half year results

120 Collins Street
Melbourne 3000
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Press release
Registered in Australia Rio Tinto Limited 120 Collins Street Melbourne 3000 Australia ABN 96 004 458 404
Record results underline strong earnings and performance
momentum
26 August 2008
• Record underlying EBITDA* of $11,408 million, 73 per cent above first half 2007.
• Record underlying earnings* of $5,474 million, 55 per cent above first half 2007.
• Record net earnings* of $6,914 million, 113 per cent above first half 2007.
• Cash flow from operations up 54 per cent to a record of $8,860 million – a run rate of
approximately $1.5 billion of cash flow per month.
• Half year production records achieved in iron ore, bauxite, alumina, aluminium, borates,
titanium dioxide and thermal coal (on a like for like basis).
• Record capital expenditure of $3.7 billion, 91 per cent higher than first half 2007, on
investments in value adding growth projects.
• New capital commitments of over $6 billion (100 per cent basis) announced during the
year, including substantial expansions of iron ore operations in Australia, Brazil and
Canada.
• Rio Tinto Alcan integration is making good progress, and remains on track to deliver
$1.1 billion of after tax synergies from the end of 2009.
• Interim dividend increased 31 per cent to 68 US cents, with a continued commitment to
increase the total 2008 and 2009 dividends by at least 20 per cent in each year.
• The divestment programme made good progress with $3 billion of sales announced to
date. The Group remains on track to announce $10 billion of divestments in 2008.
Six months to 30 June
(All dollars are US$ millions unless otherwise stated) 2008
2007 Change
Underlying EBITDA* 11,408 6,613 +73%
Underlying earnings* 5,474 3,529 +55%
Net earnings* 6,914 3,253 +113%
Cash flow from operations
(incl. dividends from equity accounted units) 8,860 5,739 +54%
Underlying earnings per share – US cents 426.5 272.6 +56%
Earnings per share – US cents 538.7 251.3 +114%
Ordinary interim dividends per share – US cents 68.0 52.0 +31%
*Net earnings and underlying earnings relate to profit attributable to equity shareholders of Rio Tinto.
Underlying earnings is defined and reconciled to net earnings on page 29. EBITDA is defined on page 39.
Underlying EBITDA excludes the same items that are excluded from underlying earnings.
Cont…/
Continues Page 2 of 41
Chairman’s comments
Rio Tinto’s chairman Paul Skinner said, “These are outstanding results. The 55 per cent
increase in the Group’s half year underlying earnings to $5.5 billion clearly demonstrates the
quality of Rio Tinto’s portfolio and the strength of our existing markets, operations and
management. The Group continues to perform strongly, and the outlook remains positive.
“The benefits of the Alcan acquisition in 2007 continue to show through in line with the
investment thesis supporting this strategic move to create the global aluminium leader.
Rio Tinto Alcan’s large source of secure, hydro-based power supply is a major competitive
advantage given emerging energy shortages around the world, including China.
“We continue to develop our strong pipeline of growth projects, which remains a significant
competitive strength. During the year we have announced further expansions of our iron ore
operations in the Pilbara region of Western Australia, expansions of our Brazilian and
Canadian iron ore operations, and funding for the pre-feasibility studies for our Resolution
copper project in Arizona in the US. Unlike many companies in the resources sector, we have
the capacity to grow strongly from our existing base and create added value for shareholders
over the decade ahead.
“Although we have seen some moderation in global growth rates from tightened availability of
credit, the impact on our markets has been modest. The driver of demand for our products is
urbanisation and industrialisation in heavily populated countries like China and India, and
these economies continue to grow strongly. Prices for our products remain high by historic
standards. While the equity markets are currently focused on downside risks, we believe there
are potential offsets on the upside based on continued strength in commodity demand, low
inventory levels and a supply side which continues to face multiple constraints.
“We increased our 2008 interim dividend by 31 per cent in line with our policy of paying an
interim dividend that is half of the total dividend (expressed in US dollars) for the previous
year. We are committed to increase the full year dividend by at least 20 per cent in 2008, and
again in 2009.
“BHP Billiton’s pre-conditional offer to acquire all the shares in Rio Tinto has now been
referred to a second phase review by the EU competition authorities. Our Boards rejected this
offer on the basis that it undervalued the company and its prospects and we now await the
outcome of the EU and other important regulatory reviews. In the meantime the Group’s
performance in the first half, together with our growth potential, supports the Boards’ view that
Rio Tinto presents a very strong standalone value proposition for shareholders.”
Chief executive’s comments
Tom Albanese, Rio Tinto’s chief executive said, “Rio Tinto’s earnings performance in the first
half of 2008 easily eclipsed the same period in 2007, which was itself a record. There is no
question that we are living in an era of unprecedented demand for minerals and metals, and
we believe rapid demand growth and supply side challenges will be maintained.
“In this environment, the importance of having long life reserves and resources is critical, and
Rio Tinto is particularly advantaged in this regard. When demand and prices are strong,
growth options become increasingly valuable, and we have these in abundance.
“The Group set a half year production record in iron ore of 79 million tonnes on an attributable
basis, as we deliver on our capital investment plans. Half year records were also established
for bauxite, alumina, aluminium, borates, titanium dioxide and thermal coal (on a like for like
basis).
“I am determined to continue driving operational excellence across the Group. Safety is at the
top of my priorities and there was an improvement in the rate of lost time injuries again in the
first half.
Continues Page 3 of 41
“We continue to make good progress with the integration of the Alcan assets that we acquired
in 2007. We are on track to deliver annual synergies of $1.1 billion after tax from the end of
2009, considerably higher than our initial estimate of $600 million. As we have now become
more familiar with the company, I am delighted by the quality of Alcan’s assets and its people.
“We have created an aluminium industry leader with an outstanding bauxite resource, a
competitive refining position, sustainable hydro power, and industry leading smelting
technology. We are currently studying a doubling of our bauxite production at Weipa in
Australia, we are expanding our refinery capacity and examining a number of exciting smelter
expansion opportunities in Canada and around the world. The Sohar smelter project in Oman
was recently completed on time and on budget.
“In June the Group announced a weighted average price increase of 86 per cent for our
Australian iron ore, a great result reflecting very strong demand and a valuation premium for
our Pilbara product. Rio Tinto has a well defined growth path to increase annual production
capacity in Australia from 220 million tonnes* in late 2008 to 320 million tonnes* in 2013, with a
conceptual pathway to 420 million tonnes*, taking advantage of our excellent resource position
and expandable port and rail infrastructure.
“Globally, the Group has plans to increase iron ore production to over 600 million tonnes* per
annum, including growth in Canada, Brazil and Guinea. While there has been a challenge to
Rio Tinto’s tenure of the Simandou project in Guinea, we believe our legal title is clear and we
and our partner the International Finance Corporation (a division of the World Bank) are
working with the Guinean authorities to clarify the situation. We believe there is no better
company than Rio Tinto to deliver this project for the benefit of all parties.
“In copper, we have announced additional resources of 628 million tonnes at Kennecott
Utah Copper and substantial resources of over 1 billion tonnes at Resolution in the USA and
2.8 billion tonnes at La Granja in Peru (refer to press releases dated 16 May 2008 and
29 May 2008). In Mongolia, we are making progress with negotiations with the new
government to develop the significant Oyu Tolgoi copper / gold deposit. These substantial
assets will form part of the next generation of copper mines, which will be required to meet
rapid copper demand growth.
“We continue to address cost escalation in the industry through overhead reduction and
innovative technological solutions. During the first half, we unveiled plans for the “mine of the
future”, with remote operations centres and driverless trucks and trains. As part of that plan we
announced a $371 million (Rio Tinto share $350 million) investment to automate our 1300 km
iron ore railway in the Pilbara, which we believe will lead to driverless trains within five years.
“Our targeted divestment programme continued during the first half, and we are on track to
announce $10 billion of divestments this year. We have achieved strong prices for the assets
that we have sold so far. Proceeds from these divestments, together with our strong organic
cash flows from operations which are now running at the rate of $1.5 billion per month, are
steadily strengthening our balance sheet.
“Rio Tinto is in great shape, and is getting stronger. My personal commitment is to drive the
business to deliver all the shareholder value of which it is capable, based on its outstanding
assets, growth options and people.”
*100 per cent basis. Rio Tinto's attributable share of 320 Mtpa and 420 Mtpa of iron ore
production at its Pilbara operations is approximately 80 to 85%. Rio Tinto's attributable share
of its global iron ore production beyond 600 Mtpa is approximately 85%.
Continues Page 4 of 41
Net earnings and underlying earnings
In order to provide additional insight into the performance of its business, Rio Tinto presents
underlying earnings. The differences between underlying earnings and net earnings are set
out in the following table.
Six months ended 30 June 2008 2007
US$m US$m
Underlying earnings 5,474 3,529
Items excluded from underlying earnings
Profits on disposal of interests in businesses 1,482 -
Impairment (charges) less reversals (3) (314)
Exchange differences and derivatives 81 25
Other, including non-recurring consequences of Alcan acquisition (120) 13
Net earnings 6,914 3,253
Commentary on the Group financial results
2008 first half underlying earnings of $5,474 million and 2008 first half net earnings of
$6,914 million were $1,945 million above and $3,661 million above the comparable measures
for 2007. The principal factors explaining the movements are set out in the table below.
Underlying Net
earnings earnings
US$m US$m
First half 2007 3,529 3,253
Prices 2,790
Exchange rates (253)
Volumes 616
General inflation (118)
Energy (132)
Other cash costs (378)
Exploration and evaluation costs (219)
Interest/tax/other (361)
1,945 1,945
Profits on disposal of interests in businesses 1,482
Impairment (charges) less reversals 311
Exchange differences and derivatives 56
Other, including non-recurring consequences of Alcan acquisition (133)
First half 2008 5,474 6,914
Continues Page 5 of 41
Prices
The effect of price movements on all major commodities was to increase earnings by
$2,790 million. Prices for many of the Group’s major products reached record levels in the first
half: average copper prices were 20 per cent higher, and Rio Tinto negotiated record
benchmark pricing levels for its iron ore production, with effect from 1 April 2008. Agreement
was reached with major iron ore customers for a 96.5 per cent increase for lump ore and
79.88 per cent increase for fines for the 2008 contract year, representing an 85.7 per cent
weighted average increase. The seaborne thermal and coking coal markets were also
buoyant, reflecting strong demand and tight supply. Molybdenum prices averaged $34 per
pound during the first half of 2008, an increase of 21 per cent compared with 2007 first half.
Exchange rates
There was significant movement in the US dollar in the first six months of 2008 relative to the
currencies in which Rio Tinto incurs the majority of its costs. Compared with the first half of
2007, the Australian dollar was 14 per cent stronger, the Canadian dollar was 13 per cent
stronger and the Euro was 15 per cent stronger. The effect of all currency movements was to
decrease underlying earnings relative to the first half of 2007 by $253 million.
Volumes
Higher sales volumes, particularly from iron ore growth projects and the inclusion of a full six
months of Alcan, benefited earnings by $616 million relative to 2007 first half. These gains
were partly offset by lower copper, gold and molybdenum volumes across the copper product
group, caused primarily by lower grades at Kennecott Utah Copper.
Costs
The Group continued to invest further in the future development of the business with an
increased charge to underlying earnings of $219 million from exploration and evaluation costs.
Increased energy costs reduced underlying earnings by $132 million. Higher freight,
contractor, maintenance and input costs were experienced throughout the Group, notably in
the energy & minerals and copper & diamonds product groups, as industry supply constraints
persisted.
Interest/tax/other
The effective tax rate on underlying earnings, excluding equity accounted units, was 30 per
cent compared with 32 per cent in the first half of 2007.
The group interest charge was $487million higher than in 2007 first half, mainly reflecting
increased net debt following the acquisition of Alcan.
Items excluded from underlying earnings
The previously announced divestment programme has resulted in the sale of the Cortez Gold
mine (Rio Tinto share 40 per cent) on 5 March 2008 and the Greens Creek silver / zinc / lead
mine (Rio Tinto share 70.3 per cent) on 16 April 2008. In addition the Tarong Coal mine was
divested on 31 January 2008. The profits on disposal from these divestments have been
excluded from underlying earnings.
Cash flow
Cash flow from operations, including dividends from equity accounted units, was a record
$8,860 million, 54 per cent higher than the first half of 2007.
The Group invested at record levels, in particular in expansion projects. Net capital
expenditure on property, plant and equipment and intangible assets was $3,652 million in the
first half of 2008, an increase of $1,736 million over the same period of 2007. This included the
expansion of the Cape Lambert port and the Hope Downs mine in Western Australia, the
expansion of the Yarwun alumina refinery and the construction of the Clermont thermal coal
mine in Queensland, the A418 dike at the Diavik diamond mine and the Madagascar ilmenite
mine.
Continues Page 6 of 41
Dividends paid in the first half of 2008 of $1,083 million were $246 million higher than
dividends paid in the first half of 2007, following the 31 per cent increase in the 2007 final
dividend. 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 the first half of 2007 totalled $1,417 million (net of $11 million proceeds
from the exercise of options).
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 the 2007 financial statements will be subject to revision
within 12 months of the date of acquisition as permitted by the relevant accounting standard,
IFRS 3.
Net debt decreased by $3.0 billion over the six month period to $42.1 billion, predominantly
from cash received from asset disposals. Debt to total capital duly declined to 56 per cent at
30 June 2008 and interest cover was 11 times.
Profit for the year
IFRS require that the profit for the period reported in the income statement should also include
earnings attributable to outside shareholders in subsidiaries. For the first half of 2008, the profit
for the year was $7,291 million (2007 first half $3,401 million) of which $377 million (2007 first
half $148 million) was attributable to outside shareholders, leaving $6,914 million (2007 first
half $3,253 million) of net earnings attributable to Rio Tinto shareholders. Net earnings and
underlying earnings, which are the focus of the commentary in this report, deal with amounts
attributable to equity shareholders of Rio Tinto.
Dividends
The Group has a progressive dividend policy and a multi decade track record of continual
dividend growth over time. Dividends are determined in US dollars. The interim dividend is set
at one half of the total dividends declared for the previous year excluding any special
dividends. Therefore, interim dividends equivalent to US 68 cents per share (2007 interim:
US52 cents per share) have been declared by Rio Tinto plc and Rio Tinto Limited.
The 2008 interim dividend represents a 31 per cent increase on the previous year’s interim, in
US dollar terms. Further increases of at least 20 per cent in each full year have already been
announced for 2008 and 2009.
Rio Tinto plc shareholders will be paid an interim dividend of 36.25 pence per ordinary share
(2007: 25.59 pence per share). Rio Tinto Limited shareholders will be paid an interim dividend
of 77.35 Australian cents per ordinary share (2007: 60.69 Australian cents per share), which
will be fully franked. The Boards expect Rio Tinto Limited to be able to pay fully franked
dividends for the reasonably foreseeable future.
Rio Tinto dividends are declared in US dollars and paid in pounds sterling and Australian
dollars, converted at exchange rates applicable on 21 August 2008.
The respective dividends will be paid on Thursday 2 October 2008 to holders of ordinary
shares, with ADR holders to be paid on Friday 3 October 2008. This will apply to Rio Tinto plc
and ADR shareholders on the register at the close of business on Friday 5 September 2008
and to Rio Tinto Limited shareholders on the register at the close of business on Tuesday
9 September 2008. The ex-dividend date for Rio Tinto plc, Rio Tinto Limited and Rio Tinto
ADR holders will be Wednesday 3 September 2008.
As usual, Rio Tinto will operate its Dividend Reinvestment Plan, details of which can be
obtained from the Company Secretaries’ offices and from the Rio Tinto website
(www.riotinto.com). The last date for receipt of the election notice for the Dividend
Reinvestment Plan is Thursday 11 September 2008.
Continues Page 7 of 41
Rio Tinto financial information by business unit
Six months ended 30 June Rio Tinto Gross sales revenue (a) EBITDA (b) Net earnings (c)
US$ millions interest
% 2008 2007 2008 2007 2008 2007
Iron Ore
Hamersley (inc. HIsmelt) (d) 100.0 5,595 2,564 3,381 1,398 2,239 861
Robe River (e) 53.0 1,330 761 922 460 488 233
Iron Ore Company of Canada 58.7 1,048 379 588 103 205 28
Rio Tinto Brasil 100.0 69 32 17 2 6 (1)
Product group operations 8,042 3,736 4,908 1,963 2,938 1,121
Evaluation projects/other 44 44 (48) (22) (61) (22)
8,086 3,780 4,860 1,941 2,877 1,099
Aluminium (f)
Product group operations 12,544 1,749 2,564 739 1,036 406
Evaluation projects/other 18 17 (45) - (41) -
12,562 1,766 2,519 739 995 406
Copper & Diamonds
Kennecott Utah Copper 100.0 1,606 1,736 1,083 1,267 673 785
Escondida 30.0 1,946 1,655 1,525 1,364 912 835
Grasberg joint venture (g) 120 183 64 127 30 63
Palabora 57.7 310 352 116 116 34 32
Kennecott Minerals 100.0 76 171 46 93 25 56
Northparkes 80.0 76 227 35 148 20 93
Diamonds (h) 571 445 239 228 108 90
Product group operations 4,705 4,769 3,108 3,343 1,802 1,954
Evaluation projects/other - - (157) (75) (109) (49)
4,705 4,769 2,951 3,268 1,693 1,905
Energy & Minerals
Rio Tinto Energy America 100.0 852 727 172 139 65 46
Rio Tinto Coal Australia (i) 1,775 1,127 731 306 401 177
Rössing 68.6 198 215 131 110 51 44
Energy Resources of Australia 68.4 149 92 73 25 22 2
Rio Tinto Iron & Titanium (j) 889 783 310 247 112 79
Rio Tinto Minerals (k) 736 595 124 128 57 60
Product group operations 4,599 3,539 1,541 955 708 408
Evaluation projects/other 50 50 (31) (50) (29) (38)
4,649 3,589 1,510 905 679 370
Other Operations 8 29 (73) (6) (39) (4)
Other items (5) (3) (292) (289) (170) (260)
Exploration and evaluation (67) 55 (62) 25
Net interest - - (499) (12)
Underlying earnings 11,408 6,613 5,474 3,529
Items excluded from underlying earnings 2,082 10 1,440 (276)
Total 30,005 13,930 13,490 6,623 6,914 3,253
Depreciation & amortisation in subsidiaries (1,785) (865)
Impairment charges (6) (449)
Depreciation & amortisation in equity accounted units (228) (140)
Taxation and finance items in equity accounted units (720) (507)
Profit before finance items and taxation 10,751 4,662
References above are to notes on page 39
Continues Page 8 of 41
Rio Tinto financial information by business unit (continued)
Six months ended 30 June Depreciation
US$ millions Rio Capital & Operating
Tinto Expenditure amortisation assets
interest (l) (m)
% 2008 2007 2008 2007 2008 2007
Iron Ore
Hamersley (inc. HIsmelt) (d) 100.0 788 854 230 153 7,487 5,530
Robe River (e) 53.0 290 73 61 49 2,384 1,805
Iron Ore Company of Canada 58.7 80 36 42 34 722 755
Rio Tinto Brasil 100.0 64 10 6 3 204 112
Other 28 - 3 - 31 -
1,250 973 342 239 10,828 8,202
Aluminium (f) 1,093 120 1,072 146 44,647 3,866
Copper & Diamonds
Kennecott Utah Copper 100.0 162 86 121 126 1,749 1,656
Escondida 30.0 63 87 48 50 1,237 1,102
Grasberg joint venture (g) 29 26 12 19 389 359
Palabora 57.7 17 9 30 19 (9) 55
Kennecott Minerals 100.0 33 39 4 12 (364) 233
Northparkes 80.0 41 22 7 15 262 215
Diamonds (h) 362 232 72 81 1,434 986
Other 1 13 - - 700 566
708 514 294 322 5,398 5,172
Energy & Minerals
Rio Tinto Energy America 100.0 83 104 64 63 1,173 1,139
Rio Tinto Coal Australia (i) 197 85 83 85 1,946 1,592
Rössing 68.6 26 17 9 5 179 19
Energy Resources of Australia 68.4 87 17 23 22 353 192
Rio Tinto Iron & Titanium (j) 241 188 61 57 2,154 1,619
Rio Tinto Minerals (k) 29 (5) 37 46 1,149 1,129
Other 1 - (3) - 63 25
664 406 274 278 7,017 5,715
Other Operations 110 7 - - 413 214
Net assets held for sale (n) - - - - 4,606 -
Other items 45 41 31 20 935 324
Less: equity accounted units (218) (145) (228) (140) - -
Total 3,652 1,916 1,785 865 73,844 23,493
Less: Net debt (42,124) (2,862)
Total Rio Tinto shareholders' equity 31,720 20,631
References above are to notes on page 39
Continues Page 9 of 41
Review of operations
Comparison of underlying earnings
First half 2008 underlying earnings of $5,474 million were $1,945 million above first half 2007
underlying earnings. The table below shows the difference by product group. All financial
amounts in the tables below are US$ millions unless indicated otherwise.
US$m
First half 2007 underlying earnings 3,529
Iron ore 1,817
Aluminium 630
Copper & Diamonds (152)
Energy & Minerals 300
Product group evaluation projects/other (131)
Other operations (35)
Central exploration, evaluation and technology (87)
Interest (487)
Other 90
First half 2008 underlying earnings 5,474
All subsequent references to earnings within the business unit section refer to underlying earnings. Production numbers
represent the Rio Tinto share.
Iron ore
First half First half Full year
2008 2007 Change 2007
Production (million tonnes – Rio Tinto share) 79.2 69.4 +14% 144.7
Gross sales revenue ($ millions) 8,086 3,780 +114% 8,924
Product group operations earnings
($ millions net of tax) 2,938 1,121 +162% 2,746
Evaluation projects/other ($ millions net of tax) (61) (22) +177% (95)
EBITDA ($ millions) 4,860 1,941 +150% 4,617
Capital expenditure ($ millions) 1,250 973 +28% 2,065
Market conditions
Rio Tinto negotiated record benchmark pricing levels for its iron ore production in 2008.
Agreement was reached with major customers for a 96.5 per cent increase for lump ore and
79.88 per cent for fines from the Pilbara operations for the 2008 contract year, representing an
85.7 per cent weighted average increase. Demand remains very strong.
Hamersley
Earnings of $2,239 million were $1,378 million above first half 2007, benefiting from the
benchmark price increases, higher volumes and spot sales. During the first half of 2008,
Hamersley achieved record shipments and record production, following the completion of the
second phase mine, port and rail expansions. Hope Downs produced 4.5 million tonnes
(100 per cent basis) during the first half as it ramped up towards its 30 million tonnes per
annum total capacity targeted for early 2009.
Continues Page 10 of 41
Hamersley’s first half 2008 earnings include a net loss of $31 million at HIsmelt (2007 first half:
$24 million net loss). The ramp up of the HIsmelt commercial plant continued. Following
extensive maintenance in the first quarter, operational stability improved and record levels of
hot metal production were achieved in the second quarter.
Robe River
Earnings of $488 million were $255 million above 2007 first half, attributable to higher prices,
higher volumes, spot sales and a favourable sales mix.
Iron Ore Company of Canada
Earnings of $205 million, which were $177 million above 2007 first half, benefited from higher
prices and an increase in sales volumes due to the absence of a seven week strike in 2007
first half.
Rio Tinto Brasil
Higher volumes from the Corumbá mine turned a small loss in 2007 first half into earnings of
$6 million in 2008 first half.
Iron ore projects
Expenditure at the Simandou project in Guinea accelerated as the pre-feasibility study
progressed, with the decision to invest expected to be made at the end of 2009. In the first half
of 2008 Rio Tinto announced resources of 2.25 billion tonnes of iron ore at Simandou (refer to
29 May 2008 and 1 August 2008 press releases).
Rio Tinto Alcan
First half First half Full Year
2008 2007 Change 2007
proforma1 vs proforma1 proforma1
Production (Rio Tinto share)
Bauxite (000 tonnes) 17,324 15,063 +15% 31,960
Alumina (000 tonnes) 4,486 4,095 +10% 8,515
Aluminium (000 tonnes) 2,039 2,0122 +1% 4,0572
1 Includes Alcan data from 1 January 2007.
2 Excludes the Vlissingen smelter (Netherlands), which was divested in the first half of 2007. The Lannemezan smelter
(France) was closed in the first quarter of 2008. Production has therefore been excluded in the 2007 comparatives from
1 April 2007.
US$ millions Gross sales revenue EBITDA Net earnings
First half First half First half
2008 2007 2008 2007 2008 2007
proforma proforma proforma
Bauxite & Alumina 1,933 1,762 380 633 88 290
Primary Metal 6,553 6,146 1,894 2,175 863 1,098
Other product group items 4,058 4,362 290 378 85 187
Product group operations 12,544 12,270 2,564 3,186 1,036 1,575
Evaluation projects / other 18 17 (45) (27) (41) (19)
Product group total 12,562 12,287 2,519 3,159 995 1,556
Less: proforma - (10,521) - (2,420) - (1,150)
Rio Tinto Alcan (per page 7) 12,562 1,766 2,519 739 995 406
Rio Tinto acquired Alcan on 23 October 2007. The following commentary on the Rio Tinto Alcan product group
compares the 2008 first half to the 2007 first half on a proforma basis.
Continues Page 11 of 41
Prices
The average aluminium price of 128 cents per pound was two per cent above the 2007 first
half average price. However, the Group’s physical aluminium and alumina sales contracts are
priced on a basis that lags the LME price by between one and three months. Lower prices
realised on such contracts reduced earnings by $16 million compared with the first half of
2007. Legacy fixed price forward contracts continued to have an adverse impact on earnings
but the expiry of some of these contracts reduced this adverse impact, increasing earnings by
$105 million compared with 2007 first half.
Earnings
Product group earnings of $995 million were $561 million lower than 2007 proforma first half
with the net improvement from prices described above and higher volumes outweighed by the
impact of adverse exchange rate movements, higher costs, notably for oil, caustic soda, pitch
and coke, and a smaller benefit from reductions in Canadian tax rates than in 2007 first half.
The Engineered Products business unit of Rio Tinto Alcan is included in the product group
numbers within “Other product group items”. The Packaging business unit does not impact the
Income and Cash flow statements and is included on the Balance sheet as an Asset held for
sale.
Bauxite
Bauxite production was 15 per cent higher than 2007 first half on a proforma basis, reflecting
increased capacity at Weipa following the commissioning of the second shiploader.
Alumina
Alumina production was ten per cent higher than 2007 first half on a proforma basis.
Expansion work on the Yarwun alumina refinery is progressing on budget and on track with the
first shipment of alumina from the expansion expected in the second half of 2010. The project
is scheduled for completion in the second half of 2011. Ramp up of production is expected to
take 12 months following completion. The $1.8 billion project, announced in July 2007, will
increase annual capacity from 1.4 million tonnes to 3.4 million tonnes by 2011. A pipeline
blockage at Yarwun in August 2008 is expected to lead to approximately one month’s lost
alumina production but this is not expected to impact aluminium production for the year.
The 1.8 million tonne per annum expansion of the Gove refinery is being commissioned and
the ramp up continues, with 2.6 million tonnes expected to be produced in 2008. The target
operating rate of over 3.4 million tonnes per annum is expected to be achieved by the end of
2009.
Aluminium
Aluminium production was one per cent higher than 2007 first half on a proforma basis. The
Sohar smelter in Oman began operating in June, on time and on budget, with first hot metal
produced during the same month.
Capacity creep, notably in Canada, offset production cutbacks at the Tiwai Point smelter in
New Zealand. Low rainfall in New Zealand affected power availability, with a resultant
reduction in monthly output of 2,900 tonnes at the Tiwai Point smelter. This situation is
expected to continue into the third quarter of 2008. In June 2008 a localised fire at the
Anglesey smelter in Wales resulted in a loss of power across the smelter, which is currently
operating at reduced capacity.
Aluminium projects
The cost of aluminium evaluation projects are reported within the product group. The
increased charge primarily related to projects in the Saguenay and Sarawak as they
progressed during the year.
Continues Page 12 of 41
Copper & Diamonds
First half First half Full year
2008 2007 Change 2007
Production (Rio Tinto share)
Mined copper (000 tonnes) 400.1 384.6 +4% 737.9
Refined copper (000 tonnes) 161.1 202.3 -20% 390.0
Mined molybdenum (000 tonnes) 5.7 8.5 -33% 14.9
Mined gold (000 oz)1 207 476 -57% 970
Diamonds (000 carats) 7,853 11,446 -31% 26,023
Gross sales revenue ($ millions) 4,705 4,769 -1% 9,521
Product group operations earnings ($ millions
net of tax) 1,802 1,954
-8% 3,914
Evaluation projects/other ($ millions net of tax) (109) (49) +122% (163)
EBITDA ($ millions) 2,951 3,268 -10% 6,336
Capital expenditure ($ millions) 708 514 +38% 1,241
1 Mined gold for all periods presented excludes production from Greens Creek and Cortez, which were divested in the
first half of 2008.
Prices
The average copper price of 367 cents per pound was 20 per cent above the 2007 first half.
The gold price averaged $910 per ounce, an increase of 38 per cent on the prior year first half,
whilst the average molybdenum price was $34 per pound, an increase of 21 per cent
compared with first half 2007. The total impact of price changes on the Copper & Diamonds
product group, including the effects of provisional pricing movements, was to increase
earnings by $601 million.
Kennecott Utah Copper
Earnings of $673 million were $112 million lower than 2007 first half. Higher prices were more
than offset by lower volumes of copper, gold and molybdenum and higher costs. Production
decreases at the smelter and refinery from 2007 to 2008 were the consequence of lower
copper head grades leading to lower concentrate production. Lower molybdenum grades and
production resulted from changes in mine sequencing. Higher maintenance costs and higher
manpower and contractor numbers also impacted the 2008 first half earnings.
Escondida
Earnings of $912 million were $77 million above 2007 first half, benefiting from higher prices
which were partly offset by increased freight costs and higher contractor and material costs,
notably sulphuric acid.
Grasberg joint venture
Earnings of $30 million were $33 million below 2007 first half, mainly attributable to lower gold
volumes. Low gold grades reduced Rio Tinto’s share of gold production to nil in the first half of
2008.
Kennecott Minerals
Earnings of $25 million were $31 million below 2007 first half following the disposal of
Rio Tinto’s interests in Cortez and Greens Creek earlier in the year.
Palabora
Earnings of $34 million, which were $2 million above the prior year, benefited from higher
prices and the weaker South African rand which offset the impact of lower refined volumes.
Continues Page 13 of 41
Northparkes
Earnings of $20 million were $73 million below 2007 first half following a 64 per cent decline in
copper production due to the treatment of lower grade stockpile material sourced from the
open cut.
Diamond markets
Overall demand for rough diamonds in the first half of 2008 has been strong as demand from
emerging markets has balanced declining demand from the US market. The demand picture,
however, has been divided. Demand for better quality goods has been very strong while
demand for lower quality goods has remained weak.
Argyle
Earnings of $26 million were $3 million below 2007 first half, mainly attributable to higher costs
at the Argyle mine as high production costs from 2007 flowed through to cost of sales. In May
access was re-established to the high grade areas of the pit, which had been restricted due to
geotechnical issues and wet weather earlier in the year.
Diavik
Earnings of $80 million were $16 million above 2007 first half. The effect of the stronger
Canadian dollar was more than compensated by higher prices and higher sales volumes.
Production was 27 per cent below the same period of 2007, primarily as a result of lower
grades encountered in the A154S pipe.
Murowa
Earnings from Murowa of $3 million compared with break even in 2007 first half, attributable to
higher volumes.
Copper & Diamonds projects
Higher costs were incurred as the projects progressed through the various stages of
evaluation.
Following an extensive drilling programme at La Granja, Peru Rio Tinto announced an Inferred
Mineral Resource of 2.8 billion tonnes grading 0.51 per cent copper and 0.1 per cent zinc,
representing a copper equivalent grade of 0.56 per cent at a copper equivalent cut-off of
0.3 per cent (refer to 29 May 2008 press release).
Exploration and evaluation drilling continued at the 55 per cent owned Resolution copper
project in the US. Rio Tinto announced an Inferred Resource of 1.34 billion tonnes containing
1.51 per cent copper and 0.040 per cent molybdenum (refer to 29 May 2008 press release). In
August 2008, the Group announced an investment of $652 million in the continued prefeasibility
studies at Resolution.
The Sulawesi nickel laterite deposit in Indonesia (162 million tonnes of resources at 1.62% Ni
and 0.08% Co, refer to Rio Tinto press release on 28 May 2008) was declared a discovery and
handed over to the Rio Tinto copper group.
At the Oyu Tolgoi copper project in Mongolia, Rio Tinto holds a 9.9 per cent equity interest in
property owner Ivanhoe Mines and a 16 per cent interest in Entree Gold who share the
adjacent Javhlant concession with Ivanhoe. Exploration by Ivanhoe on the Javhlant
concession led to discovery of the Heruga porphyry copper-gold deposit at a depth of over
850 metres. The deposit remains open in several directions and delineation drilling continues.
Provisional pricing
At 30 June 2008, the Group had 273 million pounds of copper sales that were provisionally
priced at US 389 cents per pound. The final price of these sales will be determined during
the second half of 2008. This compared with 270 million pounds of open shipments at
31 December 2007 provisionally priced at US 304 cents per pound. Provisional pricing
movements in 2008 first half resulted in a net benefit to earnings of $42 million compared with
2007 first half.
Continues Page 14 of 41
Energy & Minerals
First half First half Full year
2008 2007 Change 2007
Production (Rio Tinto share)
Coal (million tonnes)
US 61.6 60.7 +1% 125.1
Hard coking coal 3.1 3.1 - 6.2
Other Australian1 11.0 10.1 +8% 19.9
Uranium (000’s pounds) 6,495 6,006 +8% 12,616
Titanium dioxide (000 tonnes) 761 718 +6% 1,458
Borates (000 tonnes) 324 274 +18% 560
Gross sales revenue ($ millions) 4,649 3,589 +30% 7,666
Product group operations earnings
($ millions net of tax) 708 408
+74% 759
Evaluation projects/other ($ millions net of tax) (29) (38) -24% (57)
EBITDA ($ millions) 1,510 905 +67% 1,846
Capital expenditure ($ millions) 664 406 +64% 1,171
1 Other Australian coal for all periods presented excludes production from the Tarong Coal mine, which was divested in
the first half of 2008.
US Coal – Rio Tinto Energy America
Earnings of $65 million were $19 million above 2007 first half, with improved prices and
volumes offsetting higher energy and repairs and maintenance costs. Increased production
from the successful ramp up of the overland conveyor at Jacobs Ranch was offset by the
effects of rail delays, following severe flooding of the railway tracks in the Mid West.
On 8 August 2008 the Group announced that its wholly owned subsidiary, Cloud Peak Energy
Inc., comprised of most of the North American coal assets of Rio Tinto Energy America, had
filed a registration statement on Form S-1 with the United States Securities and Exchange
Commission (SEC) in connection with Cloud Peak Energy's proposed initial public offering
(IPO) of its common stock.
Rio Tinto expects to make a final decision on whether to pursue a listing of the shares of Cloud
Peak Energy or to pursue another form of divestment once these options have been more fully
explored.
Asia Pacific seaborne coal
Asian seaborne thermal coal prices rose sharply in the first half of 2008 mainly due to supply
disruptions from key producing countries, notably in Queensland, Australia following extensive
flooding earlier in 2008. Issues relating to infrastructure controlled by external parties are likely
to continue to contribute to market tightness for the foreseeable future.
Rio Tinto Coal Australia
Earnings of $401 million were $224 million above 2007 first half, with higher prices more than
offsetting the impact of increased rail and sea freight costs and energy costs.
Hard coking coal production from the Queensland coal operations recovered significantly from
the regional flooding during the first quarter. In the Hunter Valley region of New South Wales,
production of soft coking coal increased to take advantage of stronger prices. Whilst vessel
queues were reduced at the port of Newcastle, New South Wales, production continued to be
in line with received allocation of port capacity.
Continues Page 15 of 41
The budget for the Clermont coal project has been revised to take account of cost inflation and
a stronger Australian dollar. The latest estimate indicates a likely capital investment of
$1.29 billion (on a 100 per cent basis). The project remains on schedule.
Uranium markets
Spot uranium prices declined 23 per cent in the first five months of the year as investment
demand dried up and aggressive discretionary purchasing by utilities had the effect of forcing
prices down. In recent months, however, some spot demand has returned and prices have
improved accordingly. While industry supply challenges continue, plans for nuclear new-build
continue to gather pace on a global basis. As such, the outlook for long-term uranium demand
continues to be bullish.
Rössing
Earnings of $51 million, which were $7 million above 2007 first half, benefited from higher
realised prices as legacy contracts continued to be replaced by higher performing ones. Higher
grades at Rössing led to a 26 per cent improvement in production in 2008 first half compared
with the same period of 2007, when a waste removal campaign occurred. This increased
production was applied to rebuild inventories which had been drawn down in 2007.
Energy Resources of Australia
Earnings of $22 million were $20 million above 2007 first half. Prices continued to benefit from
the gradual replacement of legacy contracts with newer contracts written in an environment of
higher prices.
Rio Tinto Iron & Titanium
Earnings of $112 million were $33 million above 2007 first half. Higher prices for metallics and
slag reflected strong demand for all products. Together with higher volumes, these more than
offset the increased cost of coal and higher labour and consumable costs.
Rio Tinto Minerals
Earnings of $57 million were $3 million below 2007 first half. Higher prices for borates, talc and
salt and notably higher volumes for borates were offset by higher energy, freight and
consumables.
Exploration and Evaluation
First half First half Full year
2008 2007 Change 2007
Post-tax credit / (charge) ($ millions) (62) 25 -348% 20
The post-tax centrally reported exploration charge is presented net of the gain on disposal of
exploration properties.
2008 first half exploration and evaluation expenditure (pre-disposals and post tax) was
$74 million, compared with $73 million in 2007 first half. As part of Rio Tinto’s continuing focus
on optimising its portfolio, $12 million (post-tax earnings) was realised from exploration
divestments in 2008 first half compared with $98 million in 2007 first half, including the sale of
the Peñasquito royalty rights.
High priority targets have been identified within the broader Tamarac nickel copper project in
Minnesota (formerly known as Lakeview). Initial drilling has identified significant disseminated
sulphide mineralisation. The final hole of the winter programme returned 138m @ 1.6% Ni,
1.1% Cu including 28m @ 3.6% Ni, 2% Cu (refer to Rio Tinto Value & Growth seminar on
29 May 2008). An Order of Magnitude Study has been established for the project.
Continues Page 16 of 41
In June Rio Tinto announced that it had lodged mining lease applications for its Bunder
diamond project in India, a vital step in the development of what could be the first world class
diamond mine in India. It also announced the exploration target for diamond mineralisation at
the Bunder project of 40 to 70 million tonnes at a grade of between 0.3 and 0.7 carats per
tonne (refer to Rio Tinto press release on 23 June 2008).
The Serbian jadar lithium borates project Order of Magnitude study gained momentum during
the half year. The targeted mineralisation for the project was released, showing a target of
80 - 100 Mt @ 1.8-2.2% Li2O, 13.5 - 16.5% B2O3 (refer to Rio Tinto Value & Growth seminar
on 29 May 2008) from the lower mineralised zone.
Mine-lease exploration continued at a number of Rio Tinto businesses including Kennecott
Utah Copper, Northparkes, Rössing, Argyle, Diavik and Rio Tinto Iron Ore in Australia.
On 12 August 2008 Rio Tinto completed the sale of the Kintyre uranium project located in
Western Australia to a joint venture comprising subsidiaries of Cameco Corporation and
Mitsubishi Development Pty Ltd for $495 million.
Continues Page 17 of 41
Capital projects
Project Estimated
cost
(100%)
Status/Milestones
Completed in 2008
Aluminium – Development of the 360,000 tonne
per annum greenfield Sohar smelter in Oman (Rio
Tinto 20%).
$1.7bn Approved in February 2005, first hot metal was
produced in June 2008.
Aluminium – Aluminium spent pot lining recycling
plant in Quebec (Rio Tinto 100%).
$225m Approved in September 2006, the plant commenced
operations in April 2008.
Ongoing
Copper – Kennecott Utah Copper (Rio Tinto 100%)
East 1 pushback. The project extends the life of the
open pit to 2020 while retaining options for further
underground or open pit mining thereafter.
$170m The project was approved in February 2005 and
work on the pushback continues. The pebble
crushing unit was commissioned in the third quarter
of 2006.
Titanium dioxide – Construction by QMM (Rio
Tinto 80%) of a greenfield ilmenite operation in
Madagascar and associated upgrade of processing
facilities at QIT.
$1.0bn Construction is underway. The budget was revised
in 2007. First production is expected at the end of
2008.
Alumina –Expansion of the Gove Alumina Refinery
(Rio Tinto 100%) from 2.0 to 3.8 million tonnes per
annum.
$2.3bn Approved in September 2004, the expansion is
expected to reach an operating rate of over
3.4 million tonnes by the end of 2009.
Uranium – Rössing (Rio Tinto 68.6%) uranium mine
life extension to 2016.
$112m Approved in December 2005, works are on
schedule and on budget to prolong the life of the
mine to 2016 and beyond. The mine life extension
estimate remains at $82m with $30m of sustaining
capital expenditure.
Diamonds – Argyle (Rio Tinto 100%) development
of underground mine and open pit cutback,
extending the life of the mine to 2018.
< $1.5bn
Approved in December 2005, the underground
development consisting of 34 km of tunnels and
excavations is currently 50% complete. Construction
of the major underground infrastructure commenced
in February 2008, and full production from the
underground mine is on schedule to be achieved in
December 2010.
Copper – Northparkes (Rio Tinto 80%) E48 block
cave project extending mine life to 2016.
$229m Approved in November 2006, the project scope has
been expanded with completion estimated for
December 2009. First production is ahead of
schedule and is expected to commence in February
2009.
Energy - Clermont (Rio Tinto 50.1%) is expected to
ramp up to 12.2 million tonnes per annum, replacing
Blair Athol.
$1.29bn
(indicative
estimate)
Approved in January 2007, first coal is expected in
the first quarter of 2010 with full capacity being
reached in 2013. The estimated cost has risen in
line with local cost inflation and a stronger
Australian currency.
Iron ore – Cape Lambert port expansion (Rio Tinto
53%) from 55 to 80 million tonnes per annum and
additional rolling stock and infrastructure.
$952m Approved in January 2007, the project is forecast to
be complete by the end of 2008, with progressive
capacity ramp up in the first half of 2009. The
estimated capital cost now includes $92m for
additional rolling stock and infrastructure.
Alumina – Expansion of Yarwun Alumina Refinery
from 1.4 to 3.4 million tonnes per annum.
$1.8bn Approved in July 2007, the expansion will more than
double annual production at Yarwun. First shipment
expected in the second half of 2010 and expansion
scheduled for completion in the second half of 2011.
Continues Page 18 of 41
Project Estimated
cost
(100%)
Status/Milestones
Ongoing (continued)
Iron ore – Expansion of Hope Downs Stage 2
(Rio Tinto 50%) from 22 to 30 million tonnes per
annum.
$350m Approved in August 2007, the expansion will be
complete by early 2009.
Diamonds – Construction at Diavik (Rio Tinto 60%)
of the underground mining.
$787m
Capital investment of $563 million was approved in
November 2007 in addition to $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
and related infrastructure.
$901m Approved in November 2007, the mine is forecast to
be complete by 2010 with a progressive ramp up to
a projected 25 million tonnes per annum by 2011.1
Iron ore – Brockman 4 development (Rio Tinto
100%): construction of a 22 million tonne per annum
mine (Phase A) and related infrastructure.
$1.5bn Approved in November 2007, Phase A of the project
to 22 million tonnes per annum, is forecast to be
complete by 2010, with scope to expand further to
36 million tonnes per annum by 2012.
Coking coal – extension and expansion of Kestrel
mine (Rio Tinto share 80%).
$991m Approved in December 2007, the investment is
expected to extend the life of the mine to 2031 and
increase production to an average of 5.7mtpa.
Nickel – Development of Eagle nickel mine in
Michigan, US.
$300m Approved in December 2007, this high grade nickel
and copper mine is expected to commence
production in 2010, delivering 16,000 tonnes of
nickel per annum over a seven year period.
Aluminium – Replacement of overhead cranes and
upgrade of crane runways on Lines 1 and 2 at
Boyne Smelters (Rio Tinto 59.4%).
$270m Approved in February 2008, the mobile cranes and
associated runways on reduction Lines 1 and 2 will
be replaced and will result in a more efficient crane /
alumina transport system. The project is estimated
to be completed by late 2010.
Aluminium – Replacement of Lines 1 and 2 carbon
bake furnace at Boyne Smelters (Rio Tinto 59.4%).
$347m Approved in February 2008, the carbon baking
furnace that supplies anodes to Lines 1and 2 will be
replaced and will result in reduced onsite
greenhouse gas emissions. The project is estimated
to be completed by mid 2011.
1 There are currently no reserves for the Mesa A development. Accordingly, this production rate is subject to defining
sufficient reserves for the proposed Mesa A operations.
Continues Page 19 of 41
Recently approved
Iron ore – Expansion of the Iron Ore Company of
Canada's (IOC) annual production of iron ore
concentrate to 22 million tonnes (Rio Tinto 58.7%).
$475m Approved in March 2008, this is the first phase of an
IOC expansion program that may see production
capability increase 50 per cent by 2011.
Molybdenum - Construction of a new Molybdenum
Autoclave Process (MAP) facility at Kennecott Utah
Copper (Rio Tinto 100%).
$270m Approved in June 2008, the MAP facility will allow
for the recovery of an additional 69 million pounds of
molybdenum from the commencement of production
in the third quarter of 2010 should the current mine
life be extended to 2036.
Iron ore – Investment to automate iron ore railway
in the Pilbara region of Western Australia (Rio Tinto
94.3%).
$371m Approved in June 2008, the roll-out of automation is
part of a wider project to upgrade the rail network
over 18 months.
Iron ore - Funding of infrastructure and studies for
mine expansions as part of drive to increase annual
capacity of Pilbara operations to 320 million tonnes2
by the end of 2012 (Rio Tinto 73.8%).
$667m Approved in June 2008, $518 million (Rio Tinto
66.2%) will fund the early commencement of
infrastructure works and acquisition of long-lead
items such as heavy mobile equipment. The
balance of $149 million (Rio Tinto 100%) is directed
to a study of a new iron ore mine on the Western
Turner Syncline. The proposed mine would
eventually ramp up to 29 Mtpa capacity, feeding into
existing Tom Price processing plant, with production
scheduled to commence in the fourth quarter of
2010.
Iron ore - Investment in cleaner, more sustainable
power generation to support expansion of iron ore
mining capacity in Western Australia (Rio Tinto
78.9%).
$503m Approved in June 2008, the construction of
generation and transmission infrastructure will
supply electricity to port and mine operations. The
power station will be commissioned in 2010.
Iron ore – Investment in a major expansion of mine
in Corumbá, Brazil (Rio Tinto 100%).
$2.15bn Approved in July 2008, the project will boost annual
capacity more than six-fold from 2 million tonnes per
annum to 12.8 million tonnes, with new production
commencing in the fourth quarter of 2010. The
estimated capital cost includes a significant spend
on port facilities and the river fleet.
Copper – Investment in continued pre-feasibility
studies on a large, tier-one copper deposit at
Resolution operation in Arizona (Rio Tinto share
55%).
$652m Approved in August 2008, Pre-feasibility studies are
expected to be completed by 2012 with production
at the new mine expected to start by 2020,
eventually ramping up to a projected 500,000
tonnes per annum of copper.3
2 Rio Tinto's attributable share of 320 Mtpa of iron ore production at its Pilbara operations is approximately 80 to 85%.
3 There are currently no reserves for the Resolution development. Accordingly, this production rate is subject to defining
sufficient reserves for the proposed Resolution operation.
Continues Page 20 of 41
Price & exchange rate sensitivities
The following sensitivities give the estimated effect on underlying earnings assuming that each
individual price, exchange rate or interest rate moved in isolation. The relationship between
currencies and commodity prices is a complex one and movements in exchange rates can
cause movements in commodity prices and vice versa. The exchange rate sensitivities quoted
below include the effect on operating costs of movements in exchange rates but exclude the
effect of the revaluation of foreign currency working capital. They should therefore be used
with care.
Average
price/exchange
rate for 2008 first
half
Change Effect on full
year underlying
earnings
US$m
Copper 367c/lb +/- 37c/lb 446
Aluminium1 128c/lb +/-13c/lb 802
Gold $910/oz +/- $91/oz 31
Molybdenum $34/lb +/- $3/lb 68
Australian dollar1 92USc +/-9.2USc 541
Canadian dollar1 99USc +/-9.9USc 226
South African rand 13USc +/-1.3USc 51
US$ 3 month LIBOR1 +/-0.5% 147
1 Net interest sensitivity is the full year impact based on net debt at 30 June 2008.
Continues Page 21 of 41
DIRECTORS’ REPORT for the half year ended 30 June 2008
Review of operations
A detailed review of the Group’s operations, the results of those operations during the half year ended
30 June 2008 and likely future developments are given on pages 1 to 20.
Directors
The Directors serving on the boards of Rio Tinto plc and Rio Tinto Limited during and since the end of the
half year are:
Notes Date of appointment
Chairman
Paul Skinner (c) 1 December 2001
Executive directors
Tom Albanese, Chief Executive 7 March 2006
Guy Elliott, Finance Director 1 January 2002
Dick Evans, Chief Executive, Rio Tinto Alcan 25 October 2007
Non executive directors
Andrew Gould, Senior independent director (b and c) 4 December 2002
Sir David Clementi (a and b) 28 January 2003
Vivienne Cox (a) 1 February 2005
Sir Rod Eddington (c and d) 1 September 2005
Michael Fitzpatrick (a and b) 6 June 2006
Yves Fortier (c and d) 25 October 2007
Richard Goodmanson (b and d) 1 December 2004
Lord Kerr (a and d) 14 October 2003
David Mayhew (c) 22 February 2000
Paul Tellier (a and b) 25 October 2007
Sir Richard Sykes resigned with effect from 24 April 2008 after serving as a director since 4 August 1997.
No directors were appointed between 30 June 2008 and the date of this report. The directors in office on
30 June 2008 remained in office at the date of this report.
Notes
(a) Audit committee
(b) Remuneration committee
(c) Nominations committee
(d) Committee on social and environmental accountability
Dividend
Full details of the interim dividend are given on page 6.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Group remain as discussed under ‘Risk factors’ on
pages 10 to 11 of the 2007 Annual report.
Corporate governance
The directors of Rio Tinto believe that high standards of corporate governance are essential to its
objective to maximise the overall long term return to shareholders and have continued to apply the
standards discussed under ‘Corporate governance’ on pages 118 to 123 of the 2007 Annual report which
is available on the website.
Auditor’s independence declaration
PricewaterhouseCoopers, the auditors of Rio Tinto Limited, have provided the auditor’s independence
declaration as required under section 307C of the Corporations Act 2001. This has been reproduced on
page 36 and forms part of this report.
The Directors’ report is made in accordance with a resolution of the board.
Paul Skinner
Chairman
26 August 2008
Continues Page 22 of 41
About Rio Tinto
Rio Tinto is a leading international mining group headquartered in the UK, combining Rio Tinto
plc, a London and NYSE listed company, and Rio Tinto Limited, which is listed on the Australian
Securities Exchange.
Rio Tinto's business is finding, mining, and processing mineral resources. Major products are
aluminium, copper, diamonds, energy (coal and uranium), gold, industrial minerals (borax,
titanium dioxide, salt, talc) and iron ore. Activities span the world but are strongly represented in
Australia and North America with significant businesses in South America, Asia, Europe and
southern Africa.
Important information
In the United States, Rio Tinto will file a Solicitation/Recommendation Statement with the US
Securities and Exchange Commission (the “SEC”) on Schedule 14D-9 following commencement
of a tender offer within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934
and holders of Ordinary Shares and American Depositary Shares are advised to read it when it
becomes available as it will contain important information. Copies of the Schedule 14D-9 and
other related documents filed by Rio Tinto will be available free of charge on the SEC’s website
at http://www.sec.gov. In addition, documents filed with the SEC by Rio Tinto may be obtained
free of charge by contacting Rio Tinto’s media or investor relations departments or on Rio Tinto’s
website at www.riotinto.com. Any documents filed by BHP Billiton, including any registration
statement on Form F-4 (which will include a preliminary prospectus) and related exchange offer
materials as well as any Tender Offer Statement on Schedule TO, will also be available free of
charge on the SEC’s website.
Forward-Looking Statements
This announcement includes “forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, 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
announcement, including, without limitation, those regarding 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 forecasts and
reserve and resource positions), are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties and other
factors which 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 which Rio Tinto will operate in the
future. Among the important factors that could cause Rio Tinto’s actual results, performance or
achievements to differ materially from those in the forward-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, the impact 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 such other risk factors
identified in Rio Tinto's most recent Annual Report on Form 20-F filed with the United States
Securities and Exchange Commission (the "SEC") or Form 6-Ks furnished to the SEC.
Forward-looking statements should, therefore, be construed in light of such risk factors and
undue reliance should not be placed on forward-looking statements. These forward-looking
statements speak only as of the date of this announcement. Rio Tinto expressly disclaims any
obligation or undertaking (except as required by applicable law, the City 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 updates or revisions to any forward-looking statement contained herein to
reflect any change in Rio Tinto’s expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
Continues Page 23 of 41
Nothing in this announcement should be interpreted to mean that future earnings per share of
Rio Tinto plc or Rio Tinto Limited will necessarily match or exceed its historical published
earnings per share.
Subject to the requirements of the Takeover Code, none of Rio Tinto, any of its officers or any
person named in this announcement with their consent or any person involved in the
preparation of this announcement makes any representation or warranty (either express or
implied) or gives any assurance that the implied values, anticipated results, performance or
achievements expressed or implied in forward-looking statements contained in this
announcement will be achieved.
For further information, please contact:
Media Relations, Australia
Amanda Buckley
Office: +61 (0) 3 9283 3627
Mobile: +61 (0) 419 801 349
Ian Head
Office: +61 (0) 3 9283 3620
Mobile: +61 (0) 408 360 101
Media Relations, London
Christina Mills
Office: +44 (0) 20 8080 1306
Mobile: +44 (0) 7825 275 605
Nick Cobban
Office: +44 (0) 20 8080 1305
Mobile: +44 (0) 7920 041 003
Media Relations, Americas
Nancy Ives
Mobile: +1 619 540 3751
Investor Relations, Australia
Dave Skinner
Office: +61 (0) 3 9283 3628
Mobile: +61 (0) 408 335 309
Simon Ellinor
Office: +61 (0) 7 3867 1607
Mobile: +61 (0) 439 102 811
Investor Relations, North America
Jason Combes
Office: +1 (0) 801 685 4535
Mobile: +1 (0) 801 558 2645
Investor Relations, London
Nigel Jones
Office: +44 (0) 20 7781 2049
Mobile: +44 (0) 7917 227365
David Ovington
Office: +44 (0) 20 7781 2051
Mobile: +44 (0) 7920 010 978
Email: [email protected]
Website: www.riotinto.com
High resolution photographs available at: www.newscast.co.uk
Continues Page 23a of 41
Continues Page 24 of 41
Group income statement
Six months
to 30 June
2008
US$m
Six months
to 30 June
2007
US$m
Year to 31
December
2007
US$m
Gross sales revenue (including share of equity
accounted units) (a) 30,005 13,930 33,518
Consolidated sales revenue 27,192 12,055 29,700
Net operating costs (excluding items shown separately) (19,212) (7,746) (20,752)
Impairment charges (6) (449) (58)
Profits on disposal of interests in businesses 2,248 - 2
Exploration and evaluation costs (b) (384) (63) (321)
Operating profit 9,838 3,797 8,571
Share of profit after tax of equity accounted units 913 865 1,584
Profit before finance items and taxation 10,751 4,662 10,155
Finance items
Net exchange (losses)/gains on external debt and intragroup
balances (10) 65 194
Net (losses)/gains on derivatives not qualifying for
hedge accounting (256) 23 57
Interest receivable and similar income 130 46 134
Interest payable and similar charges (810) (67) (538)
Amortisation of discount related to provisions (119) (70) (166)
(1,065) (3) (319)
Profit before taxation 9,686 4,659 9,836
Taxation (2,395) (1,258) (2,090)
Profit for the period 7,291 3,401 7,746
- attributable to outside equity shareholders 377 148 434
- attributable to equity shareholders of Rio Tinto (Net earnings) 6,914 3,253 7,312
Basic earnings per ordinary share (c) 538.7c 251.3c 568.7c
Diluted earnings per ordinary share 536.1c 250.4c 566.3c
Dividends paid during the period (US$m) 1,083 837 1,507
Dividends per share: paid during the period 84.0c 64.0c 116.0c
Dividends per share: proposed in the announcement of the results
for the period 68.0c 52.0c 84.0c
(a) Gross sales revenue includes the sales revenue of equity accounted units of US$2,813 million (30 June 2007:
US$1,875 million; 31 December 2007: US$3,818 million) in addition to Consolidated sales revenue, which relates
only to subsidiary companies.
(b) Exploration and evaluation costs are stated net of gains on disposal of undeveloped properties totalling
US$22 million (30 June 2007: US$131 million; 31 December 2007: US$253 million).
(c) For the purposes of calculating basic earnings per share, the weighted average number of Rio Tinto plc and
Rio Tinto Limited shares outstanding during the period was 1,283.4 million (30 June 2007: 1,294.4 million;
31 December 2007: 1,285.8 million), being the average number of Rio Tinto plc shares outstanding of 997.7 million
(30 June 2007: 1,008.7 million; 31 December 2007: 1,000.1 million), plus the average number of Rio Tinto Limited
shares outstanding not held by Rio Tinto plc of 285.7 million (30 June and 31 December 2007: 285.7 million).
Continues Page 25 of 41
Group cash flow statement
Six months
to 30 June
2008
US$m
Six months
to 30 June
2007
US$m
Year to 31
December
2007
US$m
Cash flow from consolidated operations 7,850 5,048 10,805
Dividends from equity accounted units 1,010 691 1,764
Cash flows from operations 8,860 5,739 12,569
Net interest paid (923) (69) (489)
Dividends paid to outside shareholders of subsidiaries (107) (71) (168)
Tax paid (2,248) (1,747) (3,421)
Cash flow from operating activities 5,582 3,852 8,491
Cash used in investing activities
Net disposals/(acquisitions) of subsidiaries, joint ventures
& associates 2,595 (17) (37,526)
Purchase of property, plant & equipment and intangible assets (3,680) (1,942) (5,000)
Disposal of financial assets 95 18 49
Purchases of financial assets (72) (197) (273)
Other investing cash flows (428) 145 8
Cash used in investing activities (1,490) (1,993) (42,742)
Cash flow before financing activities 4,092 1,859 (34,251)
Cash (used in)/from financing activities
Equity dividends paid to Rio Tinto shareholders (1,083) (837) (1,507)
Own shares purchased from Rio Tinto shareholders - (1,428) (1,648)
Proceeds from issue of ordinary shares in Rio Tinto 28 21 37
Additional borrowings 4,559 1,383 39,195
Repayment of borrowings (7,818) (843) (1,034)
Other financing cash flows 52 23 54
Cash (used in)/from financing activities (4,262) (1,681) 35,097
Effects of exchange rates on cash and cash equivalents 228 (10) (27)
Net increase in cash and cash equivalents 58 168 819
Opening cash and cash equivalents 1,541 722 722
Closing cash and cash equivalents 1,599 890 1,541
Cash flow from consolidated operations
Profit for the period 7,291 3,401 7,746
Adjustments for:
Taxation 2,395 1,258 2,090
Finance items 1,065 3 319
Share of profit after tax of equity accounted units (913) (865) (1,584)
Profits on disposal of interests in businesses (2,248) - (2)
Impairment charges 6 449 58
Depreciation and amortisation 1,785 865 2,115
Provisions 254 133 308
Utilisation of provisions (251) (77) (162)
Utilisation of provision for post retirement benefits (218) (39) (121)
Change in inventories (463) (77) 130
Change in trade and other receivables (1,159) 132 (385)
Change in trade and other payables 483 (88) 375
Other items (177) (47) (82)
7,850 5,048 10,805
Continues Page 26 of 41
Group balance sheet
30 June
2008
US$m
31 December
2007
US$m
30 June
2007
US$m
Non-current assets
Goodwill 15,604 15,497 883
Intangible assets 7,836 7,910 518
Property, plant and equipment 49,186 45,647 24,045
Investments in equity accounted units 7,416 7,038 2,761
Loans to equity accounted units 281 245 123
Inventories 194 178 104
Trade and other receivables 1,539 1,862 1,304
Deferred tax assets 794 585 144
Tax recoverable 56 6 4
Other financial assets 690 580 647
83,596 79,548 30,533
Current assets
Inventories 5,832 5,382 2,724
Trade and other receivables 7,778 6,479 2,840
Assets held for sale (a) 6,881 7,024 -
Loans to equity accounted units 169 117 19
Tax recoverable 563 250 79
Other financial assets 774 946 252
Cash and cash equivalents 1,683 1,645 926
23,680 21,843 6,840
Current liabilities
Bank overdrafts repayable on demand (84) (104) (36)
Borrowings (6,865) (8,109) (1,793)
Trade and other payables (6,859) (6,667) (2,633)
Liabilities of disposal groups held for sale (a) (2,275) (2,632) -
Other financial liabilities (1,141) (878) (341)
Tax payable (1,253) (494) (676)
Provisions (917) (783) (407)
(19,394) (19,667) (5,886)
Net current assets 4,286 2,176 954
Non-current liabilities
Borrowings (36,930) (38,614) (1,957)
Trade and other payables (457) (503) (369)
Other financial liabilities (757) (496) (224)
Tax payable (278) (66) (38)
Deferred tax liabilities (6,417) (6,486) (2,453)
Provision for post retirement benefits (3,080) (3,195) (671)
Other provisions (6,368) (6,040) (3,828)
(54,287) (55,400) (9,540)
Net assets 33,595 26,324 21,947
Capital and reserves
Share capital
- Rio Tinto plc 172 172 172
- Rio Tinto Limited (excluding Rio Tinto plc interest) 1,338 1,219 1,178
Share premium account 1,949 1,932 1,929
Other reserves 3,536 2,416 1,647
Retained earnings 24,725 19,033 15,705
Equity attributable to Rio Tinto shareholders 31,720 24,772 20,631
Attributable to outside equity shareholders 1,875 1,552 1,316
Total equity 33,595 26,324 21,947
Continues Page 27 of 41
(a) Assets and liabilities held for sale as at 31 December 2007 comprised the Alcan Packaging group and the Tarong
Coal mine, which was in the Energy product group. The Tarong mine was sold on 31 January 2008 for an amount
in excess of its carrying value. The Alcan Packaging group was acquired with a view to resale. For this reason, its
results have no impact on the Group's Income Statement.
(b) At 30 June 2008, Rio Tinto plc had 998.1 million ordinary shares in issue and Rio Tinto Limited had 285.7 million
shares in issue, excluding those held by Rio Tinto plc.
(c) Net tangible assets per share was US$6.45 (31 December 2007: US$1.06; 30 June 2007: US$14.97).
Group statement of recognised income and expense
Attributable to
shareholders of
Rio Tinto US$m
Outside
interests
US$m
Six months
to 30 June
2008
US$m
Six months
to 30 June
2007
US$m
Year to 31
December
2007
US$m
Currency translation adjustment 1,728 64 1,792 1,131 2,021
Cash flow hedge fair value
losses (504) (153) (657) (136) (424)
(Losses)/gains on available for
sale securities (127) - (127) 56 51
Cash flow hedge losses
transferred to the income
statement 119 58 177 59 165
Gains on revaluation of
available for sale securities
transferred to the income
statement (1) - (1) (15) (16)
Actuarial (losses)/gains on post
retirement benefit plans (257) 4 (253) 347 141
Tax recognised directly in equity 247 36 283 (30) 193
Net income recognised
directly in equity 1,205 9 1,214 1,412 2,131
Profit after tax for the period 6,914 377 7,291 3,401 7,746
Total recognised income for
the period 8,119 386 8,505 4,813 9,877
Continues Page 28 of 41
Group statement of changes in equity
Attributable to
shareholders
of Rio Tinto
US$m
Outside
interests
US$m
Six months
to 30 June
2008
US$m
Six months
to 30 June
2007
US$m
Year to 31
December
2007
US$m
Opening balance 24,772 1,552 26,324 19,385 19,385
Total recognised income for the
period 8,119 386 8,505 4,813 9,877
Dividends (1,083) (109) (1,192) (908) (1,671)
Own shares purchased from Rio
Tinto shareholders
- Under capital management
programme - - - (1,372) (1,372)
- To satisfy share options (144) - (144) (31) (64)
Ordinary shares issued 28 - 28 21 37
Outside interests in acquired
companies - - - - 55
Shares issued to outside
interests - 46 46 23 38
Employee share options charged
to income statement 28 - 28 16 39
Closing balance 31,720 1,875 33,595 21,947 26,324
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$730 million at 30 June 2008 (30 June and 31 December
2007: US$736 million).
Save for the exception described above, the Group's financial statements drawn up in
accordance with EU IFRS are consistent with the requirements of Australian IFRS.
Continues Page 29 of 41
Reconciliation of Net earnings to Underlying earnings
Exclusions from Underlying
earnings
Pre-tax
(a)
US$m
Taxation
US$m
Outside
Interests
US$m
Six months
to 30 June
2008
US$m
Six months
to 30 June
2007
US$m
Year to 31
December
2007
US$m
Profits on disposal of interests
in businesses (b) 2,248 (766) - 1,482 - 1
Impairment charges (c) (6) 3 - (3) (314) (113)
Exchange differences and
derivatives:
- Exchange gains on external
debt and intragroup
balances (d) (20) 347 12 339 6 156
- Gains on currency and
interest rate derivatives not
qualifying for hedge
accounting (e), (f) 6 (4) - 2 19 34
- Losses on commodity
derivatives not qualifying for
hedge accounting (g) (326) 60 6 (260) - -
Other exclusions (h) (166) 46 - (120) 13 (209)
Total excluded from
underlying earnings 1,736 (314) 18 1,440 (276) (131)
Net earnings 9,686 (2,395) (377) 6,914 3,253 7,312
Underlying earnings 7,950 (2,081) (395) 5,474 3,529 7,443
'Underlying earnings' is an alternative 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 (b) to (h) below are excluded from Net earnings in arriving at Underlying earnings.
(a) Exclusions from underlying earnings relating to equity accounted units are stated after tax.
(b) Gains arising on the disposal of interests in businesses, which relate principally to sales of Cortez gold mine and Greens
Creek mine.
(c) Charges relating to impairment of non-current assets other than undeveloped properties.
(d) Exchange gains and losses on US dollar debt and intragroup balances. The tax on exchange gains and losses on external
debt and intragroup balances includes a non-recurring benefit of US$290 million through recovery of tax relating to prior
years.
(e) Valuation changes on currency and interest rate derivatives which are ineligible for hedge accounting, other than those
embedded in commercial contracts.
(f) The currency revaluation of embedded US dollar derivatives contained in contracts held by entities whose functional
currency is not the US dollar.
(g) Valuation changes on commodity derivatives, including those embedded in commercial contracts, that are ineligible for
hedge accounting, but for which there will be an offsetting change in future Group earnings.
(h) Other credits and charges that, individually, or in aggregate if of a similar type, are of a nature or size to require exclusion in
order to provide additional insight into underlying business performance.
Other charges excluded from underlying earnings comprise exceptional costs relating to acquisitions, disposals and similar
corporate projects.
Continues Page 30 of 41
Consolidated net debt
30 June
2008
US$m
31 December
2007
US$m
30 June
2007
US$m
Analysis of changes in consolidated net debt
Opening balance (45,152) (2,437) (2,437)
Adjustment on currency translation (158) (223) (163)
Exchange gains credited to the income statement 141 136 103
Gains on derivatives related to net debt 15 11 (3)
Debt of acquired companies - (5,465) -
Cash movement excluding exchange movements 3,083 (37,332) (362)
Other movements (53) 158 -
Closing balance (42,124) (45,152) (2,862)
Analysis of closing balance
Borrowings (43,795) (46,723) (3,750)
Bank overdrafts repayable on demand (84) (104) (36)
Cash and cash equivalents 1,683 1,645 926
Other liquid resources 6 6 6
Derivatives related to net debt 66 24 (8)
Consolidated net debt (42,124) (45,152) (2,862)
Continues Page 31 of 41
Primary segmental analysis (by product group)
Six months to
30 June 2008
US$m
Six months to
30 June 2007
US$m
Year to 31
December
2007
US$m
Sales revenue
Iron ore 8,086 3,780 8,924
Energy and Minerals 4,473 3,445 7,365
Aluminium 11,906 1,766 7,105
Copper and Diamonds 2,724 3,038 6,258
Other 3 26 48
Consolidated sales revenue 27,192 12,055 29,700
Share of equity accounted units 2,813 1,875 3,818
Gross sales revenue 30,005 13,930 33,518
Consolidated profit before finance items and taxation
Iron ore 4,488 1,702 4,083
Energy and Minerals 1,235 567 1,339
Aluminium 1,324 603 813
Copper and Diamonds (c) 3,350 1,174 3,026
Exploration and evaluation not attributed to product groups (68) 55 58
Other (491) (304) (748)
Operating profit (segment result) 9,838 3,797 8,571
Share of profit after tax of equity accounted units
Copper 913 842 1,542
Other product groups - 23 42
Profit before finance items and taxation 10,751 4,662 10,155
(a) The product groups shown above reflect the Group's management structure and are the Group's primary
segments in accordance with IAS 14. The analysis deals with: the sales revenue, profit before finance costs and
taxation 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
product groups are consistent with those identified in the financial information by business unit data included on
pages 7 and 8 of this news release. 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 30 June 2008.
(b) The analysis of profit before finance costs and taxation includes the profits on disposal of interests in businesses
(including investments), and impairment charges, which are excluded from Underlying earnings.
(c) This includes profits of US$2,175 million relating to the sales of Cortez gold mine and Greens Creek mine.
Continues Page 32 of 41
Geographical analysis (by destination)
First
half
2008
%
First
half
2007
%
Year
2007
%
Six months
to 30 June
2008
US$m
Six months to
30 June 2007
US$m
Year to 31
December
2007
US$m
Gross sales revenue
22.7 22.2 22.6 North America 6,813 3,093 7,582
25.4 17.0 19.8 Europe 7,624 2,368 6,641
14.7 18.8 16.8 Japan 4,419 2,620 5,633
16.5 17.3 18.0 China 4,942 2,404 6,021
11.2 14.0 12.2 Other Asia 3,352 1,949 4,105
3.8 5.3 5.6 Australia and New Zealand 1,127 739 1,892
5.7 5.4 5.0 Other 1,728 757 1,644
100 100 100 Total 30,005 13,930 33,518
Prima facie tax reconciliation
Six months
to 30 June
2008
US$m
Six months to
30 June 2007
US$m
Year to 31
December
2007
US$m
Profit before taxation 9,686 4,659 9,836
Deduct: share of profit after tax of equity accounted units (913) (865) (1,584)
Parent companies' and subsidiaries' profit before tax 8,773 3,794 8,252
Prima facie tax payable at UK rate of 28% (2007 - 30%) 2,456 1,138 2,476
Higher rate of taxation on Australian earnings 80 - -
Impact of items excluded from Underlying earnings (193) 36 (28)
Adjustments to deferred tax liabilities following changes in tax
rates (26) (10) (392)
Other tax rates applicable outside the UK and Australia 167 139 271
Resource depletion and other depreciation allowances (77) (86) (173)
Research, development and other investment allowances (27) (8) (81)
Other items 15 49 17
Total taxation charge (a) 2,395 1,258 2,090
(a) This tax reconciliation relates to the parent companies, subsidiaries and proportionally consolidated units.
The Group's share of profit of equity accounted units is net of tax charges of US$569 million (30 June 2007:
US$478 million; 31 December 2007: US$917 million).
Continues Page 33 of 41
Acquisitions
On 23 October 2007, the Rio Tinto Group acquired a controlling 79.42% interest in the issued
share capital of Alcan Inc. The remaining 20.58% was acquired by 14 November 2007. The
total purchase price to acquire Alcan Inc. amounted to US$38.7 billion, which comprised of
US$38.5 billion of cash and US$0.2 billion of liabilities assumed. Provisional fair values were
determined during 2007. These provisional fair values are currently being reviewed and will be
finalised by 23 October 2008, 12 months after acquisition. There were no material adjustments
to fair values during the six months to 30 June 2008 and accordingly prior periods have not
been restated.
Other disclosures
Capital commitments
Capital commitments, including those relating to joint ventures and associates, were
US$5,603 million (at 30 June 2007: US$2,827 million; at 31 December 2007: US$3,978 million).
Contingent liabilities
There were no material changes in contingent liabilities or contingent assets during the period.
Share buyback
Between 1 January 2008 and 30 June 2008, Rio Tinto plc did not buy back any shares from
public shareholders. During the year to 31 December 2007, Rio Tinto plc bought back
27,700,000 shares, to be held in treasury, at an average buyback price of £30.05 per share.
The share buyback programme was suspended on 12 July 2007 at the time the Alcan offer
was announced. Between 1 January 2007 and 30 June 2007, Rio Tinto plc bought back
25,510,000 of its own shares from public shareholders, to be held in treasury, at an average
buyback price of £29.23. There were proceeds of US$11 million for treasury shares reissued in
the period to 30 June 2008 (30 June 2007: US$11 million; 31 December 2007: US$24 million).
The total consideration paid in the period to 30 June 2007 was US$1,428 million and in the
period to 31 December 2007 was US$1,648 million.
Related party matters
Transactions and balances with equity accounted units are summarised below. Purchases
relate largely to amounts charged by equity accounted units for toll processing of bauxite and
alumina. Sales relate largely to charges for supply of coal to jointly controlled marketing
entities for onsale to third party customers.
Six months to
30 June 2008
US$m
Six months to
30 June 2007
US$m
Year to 31
December 2007
US$m
Income statement items
Purchases from equity accounted units (1,226) (719) (1,538)
Sales to equity accounted units 1,336 692 1,338
Balance sheet items US$m US$m US$m
Investments in equity accounted units 7,416 2,761 7,038
Loans to equity accounted units 450 142 362
Loans from equity accounted units (207) (111) (174)
Trade and other receivables: amounts due from
equity accounted units 937 722 804
Trade and other payables: amounts due to
equity accounted units (273) (103) (219)
Cash flow statement items US$m US$m US$m
Funding of equity accounted units (279) (18) (216)
Continues Page 34 of 41
Basis of preparation
The consolidated interim financial statements included in this report are unaudited and have
been prepared in accordance with IAS 34 'Interim financial reporting' as adopted by the
European Union ('EU'), the Disclosure and Transparency Rules of the Financial Services
Authority and an Order under section 340 of the Australian Corporations Act 2001 issued by
the Australian Securities and Investments Commission on 27 January 2006 and amended on
22 December 2006.
Accounting policies
The EU IFRS consolidated interim financial statements have been drawn up on the basis of
accounting policies, methods of computation and presentation consistent with those applied
in the financial statements for the year to 31 December 2007 except for the following
interpretations. These interpretations are mandatory for the first time for the financial year
beginning 1 January 2008 and have been adopted on the assumption that these will all be
endorsed by the European Union in time for the Group's reporting for the year ended
31 December 2008. The last two interpretations have not yet been endorsed by the EU.
- IFRIC 11 (IFRS 2) - Group and treasury share transactions
- IFRIC 12 - Service concession arrangements
- IFRIC 14 (IAS 19) - The limit on a defined benefit asset, minimum funding requirements and
their interaction.
The effect of the above interpretations is not material to Group earnings or to shareholders'
funds in the current or prior periods. Therefore, prior periods have not been restated.
Valuation changes on commodity derivatives, including those embedded in commercial
contracts, that are ineligible for hedge accounting, but for which there will be an offsetting
change in future Group earnings, are now excluded from Underlying earnings. Their exclusion
is consistent with the approach taken in respect of currency and interest rate derivatives in
determining Underlying earnings in previous years; but, prior to the acquisition of Alcan, the
amounts of such commodity derivatives were not material.
Status of financial information
These consolidated interim financial statements do not comprise statutory accounts within the
meaning of Section 240 of the Companies Act 1985.
Financial information for the year to 31 December 2007 has been extracted from the full
financial statements prepared under the historical cost convention, as modified by the
revaluation of certain derivative contracts and financial assets, as filed with the Registrar of
Companies. The Auditors' report on the full financial statements for the year to 31 December
2007 was unqualified and did not contain statements under section 237(2) of the United
Kingdom Companies Act 1985 (regarding adequacy of accounting records and returns), or
under 237(3) (regarding provision of necessary information and explanations).
Continues Page 35 of 41
Directors' Declaration of Responsibility
In the directors' opinion:
The financial statements and notes have been prepared in accordance with IAS 34 'Interim
Financial Reporting' under EU IFRS, the Disclosure and Transparency Rules of the Financial
Services Authority in the United Kingdom, applicable accounting standards and the Australian
Corporations Act 2001 (as modified by an order of the Australian Securities and Investments
Commission dated 27 January 2006 and amended on 22 December 2006 using the most
appropriate accounting policies for Rio Tinto's business and supported by reasonable and
prudent judgements.
The financial statements and notes give a true and fair view of the Rio Tinto Group's financial
position as at 30 June 2008 and of its performance, as represented by the results of its
operations, recognised income and expense and its cash flows for the half year then ended.
There are reasonable grounds to believe that each of the Rio Tinto Group, Rio Tinto Limited
and Rio Tinto plc, has adequate financial resources to continue in operational existence for the
foreseeable future and to pay its debts as and when they become due and payable.
The half year report includes a fair review of the information required by the Disclosure and
Transparency Rules 4.2.7 and DTR 4.2.8, namely:
- an indication of important events that have occurred during the first six months and
their impact on the condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining six months of the financial year; and
- material related party transactions in the first six months and any material changes in
the related party transactions described in the last annual report.
Signed in accordance with a resolution of the Board of Directors.
Tom Albanese
Chief Executive Officer
26 August 2008
Guy Elliott
Finance Director
26 August 2008
Continues Page 36 of 41
Auditors' Independence Declaration
As lead auditor for the review of Rio Tinto Limited for the half year ended 30 June 2008, I
declare that to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act
2001 in relation to the review; and
b) no contraventions of any applicable code of professional conduct in relation to the
review.
This declaration is in respect of Rio Tinto Limited and the entities it controlled during the
period.
Robert Hubbard
Partner
PricewaterhouseCoopers
Brisbane
26 August 2008
Continues Page 37 of 41
Independent review report to Rio Tinto plc and
Rio Tinto Limited (“the Companies”)
Introduction
We have been engaged by the Companies to review the condensed set of financial statements
in the half year report of the Rio Tinto Group (comprising the Companies and their
subsidiaries, associates and joint ventures) for the six months ended 30 June 2008 , which
comprises the Group income statement, Group cash flow statement, Group balance sheet,
Group statement of recognised income and expense, Group statement of changes in equity,
and related notes (including the financial information by business unit). We have read the other
information contained in the half year report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the condensed set of
financial statements.
Directors' responsibilities
The half year report, is the responsibility of, and has been approved by, the directors. The
directors are responsible for preparing the half year report in accordance with the Disclosure
and Transparency Rules of the United Kingdom's Financial Services Authority and the
Australian Corporations Act 2001 as amended by the Australian Securities and Investments
Commission Order dated 27 January 2006 and amended on 22 December 2006.
As disclosed in Note 1 'Principal Accounting Policies' of the annual financial statements, the
financial statements of the Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included in this half year report
has been prepared in accordance with International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Companies a conclusion on the condensed set of
financial statements in the half year report based on our review. This report, including the
conclusion, has been prepared for and only for Rio Tinto plc for the purpose of the Disclosure
and Transparency Rules of the Financial Services Authority and for Rio Tinto Limited for the
purpose of the Australian Corporations Act 2001 as amended by the Australian Securities and
Investments Commission Order dated 27 January 2006 and amended on 22 December 2006
and for no other purpose. We do not, in producing this report, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or into whose hands
it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements
(UK and Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent
Auditor of the Entity’ issued by the Auditing Practices Board for use in the United Kingdom. A
review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant matters that might be identified
in an audit.
Accordingly, we do not express an audit opinion.
Continues Page 38 of 41
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the
condensed set of financial statements in the half year report for the six months ended 30 June
2008 is not prepared, in all material respects, in accordance with International Accounting
Standard 34 as adopted by the European Union, the Disclosure and Transparency Rules of
the United Kingdom's Financial Services Authority and the Australian Corporations Act 2001
as amended by the Australian Securities and Investments Commission Order dated
27 January 2006 and amended on 22 December 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
26 August 2008
in respect of Rio Tinto plc
PricewaterhouseCoopers
Chartered Accountants
Brisbane
26 August 2008
in respect of Rio Tinto Limited
Notes:
a) The maintenance and integrity of the Rio Tinto Group website is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the financial statements since they were
initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Continues Page 39 of 41
Notes to financial information by business unit
(Pages 7 and 8)
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 during
2008.
Industrial Minerals was combined with Energy to form the Energy and Minerals product group.
Diamonds was combined with Copper to form the Copper and Diamonds product group.
Information for 2007 has been reclassified accordingly.
(a) Gross sales revenue includes 100 per cent of subsidiaries' sales revenue and the Group's share of the sales
revenue of equity accounted units.
(b) EBITDA of subsidiaries and the Group'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 period 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 do not include amounts that are excluded in arriving at Underlying earnings.
(d) Includes Rio Tinto's interests in Hamersley (100 per cent) and Hismelt (60 per cent).
(e) 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.
(f) Includes Rio Tinto's interests in Rio Tinto Aluminium (100 per cent), Rio Tinto Alcan (100 per cent) and Anglesey
Aluminium (51 per cent).
(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.
(h) 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 75.7 per cent interest in Coal and Allied, which is managed by Rio Tinto Coal Australia, a 100
per cent subsidiary of Rio Tinto.
(j) Includes Rio Tinto's interests in QIT (100 per cent) and Richards Bay Iron and Titanium (Pty) Limited (50 per cent).
(k) Includes Rio Tinto's interests in Rio Tinto Borax (100 per cent), Dampier Salt (68.4 per cent) and Luzenac Talc
(100 per cent).
(l) 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. The details provided include
100 per cent of subsidiaries' capital expenditure and Rio Tinto's share of the capital expenditure of equity
accounted units. Amounts relating to equity accounted units not specifically funded by Rio Tinto are deducted
before arriving at total capital expenditure for the Group.
(m) Operating assets of subsidiaries comprise net assets before deducting net debt, less outside shareholders'
interests which are calculated by reference to the net assets of the relevant companies (i.e. net of such companies'
debt). For equity accounted units, Rio Tinto's net investment is shown.
(n) Assets held for sale relate to Alcan's Packaging business.
Continues Page 40 of 41
Summary financial data in Australian dollars, Sterling and
US dollars
Six
months to
30 June
2008
Six
months
to 30
June
2007
Six
months
to 30
June
2008
Six
months
to 30
June
2007
Six months
to 30 June
2008
Six months
to 30 June
2007
Year to 31
December
2007
A$m A$m £m £m US$m US$m US$m
32,614 17,198 15,231 7,071 Gross sales revenue 30,005 13,930 33,518
29,557 14,883 13,803 6,119
Consolidated sales
revenue 27,192 12,055 29,700
10,528 5,752 4,917 2,365 Profit before taxation 9,686 4,659 9,836
7,925 4,199 3,701 1,726 Profit for the period 7,291 3,401 7,746
7,515 4,016 3,510 1,651
Net earnings attributable
to Rio Tinto
shareholders 6,914 3,253 7,312
5,950 4,357 2,779 1,791 Underlying earnings (a) 5,474 3,529 7,443
585.6c 310.2c 273.5p 127.6p
Basic earnings per ordinary
share 538.7c 251.3c 568.7c
463.6c 336.5c 216.5p 138.4p
Basic Underlying earnings
per ordinary 426.5c 272.6c 578.9c
Dividends per share to Rio
Tinto shareholders
93.02c 82.84c 43.13p 32.63p - paid 84.0c 64.0c 116.0c
77.35c 60.69c 36.25p 25.59p - proposed 68.0c 52.0c 84.0c
4,448 2,295 2,077 944
Cash flow before
financing activities 4,092 1,859 (34,251)
(43,879) (3,367) (21,168) (1,431) Net debt (42,124) (2,862) (45,152)
33,042 24,272 15,940 10,316
Equity attributable to Rio
Tinto shareholders 31,720 20,631 24,772
a) Underlying earnings exclude net income of US$1,440 million (30 June 2007: US$(276) million;
31 December 2007: US$(131) million), as analysed on page 29.
b) The financial data above have been extracted from the financial information set out on pages 24 to 30. The
Australian dollar and Sterling amounts are based on the US dollar amounts, retranslated at average or closing
rates as appropriate, except for the dividends which are the actual amounts payable.
Continues Page 41 of 41
Metal prices and exchange rates
Six months to
30 June 2008
Six months
to 30 June
2007
Change
1H08 v
1H07
Year to 31
December
2007
Metal prices - average for the period
Copper - US cents/lb 367c 307c 20% 324c
Aluminium - US cents/lb 128c 126c 2% 120c
Gold - US$/troy oz US$910 US$659 38% US$691
Molybdenum - US$/lb US$34 US$28 21% US$30
Average exchange rates in US$
Sterling 1.97 1.97 0% 2.00
Australian dollar 0.92 0.81 14% 0.84
Canadian dollar 0.99 0.88 13% 0.93
Euro 1.53 1.33 15% 1.37
South African rand 0.13 0.14 (7%) 0.14
Period end exchange rates in US$
Sterling 1.99 2.00 (1%) 1.99
Australian dollar 0.96 0.85 13% 0.88
Canadian dollar 0.99 0.95 4% 1.01
Euro 1.58 1.34 17% 1.47
South African rand 0.13 0.14 (7%) 0.15
Availability of this report
This report is available on the Rio Tinto website.