Coal and Allied results 2007

Rio Tinto PLC
29 January 2008


Coal & Allied annual results 2007 - profit affected by infrastructure
constraints and adverse weather


29 January 2008


Summary

  • Profit before tax was $79.3 million compared with $270.3 million in 2006
  • Profit after tax was $109.8 million compared with $207.6 million in 2006
  • 2007 production of 23.9 million tonnes was 17 per cent lower than 2006
  • Final dividend has been maintained at 25 cents per ordinary share.


Commenting on the full year results, Coal & Allied's Managing Director, Hubie
van Dalsen, said; 'Coal & Allied's profit in 2007 was disappointing and was
adversely affected by infrastructure constraints and Hunter Valley Coal Chain
performance.  This was exacerbated by severe flooding in the Hunter Valley in
June following a severe weather event. Domestic sales were also lower.


'The profit after tax benefited from a one-off tax credit of $46 million, which
was reported in the announcement of results for the half year to June 2007.


'Demurrage costs were substantially higher than 2006 because of the extended
queue of ships awaiting loading and consequent delays at the port of Newcastle
during the year.


'In 2007, Coal & Allied suffered a number of port allocation cutbacks, which
prevented it from maximising its production capabilities in a market
experiencing strong global demand and buoyant prices for thermal coal.


'In response to these cutbacks, Coal & Allied had to reduce production at its
three operations. Coal & Allied is well placed to take advantage of the strong
market conditions when capacity becomes available in the Hunter Valley Coal
Chain.'


Mr van Dalsen said the Capacity Balancing System was approved by the Australian
Consumer and Competition Commission (ACCC) to manage allocations of port
capacity to producers.


'After both the shipping queues and demurrage fees rose, producers later agreed
to reinstate a revised Capacity Balancing System, which remains in place today,'
Mr van Dalsen said.


'Coal & Allied has always maintained that a long term sustainable commercial
framework is required to underpin investment and provide certainty in the Hunter
Valley. We welcome the appointment of the former Premier of the State of New
South Wales, Nick Greiner, as facilitator in finding a resolution to the Hunter
Valley Coal Chain constraint issues.  We look forward to a speedy and effective
resolution to this critical infrastructure problem.'


Summary of performance


Coal & Allied's results for 2007 are shown below, along with comparative results
for 2006.


                                                                  Year to 31 December         Change
                                                                    2007         2006              %

Revenue ($ millions)                                             1,374.5      1,415.0          (2.9)
Profit before tax                                                   79.3        270.3         (70.7)


Profit after tax ($ millions)                                      109.8        207.6         (47.1)
Operating cash flow ($ millions)                                    76.3        127.5         (40.2)
                                                                    25.0         25.0              -
Coal production1 (million tonnes)                                   23.9         28.8         (16.9)
Coal shipments1 (million tonnes)                                    25.5         27.6          (7.6)



1 Production and shipments are on a 100% basis. Shipments exclude purchased
coal. Details of full production and shipments are shown in the Financial and
Operating Statistics appendix.



Profit

Profit before tax was $79.3 million, which was 70.7 per cent lower than 2006.
Despite higher US dollar coal prices, the main reasons for the reduced profit
before tax in 2007 were lower sales volumes, the adverse effects of a stronger
Australian dollar, higher demurrage costs resulting from extended ship queues
off the coast of Newcastle during the year and higher interest costs on higher
debt levels.  In addition, due to port allocation constraints it has been
necessary to purchase coal at spot prices to satisfy 2007 contractual
commitments.  These coal purchases resulted in an approximate $20 million
reduction in 2007 profit before tax.



Profit after tax was $109.8 million and benefited from a $46 million one-off
credit to income tax that was announced at the release of results for the June
2007 half year.



Revenue

Revenue was 2.9 per cent lower than in 2006. However, Free-on-Board coal sales
revenue was 5.2 per cent lower, with coal shipments being adversely affected by
Hunter Valley coal chain infrastructure constraints throughout 2007 and severe
weather conditions in June 2007.  US dollar denominated coal prices were higher
by seven per cent, but were offset by the adverse effects of the stronger
Australian dollar which averaged 11 per cent higher in 2007.



Costs

The Hunter Valley infrastructure constraints and subsequent production cutbacks
by Coal & Allied resulted in each of the company's three mines standing down
equipment to match production capacity with its port allocation.  Accordingly,
contractor costs and other variable production costs were lower than 2006.
Demurrage costs had a $50 million adverse impact on 2007 profit before tax
compared with the corresponding period. As a result of a substantial net
drawdown of coal inventory (C&A share 2.2 million tonnes), the charge to profit
was $60 million higher compared with 2006.



Administration and other mining costs were higher, primarily due to feasibility
studies for the Mount Pleasant project and Lower Hunter Land project, as well as
higher insurance costs and contributions to COAL21 Clean Coal research funds.



Production

Managed production of saleable coal declined by 4.9 million tonnes to 23.9
million tonnes.  This decline was consistent with Coal & Allied's reduced port
allocation of coal sales through the Port of Newcastle and a lower level of
domestic contracted coal sales.



Capital expenditure

Total capital expenditure for the year was $122.4 million compared with $147.9
million in 2006.    Expenditure related predominantly to sustaining purposes,
including replacement of heavy mobile equipment and major maintenance to plant
and equipment.



Cash flow

Net operating cash flow was $76.3 million compared with $127.5 million in 2006
because of lower profits. Capital expenditure was lower by $25.5 million
resulting in a free cash outflow of $38.5 million compared with $15.7 million in
2006.



Debt

Net debt of $311.6 million at the end of 2007 was higher when compared with
$278.1 million in 2006, because of lower free cash flow, with interest costs
rising by $9 million. Gearing (net debt to net debt + equity) was 28.0 per cent
at 31 December 2007, compared with 25.7 per cent at 31 December 2006.



Dividends

Final dividend has been maintained at 25 cents per ordinary share.



Infrastructure

In March 2007, a revised capacity balancing system was reinstated with the
approval of the ACCC. A severe weather event in June 2007 led to increased
shipping queues in the second quarter and very significant loading delays.



Following the severe weather in June, which caused extensive damage to the rail
network, the queue of ships awaiting loading at Newcastle peaked at 79 vessels.
 The extent of the queue resulted in cut backs to port allocations for all
producers in the Hunter Valley.



Throughout 2007, coal producers engaged in discussions with the aim of agreeing
a methodology for allocating coal chain capacity in 2008.  In the absence of
agreement by producers, the providers of port and rail infrastructure for the
Hunter Valley Coal Chain developed a Vessel Queue Management System (VQMS) based
on their actual contracts with the coal producers.  In November 2007, an
application was made to the ACCC to have the system authorised. The ACCC did not
grant interim authorisation for the VQMS, but did grant interim authorisation to
continue the existing Capacity Balancing System.



Hunter Valley coal producers will be required to work constructively to maximise
efficiencies in the coal chain.  Coal & Allied supports the appointment of an
independent facilitator, Nick Greiner, to help resolve short-to-medium term
allocation issues.  While these shorter term issues need to be addressed, coal
producers also need to achieve a long-term resolution to the coal chain capacity
issues.  Coal & Allied believes that the State Government of New South Wales
must allow Port Waratah Coal Services (PWCS) to enter into fixed and firm long
term contracts with coal producers, which will allow all coal producers to
realise their growth potential. A long term commercial framework to underpin
investment and provide security to customers and producers is critical to this
objective.



PWCS has commenced an expansion to increase nominal annual capacity to 113
million tonnes from the current level of 102 million tonnes. The cost of this
expansion is expected to total $458 million, with incremental output scheduled
for availability in the final quarter of 2009. The additional port capacity is
expected to be available ahead of the corresponding rail capacity.



Market conditions

During 2007, the growth in demand for thermal coal was driven by imports from
the Asia Pacific basin. Japanese coal demand was stronger than 2006 (by about
3.3 million tonnes), while Korean import levels grew solidly in 2007 (up 5.7
million tonnes) due to the demand by new coal-fired capacity.

Taiwanese import growth was relatively weak in 2007, up 1.4 million tonnes on
2006 levels, while there was negative growth in most importing Atlantic
countries due to the milder winter. There was continued strength in the
semi-soft coking coal market during 2007.  China's net exports of coal continued
to fall dramatically in 2007, largely offsetting Indonesia's coal export growth.



Looking forward, the demand for thermal coal is robust and coal prices are
expected to be higher compared with 2007.



Safety

At Coal & Allied, the Lost Time Injury Frequency Rate was slightly higher at
0.44 per million person hours in 2007 from 0.21 per million person hours in
2006. However, Coal & Allied sites recorded a number of significant safety
achievements.



The Mount Thorley Warkworth Safety team reached the finals of the NSW Minerals
Council Safety Innovation Awards with its collision avoidance system called '
Duck In'.

Hunter Valley Operations was awarded the Rio Tinto Chief Executive Safety Award
in 2007, following on from its Most Improved Safety Award in 2006.



Mount Pleasant

In 2006, Coal & Allied commenced a feasibility study on the Mount Pleasant
thermal coal project located adjacent to the Bengalla coal mine near
Muswellbrook in the Hunter Valley.  Greater certainty surrounding coal chain
infrastructure in the Hunter Valley is required before the feasibility study can
be finalised.



Lower Hunter Land

In 2006, Coal and Allied signed a memorandum of understanding with the State
Government of New South Wales to facilitate the provision of extensive land
conservation corridors in the Lower Hunter Valley through the transfer of 80 per
cent of the company's land holdings after mining has been completed, on
condition that the remaining 20 per cent of land holdings are developed.
Extensive community consultation continued throughout 2007 with various options
considered. Feasibility studies will be conducted in 2008 to finalise these
options.



Climate Change

Coal & Allied is a long-term contributor to a range of projects that support the
research, development and deployment of clean coal technologies, including a
voluntary contribution of funds to the COAL21 levy. In 2007 Coal & Allied
launched a climate change action plan. This plan is multi faceted and aims to
create an enabling environment where all employees can contribute to the
solution for climate change. Initiatives include metering and monitoring energy
usage at Coal & Allied operations, and implementing energy improvement
programmes across all sites.

Coal & Allied Financial and Operating Statistics

                                                                           2007         2006
Production and shipments                                            '000 tonnes  '000 tonnes

Total saleable production 2
Hunter Valley Operations                                                 10,094       12,025
Mount Thorley Operations                                                  2,924        3,895
Bengalla                                                                  5,155        5,545
Warkworth                                                                 5,776        7,341
Total                                                                    23,949       28,806

Coal & Allied equity share of production
Hunter Valley Operations (100%)                                          10,094       12,023
Mount Thorley Operations (80%)                                            2,339        3,116
Bengalla (40%)                                                            2,062        2,218
Warkworth (55.57%)                                                        3,211        4,082
Total                                                                    17,706       21,439

Total shipments 1                                                        25,522       27,634

Shipments by market 1
Japan                                                                    11,558       10,140
Asia (excluding Japan)                                                    6,024        6,885
Europe                                                                    1,701        1,524
Americas                                                                  1,980        2,251
Domestic                                                                  1,588        4,257
Other                                                                     2,671        2,577
Total                                                                    25,522       27,634

Shipments by product 1
Export thermal                                                           20,379       20,224
Domestic thermal                                                          1,588        4,257
Coking                                                                    3,555        3,153
Total                                                                    25,522       27,634

Financial                                                                  2007         2006

                                                                      $ million    $ million
Total assets                                                            1,899.8      1,864.9
Capital expenditure and investments                                         122          148
Depreciation and amortisation                                               101           96
Employees                                                                 1,417        1,355
Net debt to net debt + equity (%)                                          28.0         25.7
Earnings per share (cents)                                                126.8        239.7

1 Shipments are on a 100% basis and exclude purchased coal

2 Production is on a 100% basis


About Rio Tinto


Rio Tinto is a leading international mining group headquartered in the UK,
combining Rio Tinto plc, a London 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.



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
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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
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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.

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:

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