash-settled plans 181 7 22 219 43 













 Total 220 32 48 219 43 













             
 Lattice-based option valuation model
The fair 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 was used to estimate employee forfeiture and cancellation rates within the valuation model. Under the Share Option Plans, it is assumed that after options have vested, 20 per cent per annum 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 yield available on UK and Australian 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 options
.
  
 Summary of options outstanding
A summary of the status of the Companies’ fixed share option plans at 31 December 2007, and changes during the year ended 31 December 2007, is presented below.
          
     Weighted Weighted   
    average average   
    exercise remaining Aggregate 
    price contractual intrinsic 
    per option life value 
  2007 2007 2007 2007 
 Options outstanding at 31 DecemberNumber £ / A$ Years US$m 










 Rio Tinto plc Share Savings Plan (£9 – £36)1,419,715 18.39 2.1 99 
 Rio Tinto plc Share Option Plan (£8 – £35)4,960,203 18.75 6.7 341 
 Rio Tinto Limited Share Savings Plan (A$26 – A$79)2,634,607 46.36 2.3 202 
 Rio Tinto Limited Share Option Plan (A$33 – A$94)3,351,754 50.84 6.9 244 










  12,366,279     886 










  
 As at 31 December 2006, there were 12,971,924 options outstanding with an aggregate intrinsic value of US$316 million.
          
 Options exercisable at 31 December        










 Rio Tinto plc Share Option Plan (£8 – £15)2,387,532 13.16 5.2 191 
 Rio Tinto Limited Share Option Plan (A$33 – A$40)1,529,378 35.21 5.4 133 










  3,916,910     324 










  
 As at 31 December 2006, there were 3,978,543 options exercisable with an aggregate intrinsic value of US$118 million.
  
 As at 31 December 2007, no options were exercisable under both the Rio Tinto plc and the Rio Tinto Limited Share Savings Plans.

 

  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 











 

Lattice-based option valuation model


The fair 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 yield available on UK and Australian 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 options.

Summary of options outstanding
A summary of the status of the Companies' fixed share option plans at 31 December 2006, and changes during the year ended 31 December 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 Rio 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 day 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 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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Notes to the 20062007 Financial statements

4548SHARE BASEDSHARE-BASED PAYMENTS CONTINUED continued
Share Savings Plans
 
Rio Tinto plc – share savings plan
Awards under these plans are settled in equity and accounted for accordingly. The fair value of each award on the day 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 the valuation are noted in the following table.
 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 
               
   Risk-free Expected Dividend Forfeiture Cancellation Implied 
   interest rate volatility yield rates rates lifetime 
   % % % % % Years 














 Awards made in 2007            
 Rio Tinto plc5.0 35.0 1.5 5.0 5.0 2.2-5.2 
 Rio Tinto Limited6.5 28.0 1.4 5.0 5.0 3.2-5.2 














           
 Rio Tinto plc – Share Savings Plan         
    Weighted   Weighted   Weighted 
    average   average   average 
    exercise   exercise   exercise 
    price   price   price 
  2007 2007 2006 2006 2005 2005 
  Number £ Number £ Number £ 














 Options outstanding at 1 January1,497,463 14.26 1,624,492 11.84 1,709,069 10.11 
 Granted324,170 30.47 323,256 20.72 393,275 16.64 
 Forfeited(32,518)14.30 (35,953)14.06 (32,350)10.25 
 Exercised(311,458)11.12 (376,802)9.59 (334,750)9.32 
 Cancellations(36,075)20.13 (25,097)12.38 (70,027)10.98 
 Expired(21,867)10.36 (12,433)11.72 (40,725)9.13 














 Options outstanding at 31 December1,419,715 18.39 1,497,463 14.26 1,624,492 11.84 














         
   2007 2006 2005 
   £ £ £ 









 Weighted average fair value, at date of grant, of options granted during the year (£) 13.16 7.93 8.09 
 Share price, at date of grant, of options granted during the year (£) 41.31 24.63 22.34 
 Weighted average share price at the time the options were exercised during the year (£) 28.55 27.86 16.95 
           
 Rio Tinto Limited – Share Savings Plan            
    Weighted   Weighted   Weighted 
    average   average   average 
    exercise   exercise   exercise 
    price   price   price 
  2007 2007 2006 2006 2005 2005 
  Number A$ Number A$ Number A$ 














 Options outstanding at 1 January2,748,026 36.00 2,786,301 30.56 2,680,986 27.18 
 Granted548,549 79.27 494,141 56.80 707,144 40.92 
 Forfeited(121,590)37.05 (81,201)30.85 (49,532)27.31 
 Exercised(480,955)27.75 (414,201)25.65 (407,195)27.82 
 Cancellations(39,126)41.75 (36,936)30.94 (131,498)27.34 
 Expired(20,297)27.71 (78)25.57 (13,604)27.86 














 Options outstanding at 31 December2,634,607 46.36 2,748,026 36.00 2,786,301 30.56 














        
  2007 2006 2005 
  A$ A$ A$ 








 Weighted average fair value, at date of grant, of options granted during the year (A$)34.13 23.56 21.62 
 Share price, at date of grant, of options granted during the year (A$)106.28 69.25 56.50 
 Weighted average share price at the time the options were exercised during the year (A$)81.13 74.16 43.83 

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 










 
           

A-60


Back to Contents

Notes to the 20062007 Financial statements

4548SHARE BASEDSHARE-BASED PAYMENTS CONTINUED continued
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 (“TSR”) 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 rate volatility yield rates lifetime 
   % % % % Years 













 Awards made in 2007          
 Rio Tinto plc5.0 34.0 2.4 3.0 5.2 
 Rio Tinto Limited5.8 27.0 2.2 3.0 5.9 













  
 A summary of the status of the Companies’ performance-based share option plans at 31 December 2007, and changes during the year ended 31 December 2007, is presented below.
          
 Rio Tinto plc – Share Option Plan            
    Weighted   Weighted   Weighted 
    average   average   average 
    exercise   exercise   exercise 
    price   price   price 
  2007 2007 2006 2006 2005 2005 
  Number £ Number £ Number £ 














 Options outstanding at 1 January5,185,847 16.33 6,290,155 13.45 8,053,292 12.33 
 Granted786,002 27.29 931,418 27.11 979,593 18.26 
 Forfeited(42,211)24.73 (63,713)25.16 (71,312)14.96 
 Exercised(969,435)12.50 (1,972,013)11.95 (2,671,418)11.80 














 Options outstanding at 31 December4,960,203 18.75 5,185,847 16.33 6,290,155 13.45 














        
  2007 2006 2005 
  £ £ £ 








 Weighted average fair value, at date of grant, of options granted during the year (£)6.25 7.40 4.09 
 Weighted average share price, at date of grant, of options granted during the year (£)27.48 26.89 18.25 
 Weighted average share price at the time the options were exercised during the year (£)39.25 29.01 20.37 
        
 In addition to the equity-settled options shown above, there were 121,131 cash-settled options outstanding at 31 December 2007. The total liability for these awards at 31 December 2007 was US$7 million (2006: US$1 million).
           
 Rio Tinto Limited – Share Option Plan            
    Weighted   Weighted   Weighted 
    average   average   average 
    exercise   exercise   exercise 
    price   price   price 
  2007 2007 2006 2006 2005 2005 
  Number A$  Number A$ Number A$  














 Options outstanding at 1 January3,540,588 43.53 3,959,472 36.17 4,073,599 34.24 
 Granted568,638 75.12 716,318 71.06 669,731 47.04 
 Forfeited(20,504)71.57 (89,041)53.64 (48,880)37.60 
 Exercised(736,968)31.88 (1,043,766)33.65 (734,978)35.30 
 Expired  (2,395)39.87   














 Options outstanding at 31 December3,351,754 50.84 3,540,588 43.53 3,959,472 36.17 














        
  2007 2006 2005 
  A$ A$ A$ 








 Weighted average fair value, at date of grant, of options granted during the year (A$)14.37 17.09 8.93 
 Weighted average share price, at date of grant, for options granted during the year (A$)75.57 70.85 46.89 
 Weighted average share price at the time the options were exercised during the year (A$)102.04 76.64 49.86 
        
 In addition to the equity-settled options shown above, there were 53,369 cash-settled options outstanding at 31 December 2007. The total liability for these awards at 31 December 2007 was US$3 million (2006: US$2 million).
        
 Share Ownership Plan
The 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 £1,145,000 (2006: £988,000; 2005: £877,000).

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.

Share Ownership Plan


The 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).

Mining 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 anticipated TSR performance.

A-61


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Notes to the 20062007 Financial statements

4548SHARE BASEDSHARE-BASED PAYMENTS CONTINUED continued
Mining 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 per annum 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 anticipated TSR performance.
A summary of the status of the Companies’ performance-based share plans at 31 December 2007, and changes during the year, is presented below.

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 












 
 Rio Tinto plc – Mining Companies Comparative Plan            
              
    Weighted   Weighted   Weighted 
    average   average   average 
    fair value   fair value   fair value 
    at grant   at grant   at grant 
    date   date   date 
  2007 2007 2006 2006 2005 2005 
  Number £ Number £ Number £ 














 Non-vested shares at 1 January2,777,374 7.36 2,276,511 6.62 1,819,497 6.20 
 Awarded719,898 12.61 850,126 9.02 891,010 7.03 
 Forfeited(45,370)10.39 (60,826)8.18 (21,532)6.78 
 Failed performance conditions(221,656)6.26 (233,843)6.20 (343,731)5.59 
 Vested(52,173)6.26 (54,594)6.22 (68,733)6.04 














 Non-vested shares at 31 December3,178,073 8.60 2,777,374 7.36 2,276,511 6.62 














 Weighted-average share price at date of vesting (£) 27.99  28.67  17.59 
      
   2007 2006 2005 
   £’000 £’000 £’000 









 Total fair value of shares issued in settlement of shares vested during the year457529134 
 Total cash payments made in settlement of shares vested during the year1,0031,035258 
 Total cash payments made in settlement of shares vested during previous years1,374 
      
 Rio Tinto Limited – Mining Companies Comparative Plan            
              
    Weighted   Weighted   Weighted 
    average   average   average 
    fair value   fair value   fair value 
    at grant   at grant   at grant 
    date   date   date 
  2007 2007 2006 2006 2005 2005 
  Number A$ Number A$ Number A$ 














 Non-vested shares at 1 January1,897,008 19.35 1,510,846 17.27 1,129,237 16.11 
 Awarded533,225 34.91 646,637 23.59 588,483 18.15 
 Forfeited(39,790)31.36 (83,092)19.90 (12,337)17.35 
 Failed performance conditions(149,044)17.50 (146,738)16.84 (176,741)13.21 
 Vested(31,711)17.58 (30,645)16.84 (17,796)13.41 














 Non-vested shares at 31 December2,209,688 23.04 1,897,008 19.35 1,510,846 17.27 














           
 Weighted-average share price at date of vesting (A$) 77.95  71.65  43.89 
       
  2007 2006 2005 
  A$’000 A$’000 A$’000 








 Total fair value of shares issued in settlement of shares vested during the year8791,136 342 
 Total cash payments made in settlement of shares vested during the year1,6041,060 394 








 

A-62



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Notes to the 20062007 Financial statements

4648SHARE-BASED PAYMENTScontinued
Management Share Plan
The Management Share Plan was introduced during 2007 and is described in the Remuneration report on pages 120 to 133. The awards will be settled in equity including the dividends accumulated from date of award to vesting. The awards are accounted for in accordance with the requirements applying to equity-settled, share based payment transactions. The fair value of each award on the day of grant is set equal to share price on the day of grant.
Forfeitures are assumed prior to vesting at three per cent per annum of outstanding awards.
A summary of the status of the Companies’ fixed share plans at 31 December 2007, and changes during the year, is presented below:
Rio Tinto plc – Management Share Plan
    Weighted 
    average 
    fair value 
    at grant 
    date 
  2007 2007 
  Number £ 






 Non-vested awards at 1 January  
 Awarded365,670 30.09 
 Forfeited(19,382)28.33 
 Vested(2,072)27.15 






 Non-vested awards at 31 December344,216 30.20 






 Estimated weighted average share price of awards vested during the year (£) 43.75 
     
 In addition to the equity-settled awards shown above, there were 6,225 cash-settled awards outstanding at 31 December 2007. The total liability for these awards at 31 December 2007 was less than US$1 million.
  
 Rio Tinto Limited – Management Share Plan
     
    Weighted 
    average 
    fair value 
    at grant 
    date 
  2007 2007 
  Number A$ 






 Non-vested awards at 1 January  
 Awarded282,565 81.65 
 Forfeited(9,973)76.02 
 Vested(1,392)74.84 






 Non-vested awards at 31 December271,200 81.89 






 Estimated weighted average share price of awards vested during the year (A$) 98.69 
In addition to the equity-settled awards shown above, there were 6,850 cash-settled awards outstanding at 31 December 2007. The total liability for these awards at 31 December 2007 was less than US$1 million.


Back to Contents

Notes to the 2007 Financial statements

49POST RETIREMENT BENEFITS
Description of plans
The Group operates a number of pension and post retirement healthcare plans around the world. Some of these plans are defined contribution and some are defined benefit, with assets held in separate trustee administered funds. Valuations of these plans are produced and updated annually to 31 December by qualified actuaries. A number of defined benefit and defined contribution plans were brought into the Group as a result of the Alcan acquisition. These plans are reflected in this note, except for plans sponsored by the Packaging business. Those plans are accounted for as assets or liabilities held for sale.
Pension plans
The majority of the Group’s pension obligations are in Canada, the UK, the US, Australia and Switzerland, with further notable obligations in other European countries.
There are a number of pension arrangements in the UK. The defined benefit sections of these arrangements are linked to final pay and are closed to new members, with new employees being admitted to defined contribution sections.
In Australia, there are two superannuation plans providing defined benefits linked to final pay, typically paid in lump sum form. The main plan contains principally defined contribution liabilities, but is accounted for as a defined benefit plan as it contains characteristics of both types of plan.
A number of defined benefit pension plans are sponsored by the US and Canadian entities. The main plans are two Canadian plans for salaried and bargaining employees. Benefits for salaried staff are generally linked to final average pay, while benefits for bargaining employees are reviewed in negotiation with unions.
In Europe, there are defined benefit plans in Switzerland, the Netherlands, Germany and France. The largest single plan is in Switzerland and provides benefits linked to final average pay.
The Group also operates a number of unfunded defined benefit plans, which are included in the figures below.
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.
Plan assets
The proportions of the total fair value of assets in the pension plans for each asset class at the balance sheet date were:

Description of plans
The Group operates a number of pension and post-retirement healthcare plans around the world. Some of these plans are defined contribution and some are defined benefit, with assets held in separate trustee administered funds. Valuations of these plans are produced and updated annually to 31 December by independent qualified actuaries.

Pension plans
The 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 closed to new entrants on 1 April 2005. New employees are admitted to the defined contribution section.
In Australia, the Rio Tinto Staff Superannuation Fund is the only significant plan. This plan principally contains defined contribution liabilities but also has defined benefit liabilities. The defined benefits are 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. Benefits 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 reviewed in negotiation with unions.
The Group also operates a number of unfunded defined benefit plans, which are included in the figures below.

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.

Plan assets
The proportions of the total fair value of assets 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 the Group or in the Group's own financial instruments.

Main assumptions (rates per annum)
The main assumptions for the valuations of the plans are set out below:

     Other 
     (mainly 
 UK Australia (a) US Canada Africa) (b) 










 
At 31 December 2006     
Rate of increase in salaries5.1%5.1%3.9%3.8%6.8%
Rate of increase in pensions3.1%3.1%  4.8%
Discount rate5.2%5.0%5.9%5.0%7.4%
Inflation3.1%3.1%2.4%2.3%4.8%
      
At 31 December 2005     
Rate of increase in salaries4.8%4.8%3.9%4.3%6.5%
Rate of increase in pensions2.8%2.8%  4.5%
Discount rate4.8%4.4%5.6%4.8%7.3%
Inflation2.8%2.8%2.4%2.6%4.5%
           
      
  2007 2006 






 Equities60.2% 67.2% 
 Bonds29.4% 25.2% 
 Property7.2% 4.3% 
 Other3.2% 3.3% 






  100.0% 100.0% 






      
 The assets of the plans are generally managed on a day-to-day basis by external specialist fund managers. These managers may invest in the Group’s securities subject to limits imposed by the relevant fiduciary committees and local legislation. The approximate total holding of Group securities within the defined benefit plans is US$44 million.
      
 Main assumptions (rates per annum)    
 The main assumptions for the valuations of the plans are set out below:    
          
              Other 
              (mainly 
  UK Australia (a) US Canada Eurozone Switz. Africa) (b) 
















 At 31 December 2007
 Rate of increase in salaries5.0% 5.5% 3.9% 3.4% 2.8% 2.6% 7.5% 
 Rate of increase in pensions3.1% 2.7%  0.6% 2.3% 0.8% 5.5% 
 Discount rate5.9% 5.4% 6.2% 5.5% 5.5% 3.6% 8.1% 
 Inflation3.4% 3.6% 2.4% 2.2% 2.3% 1.4% 5.5% 
         
 At 23 October 2007 (Alcan plans only)
 Rate of increase in salaries4.3% 5.0% 3.9% 3.5% 2.5% 2.3%  
 Rate of increase in pensions2.7%   0.8% 2.0% 0.8%  
 Discount rate5.8% 5.2% 6.1% 5.4% 5.2% 3.5%  
 Inflation3.3% 3.5% 2.4% 2.3% 2.0% 1.1%  
         
 At 31 December 2006
 Rate of increase in salaries5.1% 5.1% 3.9% 3.8%   6.8% 
 Rate of increase in pensions3.1% 3.1%     4.8% 
 Discount rate5.2% 5.0% 5.9% 5.0%   7.4% 
 Inflation3.1% 3.1% 2.4% 2.3%   4.8% 
(a)
(a) The discount rate assumedshown for Australia is after tax.
(b)
(b) The assumptions vary by location for the 'Other'‘Other’ plans. Assumptions shown are for Southern Africa.
The main financial assumptions used for the healthcare plans, which are predominantly in the US, were: discount rate: 6.1 per cent (2006: 5.8 per cent), medical trend rate: 7.7 per cent reducing to 5.1 per cent by the year 2016 broadly on a straight line basis (2006: 8.2 per cent, reducing to 5.2 per cent by the year 2011), claims cost based on individual company experience.

The main financial assumptions used for the healthcare plans, which are predominantly in the US, were: discount rate: 5.8%
(2005: 5.6%), medical trend rate: 8.2% reducing to 5.2% by the year 2011 broadly on a straight line basis (2005: 9.4%, reducing to 4.9% by the year 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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Notes to the 20062007 Financial statements

4649POST RETIREMENT BENEFITScontinued
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 (2006: 24 years). A male reaching age 60 20 years after the balance sheet date would have an expected future lifetime of 25 years (2006: 25 years).
              Other 
              (mainly 
 Long term rate of return expected:UK Australia US Canada Eurozone Switz. Africa) (a) 
















 At 24 October 2007 (Alcan plans only)
 Equities7.8% 8.9% 7.9% 7.7% 7.8% 6.6%  
 Bonds4.9% 5.4% 5.3% 4.6% 4.5% 3.4%  
 Property6.1% 7.0% 6.2% 6.0% 6.1% 4.9%  
 Other4.3% 3.6% 3.2% 3.1% 3.1% 2.0%  
         
 At 1 January 2007       
 Equities7.5% 8.7% 8.1% 7.4%   10.7% 
 Bonds4.5% 5.2% 5.2% 4.4%   7.4% 
 Property5.8% 6.8% 6.4% 5.7%   9.0% 
 Other4.2% 3.5% 3.4% 3.3%   5.8% 
         
 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% 
(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          
 Pension Other Total Total Total 
  benefits benefits 2007 2006 2005 
  US$m US$m US$m US$m US$m 












 Current employer service cost for Defined Benefits (“DB”)(134)(11)(145)(102)(90)
 
Current employer service cost for Defined Contribution benefits within DB plans
(106) (106)(74)(69)
 Current employer service cost for Defined Contribution plans(40) (40)(21)(13)
 Interest cost(482)(34)(516)(314)(308)
 Expected return on assets550  550 326 306 
 Past service cost(7)24 17 (7)(1)
 Gains on curtailment and settlement   3 8 












 Total expense(219)(21)(240)(189)(167)












The above expense is included as an employee cost within net operating costs. It includes the pension expense of Alcan businesses, excluding Packaging, post 23 October 2007.
Total amount recognised in the statement of recognised income and expense
  2007 2006 2005 
  US$m US$m US$m 








 Actuarial gain141 373 178 
 Cumulative amount recognised in the statement of recognised income and expense at 31 December489 348 (25)








The actuarial gain above includes a US$4 million loss related to equity accounted units (2006 and 2005: nil).

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Notes to the 2007 Financial statements

49POST RETIREMENT BENEFITS CONTINUEDcontinued
Surpluses/(deficits) in the plans
The following amounts were measured in accordance with IAS 19:
       
     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.

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.

  Pension Other Total Total Total Total 
  benefits benefits 2007 2006 2005 2004 
  US$m US$m US$m US$m US$m US$m 














 Total fair value of plan assets16,387  16,387 6,031 5,115 4,777 
 Present value of obligations – funded(16,856) (16,856)(5,847)(5,315)(5,118)
 Present value of obligations – unfunded(981)(1,087)(2,068)(597)(596)(649)














 Present value of obligations – Total(17,837)(1,087)(18,924)(6,444)(5,911)(5,767)














 Unrecognised past service cost (2)(2)3   














 Aggregate surplus/(deficit) to be shown in the balance sheet(1,450)(1,089)(2,539)(410)(796)(990)














 Comprising:      
 – Deficits(2,186)(1,089)(3,275)(770)(996)(1,069)
 – Surpluses736  736 360 200 79 














 
Net surpluses/(deficits) on pension plans
(1,450) (1,450)48 (324)(450)
 
Unfunded post retirement healthcare obligation
 (1,089)(1,089)(458)(472)(540)














The surplus amounts shown above are included in the balance sheet as Trade and Other Receivables. Deficits are shown in the balance sheet as Provision for post retirement benefits.
Contributions to plans
Contributions to pension plans totalled US$246 million (2006: US$172 million; 2005: US$192 million). These contributions include US$30 million (2006: US$26 million; 2005: US$20 million) for plans providing purely defined contribution benefits (including 401k plans in the US) and US$10 million (2006: US$9 million; 2005: US$5 million) to industry-wide or multi-employer plans; these are charged against profits and are included in the figures for ‘current employer service cost’ shown above. They include contributions of Alcan businesses excluding Packaging, post 23 October 2007.
Contributions for other benefits totalled US$30 million (2006: US$19 million; 2005: US$26 million).
Contributions to pension plans for 2008 are estimated to be around US$220 million higher than for 2007. Of this increase, US$140 million is due to the Alcan acquisition with most of the remainder relating to new US funding regulations. Healthcare plans are unfunded and contributions for future years will be equal to benefit payments and therefore cannot be predetermined.
Movements in the present value of the defined benefit obligation and in the fair value of assets
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.
          
  Pension Other Total Total 
  benefits benefits 2007 2006 
  US$m US$m US$m US$m 










 Change in present value of obligation:    
 Present value of obligation at start of the year(5,983)(461)(6,444)(5,911)
 Current employer service cost(261)(11)(272)(206)
 Interest cost(482)(34)(516)(314)
 Contributions by plan participants(190) (190)(113)
 Experience (loss)/gain(73)11 (62)(89)
 Changes in actuarial assumptions: gain289 26 315 124 
 Benefits paid542 30 572 361 
 Alcan acquisition(11,216)(651)(11,867) 
 Inclusion/removal of arrangements   42 
 Past service income/(cost)(7)29 22 (10)
 Curtailment gains   3 
 Currency exchange rate loss(456)(26)(482)(331)










 Present value of obligation at end of the year(17,837)(1,087)(18,924)(6,444)










      
 Gains and losses on obligations    
  2007 2006 2005 2004 










 Experience gains and (losses): (i.e. variances between the estimate of obligations and the subsequent outcome)    
 (Loss)/gain (US$ million)(62)(89)139 (148)
 As a percentage of the present value of the obligations0% (1%)2% (3%)










 Change in assumptions gain/(loss) (US$ million)315 124 (180)(429)










 

A-64



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Notes to the 20062007 Financial statements

4649POST RETIREMENT BENEFITS CONTINUEDcontinued
  Pension Other Total Total 
  benefits benefits 2007 2006 
  US$m US$m US$m US$m 










 Change in plan assets:    
 Fair value of plan assets at the start of the year6,031  6,031 5,115 
 Expected return on plan assets550  550 326 
 Actuarial gain/(loss) on plan assets(108) (108)338 
 Contributions by plan participants190  190 113 
 Contributions by employer233 30 263 189 
 Benefits paid(542)(30)(572)(361)
 Alcan acquisition9,617  9,617  
 Inclusion/removal of arrangements   (41)
 Currency exchange rate gain416  416 352 










 Fair value of plan assets at the end of the year16,387  16,387 6,031 










 Actual return on plan assets  442 664 
          
  2007 2006 2005 2004 










 Difference between the expected and actual return on plan assets:
 Gain/(loss) (US$m)(108)338 223 387 
 As a percentage of plan assets(1%)6% 4% 8% 










Post-retirement healthcare – sensitivity to changes in assumptions
An increase of one 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$5 million (2006 and 2005: US$6 million), and increase the benefit obligation for these plans by US$89 million (2006: US$73 million; 2005: US$67 million). A decrease of one 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$5 million (2006 and 2005: US$5 million), and decrease the benefit obligation for these plans by US$77 million (2006: US$62 million; 2005: US$56 million).

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 above. 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 (2005: US$5 million; 2004: US$4 million) were made to an industry-wide arrangement that is principally defined contribution in nature.
Contributions for other benefits totalled US$19 million (2005: US$26 million; 2004: US$26 million).
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 predetermined.

Movements in the present value of the defined benefit obligation and in the fair value of assets
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 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 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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Notes to the 20062007 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).

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Notes to the 2006 Financial statements

4750RIO TINTO FINANCIAL INFORMATION BY BUSINESS UNIT
Years ended 31 December
  Rio Gross sales revenue EBITDA Net earnings 
  Tinto  (a)    (b) (c) 
  interest 2007 2006 2005 2007 2006 2005 2007 2006 2005 
  % US$m US$m US$m US$m US$m US$m US$m US$m US$m 






















 Iron Ore           
 Hamersley Iron (inc. HIsmelt®)100.0 6,155 4,416 3,387 3,427 2,611 1,924 2,151 1,673 1,219 
 Robe River (d)53.0 1,640 1,379 1,113 991 902 726 503 461 362 
 Iron Ore Company of Canada58.7 943 1,051 954 298 441 451 104 145 148 
 Rio Tinto Brasil100.0 61 92 43 (1)27 1 (12)13 (7)






















 Product group operations  8,799 6,938 5,497 4,715 3,981 3,102 2,746 2,292 1,722 
 Evaluation projects/other     (98)(45) (95)(41) 






















    8,799 6,938 5,497 4,617 3,936 3,102 2,651 2,251 1,722 






















 Energy           
 Rio Tinto Energy America100.0 1,560 1,428 1,197 331 302 257 132 177 135 
 Rio Tinto Coal Australia(e) 2,272 2,344 2,302 510 920 1,067 246 490 572 
 Rössing68.6 486 229 163 235 71 24 95 27 2 
 Energy Resources of Australia68.4 303 239 205 135 79 94 38 17 24 






















 Product group operations  4,621 4,240 3,867 1,211 1,372 1,442 511 711 733 
 Evaluation projects/other     (29)(14)(3)(27)(5)(3)






















    4,621 4,240 3,867 1,182 1,358 1,439 484 706 730 






















 Aluminium           
 Rio Tinto Aluminium(f) 3,511 3,493 2,744 1,314 1,389 855 695 763 392 
 Alcan  3,798   415   424   






















 Product group operations  7,309 3,493 2,744 1,729 1,389 855 1,119 763 392 
 Evaluation projects/other     (28)(24) (22)(17) 






















    7,309 3,493 2,744 1,701 1,365 855 1,097 746 392 






















 Copper           
 Kennecott Utah Copper100.0 3,539 2,829 2,141 2,614 2,111 1,436 1,649 1,810 1,037 
 Escondida30.0 3,103 2,575 1,239 2,510 2,105 1,014 1,525 1,250 602 
 Grasberg joint venture(g) 461 373 657 296 258 436 159 122 232 
 Palabora57.7 689 588 371 202 203 77 58 52 19 
 Kennecott Minerals100.0 338 277 256 175 139 119 106 105 73 
 Northparkes80.0 371 437 175 212 346 109 137 229 57 






















 Product group operations  8,501 7,079 4,839 6,009 5,162 3,191 3,634 3,568 2,020 
 Evaluation projects/other     (200)(44)(35)(155)(30)(32)






















    8,501 7,079 4,839 5,809 5,118 3,156 3,479 3,538 1,988 






















 Diamonds and Industrial Minerals






















 Diamonds(h) 1,020 838 1,076 539 491 622 280 211 285 
 Iron and Titanium  1,673 1,449 1,360 471 428 416 164 152 128 
 Rio Tinto Minerals(i) 1,228 1,174 1,127 227 196 150 84 91 59 






















 Product group operations  3,921 3,461 3,563 1,237 1,115 1,188 528 454 472 
 Evaluation projects/other     (46)(54)(37)(40)(48)(34)






















    3,921 3,461 3,563 1,191 1,061 1,151 488 406 438 






















 Other Operations  367 229 232 30 39 69 15 33 44 






















    33,518 25,440 20,742 14,530 12,877 9,772 8,214 7,680 5,314 






















 Other items     (635)(252)(246)(526)(241)(141)
 Exploration and evaluation     25 (101)(190)20 (84)(174)
 Net interest        (265)(17)(44)






















 Underlying earnings     13,920 12,524 9,336 7,443 7,338 4,955 
 Items excluded from Underlying earnings     (309)42 407 (131)100 260 
 Less: share of equity accounted units sales revenue  (3,818)(2,975)(1,709)      






















 Total  29,700 22,465 19,033 13,611 12,566 9,743 7,312 7,438 5,215 






















 Depreciation and amortisation in subsidiaries     (2,115)(1,509)(1,338)   
 Impairment reversal/(charges)     (58)396 3    
 Depreciation and amortisation in equity accounted units     (310)(275)(281)   
 Taxation and finance items in equity accounted units     (973)(826)(429)   






















 
Profit on ordinary activities before finance items and tax
    10,155 10,352 7,698    






















 

 Rio TintoGross sales revenue EBITDA  Net earnings 
 interest(a)  (b) (c) 
   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®)100.0 4,416 3,387 1,858 2,594 1,924 772 1,660 1,219 430 
Robe River53.0 1,379 1,113 614 902 726 318 461 362 130 
Iron Ore Company of Canada58.7 1,051 954 428 441 451 55 145 148 4 
Rio Tinto Brasil100.0 92 43 109 27 1 31 13 (7)1 




















 
   6,938 5,497 3,009 3,964 3,102 1,176 2,279 1,722 565 




















 
Energy          
Rio Tinto Energy America100.0 1,428 1,197 1,125 302 257 298 177 135 180 
Rio Tinto Coal Australia(d)2,344 2,302 1,585 920 1,067 536 490 572 236 
Rössing68.6 229 163 124 71 24 8 27 2 (4)
Energy Resources of Australia68.4 239 205 174 79 94 70 17 24 19 




















 
   4,240 3,867 3,008 1,372 1,442 912 711 733 431 




















 
Industrial Minerals  2,623 2,487 2,126 624 563 554 243 187 243 
Aluminium(e)3,493 2,744 2,356 1,365 855 688 746 392 331 




















 
Copper          
Kennecott Utah Copper100.0 2,829 2,141 1,091 2,103 1,436 498 1,804 1,037 311 
Escondida30.0 2,575 1,239 1,003 2,105 1,014 699 1,250 602 406 
Freeport(h)  43   7   (4)
Grasberg joint venture(f)373 657 159 258 436 98 122 232 32 
Palabora57.7 588 371 305 203 77 (20)52 19 (21)
Kennecott Minerals100.0 277 256 263 139 119 130 105 73 82 
Northparkes80.0 437 175 85 346 109 43 229 57 25 
Other copper    84   48   29 




















 
   7,079 4,839 3,033 5,154 3,191 1,503 3,562 2,020 860 




















 
Diamonds          
Argyle100.0 345 572 322 167 252 102 64 117 40 
Diavik60.0 460 460 420 297 334 316 131 143 147 
Murowa77.8 33 44 2 19 31 1 10 21 1 




















 
   838 1,076 744 483 617 419 205 281 188 




















 
Other Operations  229 232 254 39 81 122 33 40 56 




















 
   25,440 20,742 14,530 13,001 9,851 5,374 7,779 5,375 2,674 




















 
Other items    (289)(329)(291)(261)(202)(205)
Exploration and evaluation    (188)(190)(142)(163)(174)(128)
Net interest       (17)(44)(69)




















 
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  22,465 19,033 12,954 12,566 9,739 6,111 7,438 5,215 3,297 




















 
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 units   (275)(281)(228)   
Taxation and finance items in equity accounted units   (826)(429)(314)   




















 
Profit on ordinary activities before finance costs and tax   10,352 7,698 3,850    



















 

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Notes to the 2007 Financial statements

50RIO TINTO FINANCIAL INFORMATION BY BUSINESS UNITcontinued
Years ended 31 December
          
  Capital
expenditure (j)
 Depreciation &
amortisation
 Operating assets (k) Employees 
  2007 2006 2005 2007 2006 2005 2007 2006 2007 2006 2005 
  US$m US$m US$m US$m US$m US$m US$m US$m No. No. No. 
























 Iron Ore              
 Hamersley (inc. HIsmelt®)1,597 1,700 977 352 231 174 6,133 4,317 4,786 4,161 2,926 
 Robe River241 104 165 104 90 89 1,877 1,593 873 678 553 
 Iron Ore Company of Canada163 151 98 78 58 47 869 651 1,939 1,886 1,752 
 Rio Tinto Brasil30 18 36 9 8 5 135 97 657 522 449 
 Other34 8 6 3   24 4 375   
























  2,065 1,981 1,282 546 387 315 9,038 6,662 8,630 7,247 5,680 
























 Energy              
 Rio Tinto Energy America226 262 211 131 116 85 1,163 1,097 2,435 2,297 1,958 
 Rio Tinto Coal Australia226 251 175 165 170 164 1,755 1,397 2,832 2,462 2,228 
 Rössing57 38 3 13 6 16 151 68 1,175 936 831 
 Energy Resources of Australia80 31 34 50 32 40 296 201 365 366 330 
 Other   3   34  71   
























  589 582 423 362 324 305 3,399 2,763 6,878 6,061 5,347 
























 Aluminium              
 Rio Tinto Aluminium295 236 242 303 266 274 4,144 3,607 4,448 4,347 4,296 
 Alcan317   315   39,702  6,980   
























  612 236 242 618 266 274 43,846 3,607 11,428 4,347 4,296 
























 Copper              
 Kennecott Utah Copper282 295 171 251 151 136 1,694 1,789 1,854 1,744 1,571 
 Escondida170 155 229 98 96 69 1,045 792 876 1,072 840 
 Grasberg joint venture76 45 49 24 43 35 410 412 2,047 1,781 1,729 
 Palabora27 18 17 41 40 32 84 104 2,072 1,811 1,796 
 Kennecott Minerals84 78 45 24 26 32 236 198 457 409 388 
 Northparkes55 16 16 22 48 33 151 89 208 182 174 
 Other22 57 15 1   498 341 162 56  
























  716 664 542 461 404 337 4,118 3,725 7,676 7,055 6,498 
























 Diamonds and Industrial Minerals
























 Diamonds525 257 208 181 182 163 1,241 1,058 1,291 1,354 1,260 
 Iron and Titanium494 252 164 119 112 103 2,202 1,522 3,854 3,728 3,595 
 Rio Tinto Minerals71 108 97 82 77 72 1,165 1,160 2,888 3,016 3,103 
 Other17  3    24 4 64   
























  1,107 617 472 382 371 338 4,632 3,744 8,097 8,098 7,958 
























 Other Operations37 23 25 2 2 34 139 208 203 309 298 
























  5,126 4,103 2,986 2,371 1,754 1,603 65,172 20,709 42,912 33,117 30,077 
























 Net assets held for sale (l)      4,392  5,680   
 Other items144 174 176 54 30 16 360 (40)3,085 2,128 1,777 
 Less: equity accounted units(302)(289)(382)(310)(275)(281)     
























 Total4,968 3,988 2,780 2,115 1,509 1,338 69,924 20,669 51,677 35,245 31,854 
























 Less: net debt      (45,152)(2,437)      
























 
Rio Tinto shareholders’ equity
      24,772 18,232       

























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Notes to the 2007 Financial statements

50RIO TINTO FINANCIAL INFORMATION BY BUSINESS UNITcontinued
Years ended 31 December
Business units have been classified according to the Group’s management structure. Generally, this structure has regard to the primary product of each business unit but there are exceptions. For example, the Copper group includes certain gold operations.
The following changes have been made to the way Rio Tinto presents its financial information by business unit. Full year 2006 results have been restated accordingly.
During 2007, Industrial Minerals and Diamonds were combined to form the Diamonds and Industrial Minerals Product group.
Project evaluation and other costs specifically attributable to Product groups are now reported as part of Product group earnings. Previously, these were reported centrally in ‘Exploration and evaluation’ and ‘Other items’, respectively.
Capital expenditure by Product group now includes capitalised evaluation costs.
(a)Gross sales revenue includes 100 per cent of subsidiaries'subsidiaries’ sales revenue and the Group'sGroup’s share of the sales revenue of equity accounted units.
(b)EBITDA of subsidiaries and the Group'sGroup’s share of EBITDA relating to equity accounted units represents profit before: tax, net finance items, depreciation and amortisation.
(c)Net earnings represent profit after tax for the year attributable to the Rio Tinto Group. Earnings of subsidiaries are stated before finance items but after the amortisation of the discount related to provisions. Earnings attributable to equity accounted units include interest charges and amortisation of discount. Earnings attributed to business units exclude amounts that are excluded in arriving at Underlying earnings.
(d)The Group holds 65 per cent of Robe River Iron Associates, of which 30 per cent is held through a 60 per cent owned subsidiary. The Group’s net beneficial interest is therefore 53 per cent, net of amounts attributable to outside equity shareholders.
(e)Includes Rio Tinto'sTinto’s 75.7 per cent interest in Coal & Allied, which is managed by Rio Tinto Coal Australia, a 100 per cent subsidiary of Rio Tinto.
(e)
(f)Includes Rio Tinto'sTinto’s interests in Anglesey Aluminium (51 per cent) and Rio Tinto Aluminium (100 per cent) and Anglesey Aluminium (51 per cent).
(f)
(g)Under the terms of a joint venture agreement, Rio Tinto is entitled to 40 per cent of additional material mined as a consequence of expansions and developments of the Grasberg facilities since 1998.
(g)Business units have been classified according to the Group’s management structure. Generally, this structure has regard to the primary product of each business unit but exceptions exist. For example, the Copper group includes certain gold operations.
(h)On 30 March 2004,Diamonds includes Rio Tinto’s interests in Argyle (100 per cent), Diavik (60 per cent) and Murowa (77.8 per cent).
(i)Includes Rio Tinto’s interests in Rio Tinto sold its 13.1Borax (100 per cent shareholding in Freeport-McMoRan Copper & Gold Inc. The sale of the shares does not affect the terms of the Grasberg joint venture.cent), Dampier Salt (68.4 per cent) and Luzenac Talc (100 per cent).

A-67


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Notes to the 2006 Financial statements

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)(j)Capital expenditure comprises the net cash outflow on purchases less disposals of property, plant and equipment, capitalised evaluation costs and purchases less disposals of other intangible assets other than exploration.assets. The details provided include 100 per cent of subsidiaries'subsidiaries’ capital expenditure and Rio Tinto'sTinto’s share of the capital expenditure of equity accounted units. Amounts relating to equity accounted units not specifically funded by Rio Tinto are deducted before arriving at total capital expenditure for the Group.
(j)Depreciation figures include 100 per cent of subsidiaries' depreciation and amortisation and include Rio Tinto's share of the depreciation and amortisation of equity accounted units. Amounts relating to equity accounted units are deducted before arriving at the total depreciation and amortisation charge.
Depreciation and amortisation includes US$40 million relating to deferred stripping costs which are included in 'Other items' in the Group cash flow statement.
(k)Operating assets of subsidiaries comprise net assets before deducting net debt, less outside shareholders'shareholders’ interests which are calculated by reference to the net assets of the relevant companies (i.e. net of such companies'companies’ debt). For equity accounted units, Rio Tinto'sTinto’s net investment is shown.
(l)On this line, operating assets deal with Alcan Packaging and other assets held for sale. The remaining data on this line relates only to Alcan Packaging.

 

A-68



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RIO TINTO GROUP

NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES

  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.

A-69


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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.

A-70


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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUEDAustralian Corporations Act – Summary of ASIC relief
  
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 attributable 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 a 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 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
Goodwill 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 previous years was eliminated against reserves under the previous GAAP and was not reinstated on transition to IFRS. Goodwill on acquisitions between 1998 and 2003 inclusive was capitalised and amortised over its expected useful economic life and any amortisation charged up to 1 January 2004 was not reversed under 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 eliminated against reserves under IFRS is therefore 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 SFAS 142 'Goodwill and Other Intangible Assets'.

Intangible assets
The implementation of SFAS 141 'Business Combinations' resulted in the reclassification of US$340 million from goodwill to finite lived intangible assets at 1 January 2002 under US GAAP. The accumulated cost relating to these intangible assets at 31 December 2006 was US$701 million and accumulated amortisation was US$539 million. This reclassification, which relates to acquisitions prior to 1 January 2004, has not been recognised under IFRS. The total amortisation expense for 2006 in respect of the amounts reclassified under US GAAP was US$32 million, of which US$11 million is related to the amortisation of goodwill previously eliminated against reserves and classified as finite lived intangible assets under US GAAP. The remaining US$21 million relates to the amortisation of assets classified as goodwill on the IFRS balance sheet but classified as finite lived intangible assets under US GAAP. The estimated incremental amortisation charge under US GAAP relating to intangible assets is US$32 million per year.

Additional 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 is 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 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 a firm commitment (fair value hedges) or hedges of highly probable forecast transactions (cash flow hedges).

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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED

The US standard, SFAS 133 'Accounting for Derivative Instruments and Hedging Activities', is similar but not identical to 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 million 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 not recognised in the balance sheet because the currency of the contract is considered to be 'commonly used' in the counterparty's country of operation.

Adjustments to asset carrying values
Impairment of fixed assets under IFRS is recognised and measured by reference to the discounted cash flows expected to be generated by 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 asset 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 IFRS, except where the US GAAP carrying value is different from that under IFRS. This may result from additional goodwilll carried in the balance sheet under US GAAP.
Under IFRS, impairment provisions, except those relating to goodwill, may be written back in a subsequent year if the expected recoverable amount of the Cash Generating Unit increases. Any credits to IFRS earnings resulting from such write backs are reversed in the reconciliation to US GAAP because the writing back of impairment provisions is not permitted under US GAAP. For additional information on amounts written back under IFRS during 2006, see note 5.

Pensions/post retirement benefits
For UK and Australian reporting, Rio Tinto reports pensions and post retirement benefits in accordance with IAS 19. The annual pension cost comprises the estimated cost of benefits accrued 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 in which they occur but are taken through the Statement of Recognised Income and Expense ('SORIE'), not the Income Statement. For US GAAP reporting, following the adoption of SFAS 158 'Employers' Accounting for 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 closing balance sheet position under US GAAP differs from that under IFRS largely because the pension fund assets are valued as at 30 September in each year for US GAAP purposes, whereas for IFRS they are valued as at the end of the financial year. For further discussion of the impact of adopting SFAS 158 during 2006, see C. Post Retirement Benefits.

Evaluation costs capitalised under IFRS
Under 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, 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 determining depreciation and amortisation charges, where there is a high degree of confidence that it will be mined economically. For US GAAP, only 'proven and probable reserves' are taken into account in the calculation of depreciation and amortisation charges. As a result, adjustments have been made to depreciation and amortisation, which reduce US GAAP earnings.

Effect of price assumptions specified for determination of ore reserves 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 to test the determination of reserves. The application of historical prices to 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 resulted 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 Group's operations.

Effect of change in functional currency
At 1 January 2005, the functional currency of two business units was determined to have changed from the US dollar to their local currencies. Under IFRS, the change in functional 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 the historical cost of the 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 are different from IFRS as a consequence of the 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
In accordance with SFAS 143 'Accounting for Asset Retirement Obligations', 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 income statement for the year and an increase in the present value of the provision. This accounting treatment is broadly similar to Rio Tinto's policy under IFRS 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. Under EITF 04-06, the Group includes as a component of production cost those stripping costs incurred during the production phase of a mine, except to the extent 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 stripping costs. In such cases, the initial stripping of the second and 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 adjustments for deferred stripping, which form part of the reconciliation 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 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.

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 similar 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 if 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 employee stock options, to be recognised in the financial statements 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 the depreciation of capitalised amounts of asset retirement obligations except where such obligations are recognised in accounting for a business combination. Under US GAAP, full provision is made for such temporary differences, resulting in the recognition of tax relief on such depreciation.
Under FAS 123(R), the measurement of the deferred tax asset is based on an estimate at the time the options are granted of the future tax deduction, if any, for the amount of compensation cost recognised for book purposes. Changes in the share price do not impact the deferred tax asset. Under IFRS 2, the measurement of the deferred tax asset is based on an estimate of the future tax deduction, if any, for the award updated at the end of each reporting period. Changes in the share price impact the deferred tax asset to the extent that they affect the expected future tax deduction.

Consolidated statement of cash flows
The consolidated statement of cash flows prepared in accordance with 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 IFRS with regard to the classification of items within the cash flow statement and with regard to the definition of cash and cash equivalents. Under IFRS, cash for the purposes of the cash flow statement comprises 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 value, and bank overdrafts that are payable on demand. An investment usually qualifies as a cash equivalent under IFRS when it has a short maturity of, say, three months or less from the date of 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 overdrafts repayable on demand.

Underlying earnings
As permitted under IFRS, 'Underlying earnings' as defined in note 2 to the Financial statements, has been presented to provide greater understanding of the underlying business performance of the operations of the Group. This is in addition to the presentation of Profit for the year attributable to equity shareholders of Rio Tinto (Net earnings). US GAAP net earnings has been presented, with no additional measure of Underlying earnings because such additional measures are not permitted under US GAAP.

Guarantor's accounting
Material guarantees issued by the Group relate to its own future performance. These include counter-indemnities to financial institutions that have guaranteed to third parties that the Group will perform certain obligations. Examples of such obligations include restoration and environmental remediation activities 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 for these obligations.

Variable Interest Entities
Under FIN 46(R) ‘Consolidation of Variable Interest Entities’, a variable interest entity (VIE) is 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. The Group currently has VIEs that would be consolidated for US GAAP which are equity accounted under IFRS. Additional information on these VIEs is provided in section F of note 48.

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RIO TINTO GROUP
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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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
C.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, 88, 106, 132R and 158 is given below. The measurement date used to establish year end asset values and benefit obligations was 30 September 2006. The previous measurement date, used to determine 2006 costs, was 30 September 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, the US and Canada and a description of the investment policies and strategies followed is set out below.
     In the UK and North America, the investment strategy is determined by the pension plan trustee and investment committees 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 real estate. Risk is managed in various ways, including identifying investments considered to be unsuitable and placing limits on some types of investment.
     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 2006, funded pension plans held assets invested in the following proportions:

 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 on 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 contributions are determined through regular funding valuations 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 expected to be received by the Group in 2007, as part of the distribution of surplus to members and the 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 are within the ranges 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.

2006 Cost (a)Year end benefit obligation




Discount rate4.8% to 8.0% (Average: 5.1%)4.7% to 8.4% (Average: 5.3%)
Long term rate of return on plan assets5.9% to 7.6% (Average: 6.2%)6.4% to 10.5% (Average: 6.9%)
Increase in compensation levels4.1% to 6.3% (Average: 4.6%)3.9% to 7.8% (Average: 4.6%)
(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 3.0 percent per 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:

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RIO TINTO 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 




 

A-78


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RIO TINTO GROUP
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)


A-79


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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)




 

A-80


<<

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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS - (continued)

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

Incremental effect of applying SFAS 158 on individual balance sheet line items
Adoption 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 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:

 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

The amounts in accumulated other comprehensive income expected to be recognised in net periodic benefit cost in 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


A-81


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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
D.Accumulated Foreign Currency Translation Gains and (Losses) Recorded Directly in Shareholders' Funds under US GAAP
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.

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.

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-82


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RIO TINTO GROUP
NOTES TO FINANCIAL STATEMENTS – (continued)

48RECONCILIATION TO US ACCOUNTING PRINCIPLES CONTINUED
F.Equity Method Investments Continued
(b)Included 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 these arrangements, the entities are considered to be 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 follows:
     
 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 Group 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 income. Condensed financial information relating to the Group's proportionate interest in the joint arrangements that would be equity accounted under US GAAP is as follows:
 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 US 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$4,972 million in the United States (2005: US$3,720 million).
I.Additional Share Options Information

The related tax benefit recognised in income in relation to share plans for 2006 was US$9 million (2005: US$8 million; 2004: US$4 million). The actual tax benefit realised for the tax deductions from the exercise of options and the vesting of shares totalled US$18 million, US$11 million and US$8 million for the years ended 31 December 2006, 2005 and 2004, respectively. No compensation cost was capitalised as the cost of an asset.

     At 31 December 2006, the total compensation cost related to the equity-settled share option plans not yet recognised was US$42 million and that cost is expected to be recognised over a weighted-average period of 2.3 years. At the same date, the total compensation cost related to the cash-settled share option plans not yet 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 the years ended 31 December 2006, 2005 and 2004 was US$84 million, US$92 million and US$19 million respectively.

A-83


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RIO TINTO GROUP
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 

A-84


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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.

A-85


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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).

A-86


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Australian Corporations Act summary of ASIC relief

Pursuant to section 340 of the Corporations Act 2001 ("(“Corporations Act"Act”), the Australian Securities and Investments Commission issued an orderedorder 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'sCompany’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'sGroup’s Dual Listed Companies ("DLC"(“DLC”) structure in 1995. The order applied to Rio Tinto Limited'sLimited’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"IFRS”) rather than the Australian equivalents of International Financial Reporting Standards ("AIFRS"(“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“First-time Adoption of International Financial Reporting Standards"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"“merger”, rather than "acquisition"“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)A-6).
  
 Those consolidated financial statements must also be audited in accordance with relevant United Kingdom requirements. Rio Tinto Limited must also prepare a directors'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'directors’ report, instead of including in the Directors'Directors’ report the Remuneration report otherwise required by the Corporations Act. The separate Remuneration report (see pages 95120 to 121)133) 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)124 ‘Related Party Disclosures’) dealing with compensation of directors and executives who are "key“key management personnel"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'sauditor’s report and the directors'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'directors’ report. At the Company'sCompany’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'sCompany’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'sLimited’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'sCompany’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

To the Boards of Directors and Shareholders of Rio Tinto plc and Rio Tinto Limited:
We have completed an integrated audit of the Rio Tinto Group’s 31 December 2006 consolidated financial statements and of its internal control over financial reporting 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.

Report of Independent Registered Public Accounting Firms
  
/s/ PricewaterhouseCoopers LLP/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLPPricewaterhouseCoopers
Chartered AccountantsChartered Accountants
London, United KingdomPerth, Australia
27 June 200727 June 2007
In respect ofTo the BoardBoards of Directors and Shareholders of Rio Tinto plc and Rio Tinto Limited:

In our opinion, the accompanying consolidated balance sheets and the related consolidated income statements, 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 2007 and 31 December 2006, and the results of its operations and its cash flows for each of the three years in the period ended 31 December 2007 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European Union. Also in our opinion, the Rio Tinto Group maintained, in all material respects, effective internal control over financial reporting as of 31 December 2007, based on criteria established in ‘Internal Control – Integrated Framework’ issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Rio Tinto Group’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in “Management’s Report on Internal Control over Financial Reporting” as set out in item 15 on page 169. Our responsibility is to express opinions on these financial statements and on Rio Tinto Group’s internal control over financial reporting based on our integrated audits (which were integrated audits in 2007 and 2006). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and International Standards on Auditing (UK and Ireland). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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 statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide 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 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 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.

PricewaterhouseCoopers LLPPricewaterhouseCoopers
Chartered AccountantsChartered Accountants
London, United KingdomBrisbane, Australia
31 March 200831 March 2008
In respect of the Board of Directors andIn respect of the Board of Directors and
Shareholders of Rio Tinto LimitedplcShareholders of Rio Tinto Ltd

 

A-88



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MINERA ESCONDIDA LIMITADAMinera Escondida Limitada

Financial Statements
June 30, 2007, 2006 and 2005


(With Independent Auditor’s Report Thereon)

 

A-89



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MINERA ESCONDIDA LIMITADAMinera Escondida Limitata
Contents

CONTENTS

1.Independent Auditor’s ReportA-90A-76
2.Balance SheetsA-91A-77
3.Statements of Income and Retained EarningsA-93A-79
4.Statements of EquityA-94A-80
5.Statements of Cash FlowsA-95A-81
6.Notes to Financial StatementsA-97A-83

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, 20062007 and 2005,2006, and the related statements of income, equity, and cash flows for the years then ended.ended June 30, 2007, 2006 and 2005. 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 includesstatements, 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, 20062007 and 2005,2006, and the results of its operations and its cash flows for the years then ended June 30, 2007, 2006 and 2005 in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG Auditores Consultores Ltda.

Santiago, Chile
15 October 2006September 12, 2007

 


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A-91Minera Escondida Limitada


Balance Sheets
June 30, 2007 and 2006
(in thousands of USD)

 2007  2006 





Assets    
     
Current assets:    
Cash and cash equivalents127,299 12,400 
Trade accounts receivable1,729,031 1,450,018 
Due from related companies25,907 28,544 
Other receivables, including employee receivables17,280 7,125 
Production inventories178,485 107,129 
Supplies and spare parts, net79,594 50,601 
Other current assets187,452 152,758 





Total current assets2,345,048 1,808,575 





Property, plant and mine development, net3,620,235 3,378,681 





Other assets:    
Intangible assets, net53,371 56,969 
Other assets, net166,580 134,705 





Total other assets219,951 191,674 





Total assets6,185,234 5,378,930 





(Continued)    


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MINERA ESCONDIDA LIMITADAMinera Escondida Limitada

Balance Sheets
June 30, 20062007 and 20052006
(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)    

A-92


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MINERA ESCONDIDA LIMITADA

Balance Sheets
June 30, 2006 and 2005
(in thousands of USD)

2006 2005 2007  2006


 
Liabilities and Owners’ Equity    
   
Current liabilities:    
Short-term debt190,000 133,000  190,000 
Short-term portion of senior unsecured debt85,000 85,000 85,000 85,000 
Short-term portion of subordinated owners’ debt48,000 40,500 48,000 48,000 
Short-term portion of bonds40,000 40,000 19,336 40,000 
Accounts payable to suppliers152,812 107,102 147,502 152,812 
Due to related companies29,518 24,019 40,295 29,518 
Accrued liabilities and withholdings87,015 104,158 174,243 87,015 
Sundry creditors4,061 3,752 4,392 4,061 
Income taxes payable255,088 100,887 65,873 255,088 
Deferred income taxes77,303 20,403 40,083 77,303 
Interest payable18,951 16,327 23,089 18,951 
Financial liabilities187,473  175,955 187,473 


 
Total current liabilities1,175,221 675,148 823,768 1,175,221 


 
Long-term liabilities:    
Senior unsecured debt827,500 912,500 892,500 827,500 
Subordinated owners’ debt362,000 410,000 314,000 362,000 
Bonds18,578 57,819  18,578 
Sundry creditors55,527 59,582 51,136 55,527 
Accrued employee severance indemnities56,360 47,046 60,161 56,360 
Deferred income taxes188,110 151,175 236,654 103,331 
Accruals and reclamation reserve96,668 72,475 131,558 96,668 


 
Total long-term liabilities1,604,743 1,710,597 1,686,009 1,519,964 


 
Owners’ equity:    
Paid-in capital597,902 547,902 647,902 597,902 
Retained earnings2,442,175 1,505,095 3,027,555 2,085,843 


 
Total owners’ equity3,040,077 2,052,997 3,675,457 2,683,745 


 
Total liabilities and owners’ equity5,820,041 4,438,742 6,185,234 5,378,930 


 

Accompanying notes from 1 to 2423 are an integral part of these financial statements.

 

A-93


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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.    

A-94


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MINERA ESCONDIDA LIMITADAMinera Escondida Limitada

Statements of EquityIncome
June 30, 2007, 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 







 
 2007 2006 2005 







Operating revenues:      
Sales9,843,344 8,073,540 3,887,684 
Refining and treatment charges(626,715)(762,021)(390,654)
Concentrate and cathode shipping charges(196,036)(149,716)(117,264)







Net sales9,020,593 7,161,803 3,379,766 







Operating costs and expenses:      
Cost of products sold(1,408,227)(1,179,954)(997,519)
Sales commissions(27,621)(14,209)(8,703)







Net operating income7,584,745 5,967,640 2,373,544 







       
Non-operating income (expense):      
Interest income11,748 10,500 5,245 
Interest expense(113,792)(57,391)(68,550)
Realized fair value change – derivative(89,280)(188,086) 
Unrealized fair value change – derivative61,801 (95,746) 
Exchange loss, net(6,635)(14,270)(16,063)
Miscellaneous expenses, net(69,399)(54,588)(48,089)







Non-operating expense(205,557)(399,581)(127,457)







Income before income taxes7,379,188 5,568,059 2,246,087 
Income taxes(1,376,483)(1,027,534)(385,101)







Net income for the year6,002,705 4,540,525 1,860,986 







Accompanying notes from 1 to 2423 are an integral part of these financial statements.

 

A-95



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MINERA ESCONDIDA LIMITADAMinera Escondida Limitada

Statements of Equity
June 30, 2007, 2006 and 2005
(in thousands of USD)

   Total 
   Retained stockholders 
 Capital  earnings equity 







Balance at July 1, 2004531,202 321,191 852,393 
Net income 1,860,986 1,860,986 
Capitalization of retained earnings16,700 (16,700) 
Dividends declared (1,070,159)(1,070,159)







Balance at July 30, 2005547,902 1,095,318 1,643,220 
Net income 4,540,525 4,540,525 
Capitalization of retained earnings50,000 (50,000) 
Dividends declared (3,500,000)(3,500,000)







Balance at June 30, 2006597,902 2,085,843 2,683,745 
Net income 6,002,705 6,002,705 
Capitalization of retained earnings50,000 (50,000) 
Dividends declared (5,010,993)(5,010,993)







Balance at June 30, 2007647,902 3,027,555 3,675,457 

Accompanying notes from 1 to 23 are an integral part of these financial statements.


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Minera Escondida Limitada

Statements of Cash Flows
June 30, 2007, 2006 and 2005
(in thousands of USD)

 2006 2005 2007 2006 2005 


 
Cash flows from operating activities:     
Cash received from customers 6,248,350 3,271,382 8,587,229 6,248,350 3,271,382 
Cash paid to suppliers and employees (727,807)(698,067)(1,113,194)(1,048,252)(932,600)
Interest received 10,500 5,245 11,748 10,500 5,245 
Other payments (36,305)47,554 
Other Income14,595 6,725 4,542 
Interest paid (92,615)(73,362)(103,385)(92,615)(73,362)
Income taxes paid (780,212)(367,130)(1,470,662)(780,212)(367,130)
Realized fair value change – derivative (188,086) 
Fair value change – derivative(89,280)(188,086) 
Exploration activities(18,764)(9,410)(10,369)
Other expenses paid (13,317)(44,423)(30,541)(26,294)(28,300)
Deferred stripping costs (290,392)(261,422)


 
Net cash flows provided by operating activities 4,130,116 1,879,777 5,787,746 4,120,706 1,869,408 


 
Cash flow from investing activities:     
Proceeds from sale of equipment 1,250 2,071 939 1,250 2,071 
Exploration activities (9,410)(10,369)
Purchase of property, plant and equipment (650,478)(591,313)(445,737)(650,478)(591,313)


 
Net cash flows used in investing activities (658,638)(599,611)(444,798)(649,228)(589,242)


 
Cash flow from financing activities:     
Borrowing from banks and financial institutions 190,000 229,500 150,000 190,000 229,500 
Dividends paid (3,500,000)(1,070,159)(5,010,993)(3,500,000)(1,070,159)
Principal payments on long-term debt (221,744)(365,500)(279,056)(221,744)(365,500)
Interest payments on bonds (40,000)(40,000)
Principal payments on bonds(40,000)(40,000)(40,000)
Repayments of loans from related parties (40,500)(33,000)(48,000)(40,500)(33,000)


 
Net cash flows used in financing activities (3,612,244)(1,279,159)(5,228,049)(3,612,244)(1,279,159)


 
Net cash flows for the year (140,766)1,007 114,899 (140,766)1,007 


Cash and cash equivalents at beginning of year 153,166 152,159 12,400 153,166 152,159 


 
Cash and cash equivalents at end of year 12,400 153,166 127,299 12,400 153,166 


 
(Continued)  

(Continued)

 

A-96



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MINERA ESCONDIDA LIMITADAMinera Escondida Limitada

Statements of Cash Flows
June 30, 2007, 2006 and 2005
(in thousands of USD)

 2006 2005 2007 2006 2005 


 
Reconciliation of net income to net cash flows provided by operating activities  Reconciliation of net income to net cash flows provided by operating activities
      
Net income for the year 4,487,080 1,883,502 6,002,705 4,540,525 1,860,986 
Result on sale of assets-  
Gain from sale of equipment (1,250)671 
 
Result on sale of assets: 
(Gain)/Loss from sale of equipment(939)(1,250)671 
 
Debits/(credits) to net income not representing cash flows:   
Depreciation and amortization 280,324 209,040 242,671 280,324 209,040 
Net foreign exchange loss 14,270 16,063 6,635 14,270 16,063 
Deferred income taxes 106,499 31,289 96,104 83,070 28,663 
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)(279,013)(903,183)(177,228)
Deferred stripping (290,392)(261,422)
Due from related companies (3,081)(25,142)2,637 (3,081)(25,142)
Other receivables (34,707)(739)(10,155)(34,707)(739)
Production inventories (36,782)(12,226)(74,125)(36,782)(12,226)
Supplies and spare parts, net (26,798)(3,949)(48,322)(26,798)(3,949)
Recoverable taxes   
Other current assets (84,539)9,918 (40,873)(84,539)9,918 
 
Increase/(decrease) in current liabilities:   
Accounts payable to suppliers (47,939)(33,950)(5,310)(47,939)(33,950)
Due to related companies 5,499 12,630 10,777 5,499 12,630 
Accrued liabilities and withholdings 10,535 2,672 91,029 10,535 2,672 
Sundry creditors 309 170 (4,060)309 170 
Income taxes payable 143,766 (13,079)(189,215)143,766 (13,079)
Financial liabilities 187,473  (11,518)187,473  
Other 2,624 5,277 (1,282)(6,786)(5,092)


 
Net cash flows from operating activities 4,130,116 1,879,777 5,787,746 4,120,706 1,869,408 


 

Accompanying notes from 1 to 2423 are an integral part of these financial statements.

 

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MINERA ESCONDIDA LIMITADAMinera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(1)1Description of BusinessDESCRIPTION OF BUSINESS
Minera Escondida Limitada (the “Company”‘Company’ or “Escondida”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, at the present operated by BHP Billiton, was formed by public deed on August 14, 1985 as a partnership. As of June 30, 20062007 and 2005,2006, the Owners are as follows:

 Percentage of 
 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.

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 LIMITADAMinera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(2)2Summary of Significant Accounting Policies and PracticesSUMMARY 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.of the transaction date. 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$126,069 and $152,140$12,077 at June 200630, 2007 and 2005,2006, 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.Securities. 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, 20062007 and 20052006 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, 20062007 and 2005,2006, 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.

(Continued)


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Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(e)Financial Instruments
 
(e)Financial Instruments
The Company accounts for derivatives and hedging activities in accordance with FASB Statement No. 133, Accounting forDerivative 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)2(p). Financial instruments in treatment charges – see note 24.23.
 
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, 2007, 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, 20062007 and 2005,2006, 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.
 
(Continued)


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Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(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, 2007 and 2006 and 2005 there wherewere no capitalized exploration expenditure.expenditures.
 
(i)IntangibleAssets
This corresponds to the fair value of the water rightrights 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,stockpiles, 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 StrippingIncome Taxes
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)(l)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.
 
(Continued)


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Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(n)(m)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)(n)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)(o)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)(p)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.
 
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MINERA ESCONDIDA LIMITADA
Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(r)(q)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 andRemitted 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 beginning 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.
(Continued)


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Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(q)Recently Issued Accounting Standards, continued
In JuneJuly 2006, the FASB issued FASB Interpretation No. 48Accounting for UncertaintyUncertainly in Income Taxes, – An Interpretationan interpretation of FASB Statement No. 109 (FIN 48) was issued.. FIN 48 requiredclarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a threshold of more-likely-than-not for recognition of tax benefits from anof uncertain positiontax positions taken or expected 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 occurtaken in recognizeda 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.return. FIN 48 first appliesalso provides related guidance on measurement, derecognition, classification, interest and penalties, and disclosure. The provisions of FIN48 will be effective for the Group’s financial year beginningCompany on July 1, July 2007.2007, with any cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currentlyin the process of assessing the impact of adopting FIN 48.
     In February 2006, the FASB issued Statement48 on its results 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 hybridoperations and 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.position.
 
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “ConsideringConsidering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”)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”(‘rollover’) and balance sheet (“(‘iron curtain”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. The adoption of SAB 108 did not have an impact on the Company’s financial statements.
In February 2006, the FASB issued Statement of Financial Accounting Standard No.155Accounting for Certain Hybrid Financial Instruments (SFAS 155). SFAS 155 provides entities with earlier adoption encouraged.relief from having to separately determine the fair value of an embedded derivative 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 interests 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 in the process of assessing the impact the adoption of SAB 108 will have on its financial statements.adopting SFAS 155.

(Continued)


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Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(q)Recently Issued Accounting Standards, continued
 
In March 2006, the FASB issued SFAS No. 156, “AccountingAccounting for Servicing of Financial Assets — An Amendment of FASBStatement No. 140” (“140(SFAS 156”)156). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities beliabilitiesbe initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement ofmeasurementof servicing assets and servicing liabilities at fair value. SFAS 156 is effective as of the beginning of the first fiscal year thatbegins after September 15, 2006, with earlier adoption permitted. The Company does not believe the adoption of SFAS 156 will156will have a significant effect on its financial statements.
 
In September 2006, the FASB issued SFAS No. 157, “FairFair Value Measurements” (“Measurements(SFAS 157”)157). SFAS 157 defines fair value,establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157 applies underappliesunder other accounting pronouncements that require or permit fair value measurements and accordingly, does not require anyrequireany new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after NovemberafterNovember 15, 2007. The Company is currently in the process of assessing the impact the adoption of adopting SFAS 157 will have on its results of operationsand financial statements.position.
(r)Deferred Stripping – Change in Accounting Policy
Previously costs incurred through the removal of overburden and other waste materials once saleable materials have begunto be extracted from a mine were referred to as production stripping costs. Previously these production stripping costs werecharged to the income statement as operating costs when the ratio of waste material to ore extracted for an area of interestis expected to be constant throughout its estimated life. When the current ratio of waste to ore was greater than the estimatedlife-of-mine ratio, a portion of the production stripping costs was capitalized. In subsequent years, when the ratio of waste toore was less than the estimated life-of-mine ratio, a portion of capitalized stripping costs was charged to the incomestatement as operating costs. The amount capitalized or charged in a year was determined so that the stripping expensefor the financial year reflects the estimated life-of-mine ratio.
 
(Continued)

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MINERA ESCONDIDA LIMITADA
Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(3)(r)Deferred Stripping– Change in Accounting Policy, continued
In March 2005, the Emerging Issues Task Force (EITF) of the FASB reached a consensus in Issue No. 046Accounting 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 (effective July 1, 2006). As such, stripping costs incurred during the production phase are treated differently to stripping costs incurred during the development stage. The Company has adopted EITF 046 and retrospectively adjusted the 2006 and 2005 comparative financial years as follow:
 FY 2005 
 





 As originally As Effect of 
 stated adjusted charge 







       
Balance Sheet      
       
Deferred stripping, net492,533  (492,533)
Deferred income taxes non current(151,175)(68,419)82,756 
Retained earnings – beginning(708,452)(321,191)387,261 
Retained earnings – ending(1,505,095)(1,095,318)409,777 
       
Income Statement      
       
Cost of products sold970,391 997,519 27,128 
Income taxes389,713 385,101 (4,612)
       
       
 FY 2006 
 





 As originally As Effect of 
 stated adjusted charge 







       
Balance Sheet      
       
Deferred stripping, net441,111  (441,111)
Deferred income taxes non current(188,110)(103,331)84,779 
Retained earnings – beginning(1,505,095)(1,095,318)409,777 
Retained earnings – ending(2,442,175)(2,085,843)356,332 
       
Income Statement      
       
Cost of products sold1,231,376 1,179,954 (51,422)
Income taxes1,029,557 1,027,534 (2,023)
       
       
For the 2007 year all ongoing stripping costs have been recorded as production costs.
3Cash and Cash EquivalentsCASH AND CASH EQUIVALENTS
 
As of June 30, 20062007 and 2005,2006, cash and cash equivalents are summarized as follows:
2006 2005  2007 2006 

Cash and bank deposits323 1,026  1,230 323 
Deposits12,077   126,069 12,077 
Deposits Chilean Central Bank 152,140 

Total12,400 153,166  127,299 12,400 

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Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(4)4Trade Accounts ReceivableTRADE ACCOUNTS RECEIVABLE
 
Trade accounts receivable at June 30, 20062007 and 2005,2006, consist of the following:
2006 2005 2007 2006 

Domestic clients154,595 56,932 110,086 154,595 
Foreign clients1,295,423 467,264 1,618,945 1,295,423 

Total1,450,018 524,196 1,729,031 1,450,018 

(5)5Other Receivables, including employee receivablesOTHER RECEIVABLES, INCLUDING EMPLOYEE RECEIVABLES
 
Other receivables are summarized as follows:
2006 2005 2007  2006  

Accounts and notes receivable from employees3,011 7,243 15,904 3,011 
Other accounts receivables4,114 6,855 1,376 4,114 

Total7,125 14,098 17,280 7,125 

(6)6Production InventoriesPRODUCTION INVENTORIES
 
Production inventories are summarized as follows:
2006 2005  2007   2006  

Work in progress – Ore stockpiles6,938 3,394 4,993 6,938 
Minerals in process56,570 28,047 147,764 56,570 
Finished Goods – Copper concentrate35,362 35,382 11,019 35,362 
Finished Goods – Copper cathode8,259 3,524 14,709 8,259 

Total107,129 70,347 178,485 107,129 

(7)7Other Current AssetsOTHER CURRENT ASSETS
 
Other current assets are summarized as follows:
2006 2005  2007   2006  

Prepayment and deferred expenses (a)54,696 16,049 77,900 54,696 
Derivative asset50,298  79,752 50,298 
Deposit45,019   45,019 
Tax for recovery2,626 10,366 29,796 2,626 
Other assets119 124 4 119 

Total152,758 26,539 187,452 152,758 

(Continued) 

A-104(Continued)



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MINERA ESCONDIDA LIMITADA
Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005

(in thousands of USD)

(7)7Other Current Assets, ContinuedOTHER CURRENT ASSETS, continued
  
(a)Prepayment and deferred expenses.
 
Details of this account include:
 
 2007 2006 





Prepayment for Power line10,000 9,834 
Prepayment for Mineral Rights1,340 1,551 
Deferred borrowing expenses645 1,881 
Derivative asset (price participation in refining)62,257 41,430 
Employee benefit pre-payment3,658  





Total77,900 54,696 





 
     
     
 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)8Property, Plant and Mine DevelopmentPROPERTY, PLANT AND MINE DEVELOPMENT
 
 
Property, plant and mine development is summarized as follows:
 
2006 2005 2007 2006 


 
Land4,252 4,252 4,252 4,252 
Mining development costs (pre-production)238,379 238,379 238,379 238,379 
Machinery, vehicles and installations4,030,912 3,640,934 5,090,456 4,030,912 
Construction in progress1,070,663 736,223 491,746 1,070,663 


 
Sub total5,344,206 4,619,788 5,824,833 5,344,206 
Accumulated depreciation and amortization(1,965,525)(1,697,339)(2,204,598)(1,965,525)


 
Total3,378,681 2,922,449 3,620,235 3,378,681 


 

Depreciation and amortization expense amounted to $239,073, $274,740 for the year ending June 30, 2006 and $204,290 for the yearyears ending June 30, 2005.2007, 2006 and 2005, respectively, and is included as a cost of the production of inventories.

Interest capitalized for the years ending June 30, 2006 and 2005 was $39,359 and $12,328, respectively.$12,328. No interest was capitalized for the year ending June 30, 2007.

The asset retirement obligation included in property, plant and mine development, net of accumulated amortization was $76,466 and $42,083 in 2006 and $19,679 for 2005.

(Continued)

A-105


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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
the years ending June 30, 2007 and 2006, and 2005
(in thousands of USD)

respectively.

(9)9Deferred Stripping, netINTANGIBLE ASSETS, 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 2007 2006 


 
Water rights – at cost75,886 75,886 75,886 75,886 
Accumulated amortization(18,917)(13,332)(22,515)(18,917)


 
Total intangible assets, net56,969 62,554 53,371 56,969 


 

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 $3,598, $5,584 and $4,750 for the years ended June 30, 2007, 2006 and 2005, respectively. For each of the next 5 years amortization expensesexpense for intangibles is expected to be $3,748 in 2007, $3,528approximately $3,167 in 2008, $3,390$3,289 in 2009, $3,298$2,606 in 2010, and $3,298$2,517 in 2011 approx.and $2,448 in 2012.

(Continued)


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Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(11)10Other Assets, net (Non current)OTHER ASSETS (NON CURRENT)
 
 
Other assets are summarized as follows:
 
2006 2005  2007  2006 


 
Medium-grade ore stockpile (a)86,419 75,808 89,188 86,419 
Deferred borrowing expenses (b)832 2,553 175 832 
Spare parts (c)33,734 23,015 53,063 33,734 
Other assets (d)13,720 11,499 24,154 13,720 


 
Total134,705 112,875 166,580 134,705 


 
  
(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, 2007, 2006 and 2005 amounts to $657, $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 2007  2006  




 
Recoverable withholding taxes (*)4,938 5,497 6,180 4,938 
Notes receivable – employee housing program and Other8,782 6,002 
Notes receivable – employee housing program and other17,974 8,782 




 
Total other assets13,720 11,499 24,154 13,720 




 
  
(*)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)

 

A-106



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MINERA ESCONDIDA LIMITADAMinera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(12)11Balances and Transactions with Related CompaniesBALANCES AND TRANSACTIONS WITH RELATED COMPANIES
 
(a)Balances with related companies are summarized as follows:
  
(i)i)Due from – current
 2006 2005 


     
CompanyNature of relationship Nature of relationship 2007  2006  


BHP Escondida Inc.Parent Company281 138 Parent Company 281 
BHP Billiton Marketing AGCommon ownership28,040 24,452 Common ownership25,775 28,040 
OtherVarious223 873 Various132 223 


 
Total 28,544 25,463  25,907 28,544 


 
  
(ii)ii)Due to – current
      
Company Nature of relationship 2007  2006  






BHP Minerals International Inc.Common ownership1,338 600 
BHP Billiton Marketing AGCommon ownership31,706 11,523 
BHP Chile Inc.Common ownership5,290 15,123 
BHP International Finance CorporationCommon ownership826 926 
OtherVarious1,135 1,346 






Total 40,295 29,518 






  
  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.

(Continued)

A-107


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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)


   Revenue/(expense) for the year ended 
   

Company Nature of relationship Transaction 2007 2006 2005 









BHP Billiton Marketing AGCommon ownershipSales agency & other commissions(27,621)(14,209)(8,709)
  Reimbursement of expatriate salaries(645)(6,869)(5,985)
BHP Billiton Marketing AGCommon ownershipFreight(169,888)(140,396)(110,806)
BHP Billiton Marketing AGCommon ownershipSales623,908 400,111 146,458 
Minera Cerro ColoradoCommon ownershipSales40,933   
Minera SpenceCommon ownershipSales3,843   
BHP Chile Inc.Common ownershipFinancial service(6,700)(4,797)(3,698)
  Reimbursement of capital project(17,172)(12,351)(9,729)
Payment conditions for all intercompany liabilities are 30 days from the date the transactions are received and accepted.
(13)12Income TaxesINCOME TAXES
  
(a)Current income taxes payable
Income tax expense attributable to income from continuing operations of $1,029,557$1,376,483, $1,027,534 and $389,713$385,101 for the years ended June 30, 2007, 2006 and 2005, respectively, differed from the amounts computed by applying the Chilean income tax rate of 18.92% (2006: 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; 2005: 17%), to pretax income from continuing operations as a result of the following:
       
 2007 2006 2005  







Computed expected tax expense1,396,142 1,007,262 381,835 
Increase (reduction) in income taxes resulting from:    
Adjustment to deferred tax assets and liabilities from increase in tax rate 36,692  
Other, net(19,659)(16,420)3,266 







Computed effective tax expense1,376,483 1,027,534 385,101 







       
(Continued)      


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Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

12INCOME TAXES, continued
 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%18.92% (Calendar year 2006 & 2007) and to 20.32%20.85% (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‘Computed effective tax expense”expense’.
 
(b)Income tax charge for the year
The income tax charge for the year is summarized as follows:
       
 2007  2006  2005  







Current income taxes provision1,280,379 944,464 356,438 
Deferred income taxes96,104 83,070 28,663 







Total1,376,483 1,027,534 385,101 







 
All income tax expense is domestic tax. There is no foreign income tax expense.
 
 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.
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$396,817. 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)

A-108


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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)

       
 2007 2006 
 


 



 Current Long-term Current Long-term 









Deferred tax assets:    
         
Obsolescence reserve 2,601  4,654 
Price variance provision for provisional sales  10,435  
Accrued employee vacation1,457  1,393  
Accrued employee benefits 13,402  11,314 
Accrued reclamation 26,260  17,656 
Hedging non realized33,296  6,833  
Other32 2,140 31 2,961 









Gross deferred income tax assets34,785 44,403 18,692 36,585 









     
Deferred tax liability:    
         
Property, plant and equipment, net (281,057) (136,144)
Pre paid expenses   (3,772)
Price variance provision for provisional sales(74,868) (95,995) 









Gross deferred income tax liabilities(74,868)(281,057)(95,995)(139,916)









Net deferred tax liability(40,083)(236,654)(77,303)(103,331)









     
(Continued)    

 

A-109



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MINERA ESCONDIDA LIMITADAMinera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(14)13Accrued Liabilities and WithholdingsACCRUED LIABILITIES AND WITHHOLDINGS
Accrued liabilities and withholdings are summarized as follows:
    
 2006 2005  2007  2006  


 
Accrued liabilities and withholdings for employee compensation 36,888 29,871 31,885 36,888 
Accrued project and vendor costs 47,342 71,528 137,169 47,342 
Other 2,785 2,759 5,189 2,785 


 
Total 87,015 104,158 174,243 87,015 


 
  
(15)14Accruals and Reclamation ReserveACCRUALS AND RECLAMATION RESERVE
Details of this account include:
     
 2007  2006  





Restoration and Rehabilitation (a)125,970 86,892 
Deferred customs duties and other5,588 9,776 





Total131,558 96,668 





 
(a)Provision for restoration and rehabilitation movements are summarized:
  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 





 
     
 2007 2006 





Opening balance86,892 61,654 
Accretion3,256 2,171 
Increases to the provision36,307 24,161 
Payments(485)(1,094)





Closing balance125,970 86,892 





     
The estimated undiscounted value of the restoration & rehabilitation provision is US$287,080 as at June 30, 2006 and US$359,279 for June 30, 2007. The discount rate applied to the cash flows is 3.72% and 3.5% 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 plants, 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 the asset retirement obligation.
 
(Continued)


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The estimated undiscounted valueMinera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands 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.USD)

(16)15Short Term DebtSHORT TERM DEBT
At the close of 20062007 and 2005,2006, the Company records short term debt as follows:
 
Current Rate Payment Date 2006 2005 
Lender Current rate Payment date 2007  2006 


 


Banco Santander Santiago *L+0.035%31/07 70,000 133,000 L+0.035% 31 July    70,000 
Banco Estado *L+0.05%21/07 70,000  L+0.05% 21 July  70,000 
Banco BCI *L+0.05%13/07 50,000  L+0.05% 13 July  50,000 


 


Total  190,000 133,000    190,000 


 


(*)
L: LIBOR 30 days
  
(Continued)

A-110


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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(17)16Long Term DebtLONG 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        
LenderCurrent rate  2007 2006 




 
BNP Paribas (1998) **L +0.25%275,000 275,000 **L+0.25%   275,000 275,000 
The Bank of Tokyo - Mitsubishi Ltd. (2001) **L+0.175%87,500 112,500 
The Bank of Tokyo – Mitsubishi UFJ Ltd. (2001)**L+0.175%  62,500 87,500 
Japan Bank for International Cooperation (2001) **L +0.25%262,500 297,500 **L+0.25%  227,500 262,500 
Kreditanstalt für Wiederaufbau (2001) **L +0.275%137,500 162,500 **L+0.275%  112,500 137,500 
The Bank of Tokyo - Mitsubishi Ltd. (2005) **L +0.275%45,000 45,000 
The Bank of Tokyo – Mitsubishi UFJ Ltd. (2005)**L+0.275%  90,000 45,000 
Japan Bank for International Cooperation (2005) **L +0.20%105,000 105,000 **L+0.20%  210,000 105,000 




 
Sub total   912,500 997,500    977,500 912,500 


Less:        
Short term portion   (85,000)(85,000)   (85,000)(85,000)




 
Total   827,500 912,500    892,500 827,500 




 
  
(**)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, 20062007 the interest rate is LIBOR + 0.25%. The loan is due for repayment in June 20082009 (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%0.90%. On March 2006 the interest rate was renegotiated and decreased to LIBORLibor (180 days) + 0.175%. The outstanding balance as of June 30, 20062007 was $350$290 million (June 30, 2005: $4102006: $350 million).
 
(Continued)


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Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

16LONG TERM DEBT, continued
On January 31, 2005 the companyCompany 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 UFJ Ltd being the agent bank. The loan with Japan Bank for International Cooperation bears interest at LIBOR (180 days) + 0.20%+0.20% and will mature after 12 years commencing January 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, 20062007 was $150$300 million (June 30, 2005:2006: $150 million).
 
On September 14, 2001, the Company entered into a loan agreement for the amount of $ 200$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, 20062007 was $137.5$112.5 million (June 30, 2005 –$162.52006: $137.5 million).
(b)At June 30, 2006,2007, 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, 20062007 and June 30, 2005.
(Continued)

A-111


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MINERA ESCONDIDA LIMITADA

Notes to Financial Statements
June 30, 2006 and 2005
(in thousands of USD)

(17)Long Term Debt, Continued2006.
  
(c)Subordinated Owners’ debt
     
Lender2007 2006 





International Finance Corporation9,050 10,250 
Rio Tinto Finance PLC108,600 123,000 
JEFCO Corporation36,200 41,000 
BHP International Finance Corporation208,150 235,750 





Sub total362,000 410,000 





Less:  
Short term portion(48,000)(48,000)





Total long-term portion314,000 362,000 





  
Drawdowns of subordinated Owners’ debt have been made as follows:
 
 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 accruesInterestaccrues 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. Interest2000.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 oncommencingon 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)

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 is paid. No interest was capitalized for the years ended June 30, 2007 and 2006.
The subordinated debt is unsecured.
(Continued)

 

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MINERA ESCONDIDA LIMITADAMinera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(17)16Long Term Debt, ContinuedLONG TERM DEBT, continued
  
(d)Scheduled principal payments on long-term debt (including short-term portion) at June 30, 20062007 are as follows:
       Senior Subordinated Total 
Unsecured debt owner’s debt  


 Senior Subordinated  
Principal payments during the year ending June 30 Unsecured debt owner’s debt Total 
200785,000 48,000 133,000 


2008360,000 48,000 408,000 85,000 48,000 133,000 
200985,000 48,000 133,000 360,000 48,000 408,000 
2010124,062 48,000 172,062 175,625 48,000 223,625 
201173,125 48,000 121,125 86,250 48,000 134,250 
2012 and after185,313 170,000 355,313 
201273,750 48,000 121,750 
2013 and after196,875 122,000 318,875 


 
Total912,500 410,000 1,322,500 977,500 362,000 1,339,500 


 
 
(18)17BondsBONDS
Bond obligations at June 30, 20062007 and 20052006 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. Interest 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:

 2007 2006 





Total nominal value200,000 200,000 
Discount at issue(6,510)(6,510)





Net proceeds193,490 193,490 
Accumulated amortization of discount5,846 5,088 





Sub total199,336 198,578 





Less:  
Principal repaid as of June 30(180,000)(140,000)
Current portion of principal outstanding(19,336)(40,000)





Total long-term portion 18,578 





On October 22, 1999 the Company registered a Chilean bond issuance (No. 218) with the Chilean Superintendence of Stock Corporations and Insurance Companies (SVS). The issuance was made as follows:
     Total nominal Outstanding 
SeriesNumber of Bonds Bond value value at issue nominal value 









A11,000 10 10,000 1,000 
A2400 100 40,000 4,000 
A3100 500 50,000 5,000 
A4100 1,000 100,000 10,000 









 1,600   200,000 20,000 









Each series of bonds is being amortized over 5 years in 10 semi-annual installments commencing May 15, 2003. Interest accrues at 7.5% per year and payments are made semi-annually on May 15 and November 15. The Company had accrued interest of $184 and $552 at June 30, 2007 and 2006, 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, 20062007 and June 30, 2005.2006.
  
(Continued)

 

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MINERA ESCONDIDA LIMITADAMinera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(19)18Sundry Creditors Long-TermSUNDRY 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 




 

Sundry Creditors are summarized as follows:

 2007 2006





Liability outstanding for water rights acquired55,527 59,582 
Less:  
Short-term portion (included in Sundry creditors-current)(4,391)(4,055)





Total51,136 55,527 





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)19Interest ExpenseINTEREST EXPENSE

Interest expense is summarized as follows:

 2007 2006 2005







Interest incurred(113,792)(96,750)(80,878)
Interest capitalized in fixed assets 39,359 12,328 







Total(113,792)(57,391)(68,550)







20CAPITAL
 
 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 




Capitalization of retained earnings by public deed dated:
December 30, 200650,000




Capital as of June 30, 2007647,902




(*)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 ofhigher than 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

Minera Escondida Limitada

Notes to Financial Statements
June 30, 2007, 2006 and 2005
(in thousands of USD)

(22)21Fair Value of Financial InstrumentsFAIR 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.these instruments. In addition, the long-term debt does not present a significant difference between its carrying amount and its fair value, based on the interest rate re-negotiation performed in 2006 and the current market rates.
 
(23)22Commitments and ContingenciesCOMMITMENTS AND CONTINGENCIES
(1)At June 30, 2006,2007, the Company had entered into long-term contracts for the sale of approximately 9.56 million dry metric tonstonnes 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 January 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 January 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 January 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$27 million.
 The trial is in its first instance, the discussion period has ended and now is in the evidentiary period. As at June 30, 2006 there is no provision recorded.
 In May 2007 the Company and Mr. Cabezas signed a settlement agreement by which the parties terminated this case. The Company paid a sum of US$ 0.6m.
(4)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 March 23, March 1998 for a term of 5 years, commencing January 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 conversationsOn September 4, 2006 a settlement agreement was executed between Thai Copper and Minera Escondida, with TCI in order to end this trial. The settlement will have no obligations for Escondida and merely entails TCI to withdrawwithdrawing the litigation.
  
(24)23Financial InstrumentsFINANCIAL 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”
    
Forwards Buy fixed/sell floating  Sell fixed/buy floating 





Volume (‘000 tonnes)245 247 
Average price of fixed contract (US$/tonne)7,081 6,995 
Term to maturity (years)0-1 0-1 
Notional amount of fixed contract (US$M)1,790 1,781 

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 LIMITADAMinera Escondida Limitada

Supplementary Information – Unaudited
June 30, 20062007 and 20052006
(in thousands of USD)

Mining Operations InformationMINING 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$907 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 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 ReservesORE 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 presented represent estimates at 30 June 2006.2007. All tonnes and grade information presented have been rounded; hence small differences may 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 average historical prices for traded metals for the last three calendar years to 31 Dec 2005.2006. Current operating costs have been matched to the average of historical or long term contract prices in accordance with Industry Guide 7.

(Continued)


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Minera Escondida Limitada

Supplementary Information – Unaudited
June 30, 2007 and 2006
(in thousands of USD)

ORE RESERVES, continued

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 as follows:

CommodityPrice US$ 
Price US$


Copper2.01/lb1.26/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)

             
    Proven Ore Reserve Probable Ore Reserve Total Ore Reserve     
   
 
 
     
               Nominal Mine life 
   Millions of   Millions of   Millions of   production based on 
Commodity  dry metric   dry metric   dry metric   capacity reserve 
Deposit(1,2,3)Ore type tonnes % TCu tonnes % TCu tonnes % TCu (Mtpa) (years) 



















Copper:                  
                   
Total Escondida(4,5)Oxide 110 0.81 51 1.15 161 0.92 175.87 24.4 
 Sulphide 659 1.26 1,083 1.08 1,743 1.15     
 Sulphide leach 667 0.54 1,728 0.55 2,395 0.547     
                   
Notes to previous table
1)% TCu – per cent total copper, %SCu – per cent soluble coppercopper.
 
2)Approximate drill hole spacing used to classify the reserves is:
DepositProven ReserveProbable Ore Reserve





EscondidaSulphide: 55m x 55mSulphide: 80m x 80m
Sulphide leach: 55m x 55mSulphide leach: 100m x 100m
Oxide: 45m x 45mOxide: 50m x 50m 
    
 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:Escondida  
Sulphide85%87% of TCu;TCu 
Sulphide Leach34%32% of TCu;TCu 
Oxide75%68% of TCu 
 Escondida Norte:
Sulphide85% of TCu;
Sulphide Leach34% of TCu;
Oxide75% of TCu 
4)Changes in the Escondida and Escondida Norte reserves from 2005for the year 2007 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 futureThis year reserve reports,report combined 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$1.26/2.01/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 216176 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.   
Proven reserves in stockpiles at June 30, 2007 are:    
Escondida CopperMillions of dry metric tonnes % TCu 





     Sulphide Ore12.35 1.21 
     Sulphide Leach172.83 0.68 
     Oxide Ore105.53 0.74 
     
These reserves will be used as follows:    
     
     Sulphide Ore  8 Years 
     Sulphide Leach  9 Years 
     Oxide Ore  12 Years 

 

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