Final Results
Rio Tinto PLC
30 January 2003
Rio Tinto achieves a creditable result and record cash flow
• Adjusted earnings of $1,530 million were eight per cent below 2001, but
the second highest in the Group's history.
• Record cash flow from operations of $3,743 million was ten per cent
above 2001.
• Hamersley Iron achieved record shipments to China and the average gold
price was 14 per cent higher. These were exceptions in what were
generally subdued commodity markets.
• China has emerged as the major variable influencing global supply and
demand balances in most metal markets.
• Adjusted earnings of $1,530 million exclude exceptional charges of $879
million.
• Major projects were brought on stream:
o West Angelas (iron ore) was commissioned on time and below budget.
o Diavik (diamonds) delivered its first production this month, well
ahead of schedule.
• A final dividend of 30.5 US cents per share brings full year dividends
to 60.0 US cents per share, 1 US cent per share above 2001.
Financial Summary
Full year to 31 December 2002 2001 Change
Group turnover $10,828m $10,438m +4 %
Cash flow from operating activities $3,134m $2,767m +13%
Total cash flow from operations $3,743m $3,415m +10%
Adjusted earnings $1,530m $1,662m -8%
Net earnings (after exceptional charges)* $651m* $1,079m* -40%
Adjusted earnings per share - US cents 111.2 120.9 -8%
Earnings per share - US cents 47.3* 78.5* -40%
Total dividends per share - US cents 60.0 59.0 +2%
*2002 net earnings are stated after exceptional charges of $763 million relating
to asset write-downs and $116 million relating to environmental remediation
works at Kennecott Utah Copper. 2001 net earnings were stated after an
exceptional charge of $583 million relating to asset write-downs. These items
are added back in arriving at adjusted earnings and adjusted earnings per share.
Throughout this document, all dollars are US$ unless otherwise stated.
Chairman's comments
Rio Tinto's chairman Sir Robert Wilson said, 'Adjusted earnings in 2002 were the
second highest ever and our operations generated record levels of cash. This
was a creditable performance given the economic environment in which we have
been operating. Following the sharp downturn in demand in 2001, markets
stabilised in the first half of 2002 but in most markets there has been little
evidence of improvement since then.
'Our focus on long life, highly efficient operations has produced a business
that remains highly profitable and cash generative even in markets as difficult
as we have seen in 2002. Our competitive cost structure means that our
performance will be robust even if markets remain depressed but, as and when
market conditions warrant, we have a range of attractive options for expansion
across all our major products.'
Chief Executive's Comments
Leigh Clifford, Rio Tinto's chief executive, said, 'Over the last few years, we
have worked hard to increase the flexibility of our operations. In the current
economic environment, this enables us to manage our production in line with
demand whilst limiting the impact on our cost base. For the future, it means
that we have the capacity to respond quickly as and when markets improve.
'The strength of our cash flows allows us to continue investing in value
enhancing projects. The new West Angelas iron ore mine further extends the
range of products that we can offer to our customers. Diavik is up and running,
ahead of schedule, and will complement existing diamond production from Argyle.
First shipments from Hail Creek, which will significantly increase our exposure
to coking coal, are expected in the last quarter of this year. Looking further
ahead, construction of Comalco's alumina refinery, which will make Rio Tinto a
major player in the traded alumina markets, remains on track for completion in
late 2004.
'Over the last 18 months, we have taken decisive action to improve the financial
returns from two of our assets that have underperformed - Kennecott Utah Copper
and the Iron Ore Company of Canada. However, the impact of our revised
assumptions about the future markets for these businesses has more than offset
the benefits from these improvements and has necessitated writing down the
carrying value of these assets. It should be emphasised that these impairment
charges, which are required to conform with UK accounting standards, are
non-cash in nature. Moreover, the market value of Rio Tinto is about three
times its net book value, underlining the world class quality of our assets.'
Outlook
Sir Robert said, 'With little sign of any improvement in Europe or Japan, the
performance of the US and Chinese economies in 2003 will be critical. The
Chinese economy is only twelve per cent of the size of that of the US and is too
small to lead the world out of recession. However, the same is not true in the
mining and metals industries. China already consumes more steel and more copper
than does the US.
'In 2002 China's demand for most commodities rose by ten per cent or more and
shows no sign of slowing. If it continues to grow at anything like its current
rate, it will begin to place pressure on the industry to keep up with the level
of demand. It is difficult to forecast the Chinese economy with confidence and
we have to recognise that if there were to be a sudden slowdown there, it could
have a marked adverse effect on our markets.
'At a global level we remain of the view that economic recovery is going to be a
slow process. The influence of China on our markets suggests, though, that the
mining and metals industries might move ahead of other sectors.'
COMMENTARY ON THE GROUP FINANCIAL RESULTS
Adjusted earnings of $1,530 million were $132 million below the corresponding
period of last year. The principal factors are shown in the table below.
US$m
2001 adjusted earnings 1,662
Prices (5)
Exchange rates (69)
Inflation (76)
Volumes 85
Costs 54
Absence of asset sales (54)
Other (67)
2002 adjusted earnings 1,530
Adjusted earnings exclude the exceptional charges which are described below.
Prices & exchange rates
Average gold prices were 14 per cent higher than 2001, but aluminium prices
averaged eight per cent lower. Average copper prices were slightly down but
there was a benefit from provisionally priced copper. Benchmark prices for iron
ore and seaborne thermal coal fell whilst North American coal prices improved
with market fundamentals as the California crisis in early 2001 flowed into
contract prices.
The negative variance due to exchange rate movements is principally as a result
of the Australian dollar being stronger relative to the US dollar.
Volumes
Higher volumes increased earnings by $85 million. Demand for iron ore was
extremely strong with Hamersley achieving record shipments and production from
the West Angelas mine beginning to ramp up. Diamond sales volumes were also
higher than 2001. There were lower gold volumes from the Group's interest in
Grasberg as a result of lower grades, particularly in the first half of the
year.
Costs
Excluding the effect of inflation, costs benefited earnings by $54 million.
Tax
Excluding exceptional items, the effective tax rate at 31.2 per cent was broadly
in line with last year.
Other
The Group's policy of having predominantly floating rate debt has allowed it to
benefit from lower prevailing interest rates. The interest charge on the
Group's debt in 2002 was $72 million lower than 2001 although the level of debt
has not changed significantly. This is more than offset by a negative variance
on pensions and other corporate items.
Exceptional charges
2002 exceptional charges of $879 million comprise provisions for the write down
of asset carrying values of $763 million and a charge relating to environmental
remediation works at Kennecott Utah Copper (KUC) of $116 million.
$480 million of the asset write-downs relates to KUC and $235 million relates to
the Iron Ore Company of Canada. Over the last 18 months, major changes have
been set in train to improve the cost performance and productivity of these
operations. However, the impact of revised assumptions about the future markets
for these businesses, particularly in relation to price, has necessitated
reductions in their carrying values. In the valuation used for measuring the
impairment of KUC, Rio Tinto has used a copper price rising to a peak of 82c/lb
in 2005 and declining in real terms thereafter.
The increase in the expected cost of environmental remediation results from a
significant change in the planned methodology for treatment of contaminated
groundwater in the vicinity of the Bingham Canyon mine. KUC has been
investigating this issue since before 1989, when Rio Tinto acquired the
business. The provision relates to costs that will be incurred over a number of
years.
The 2001 exceptional charge comprised provisions for the write-down of asset
carrying values.
Second half adjusted earnings
Second half adjusted earnings were $126 million above the first half earnings as
a result of increased sales with strong demand for iron ore, higher copper and
gold grades at Grasberg and the usual seasonality of titanium dioxide sales all
playing a part.
Cash flow
Cash from operating activities together with dividends from joint ventures and
associates totalled $3,743 million, an increase of ten per cent compared with
2001. Tight control of working capital was reflected in reductions in accounts
receivable and inventories totalling $243 million, which largely reverse
increases reported in 2001.
Net investment in property, plant and equipment of $1,417 million was at a
similar level to that in 2001. The major areas of expansionary investment in
2002 were the first instalment on the purchase of additional coal reserves at
North Jacobs Ranch, the Diavik diamond mine, the West Angelas iron ore mine, the
Hail Creek coking coal development and Comalco's alumina refinery. Further
information on major projects is given on pages 14 and 15.
Disposals of businesses net of acquisitions generated $127 million. This
largely related to units acquired with Peabody's Australian coal business in
2001, which the Group sold on as planned. In 2001, $659 million was invested in
acquisitions, net of the proceeds of disposals.
Purchases of other investments absorbed a further $323 million of cash. These
investments included $304 million of US treasury bonds held as security for the
deferred consideration on the North Jacobs Ranch reserves acquired during the
period, which is payable over the next four years.
Dividends paid were $145 million higher than 2001 as a result of the change in
policy for weighting of interim and final dividends announced in 2001.
Balance sheet
Shareholders' funds increased by $419 million to $7,462 million as a result of
an uplift of $579 million from exchange rate changes. Most important of these
was the strengthening of the Australian dollar by 11 per cent.
Net debt increased by $36 million to $5,747 million. The other investments of
$304 million, referred to above, generate interest income but are not deducted
in arriving at net debt. The ratio of net debt to total capital decreased from
42.1 per cent, at 31 December 2001, to 41.1 per cent at 31 December 2002. The
balance sheet remains strong with interest covered 13 times.
Dividends
A final dividend equivalent to 30.5 US cents per share has been declared by Rio
Tinto plc and Rio Tinto Limited. This together with the interim dividend of
29.5 US cents per share makes a total for the year of 60.0 US cents per share
(2001 59.0 US cents per share).
Dividends are determined in US dollars. Rio Tinto plc dividends are declared
and paid in pounds sterling and Rio Tinto Limited dividends are declared and
paid in Australian dollars, converted at exchange rates applicable on Tuesday,
28 January 2003. The interim and final dividends are summarised below.
2002 2001
Rio Tinto Group
Interim (US cents) 29.50 20.00
Final (US cents) 30.50 39.00
Total dividends (US cents) 60.00 59.00
Rio Tinto plc
Interim (pence) 18.87 14.03
Final (pence) 18.60 27.65
Total dividends (pence) 37.47 41.68
Rio Tinto Limited
Interim (Australian cents) 54.06 39.42
Final (Australian cents) 51.87 75.85
Total dividends (Australian cents) 105.93 115.27
The 2002 interim dividend was set as half of the total dividends for the
preceding year which has had the effect of increasing the interim component of
the total dividends. Interim and final dividends must therefore be considered
together to make a meaningful comparison of 2001 and 2002 dividends.
Rio Tinto Limited shareholders will be paid final dividends which will be fully
franked. The directors consider that there are sufficient franking credits
available for paying fully franked dividends for at least the next year.
The respective dividends will be paid on Monday, 7 April 2003 to Rio Tinto plc
shareholders on the register at close of business on Friday, 7 March 2003 and to
Rio Tinto Limited shareholders on the register at close of business on
Wednesday, 12 March 2003. The ex-dividend date for both Rio Tinto plc and Rio
Tinto Limited will be Wednesday, 5 March 2003. Dividends to Rio Tinto ADR
holders will be paid on Tuesday, 8 April 2003.
As usual, Rio Tinto will operate its Dividend Reinvestment Plan, details of
which can be obtained from the Company Secretaries' offices.
RIO TINTO FINANCIAL INFORMATION BY BUSINESS UNIT (1)
Rio Tinto Gross turnover EBITDA Net earnings
Interest 2002 2001 2002 2001 2002 2001
% US$m US$m US$m US$m US$m US$m
Iron Ore
Hamersley (incl HIsmelt(R)) 100.0 1,117 1,118 688 733 410 441
Robe River 53.0 240 193 160 127 54 45
Iron Ore Company of Canada 58.7 400 380 16 67 (6) 16
1,757 1,691 864 927 458 502
Energy
Kennecott Energy 100.0 949 882 260 223 86 84
Pacific Coal 100.0 417 362 236 201 136 117
Kaltim Prima Coal 50.0 216 212 79 101 26 42
Coal & Allied 75.7 623 647 207 255 68 102
Rossing 68.6 112 115 52 68 23 21
Energy Resources of Australia 68.4 113 90 50 38 12 7
2,430 2,308 884 886 351 373
Industrial Minerals 1,847 1,768 722 797 289 323
Aluminium - Comalco 100.0 1,454 1,499 504 598 256 313
Copper
Kennecott Utah Copper 100.0 755 675 223 271 78 81
Escondida 30.0 283 289 121 142 32 41
Freeport 16.5 306 296 139 128 19 4
Freeport Joint Venture 40.0 349 316 215 186 113 88
Palabora 49.2 201 233 54 66 13 14
Peak/Northparkes (d) 74 87 22 43 (1) 13
Other copper 148 145 78 64 36 10
Other metals (e) 240 251 24 43 - 11
2,356 2,292 876 943 290 262
Diamonds and Gold
Argyle 100.0 372 278 178 147 65 58
Diavik 60.0 - - - - -
Kennecott Minerals 100.0 205 196 93 83 38 33
Kelian 90.0 168 127 66 35 17 1
Brazil (f) 115 111 40 46 16 26
Other Diamonds & Gold 40 106 15 26 8 15
900 818 392 337 144 133
Exploration and evaluation (130) (130) (109) (104)
Net interest (95) (167)
Other items 84 62 (152) (50) (54) 27
Adjusted earnings 1,530 1,662
Exceptional charges (116) - (879) (583)
Total 10,828 10,438 3,844 4,308 651 1,079
Reconciliation of EBITDA
Profit on ordinary activities before 1,602 2,387
interest
Depreciation & amortisation in 954 929
subsidiaries
Asset write downs relating to subsidiaries & joint 955 701
ventures
Depreciation & amortisation in joint ventures & 333 291
associates
3,844 4,308
References above are to notes on page 24.
RIO TINTO FINANCIAL INFORMATION BY BUSINESS UNIT (2)
Rio Tinto Capital expenditure Depreciation Operating
assets
Interest 2002 2001 2002 2001 2002 2001
Restated
% US$m US$m US$m US$m US$m US$m
Iron Ore
Hamersley (incl HIsmelt(R)) 100.0 79 58 94 90 923 762
Robe River 53.0 81 203 50 37 1,409 1,221
Iron Ore Company of Canada 58.7 39 242 35 36 408 612
199 503 179 163 2,740 2,595
Energy
Kennecott Energy 100.0 152 54 128 110 454 439
Pacific Coal 100.0 126 20 37 31 406 275
Kaltim Prima Coal 50.0 5 4 21 22 46 59
Coal & Allied 75.7 58 31 69 44 626 786
Rossing 68.6 5 (1) 5 5 47 25
Energy Resources of Australia 68.4 4 2 23 22 140 165
350 110 283 234 1,719 1,749
Industrial Minerals 133 146 158 144 2,098 2,046
Aluminium - Comalco 100.0 261 99 132 117 2,353 1,893
Copper
Kennecott Utah Copper 100.0 97 115 129 167 1,135 1,838
Escondida 30.0 117 188 52 52 449 447
Freeport 16.5 23 25 50 54 128 109
Freeport Joint Venture 40.0 55 57 40 35 412 398
Palabora 49.2 64 83 13 21 282 207
Peak/Northparkes (d) 37 31 23 24 113 102
Other copper 17 13 39 36 202 155
Other metals (e) 14 13 16 18 133 150
424 525 362 407 2,854 3,406
Diamonds and Gold
Argyle 100.0 31 52 76 55 488 493
Diavik 60.0 206 182 - - 484 318
Kennecott Minerals 100.0 21 21 43 41 155 166
Kelian 90.0 2 4 32 31 20 50
Brazil (f) 14 22 11 11 91 119
Other Diamonds & Gold 4 9 4 7 94 118
278 290 166 145 1,332 1,264
Other items 13 3 7 10 113 (199)
Less joint ventures and associates (241) (271) (333) (291)
Total 1,417 1,405 954 929 13,209 12,754
Less: net debt (5,747) (5,711)
Net assets 7,462 7,043
References above are to notes on page 24.
2002 REVIEW OF OPERATIONS
COMPARISON OF ADJUSTED EARNINGS
Adjusted earnings of $1,530 million for 2002 were $132 million below the
adjusted earnings of 2001. The table below shows the difference by product
group. All financial amounts in the tables below are US$ millions unless
indicated otherwise.
$ m
2001 adjusted earnings 1,662
Iron Ore (44)
Energy (22)
Industrial Minerals (34)
Aluminium (57)
Copper 28
Diamonds and Gold 11
Exploration (5)
Other (9)
2002 adjusted earnings 1,530
IRON ORE
2002 2001 Change
Production (million tonnes) 90.1 89.9 -
Turnover 1,757 1,691 +4%
Earnings 458 502 -9%
EBITDA 864 927 -7%
Capital expenditure 199 503
Market
As in the first half of the year, Chinese demand for iron ore showed sustained
growth and imports for 2002 are expected to show an increase of around 20 per
cent over 2001. This, coupled with some recovery in the traditional markets of
Europe and the US and unexpected strength in Japan, made 2002 a record year for
global steel production and seaborne traded iron ore. Outside China, demand has
been strongest for fines rather than lump or pellets. Price reductions,
effective from April 2002, of 2.4 per cent for fines, 5.0 per cent for lump, 6.3
per cent for pellets and 3.0 per cent for concentrate were agreed with major
customers.
Hamersley Iron
Hamersley Iron's earnings of $410 million were $31 million below 2001 due mainly
to the effect of exchange rate movements and the unfavourable 2002 price
settlement. Shipments, including sales from the Channar Joint Venture, were
68.5 million tonnes, five per cent above 2001. A slow first quarter was
followed by strong shipments in the remainder of the year stretching port
operations and resulting in short term port congestion and increased demurrage
charges.
Production of 68.2 million tonnes was three per cent below last year. Hamersley
is over half way through a three year programme which will be completed next
year to deliver annual savings of $54 million. The focus remains on improving
the efficiency and safety of maintenance activities.
Robe and Hamersley continue to work together to realise synergies. The
Hamersley power grid was extended to include Robe's West Angelas mine and the
Pilbara Rail Company was formed on 1 April to integrate the networks of
Hamersley and Robe.
Iron ore shipments began under a joint venture agreement with Shanghai Baosteel
Group Corporation, further strengthening Hamersley's unrivalled contract
position in the otherwise predominantly spot Chinese market.
Robe River
Earnings of $54 million were $9 million above 2001. Increased volumes offset
the adverse effects of exchange rate movements and price settlement. Shipments
were 14 per cent higher than last year reflecting both strong demand for Mesa J
product in all markets, particularly Japan, and the first shipments from the new
West Angelas mine.
West Angelas Marra Mamba ore was successfully introduced into the market with
shipments to all the Japanese and Korean mills under contract and trial cargoes
to mills in China and Europe.
Iron Ore Company of Canada (IOC)
IOC reported a loss of $6 million compared with earnings of $16 million in 2001.
The outlook for the North American steel industry remains extremely uncertain.
All expansion plans, including the refurbishment of the Sept Iles pellet
plant, have been suspended until stability in the existing operations has been
achieved and market conditions improve.
Project Renewal, a major cost reduction and business improvement initiative
aimed at reducing annual costs by $65 million over the next two years remains on
track.
ENERGY
2002 2001 Change
Production Coal (million tonnes)
US 105.3 106.7 -1%
Australia & Indonesia 43.8 42.3 +4%
Uranium (tonnes) 4,995 4,705 +6%
Turnover 2,430 2,308 +5%
Earnings 351 373 -6%
EBITDA 884 886 -
Capital expenditure 350 110
US coal - Kennecott Energy
Earnings of $86 million were $2 million above 2001. A warmer than average
summer helped to reduce the excess coal inventories at power utilities following
a mild winter. Towards the end of the year, cooler than anticipated weather in
the eastern and southern United States coupled with warmer, drier weather in the
hydro reliant North West was experienced. If these conditions continue they
will prove favourable for coal demand.
Second half production from Cordero Rojo was affected by unusually heavy
rainfall in August and high wall instability issues. Costs were higher due to
the resulting coal shortages and increased contractor costs arising from efforts
to rebuild coal inventory.
Asia Pacific Coal - Markets
The increase in exports of thermal coal from China by over 50 per cent in 2001
had a major impact on spot prices in the early part of 2002 and influenced the
subsequent long-term contract negotiations resulting in reductions of six to ten
per cent effective from April 2002. Spot prices recovered somewhat in the
second half of 2002.
Conversely, hard coking coal prices in Japan rose by ten to twelve per cent.
Pacific Coal
Earnings of $136 million were $19 million above 2001. Sales from Blair Athol
increased 19 per cent compared with 2001 when sales were affected by port and
rail congestion in the third quarter and some fourth quarter sales were deferred
into 2002.
Production from Kestrel was 25 per cent higher with the resolution of longwall
reliability issues. Work continued on opening up the Ti-Tree area with project
completion expected in early 2004.
Kaltim Prima
Earnings of $26 million were $16 million below 2001. Higher shipments failed to
offset the effects of lower prices, the removal of Government fuel subsidies,
increased tax rates and higher stripping.
Coal & Allied
Earnings of $68 million were $34 million below 2001 due mainly to lower prices
and the stronger Australian dollar. Hunter Valley Operations (HVO) now has a
capacity of 14 million tonnes although production was reduced in the second half
to bring it into line with expected market demand.
The integration of Warkworth and Mount Thorley continues following the
completion of a combined mine plan and harmonisation of business processes.
Full operational integration requires joint venture and regulatory approval.
Rossing
Earnings of $23 million, including the benefit of lower taxes, were $2 million
higher than 2001. Earnings in 2003 will be affected by some higher priced long
term contracts coming to an end which were replaced with new long term contracts
at terms in line with market conditions.
Energy Resources of Australia
Earnings of $12 million were $5 million above last year as a result of higher
sales volumes.
INDUSTRIAL MINERALS
2002 2001 Change
Production Borates (000 tonnes) 528 564 -6%
Titanium dioxide (000 tonnes) 1,274 1,427 -11%
Salt (000 tonnes) 4,667 4,248 +10%
Talc (000 tonnes) 1,327 1,267 +5%
Turnover 1,847 1,768 +4%
Earnings 289 323 -11%
EBITDA 722 797 -9%
Capital expenditure 133 146
Rio Tinto Borax
Earnings from Rio Tinto Borax of $92 million were $10 million lower than 2001.
Production of borates was six per cent lower than 2001 despite boric acid
production increases of twelve per cent. Sales were slightly ahead of 2001
primarily due to increased sales in Asia Pacific, strong North American
construction activity, and a tightening of the boric acid market, partially
offset by continued perborate substitution. The cost reduction programmes
maintained their momentum but the effect on earnings was offset by reduced
pension credits reflecting lower investment returns and a higher effective tax
rate.
Rio Tinto Iron & Titanium (RIT)
Earnings of $157 million were $23 million below 2001. Although the result
benefited from a generally weaker rand on average compared with the previous
year, this was more than offset by exchange losses on US dollar receivables
caused by the strengthening of the rand from its low in late 2001.
Titanium dioxide pigment demand increased moderately year-on-year. The titanium
dioxide feedstock side of the industry, however, continued to be affected by the
oversupply of high grade feedstocks and persistent high feedstock inventory
levels at some pigment producers. Consequently, RIT shipments of titanium
dioxide feedstocks were lower due both to market conditions and the effect of
reduced pigment demand in 2001. Production at both QIT and RBM was curtailed
accordingly.
Demand for iron and steel co-products strengthened during the year, but market
conditions remain very competitive. Zircon markets were resilient for most of
2002.
RIT reached an out of court settlement in 2002 concerning intellectual property
legal proceedings. As part of the agreement, RIT will receive $15 million.
Luzenac
Earnings were $15 million. Luzenac's production in 2002 was five per cent
higher than 2001 at 1.33 million tonnes, with the increase attributable to
production from the Three Springs mine in Australia, acquired in September 2001.
Sales volumes declined in Europe but revenues were maintained year on year, due
to a favourable sales mix, with particular strength noted in coatings following
customer re-formulations. The North American markets were impacted by weak
economic conditions in the traditional paper and pulp markets, but a sustained
recovery occurred in other applications, notably in polymers and coatings. The
Three Springs mine supported increased Asian sales. New cost reduction
programmes helped offset the impact on earnings of weaker demand and costs
associated with some mine and plant closures.
Dampier
Earnings were $25 million. Production levels at Dampier, Lake MacLeod and Port
Hedland benefited from favourable salt growing conditions throughout 2002.
Total production for 2002 was 7.2 million tonnes (Rio Tinto 4.7 million tonnes)
which was 0.6 million tonnes higher than in 2001.
ALUMINIUM - COMALCO
2002 2001 Change
Production Bauxite (000 tonnes) 11,724 11,795 -
Alumina (000 tonnes) 1,947 1,761 +11%
Aluminium (000 tonnes) 724.4 694.6 +4%
Turnover 1,454 1,499 -3%
Earnings 256 313 -18%
EBITDA 504 598 -16%
Capital expenditure 261 99
Aluminium price and exchange rate
The average aluminium price in 2002 was 61c/lb, 5c/lb below the average price in
2001. The effect of this and other price changes was to reduce Comalco's
earnings by $44 million. With costs predominantly in Australian dollars, the
weakening of the US dollar further reduced margins.
Bauxite
Full year production was in line with 2001 although shipments were slightly
lower reflecting a stagnant traded bauxite market.
Alumina
Comalco's share of traded alumina production was 11 per cent above last year
following the acquisition of a further 8.3 per cent in Queensland Alumina (QAL)
in September 2001. QAL production was close to record levels, although
disruption of the power supply affected production towards the end of the year
Aluminium
Demand for value added products strengthened, with a shortage of billet being a
feature of the market in the latter part of 2002. Sales have been reallocated
to those markets supporting higher billet premia.
Comalco's share of aluminium production was four per cent higher than the
previous year. First half production at Bell Bay was affected by voluntary
power reductions but full load has been available throughout the second half.
Power restrictions continued to affect production in New Zealand. However,
conditions have improved and additional power was available in the last quarter.
The acquisition of an additional 9.5 per cent of lines 1 and 2 of the Boyne
Island aluminium smelter was completed in July 2002.
At Gladstone in Australia, drought conditions resulted in water restrictions and
all Comalco related operations in the region achieved a 25 per cent cutback in
water use.
COPPER
2002 2001 Change
Production Mined copper (000 tonnes) 887 904 -2%
Refined copper (000 tonnes) 417 361 +15%
Mined gold (000 oz) 1,868 2,342 -20%
Turnover 2,356 2,292 +3%
Earnings 290 262 +11%
EBITDA 876 943 -7%
Capital expenditure 424 525
Copper and gold prices
The average copper price of 71c/lb was one per cent below the average during
2001. The average gold price of $309/oz was 14 per cent higher.
Kennecott Utah Copper (KUC)
Earnings of $78 million were $3 million below 2001. Mined copper production of
260,200 tonnes was 52,500 tonnes below 2001 following the closure of the North
Concentrator from June 2001. The ore processed in 2002 was also harder and
lower grade than 2001. Gold and molybdenum grades fell towards the end of 2002
and, as previously announced, are expected to be significantly lower in 2003
before returning to more normal levels by 2005.
Refined copper production of 293,700 tonnes was 59,400 tonnes above last year as
the smelter achieved record production levels. The outsourcing of maintenance
assisted in this improvement. Having reached an impasse on negotiations for a
new labour agreement, KUC began implementing the company's final offer which
contains a significant number of work practice changes, on 1 October 2002.
The process of negotiation is now subject to mediation.
Escondida
Earnings of $32 million were $9 million below 2001. Escondida has constrained
production throughout 2002 as a result of weak market demand and has announced
that it will continue to operate below its expanded capacity for at least the
first half of 2003. Total copper production was consequently down four per cent
on 2001.
Freeport and Freeport Joint Venture
Earnings of $132 million were $40 million above 2001. Total copper production
at Grasberg, benefiting from higher grades and mill throughput, was up 15 per
cent. Lower grades, particularly in the first half of the year, resulted in
total gold production that was 16 per cent down.
Palabora
Earnings of $13 million were $1 million below 2001. The positive effect of the
weaker rand was more than offset by lower volumes and higher costs as the
operation moved from the open pit to the underground. Open pit operations
ceased in April 2002 and since then stockpiled and imported ore has been
supplementing ore from the underground mine as it ramps up.
Peak/Northparkes
Peak/Northparkes made a net loss of $1 million compared with earnings of $13
million in 2001. At Northparkes, the ore grade into the mill was about 25 per
cent lower than last year. Underground ore was supplemented with lower grade
(and higher cost) open pit ore. Grades are likely to be lower by a further 20
per cent in 2003. The transition to Lift 2 will continue through 2004 and 2005
when grades will improve.
Other copper operations
Whilst the stronger gold price, higher recoveries and the commissioning of the
third grinding line resulted in higher earnings from Alumbrera, the lower copper
price and stronger euro adversely affected the result of Somincor, albeit
partially offset by cost improvements. Alumbrera's earnings include a positive
tax effect related to exchange losses on the peso equivalent of US dollar
project debt.
Other metals
Zinkgruvan and Rio Tinto Aluminium were affected by lower zinc and aluminium
prices respectively.
DIAMONDS & GOLD
2002 2001 Change
Production Mined gold (000 oz) 1,267 1,235 +3%
Diamonds (000 cts) 33,620 26,100 +29%
Turnover 900 818 +10%
Earnings 144 133 +8%
EBITDA 392 337 +16%
Capital expenditure 278 290
Argyle
Earnings of $65 million were $7 million above 2001. Sales were held back in the
final quarter of 2001 as the diamond industry as a whole anticipated a sharp
decline post-September 11. This contraction did not materialise and so the
early part of 2002 saw restocking of the diamond pipeline. With half of all
retail jewellery sales being in the United States, improved diamond demand is
highly dependent on improvement in the North American economy.
Kennecott Minerals
Earnings of $38 million were $5 million above 2001, benefiting from higher gold
prices. Production of gold was down seven per cent reflecting lower grades at
Cortez. Ore throughput at Greens Creek was up 11%. Rawhide ceased mining in
August but continues to recover gold and silver from the heap leach operations.
Kelian
Earnings of $17 million were $16 million above 2001. Production of gold was 19
per cent above 2001 as higher grades combined with higher throughput. Sales of
silver were resumed in the first half of 2002 following the resolution of a tax
issue.
Rio Tinto Brasil
Earnings of $16 million were $10 million below 2001. Underground mining
operations at Fortaleza were suspended between June and September as a result of
working through problems arising from poor mining conditions. Consequently
nickel production was down 38 per cent. This also had an effect on costs as the
smelter and refinery processed lower grade ore. The results in 2001 were
boosted by profits on the sale of two small coal deposits.
Other operations
Efforts at Rio Tinto Zimbabwe continue to focus on controlling costs in a high
inflationary environment. Gold produced from Lihir was six per cent lower than
2001 due to lower grades.
EXPLORATION
2002 2001 Change
Post tax expenditure ($ million) 109 104 +5%
Exploration in 2002 focused on advancing the most promising targets on a range
of grass roots generative, drill testing stage and near mine programmes. Good
results were obtained from a number of locations.
In the US, drilling at the Resolution project in Arizona continued to delineate
strong copper and molybdenum porphyry style mineralisation at depth adjacent to
the historical Magma mine.
At Marcona in Peru, significant oxide and sulphide copper ore was discovered in
close proximity to the Shougang Hierro iron ore mine.
A sizeable body of gold mineralisation was encountered at Dashkasan, near
Hamadan in Iran. Investigations including metallurgical test work continued.
Extensions to the previously discovered gold mineralisation at Copler in Turkey
were intersected by drilling and studies are underway on various engineering
aspects to determine economic viability.
The potential of the high grade iron ore resources at Simandou in Guinea was
confirmed at more than one billion tonnes. A convention that covers the
conditions attached to the future possible development of the deposit was signed
with the Government of Guinea.
Closely spaced drilling was undertaken at the La Sampala nickel laterite
resource in Indonesia to test continuity and confirm grade.
In Mozambique, substantial deposits of titanium bearing heavy mineral sands were
discovered. Results suggest a potential resource of 120 million tonnes of
contained ilmenite. The deposits occur near to the coast, are amenable to
conventional dredging methods and have a low slimes content.
Diamond exploration continued in Canada, Southern Africa, West Africa, Brazil
and India. New diamond bearing kimberlite pipes were discovered in a number of
locations and follow up test work is planned to gauge economic potential.
The exploration group was active in the search for industrial mineral deposits
around the world including in North and South America and Europe.
The exploration group continued to support brownfield work at several Rio Tinto
operations. Exploration of the sub-surface extensions of the Argyle diamond
deposit continued. In the USA and Argentina programmes were conducted near the
Boron and Tincalayu mines. In Indonesia exploration in and around the Grasberg
mine led to the addition of further copper reserves.
BROWNFIELD DEVELOPMENTS
The scale and quality of Rio Tinto's asset portfolio offers the opportunity to
raise production from current mines and associated infrastructure to meet market
demand. Rio Tinto currently has a number of brownfield developments under way
and is evaluating the expansion of other operations.
The following major projects are actually in construction or were completed in
2002.
Project Estimated Cost Status/Milestones
(100%)
Iron Ore - West Angelas mine (Rio Tinto 53%). $450 m The mine was completed on time, on budget and
Development of a new mine in Western Australia with with an outstanding safety record. Production
a capacity of 20 million tonnes per annum. began in April and shipments in July.
Iron Ore - Eastern Range mine (Rio Tinto 54%). $64 m First shipments are expected in the first half
Development of a new mine with a capacity of 10 of 2004.
million tonnes per annum. The mine will service a
joint venture formed between Hamersley and Shanghai
Baosteel Group Corporation.
Copper - Palabora Underground. 30,000 tonnes of ore $437 m The production ramp up is currently constrained
per day block caving operation. by the availability of secondary rock breaking
equipment. Output of 30,000 tonnes per day will
not be reached until the second half of 2003.
Copper - Escondida Phase 4. A new 110,000 tonnes of $1,045 m The project had reached mechanical completion by
ore per day copper concentrator facility. the end of September and entered the
commissioning phase. Completion is expected on
or under budget.
Copper - Freeport Deep Ore Zone Expansion project. $243 m The mine was declared fully operational from 1
Development of a new 25,000 tonne per day block cave October and operated above design capacity in
mine. November. Completion was within budget and well
within the original schedule.
Copper - Northparkes Lift 2 Expansion project. New $76 m Variable ground conditions and higher than
15,000 tonne of ore per day block cave mine expected rock stress have caused delays as
approximately 400 metres below the existing additional ground support has been necessary to
underground operation. ensure the safety of construction crews. The
cost effect of the delay is under review.
GREENFIELD DEVELOPMENTS
Rio Tinto has a number of high quality greenfield projects under construction.
These projects represent a significant increase in the Group's exposure to
several commodities. The Comalco alumina project will make Rio Tinto a major
player in the traded alumina market. Hail Creek, together with the opening up
of the Ti Tree area at Kestrel, will make Rio Tinto a significant supplier of
hard coking coal. The Diavik mine will approximately double the revenue from
the Group's diamond production. In April 2002 the Group committed to the
construction of a commercial size HIsmelt(R) plant. This technology has the
potential to significantly change the steel making process and to increase the
value of Rio Tinto's Pilbara ore reserves.
Project Estimated Cost Status/Milestones
(100%)
Aluminium - Comalco's alumina refinery. $750 m Structural steel is being erected and the first
Construction in Queensland of a greenfield alumina piles have also been driven for the wharf jetty.
refinery with initial annual capacity of 1.4 Engineering is 64% complete. The definitive
million tonnes but with options to expand to 4.2 estimate of construction cost has been prepared
million tonnes. and is currently under review. First shipments
planned for early 2005
Energy - Hail Creek (Rio Tinto 92%). Coking coal $255 m The project is over 40% complete. The scope has
mine in Queensland with a capacity of 5 million been expanded to include the purchase of mining
tonnes per year. equipment following the decision to own/operate
rather than contract out various mining
activities.
Diamonds - Diavik (Rio Tinto 60%) in the North $900 m Water removal from the dyke was completed by
West Territories of Canada with average annual mid-September. The plant began processing ore
production of about six million carats. during the last week in November and
participants received their first diamonds in
January 2003. The project will be completed
early and within budget.
Iron Ore - HIsmelt(R) direct iron smelting $200 m A joint venture was created between Rio Tinto
technology. The project has the potential to alter (60%), Nucor Corporation (25%) Mitsubishi
steel making technology worldwide. Corporation (10%) and Shougang Corporation (5%)
to construct an 800,000 tonne capacity plant at
Kwinana Western Australia.
Other - Project Sunrise. Development for mixed use Initial cash Land sales are planned to start in 2004 and ramp
of a 4,100 acre area of land near Salt Lake City, requirement of up over a period of 5-6 years.
Utah $ 50 m
ACQUISITIONS
In January 2002, Kennecott Energy (KEC) purchased the North Jacobs Ranch coal
reserves for $380 million, payable in instalments over a five year period. The
reserves are adjacent to KEC's existing Jacobs Ranch operation and provide a
basis for a low cost expansion in line with market demand.
In July, Comalco completed the acquisition of an additional 9.5 per cent
interest in reduction lines 1 and 2 of the Boyne Island aluminium smelter for
$78 million. This increased Comalco's share in lines 1 and 2 of this world
class, low cost smelter from 50.0 per cent to 59.5 per cent. The interest in
line 3 remains unchanged at 59.25 per cent.
An additional 3 per cent interest in Coal & Allied Industries Limited was
purchased in September 2002 for $29 million.
Rio Tinto's interest in Iron Ore Company of Canada increased from 56.1 per cent
to 58.7 per cent following a capital restructuring of that company in December
2002.
DIVESTMENTS
During the first half of 2002, Coal & Allied completed the sale of its interests
in Narama and Ravensworth for $64 million and its 55 per cent interest in the
Moura Joint Venture for $166 million. These were classified as assets held for
resale and consequently their disposal had no effect on net earnings.
Under its 1982 Coal Agreement with the Indonesian Government, PT Kaltim Prima
Coal (KPC), in which Rio Tinto has a 50 per cent interest, is required to offer
up to 51 per cent of its shares to Indonesian participants. The current offer
process was delayed during 2002 by attachment orders over KPC's shares granted
by the District Court of South Jakarta. The legal action giving rise to the
attachment orders has since been withdrawn and the offer is now proceeding under
a formal agreement (The Framework Agreement) entered into between the Government
of Indonesia and KPC on 5 August 2002.
Two companies owned by regional governments in East Kalimantan took action in
November in the District Court of Samarinda in East Kalimantan to have the
Framework Agreement declared invalid. Both the Government of Indonesia and KPC
are now seeking to have this declaration overturned.
In January 2003 Rio Tinto announced that it had signed a non binding letter of
intent under which it acknowledged its intention to sell its 25 per cent
interest in Alumbrera together with its wholly owned Peak Gold Mines to Wheaton
River Minerals (WRM) for consideration of $210 million. The transaction is
subject to WRM and Rio Tinto reaching agreement on all terms and entering into a
definitive agreement. Completion will be subject to a number of conditions.
PRICE AND EXCHANGE SENSITIVITIES
The following sensitivities give the estimated effect on net earnings assuming
that the price or exchange rate moved in isolation. The relationship between
currencies and commodity prices is a complex one and movements in exchange rates
can cause movements in commodity prices and vice versa. The exchange rate
sensitivities quoted below include the effect on operating costs of movements in
exchange rates but exclude the effect due to the revaluation of foreign currency
working capital. They should therefore be used with care.
Estimated effect on Rio Tinto's full year net earnings of:
Change in full year US$m
average
Copper +/- 7c/lb 95
Gold +/-$31/oz 55
Aluminium +/- 6c/lb 75
Australian dollar +/- 5USc 115
South African rand +/- 1 rand 15
For further information, please contact:
LONDON AUSTRALIA
Media Relations Media Relations
Hugh Leggatt Ian Head
+ 44 (0) 20 7753 2273 +61 (0) 3 9283 3620
Investor Relations Investor Relations
Peter Cunningham Dave Skinner
+ 44 (0) 20 7753 2401 +61 (0) 3 9283 3628
Richard Brimelow Daphne Morros
+ 44 (0) 20 7753 2326 +61 (0) 3 9283 3639
Website: www.riotinto.com
Profit and loss account
Years ended 31 December
2002 2001 2002 2001 2002 2001
A$m A$m £m £m US$m US$m
19,945 20,187 7,219 7,249 Gross turnover (including share of 10,828 10,438
joint ventures and associates)
(3,061) (3,118) (1,108) (1,119) Share of joint ventures' turnover (1,662) (1,612)
(1,332) (1,304) (482) (468) Share of associates' turnover (723) (674)
15,552 15,765 5,629 5,662 Consolidated turnover 8,443 8,152
Net operating costs (including exceptional charges
(14,021) (12,745) (5,075) (4,576) of US$1,078 million; 2001: US$715 million) (7,612) (6,590)
1,531 3,020 554 1,086 Group operating profit 831 1,562
Share of operating profit of joint ventures
(including
980 1,071 355 385 exceptional charges of US$16 million) 532 554
440 420 159 151 Share of operating profit of associates 239 217
- 104 - 38 Profit on disposal of interest in joint venture - 54
2,951 4,615 1,068 1,660 Profit on ordinary activities before interest 1,602 2,387
(437) (671) (158) (241) Net interest payable (237) (347)
(99) (110) (36) (40) Amortisation of discount related to provisions (54) (57)
2,415 3,834 874 1,379 Profit on ordinary activities before taxation 1,311 1,983
Taxation (including relief on exceptional charges
(1,304) (1,389) (472) (499) of US$42 million; 2001: US$132 million) (708) (718)
1,111 2,445 402 880 Profit on ordinary activities after taxation 603 1,265
Attributable to outside shareholders (equity)
88 (360) 32 (129) (including exceptional charges of US$173 million) 48 (186)
1,199 2,085 434 751 Profit for the financial year (net earnings) 651 1,079
(1,521) (1,570) (551) (564) Dividends to shareholders (826) (812)
(322) 515 (117) 187 Retained (loss)/profit for the financial year (175) 267
87.1c 151.6c 31.5p 54.6p Earnings per ordinary share 47.3c 78.5c
204.7c 233.6c 74.1p 84.1p Adjusted earnings per ordinary share (d) 111.2c 120.9c
Dividends per share
37.47p 41.68p - Rio Tinto plc 60.0c 59.0c
105.93c 115.27c - Rio Tinto Limited 60.0c 59.0c
(a) Diluted earnings per share figures are US 0.1 cents (2001: US 0.2 cents)
lower than the earnings per share figures above.
(b) For the purpose of calculating earnings and adjusted earnings per share, the
weighted average number of Rio Tinto plc and Rio Tinto Limited shares
outstanding during the period was 1,376.5 million, being the average number of
Rio Tinto plc shares outstanding (1,065.2 million) plus the average number of
Rio Tinto Limited shares outstanding not held by Rio Tinto plc (311.3 million).
(c) The results for both years relate wholly to continuing operations.
(d) The profit for the financial year is stated after exceptional charges; these
are added back in the table below to arrive at adjusted earnings:
2002 2001 2002 2001 2002 2001
A$m A$m £m £m US$m US$m
1,199 2,085 434 751 Profit for the financial year (net earnings) 651 1,079
Exceptional charges impact on the above profit
and loss account as follows:
(1,801) (1,383) (652) (497) Asset write downs (978) (715)
(214) - (77) - Environmental remediation charge (116) -
77 255 28 92 Taxation 42 132
319 - 115 - Attributable to outside shareholders (equity) 173 -
(1,619) (1,128) (586) (405) Net exceptional charge (879) (583)
2,818 3,213 1,020 1,156 Adjusted earnings 1,530 1,662
Cash Flow Statement
Years ended 31 December
2002 2001 2002 2001 2002 2001
A$m A$m £m £m US$m US$m
5,774 5,350 2,090 1,922 Cash flow from operating activities (see below) 3,134 2,767
1,122 1,253 406 450 Dividends from joint ventures and associates 609 648
6,896 6,603 2,496 2,372 Total cash flow from operations 3,743 3,415
(339) (524) (123) (188) Net interest paid (184) (271)
(216) (153) (78) (55) Dividends paid to outside shareholders (117) (79)
(555) (677) (201) (243) Returns on investment and servicing of finance (301) (350)
(1,330) (1,189) (481) (427) Taxation (722) (615)
(2,387) (2,613) (864) (938) Purchase of property, plant and equipment (1,296) (1,351)
Funding of Group share of joint ventures' &
(252) (153) (91) (55) associates' capital expenditure (137) (79)
(11) 25 (4) 9 Other funding of joint ventures & associates (6) 13
(228) (255) (83) (92) Exploration and evaluation expenditure (124) (132)
29 48 11 17 Sale of property, plant and equipment 16 25
(595) (104) (215) (38) Purchases less sales of other investments (323) (54)
(3,444) (3,052) (1,246) (1,097) Capital expenditure and financial investment (1,870) (1,578)
Purchase of subsidiaries, joint arrangements,
(195) (1,853) (71) (665) joint ventures & associates (106) (958)
429 578 155 208 Sale of subsidiaries, joint ventures & associates 233 299
234 (1,275) 84 (457) Acquisitions less disposals 127 (659)
(1,746) (1,553) (632) (558) Equity dividends paid to Rio Tinto shareholders (948) (803)
Cash inflow/(outflow) before management of
55 (1,143) 20 (410) liquid resources and financing 29 (590)
392 (35) 142 (13) Net cash inflow/(outflow) from management of liquid 213 (18)
resources
68 14 25 5 Ordinary shares issued for cash 37 7
(753) 1,240 (273) 445 Loans (repaid) less received (409) 641
(293) 1,219 (106) 437 Management of liquid resources and financing (159) 630
(238) 76 (86) 27 (Decrease)/increase in cash (130) 40
Cash flow from operating activities
1,531 3,020 554 1,086 Group operating profit from continuing activities 831 1,562
1,986 1,383 719 497 Exceptional charges 1,078 715
3,517 4,403 1,273 1,583 1,909 2,277
1,757 1,797 636 645 Depreciation and amortisation 954 929
239 251 87 90 Exploration and evaluation charged against profit 130 130
107 193 39 69 Provisions 58 100
(217) (286) (79) (103) Utilisation of provisions (118) (148)
157 (439) 57 (158) Change in inventories 85 (227)
291 (244) 105 (88) Change in accounts receivable and prepayments 158 (126)
(105) (93) (38) (33) Change in accounts payable and accruals (57) (48)
28 (232) 10 (83) Other items 15 (120)
5,774 5,350 2,090 1,922 Cash flow from operating activities 3,134 2,767
(a) Net debt at 31 December 2002 of US$5,747 million compares with US$5,711
million at 31 December 2001. The increase of US$36 million comprises the cash
inflow before management of liquid resources and financing of US$29 million
offset by other items of US$65 million including the effect of exchange rate
movements.
(b) 'Purchases less sales of other investments' for the year includes US$304
million relating to US treasury bonds. These investments were purchased to be
held as security for the deferred consideration on assets acquired during the
period, which is payable over the next four years. For this reason they are not
regarded as liquid resources.
Balance Sheet
At 31 December
2002 2001 2002 2001 2002 2001
Restated Restated Restated
A$m A$m £m £m US$m US$m
Intangible fixed assets
1,791 1,998 633 704 Goodwill 1,015 1,022
101 108 36 38 Exploration and evaluation 57 55
1,892 2,106 669 742 1,072 1,077
Tangible fixed assets
21,503 22,506 7,600 7,934 Property, plant and equipment 12,183 11,512
Investments
5,487 5,490 1,939 1,935 Share of gross assets of joint ventures 3,109 2,808
(2,097) (2,199) (741) (775) Share of gross liabilities of joint ventures (1,188) (1,125)
3,390 3,291 1,198 1,160 1,921 1,683
1,158 1,187 409 418 Investments in associates/other investments 656 607
4,548 4,478 1,607 1,578 Total investments 2,577 2,290
27,943 29,090 9,876 10,254 Total fixed assets 15,832 14,879
Current assets
2,651 2,897 937 1,021 Inventories 1,502 1,482
Accounts receivable and prepayments
2,820 3,546 997 1,250 Falling due within one year 1,598 1,814
1,131 1,320 400 465 Falling due after more than one year 641 675
3,951 4,866 1,397 1,715 Total accounts receivable 2,239 2,489
540 22 191 8 Investments 306 11
574 1,327 203 468 Cash at bank and in hand 325 679
7,716 9,112 2,728 3,212 Total current assets 4,372 4,661
Current liabilities
(5,941) (7,497) (2,100) (2,643) Short term borrowings (3,366) (3,835)
(3,484) (3,859) (1,231) (1,360) Accounts payable and accruals (1,974) (1,974)
(9,425) (11,356) (3,331) (4,003) Total current liabilities (5,340) (5,809)
(1,709) (2,244) (603) (791) Net current liabilities (968) (1,148)
26,234 26,846 9,273 9,463 Total assets less current liabilities 14,864 13,731
Liabilities due after one year
(4,780) (5,017) (1,689) (1,768) Medium and long term borrowings (2,708) (2,566)
(537) (198) (190) (70) Accounts payable and accruals (304) (101)
(6,375) (6,244) (2,253) (2,201) Provisions for liabilities and charges (3,612) (3,194)
(1,373) (1,617) (485) (571) Outside shareholders' interests (equity) (778) (827)
13,169 13,770 4,656 4,853 7,462 7,043
Capital and reserves
Share capital
272 301 96 106 - Rio Tinto plc 154 154
1,440 1,431 509 504 - Rio Tinto Limited (excl. Rio Tinto plc interest)816 732
2,842 3,128 1,004 1,103 Share premium account 1,610 1,600
535 575 189 203 Other reserves 303 294
8,080 8,335 2,858 2,937 Profit and loss account 4,579 4,263
13,169 13,770 4,656 4,853 Equity shareholders' funds 7,462 7,043
(a) At 31 December 2002, Rio Tinto plc had 1,065.5 million ordinary shares in
issue and Rio Tinto Limited had 311.4 million shares in issue, excluding those
held by Rio Tinto plc.
(b) In accordance with Financial Reporting Standard 4, the commercial paper of
$1,749 million is classified as short term borrowings though it is backed by
medium term facilities. Under US and Australian GAAP, this amount would be
grouped within non-current borrowings.
(c) The balance sheet at 31 December 2001 has been restated following the
implementation of FRS 19 'Deferred Tax', which has reduced shareholders' funds
by US$133 million. The restatement also included an increase in deferred tax
provisions of US$57 million, an increase in investments in associates of US$10
million and a reduction of US$86 million in property, plant and equipment.
(d) Current asset investments include US$304 million relating to US treasury
bonds, which are held as security for the deferred consideration on assets
acquired during 2002.
Reconciliation with Australian GAAP
At 31 December
2002 2001 2002 2001 2002 2001
Restated Restated Restated
A$m A$m £m £m US$m US$m
2,818 3,213 1,020 1,156 Adjusted earnings reported under UK GAAP 1,530 1,662
(1,619) (1,128) (586) (405) Exceptional charges (879) (583)
1,199 2,085 434 751 Net earnings under UK GAAP 651 1,079
Increase/(decrease) net of tax in respect of:
(308) (327) (111) (117) Goodwill amortisation (167) (169)
(35) - (13) - Asset write downs (19) -
(24) 6 (9) 2 Taxation (13) 3
6 (12) 2 (7) Other 3 (7)
838 1,752 303 629 Net profit attributable to members-Australian 455 906
GAAP
60.9c 127.4c 22.0p 45.7p Earnings per ordinary share under Australian 33.1c 65.9c
GAAP
Diluted earnings per share under Australian GAAP are US 0.1 cents (2001: US 0.1
cents) less than the above earnings per share figures.
Net earnings under UK GAAP are stated after exceptional charges of US$879
million relating to asset write downs and environmental remediation. In 2001
there was an exceptional charge for asset write downs of US$583 million. Under
Australian GAAP, these items total US$898 million (2001: US$583 million).
However, the concept of Adjusted earnings does not exist under Australian GAAP.
13,169 13,770 4,656 4,853 Shareholders' funds under UK GAAP (as restated) 7,462 7,043
Increase/(decrease) net of tax in respect of:
1,843 2,399 651 846 Goodwill 1,044 1,227
131 169 46 60 Taxation 74 87
(41) (43) (14) (15) Other (23) (22)
15,102 16,295 5,339 5,744 Shareholders' funds under Australian GAAP 8,557 8,335
The Group's financial statements have been prepared in accordance with generally
accepted accounting principles in the United Kingdom (UK GAAP), which differ in
certain respects from generally accepted accounting principles in Australia
(Australian GAAP). These differences relate principally to the following items,
and the effect of each of the adjustments to net earnings and shareholders'
funds that would be required under Australian GAAP is set out above.
Goodwill
For 1997 and prior years, UK GAAP permitted the write off of purchased goodwill
on acquisition directly against reserves. Under Australian GAAP, goodwill is
capitalised and amortised by charges against income over the period during which
it is expected to be of benefit, subject to a maximum of 20 years. Goodwill
previously written off directly to reserves in the UK GAAP accounts has been
reinstated and amortised for the purpose of the reconciliation statements. For
acquisitions in 1998 and subsequent years, goodwill is capitalised under UK
GAAP, in accordance with FRS 10. Adjustments are required for Australian GAAP
purposes where such capitalised goodwill is amortised over periods exceeding 20
years in the UK GAAP accounts.
Taxation
Rio Tinto has implemented FRS 19, the new UK Accounting Standard on deferred
tax. This has resulted in a prior year adjustment under UK GAAP, which reduced
shareholders' funds at 1 January 2001 by US$133 million. Of this amount, US$46
million results from the requirment under FRS 19 to provide in full for deferred
taxation on most timing differences. These additional provisions were already
recognised under Australian GAAP.
The remaining US$87 million of the prior year adjustment relates to features of
FRS 19 that give rise to new variations from Australian GAAP. Accordingly, this
element of the prior year adjustment has been reversed in arriving at Australian
GAAP shareholders' funds.
These variations, which also affect the determination of earnings under
Australian GAAP, relate principally to the following:
(a) Under FRS 19, provision for the taxes arising on remittances of earnings can
only be made if the dividends have been accrued or if there is a binding
agreement for the distribution of the earnings. Under Australian GAAP,
provision must be made for tax arising on expected future remittances of past
earnings.
(b) Under FRS 19, tax benefits associated with goodwill charged directly to
reserves, in 1997 and previous years, must be accumulated in the deferred tax
provision. This means that the tax benefits are not included in earnings until
the related goodwill is charged through the profit and loss account on disposal
or closure. For Australian GAAP, no provision is required for such deferred tax
because the goodwill that gave rise to these tax benefits was capitalised and
gives rise to amortisation charges against profit.
Asset write downs
Under Australian GAAP, asset write downs are US$19 million higher because the
relevant carrying values include goodwill that was eliminated directly against
reserves in the year of acquisition for UK GAAP purposes.
Reconciliation of Movements in Shareholders' Funds
2002 2001 2002 2001 2002 2001
Restated Restated Restated
A$m A$m £m £m US$m US$m
1,199 2,085 434 751 Profit for the financial year 651 1,079
(1,521) (1,570) (551) (564) Dividends (826) (812)
(322) 515 (117) 187 (175) 267
(308) 248 (90) (167) Adjustment on currency translation 579 (449)
29 27 10 9 Share capital issued less repurchased 15 14
(601) 790 (197) 29 419 (168)
13,770 12,980 4,853 4,824 Opening shareholders' funds as restated (a) 7,043 7,211
13,169 13,770 4,656 4,853 Closing shareholders' funds 7,462 7,043
(a) Shareholders' funds at 1 January 2002 were originally US$7,176 million
before deducting the prior year adjustment of US$133 million.
Prima Facie Tax Reconciliation
2002 2001 2002 2001 2002 2001
A$m A$m £m £m US$m US$m
2,415 3,834 874 1,379 Profit on ordinary activities before taxation 1,311 1,983
724 1,151 262 413 Prima facie tax payable at UK and Australian rate 393 595
of 30%
604 414 219 149 Impact of exceptional charges 328 214
Other permanent differences
103 184 37 66 Other tax rates applicable outside the UK and 56 95
Australia
(107) (101) (39) (36) Resource depletion and other depreciation (58) (52)
allowances
94 101 34 36 Permanently disallowed amortisation/depreciation 51 52
(13) (25) (5) (9) Research, development and other investment (7) (13)
allowances
44 (111) 16 (39) Other 24 (57)
121 48 43 18 66 25
Other deferral of taxation
(166) (253) (60) (91) Capital allowances in excess of other depreciation (90) (131)
charges
41 33 15 12 Other timing differences 21 17
(125) (220) (45) (79) Total timing differences related to the current (69) (114)
period
1,324 1,393 479 501 Current taxation charge for the period 718 720
50 (35) 18 (13) Deferred tax recognised on timing differences 27 (18)
(26) - (9) - Deferred tax impact of changes in tax rates (14) -
(44) 31 (16) 11 Other deferred tax items (23) 16
1,304 1,389 472 499 Total taxation charge for the year 708 718
Exploration and Evaluation
2002 2001 2002 2001 2002 2001
A$m A$m £m £m US$m US$m
At cost less amounts written off
1,325 1,413 467 525 At 1 January 678 785
(83) 38 (28) (13) Adjustment on currency translation 25 (42)
228 255 83 92 Expenditure in the year 124 132
(92) (89) (34) (32) Charged against profit for the year (50) (46)
(153) (292) (55) (105) Disposals, transfers and other movements (83) (151)
1,225 1,325 433 467 At 31 December 694 678
Provision
(1,217) (1,111) (429) (413) At 1 January (623) (617)
78 (29) 26 11 Adjustment on currency translation (22) 34
(147) (162) (53) (58) Charged against profit for the year (80) (84)
162 85 59 31 Disposals, transfers and other movements 88 44
(1,124) (1,217) (397) (429) At 31 December (637) (623)
101 108 36 38 Net balance sheet amount 57 55
Product analysis
2002 2001 2002 2001 2002 2001 2002 2001
A$m A$m £m £m % % US$m US$m
Gross turnover
2,483 2,470 899 887 12.4 12.2 Copper 1,348 1,277
1,927 1,911 697 686 9.7 9.5 Gold (all sources) 1,046 988
3,264 3,296 1,181 1,183 16.4 16.3 Iron ore 1,772 1,704
4,058 4,065 1,469 1,460 20.3 20.1 Coal 2,203 2,102
3,063 3,315 1,109 1,190 15.4 16.4 Aluminium 1,663 1,714
3,496 3,530 1,265 1,267 17.5 17.5 Industrial minerals 1,898 1,825
1,654 1,600 599 576 8.3 8.0 Other products (incl diamonds) 898 828
19,945 20,187 7,219 7,249 100.0 100.0 Total 10,828 10,438
Net earnings
669 576 242 207 20.3 15.6 Copper, gold and by-products 363 298
849 975 307 350 25.8 26.4 Iron ore 461 504
582 667 211 240 17.7 18.1 Coal 316 345
490 638 177 229 14.9 17.3 Aluminium 266 330
543 641 197 231 16.5 17.4 Industrial minerals 295 332
160 188 58 68 4.8 5.2 Other products (incl diamonds) 87 97
3,293 3,685 1,192 1,325 100.0 100.0 1,788 1,906
(201) (201) (73) (72) Exploration and evaluation (109) (104)
(175) (323) (63) (116) Net interest (b) (95) (167)
(99) 52 (36) 19 Other items (54) 27
2,818 3,213 1,020 1,156 Total before exceptional charges 1,530 1,662
(1,619) (1,128) (586) (405) Exceptional charges (879) (583)
1,199 2,085 434 751 Total 651 1,079
Geographical Analysis
2002 2001 2002 2001 2002 2001 2002 2001
A$m A$m £m £m % % US$m US$m
Gross turnover by country of origin
6,220 6,079 2,251 2,183 31.2 30.1 North America 3,377 3,143
8,289 8,483 3,000 3,046 41.6 42.0 Australia and New Zealand 4,500 4,386
967 1,013 350 364 4.8 5.0 South America 525 524
1,442 1,657 522 595 7.2 8.2 Africa 783 857
1,914 1,839 693 660 9.6 9.1 Indonesia 1,039 951
1,113 1,116 403 401 5.6 5.6 Europe and other countries 604 577
19,945 20,187 7,219 7,249 100.0 100.0 Total 10,828 10,438
Net earnings by origin
600 694 217 249 20.1 19.6 North America 326 359
1,730 2,035 626 731 57.8 57.5 Australia and New Zealand 939 1,052
120 108 43 39 4.0 3.1 South America 65 56
212 277 77 99 7.1 7.8 Africa 115 143
341 248 123 89 11.4 7.0 Indonesia 185 128
(10) 174 (3) 65 (0.4) 5.0 Europe and other countries (5) 91
2,993 3,536 1,083 1,272 100.0 100.0 1,625 1,829
(175) (323) (63) (116) Net interest (b) (95) (167)
2,818 3,213 1,020 1,156 Total before exceptional charges 1,530 1,662
(1,619) (1,128) (586) (405) Exceptional charges (879) (583)
1,199 2,085 434 751 Total 651 1,079
Gross turnover by destination
5,789 5,678 2,095 2,039 29.0 28.1 North America 3,143 2,936
4,310 4,522 1,560 1,624 21.6 22.4 Europe 2,340 2,338
3,579 3,891 1,295 1,397 17.9 19.3 Japan 1,943 2,012
3,837 3,818 1,389 1,371 19.2 18.9 Other Asia 2,083 1,974
1,634 1,431 591 514 8.2 7.1 Australia and New Zealand 887 740
796 847 289 304 4.1 4.2 Other 432 438
19,945 20,187 7,219 7,249 100.0 100.0 Total 10,828 10,438
(a) The above analyses include the Rio Tinto share of the results of joint
ventures and associates including interest.
(b) The amortisation of discount is included in the applicable product category
and geographical area. All other financing costs of subsidiaries are included
in 'net interest'.
(c) The sales analysis of turnover by destination for 2001 has been restated.
Reconciliation with US GAAP
At 31 December
2002 2001 2002 2001 2002 2001
Restated Restated Restated
A$m A$m £m £m US$m US$m
2,818 3,213 1,020 1,156 Adjusted earnings under UK GAAP 1,530 1,662
(1,619) (1,128) (586) (405) Exceptional charges (879) (583)
1,199 2,085 434 751 Net earnings under UK GAAP 651 1,079
Increase/(decrease) net of
tax in respect of :
41 (255) 15 (92) Goodwill and intangibles amortisation 22 (132)
4 (95) 1 (34) Pensions/post retirement benefits 2 (49)
(31) (15) (11) (6) Share options (17) (8)
(547) 774 (198) 278 Asset write downs (297) 400
(125) (152) (45) (54) Other (68) (78)
530 (337) 192 (121) Exchange differences 288 (174)
taken to earnings under US GAAP
1,071 2,005 388 722 Net income under US GAAP 581 1,038
77.8c 145.8c 28.2p 52.5p Basic earnings per ordinary 42.2c 75.5c
share under US GAAP
Net earnings under UK GAAP are stated after exceptional charges of US$879
million relating to asset write downs and environmental remediation. In 2001
there was an exceptional charge for asset write downs of US$583 million. Under
US GAAP, these total US$1,176 million (2001: US$183 million). However, the
concept of Adjusted earnings does not exist under US GAAP.
13,169 13,770 4,656 4,853 Shareholders' funds under UK 7,462 7,043
GAAP
Increase/(decrease) net of tax in
respect of :
2,501 3,476 884 1,225 Goodwill 1,417 1,778
565 - 200 - Intangibles 320 -
131 169 46 60 Taxation 74 87
759 1,050 268 370 Proposed dividends 430 537
462 962 163 339 Asset write downs 262 492
314 362 111 127 Reversal of additional provisions under 178 185
FRS 12
(124) (125) (44) (44) Start-up costs (70) (64)
(25) (336) (9) (119) Mark to market of derivative contracts (14) (172)
(655) (354) (231) (125) Pensions/post retirement benefits (371) (181)
(302) (262) (107) (92) Other (171) (134)
16,795 18,712 5,937 6,594 Shareholders' funds under US GAAP 9,517 9,571
Diluted earnings per share under US GAAP are US 0.1 cents (2001: US 0.1 cents)
less than the above earnings per share figures.
The Group's financial statements have been prepared in accordance with generally
accepted accounting principles in the United Kingdom (UK GAAP), which differ in
certain respects from those in the United States (US GAAP). The effect of
adjusting net earnings and shareholders' funds for the following differences in
treatment under US GAAP is set out above.
Goodwill - For 1997 and prior years, UK GAAP permitted the write off of
purchased goodwill on acquisition directly against reserves. For acquisitions in
1998 and subsequent years, goodwill is capitalised and amortised over its
expected useful life under UK GAAP. Under US GAAP goodwill is capitalised and,
until 2001, was amortised by charges against income over the period during which
it was expected to be of benefit, subject to a maximum of 40 years. Goodwill
previously written off directly to reserves in the UK GAAP financial statements
was therefore reinstated and amortised, under US GAAP. From 1 January 2002,
goodwill and indefinite lived intangible assets are no longer amortised but are
reviewed annually for impairment under FAS 142. Goodwill amortisation of US$42
million charged against UK GAAP earnings for 2002 is added back in the US GAAP
reconciliation. No impairment write downs were required on the initial
introduction of FAS 142. Implementation of FAS 141 resulted in the
reclassification of US$340 million from goodwill to finite lived intangible
assets.
Asset write downs - Following the implementation of FRS 11 in 1998, impairment
of fixed assets under UK GAAP is recognised and measured by reference to the
discounted cash flows expected to be generated by the asset. Under US GAAP,
impairment of tangible fixed assets held by subsidiaries is recognised only when
the anticipated undiscounted cash flows are insufficient to recover the carrying
value of the asset. Where an asset is found to be impaired under US GAAP, the
amount of such impairment is generally similar under US GAAP to that computed
under UK GAAP, except where the US GAAP carrying value includes additional
goodwill. The asset write downs in 2002, under US GAAP, include amounts
recognised in 2001 under UK GAAP and also an adjustment for goodwill.
Tax - The adjustments are similar to those made in the reconciliation with
Australian GAAP, which are explained on page 20.
Stock based compensation - The Group has implemented FAS 123 in 2002 and has
restated all periods presented to reflect stock based employee compensation
costs under the fair value based method of accounting, as permitted by FAS 148.
Exchange differences under US GAAP:
Debt - The Group finances its operations primarily in US dollars and a
significant proportion of the Group's US dollar debt is located in its
Australian operations. Under UK GAAP, this debt is dealt with in the context of
the currency status of the Group as a whole and exchange differences reported by
the Australian operations are adjusted through reserves. US GAAP permits such
exchange gains and losses to be taken to reserves only to the extent that the US
dollar debt hedges US dollar assets in the Australian group. Post-tax exchange
gains of US$177 million on US dollar debt that do not qualify for hedge
accounting under US GAAP have therefore been recorded in US GAAP earnings.
Derivatives - The Group is party to derivative contracts in respect of some of
its future transactions in order to hedge its exposure to fluctuations in
exchange rates against the US dollar. Under UK GAAP, these contracts are
accounted for as hedges: gains and losses are deferred and subsequently
recognised when the hedged transaction occurs. However, certain of the Group's
derivative contracts do not qualify for hedge accounting under FAS 133,
principally because the hedge is not located in the entity with the exposure.
Unrealised post- tax gains of US$111 million on such derivatives have therefore
been taken to US GAAP earnings.
Metal prices and exchange rates
Years ended 31 December
Year Year
Metal prices 2002 2001 Change
Average market prices for the year were:
Copper - US cents/lb 71c 72c (1%)
Aluminium - US cents/lb 61c 66c (8%)
Gold - US$/troy oz US$309 US$271 14%
Exchange rates in US$
Annual Average Year end
2002 2001 Change 2002 2001 Change
Sterling 1.50 1.44 4% 1.60 1.45 11%
Australia 0.54 0.52 4% 0.57 0.51 11%
Canada 0.64 0.65 (2%) 0.63 0.63 -
South Africa 0.095 0.117 (19%) 0.116 0.083 39%
Accounting principles
The financial information included in this preliminary announcement has been
prepared in accordance with United Kingdom Accounting Standards and an Order
under section 340 of the Australian Corporations Act 2001 issued by the
Australian Securities and Investments Commission on 9 April 2001. The financial
information has been drawn up on the basis of accounting policies consistent
with those applied in the financial statements for the year ended 31 December
2001, except for the implementation of FRS 19 'Deferred Tax'.
Prior to the adoption of FRS 19, Rio Tinto provided for deferred tax where, in
the opinion of the directors, it was probable that a timing difference would
reverse within the foreseeable future. Under FRS 19, full provision is made for
deferred taxation on all timing differences that have arisen but not reversed at
the balance sheet date, except in limited circumstances. The main exceptions are
as follows:
- Tax payable on the future remittance of the past earnings of subsidiaries,
associates and joint ventures is provided only to the extent that dividends have
been accrued or there is a binding agreement to distribute such past earnings
(where previously the Group recognised such deferred tax to the extent that it
was probable that a liability would crystallise).
- Deferred tax is not recognised on revaluations of non-monetary assets arising
on acquisitions unless there is a binding agreement to sell the asset and the
gain or loss expected to arise from the disposal has been recognised (where
previously the Group recognised deferred tax for certain of these adjustments).
- Deferred tax assets are recognised only to the extent that it is more likely
than not that they will be recovered.
FRS 19 requires that provisions for deferred tax are made in respect of tax
benefits related to goodwill that was charged directly to reserves on
acquisitions made prior to 1998. Such provisions are released when the related
goodwill is charged through the profit and loss account on disposal or closure.
Under the previous accounting policy, such tax benefits were taken up in the
profit and loss account in the year in which they were received.
The balance sheet at 31 December 2001 has been restated following the
implementation of FRS 19 ' Deferred Tax', which has reduced shareholders' funds
by US$133 million. The restatement also included an increase in deferred tax
provisions of US$57 million, an increase in investment in associates of US$10
million and a reduction of US$86 million in property, plant and equipment. The
application of FRS 19 did not impact significantly on net earnings for 2002 or
2001. Accordingly, prior year earnings have not been restated.
Financial information
This preliminary announcement does not constitute the Group's full financial
statements for 2002, which will be approved by the Board and reported on by the
auditors on 20 February 2003 and subsequently filed with the Registrar of
Companies and the Australian Securities and Investments Commission.
Accordingly, the financial information for 2002 is unaudited. The preliminary
announcement contains financial information for 2001 which has been extracted
from the audited financial statements for that year, as restated to comply with
FRS19. The accounts of Rio Tinto plc and Rio Tinto Limited for 2001 were the
subject of an unqualified audit report and have been delivered to the Registrar
of Companies in the UK and the Australian Securities and Investments Commission,
respectively.
NOTES TO FINANCIAL INFORMATION BY BUSINESS UNIT (Pages 6 and 7)
(a) Gross turnover includes 100 per cent of subsidiaries' turnover and the
Group's share of the turnover of joint ventures and associates.
(b) EBITDA of subsidiaries, joint ventures and associates represents profit
before: tax, net interest payable, depreciation and amortisation.
(c) Net earnings represent after tax earnings attributable to the Rio Tinto
Group. Earnings of subsidiaries are stated before interest charges but after the
amortisation of the discount related to provisions. Earnings attributable to
joint ventures and associates include interest charges.
(d) Rio Tinto has a 100 per cent interest in Peak and an 80 per cent interest in
the Northparkes joint venture.
(e) Includes Anglesey Aluminium in which Rio Tinto's interest is 51 per cent.
(f) Includes Morro do Ouro in which Rio Tinto's interest is 51 per cent.
(g) Capital expenditure comprises the net cash flow on purchases less disposals
of property, plant and equipment. The details provided include 100 per cent of
subsidiaries' capital expenditure and include Rio Tinto's share of the capital
expenditure of joint ventures and associates. Amounts relating to joint ventures
and associates not specifically funded by Rio Tinto are deducted before arriving
at total capital expenditure.
(h) 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. For joint ventures and associates,
Rio Tinto's net investment is shown. For joint ventures and associates shown
above, Rio Tinto's shares of operating assets, defined as for subsidiaries, are
as follows:
Escondida US$913 million (2001 - US$855 million), Freeport joint venture US$412
million (2001 - US$398 million), Freeport associate US $578 million (2001 -
US$496 million), Kaltim Prima US$111 million (2001 - US$144 million).
(i) Business units have been classified in the analysis on pages 6 and 7
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 the gold revenues of Kennecott Utah
Copper and Freeport (Rio Tinto share) and the businesses of Rio Tinto Aluminium
and Zinkgruvan. This summary differs, therefore, from the Product Analysis in
which the contributions of individual business units are attributed to several
products as appropriate.
This information is provided by RNS
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