Coal & Allied AGM Statement

Rio Tinto PLC
20 April 2004


Coal & Allied Industries (Rio Tinto 75.7 per cent) issued the following address
by the chairman, Brian Horwood, following the annual meeting of shareholders in
Australia today. Dollar amounts are in Australian currency.



Coal & Allied AGM - Chairman's address



The year 2003 proved to be a very challenging and sometimes difficult for Coal &
Allied. It was also a year that saw a significant change in management direction
through the creation of Rio Tinto Coal Australia, about which I will have more
to say later.



Throughout 2003, Australia's thermal coal industry was badly affected by the
combined impacts of the strong Australian dollar and lower realised coal prices.
Added into this equation for Hunter Valley producers were significantly
increased demurrage charges.



In the face of these difficult conditions, Coal & Allied focused its activities
throughout 2003 on implementing operational cost reductions and business
improvements.  Matching production with demand and increasing operational
flexibility enabled the business to respond to changes in the marketplace.  In
the second quarter of 2003, Coal & Allied elected to reduce production in
response to weaker market conditions.



Last December, Coal & Allied foreshadowed a loss for 2003 of approximately $30
million. However, the company achieved a break-even position, after a decision
to join the tax consolidation regime, which resulted in a tax benefit of $29.6
million.



A brief financial summary is as follows:

  • Net profit after tax was $100,000 compared with $159.7 million in 2002.

  • Restructuring costs after tax of $10.5 million were provided to cover
    expenses associated with the rationalisation of management, corporate and
    administrative functions.

  • Net debt in Australian dollar terms has reduced by 11.1 per cent in 2003
    to $455.3 million.

  • No final dividend on ordinary shares will be paid.  A final preference
    dividend of 1.75 cents per share will be paid.  This brings total dividends
    for 2003 to 3.5 cents per preference share and 40 cents per ordinary share.



Turning now to the new management arrangement, after careful consideration by
all your directors in December 2003, Coal & Allied agreed with Rio Tinto to
combine Coal & Allied's corporate and service functions with those of Pacific
Coal from 1 February 2004.  Rio Tinto Coal Australia (previously named Pacific
Coal) is now responsible to the Coal & Allied Board for the day-to-day
management of the coal operations of Coal & Allied, under a management services
agreement.  Both businesses are managed from a single corporate office in
Brisbane.



These changes to head office administration and support structures, along with
operational management changes, will deliver annual pre-tax savings in excess of
A$20 million to
Coal & Allied.



Your Board believes this change was a logical step to the successful sharing of
best practise with Rio Tinto's Queensland operations, which had already occurred
in areas such as health, safety, environment and some international export
marketing services, with benefits flowing to both businesses.



Throughout 2003 and again under the new management, the company remains focussed
on safety performance across all operations.



Although there was a small overall increase in the lost time injury frequency
rate compared with 2002, I am pleased to say that there was a decrease in the
severity of these injuries.



A continued focus on halving the number of injuries year to year is required to
reach Coal & Allied's goal of zero injuries.



In 2003, Coal & Allied again featured in the NSW Minerals Council Innovation
Awards. Several areas of the business also achieved extended injury free
periods, further illustrating that zero injuries is a realistic goal.



Turning now to our mining operations, where production in 2003 was down due to
market conditions and other operational issues:



Hunter Valley Operations (Coal & Allied 100 per cent)

Saleable production of 12 million tonnes was 600,000 tonnes lower than in 2002.

An Environmental Impact Statement was lodged with the New South Wales Department
of Infrastructure Planning and Natural Resources in October to extend the West
Pit, consolidate and simplify a complicated system of consent approvals and
provide greater flexibility for processing coal.  This will fully integrate the
extension of the West Pit into existing operations, maximise resource recovery
and ensure best practice environmental controls and management.  Governmental
approval of this project is expected in the first half of 2004.

Mount Thorley Warkworth Operations

The integration of Mount Thorley Operations and Warkworth Mining is critical to
the overall success of the operations and will result in substantial benefits
through improved efficiencies and flexibility.  Significant progress was made
towards integration and a fully integrated structure will become effective in
2004.



The progress towards integration included the following steps:

  • New development consent granted for extension of Warkworth mine;

  • State Government approval for transfer of coal between sites;

  • State Government approval for construction of shared facilities and
    infrastructure;

  • Construction of heavy haul bridge over the Putty Road to link the two
    sites;

  • Mount Thorley and Warkworth Mining employees agreeing to a single
    Collective Agreement; and

  • The joint venture partners of Mount Thorley Operations and Warkworth
    Mining agreed to an operational integration of the two mines



Mount Thorley Operations (Coal & Allied 80 per cent)

Saleable production of 3.2 million tonnes was 1.1 million tonnes lower than in
2002. The lost time injury frequency rate was slightly up on 2002 figures to
1.14 (per 200,000 hours), signalling a need to re-focus safety efforts for 2004.
Mount Thorley Operations consistently demonstrated that safety improvement can
be maintained and was again recognised in the NSW Minerals Council Innovation
Awards.



Warkworth (Coal & Allied 55.57 per cent)

Saleable production of 5.9 million tonnes was one million tonnes lower than in
2002.



A consistent concentration on safety at this mine will be necessary to regain
the safety improvements achieved to 2002.  In 2003, the lost time injury
frequency rate (per 200,000 hours) rose to 2.1 from 1.2 in 2002.



Bengalla (Coal & Allied 40 per cent)

The low cost of the operation enabled saleable production to increase to 6.2
million tonnes as the mine reached its annual consent limit.  This was an
800,000 tonne increase from 2002.



Bengalla achieved its safety performance target, successfully reducing the lost
time injury frequency rate by 50 per cent to 0.9 (per 200,000 hours).



Mount Pleasant Development (Coal & Allied 100 per cent)

Market conditions have affected the timing of the Mount Pleasant development, as
has the New South Wales government's 50 per cent royalty increase, which I will
talk more about later. Possible integration with Bengalla is one option being
considered for Mount Pleasant's development; alternatively we might target a
smaller operation, which could stand alone within largely existing Government
development consents.



Employee involvement

The involvement of Coal & Allied employees in all aspects of the business was
critical in 2003, as people were encouraged to find ways to work smarter,
improve efficiencies, deliver sustainable cost savings and improve safety
performance.



Further stability will be provided over the next three years with a new
enterprise agreement for Hunter Valley Operations and a new common enterprise
agreement for the integrated Mount Thorley Warkworth Operations being certified
in December 2003.  These agreements were achieved after many months of
discussions and without any industrial action.



Our environmental responsibilities and sustainable development

In 2003, a common Coal & Allied Environmental Management System was implemented
and accredited to the international standard ISO14001.  The system is a
rigorous, disciplined approach to environmental management that covers all Coal
& Allied managed operations.  This was a significant achievement for Coal &
Allied and enabled the whole business to actively protect and care for the
environment in all stages of mining through the efficient and responsible use of
resources.



Important progress was also made in managing water across Coal & Allied's Hunter
Valley Operations and Mount Thorley Warkworth Operations.  A pipeline was
commissioned to maximise the utilisation of surplus mine water between the
operations. This improvement of transfer capacity also reduced the need to draw
water from the Hunter River.



Involving our community

In a year that required significant internal focus on issues affecting the
business, Coal & Allied continued to work towards building and maintaining
long-term relationships with the community and key stakeholders. Keeping the
community informed on business developments and encouraging open and two way
communication and feedback were priorities in 2003.



Community consultation was conducted through open days, community newsletters,
community business briefings and near neighbour initiatives.



Throughout 2003, employee involvement was encouraged in Coal & Allied's
continuing commitment to its community relations programs including
Partnerships, Donations and Sponsorships, Aboriginal Development Consultative
Committee and the Community Trust.



Market conditions

Global spot thermal coal prices firmed sharply late in 2003. This was as a
result of a combination of a range of factors including:

•  The rapid appreciation of the Australian dollar against the US dollar,
which demanded higher spot prices to maintain returns in local currency.

•  A very hot summer in Europe led to increased coal fired power
generation and, consequently, higher demand for coal.

•  The longer than expected shutdown of Japan's nuclear power stations
over most of the summer period, offset to some degree by mild climatic
conditions.

•  The instability in export coal supply from China, due to mine closures
for safety reasons and diversion of export coal to its booming domestic market,
caused overseas buyers to look to alternate suppliers



Long vessel queues at the Port of Newcastle during 2003 resulted in demurrage
costs increasing to around US$1 per tonne. Despite record shipments from
Newcastle, fluctuations in the rate of arrival of vessels and capacity
constraints in the Hunter Valley rail system were the primary contributors to
high demurrage costs. Like all producers in the region, we are blighted in the
Hunter Valley by the consequence of the failings of successive governments to
invest adequately in rail infrastructure.  In a year when the seaborne traded
coal industry is enjoying rare high prices, the Hunter Valley producers are
constrained from full participation by a choked infrastructure.



As a major producer, Coal & Allied supports the capacity allocation system,
which is now being implemented through Port Waratah Coal Services. This follows
the grant of approval by the ACCC, this month, for the system to run until the
end of this year. We believe the capacity allocation system is the fairest way
of sharing the capacity of the coal chain, while reducing the cost of demurrage
being borne by all Hunter Valley coal exporters. Further increments in system
capacity have been won by close collaboration between stakeholders in the
system, but alleviation of today's constraint on export capacity will come only
with Government investment in rail infrastructure.



Current conditions and outlook for the remainder of 2004:

The increase in US$-denominated spot prices from early 2003 until the close of
the year was extraordinary. Last year began with an apparent oversupply in
Pacific markets as Chinese and Indonesian coal exports continued to surge. By
the end of the year, real shortages were becoming apparent resulting in spot
prices rising rapidly.  Strong demand for thermal coal in the Pacific is
expected to continue in 2004 and, while Indonesian exports are growing strongly,
Chinese exports for 2004 are down on the same period for 2003.



Recent publicly announced settlements for long term contracts in Japan have also
reflected current market conditions with prices increasing from last years low
levels; however, for Australian producers some of this gain has been offset by a
strong Australian dollar.



As previously advised, our selling price is locked in for most of the first half
of this year based on 2003 settlement levels.  Real gains from the current
strong market prices will not flow through until the third quarter.
Consequently, the poor financial results suffered in the second half of 2003 are
continuing.  In the second half of this year, Coal & Allied will be able to take
advantage of the higher prices now prevailing and will return to profitable
trading.



A new development is the recently announced change in the method for calculation
of royalty payable to the New South Wales Government. While full details are yet
to be released, early indications are that we will be hit hard.  This new
royalty impost will be a further impediment to the cost competitiveness of the
New South Wales coal industry. It already sits at a disadvantage to Queensland
and other producing regions by virtue of our longest distance to key markets.
The higher royalty will ultimately render marginal mines unprofitable and hurt
rural and regional New South Wales where the mines are located.



Comparisons with the royalty regime in Queensland are unhelpful since Queensland
mines on average produce coal at lower cost, enjoy the substantial price premium
of coking coal over the steaming coal generally produced in New South Wales, and
are placed closer to key Asian customers for whom the freight component of final
delivered cost is less. Based on projections of current coal prices into 2004/
05, the seven per cent royalty figure taxed by the New South Wales Government
translates to a rise in the royalty rate for our company of 45 per cent.  We
have cautioned the Government that it will err if it factors a sustainable
benefit of this new royalty regime into its forward estimates because the higher
unit rate will ultimately result in fewer tonnes being exported with all the
risks to employment and regional economic contribution this entails



We are not opposed to a royalty regime that is structured on the principle that
higher coal prices enjoyed by coal producers should translate into a higher
royalty payment to the State. However, we contest that a regime that would have
imposed an additional $11 million of royalty, or about a 25 per cent increase,
on Coal & Allied in 2003 when the industry saw some of the lowest realised
prices in A$ terms ever, has been set at much too high a rate.  With other
producers, we will continue to make strong representations to the New South
Wales government on this issue.



At the time of the proposed royalty rate implementation, the second half of the
year, we expect significant turnaround as we begin to take advantage of the
price increases.



The new management team of RTCA is fully committed to not only realizing the
cost savings from the implementation of the new merged management structure, but
also to apply insights gained from their broader coal industry experience.  One
stark comparison is the cost of business generally applying to mines in New
South Wales compared with Queensland.  The best interests of New South Wales as
well as shareholders in the coal industry will only be served properly by
addressing squarely the cost elements in which New South Wales is uncompetitive.
  Only then we will be confident of the sustainability of the New South Wales
operations through all phases of the coal price cycle.



For further information, please contact:


LONDON                                               AUSTRALIA

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Website: www.riotinto.com


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