Interim Results
Rio Tinto PLC
31 July 2003
US dollar and some weak markets undermine solid result
• First half net earnings of $641 million were $61 million below net
earnings recorded in the first half of last year.
• Cash flow from operations at $1,569 million remained strong and was
only four per cent below the first half of 2002.
• Movements in exchange rates, principally the weakening of the US
dollar against the Australian dollar, Canadian dollar and South African rand
reduced earnings by $152 million. This was partially offset by the positive net
effect of price movements of $87 million.
• China continued to have a major influence on global supply and demand
balances. Those markets where China is a major importer such as iron ore and
alumina were strong; those where China is a major exporter such as thermal coal
were weak. This was reflected in the relative fortunes of Rio Tinto's business
units with exposure in these commodities.
• Elsewhere, the markets for conventional chloride slags remained in
oversupply and both QIT and RBM operated below capacity. Demand for rough
diamonds was robust allowing Argyle to make sales from inventory.
• The ramp up of the West Angelas iron ore mine continues and it is now
expected to reach a 20 million tonnes per annum production rate in the first
half of 2004, two years ahead of schedule.
• Costs during the period were affected by a smelter shutdown at
Kennecott Utah Copper, increased demurrage charges at Hamersley and Coal &
Allied and the transition between block caves at Northparkes.
• Diavik produced its first diamonds ahead of schedule. The Hail Creek
project and Comalco alumina refinery are both on track for first shipments in
the latter part of 2003 and early 2005 respectively.
Half year to 30 June First half 2003 First half Change
2002
(All dollars are US$ unless otherwise stated)
Gross turnover $5,561m $5,079m +9%
Total cash flow from operating activities $1,293m $1,416m -9%
Cash flow from operations (incl. associate and JV dividends) $1,569m $1,637m -4%
Net earnings $641m $702m -9%
Earnings per share - US cents 46.5 51.0 -9%
Dividends per share - US cents 30.0 29.5 +2%
Chairman's comments
Rio Tinto's chairman Sir Robert Wilson said, 'Our earnings were nine per cent
below the level achieved in the first half of last year. The main pressures
have come from flat Western World demand coincident with a sharp fall of the US
dollar against the Australian dollar and other currencies in which we incur the
majority of our operating costs.
'Looking first at demand, I would make two observations. One is that Western
markets in general are stable rather than in decline. We have warned before
that recovery, when it eventually comes, was unlikely to be rapid. We see
nothing to cause us to change that view. The second observation is that growth
of Chinese demand continues apace - for many ferrous and non-ferrous metals,
demand in the first half appears to have grown by 20 per cent. In many metals
China is now the biggest consumer in the world.
'When the US dollar moves substantially we normally see a partial compensatory
adjustment in dollar based prices, albeit sometimes with a lag. While we have
some evidence of this adjustment in the first half, notably for gold but also
for the LME metals, the benefits of this have been outweighed by the effect of
currency movements on the Group's non-US dollar costs. As to whether there will
be further price movements as a result of the weakening US dollar, we shall have
to wait and see.
'The current period of exchange rate instability is unusual in two respects: the
speed of change has been relatively fast and previous periods of Australian
dollar strength against the US dollar have occurred at times of strong commodity
prices, not weak as at present.
'Whilst it has been a difficult half year, we remain strongly cash generative
and that is the product of high quality assets which are efficiently operated.
We have continued to resist the temptation to pursue high sales volumes in weak
markets but in key products we are strengthening our ability to respond once
demand picks up.'
Chief Executive's comments
Leigh Clifford, Rio Tinto's chief executive said, 'Whilst the last six months
has been a tough time for many of our operations, we concentrate on maximising
the long term value of the business. We concluded the negotiation of the new
labour agreement at Kennecott Utah Copper, a key component of the transition
required for that operation to achieve the necessary improvement. We signed a
26 year alumina supply agreement which underpins the first stage of Comalco's
new alumina refinery which remains on schedule to begin shipments in 2005.
Construction of the Hail Creek coking coal mine is also on schedule with first
production expected in the third quarter of this year.
'The performance of two of our recently completed mines has exceeded our
expectations. The diamond mine at Diavik successfully moved from construction
into production during the first half of the year and we were very pleased with
the level of interest generated by the first sales which took place in early
July. The West Angelas iron ore mine, which started shipments in the second
half of last year, is now expected to reach a 20 million tonnes per annum rate
in the second quarter of 2004, some two years ahead of original expectations.
'Driven by strong demand from China, our iron ore operations in Western
Australia have been running at capacity for the last twelve months. At
Hamersley we have capacity of around 74 million tonnes this year and in the
second half we will conclude a feasibility study on expanding this to 114
million tonnes.
'Where markets have been weaker - notably seaborne coal and titanium dioxide
feedstock - we have scaled back production in line with demand and this has had
an adverse effect on our costs and our net earnings. In both these sectors we
have assets of the highest quality and so they are well placed to benefit once
markets improve.
Webcast
A live webcast of the results presentation starting at 10-00 BST (19-00
Australian Eastern Standard Time) 31 July 2003 can be accessed through the Rio
Tinto website (www.riotinto.com). A recording of the presentation will be
available on the Rio Tinto website soon after.
Commentary on the Group financial results
Net earnings of $641 million were $61 million below the corresponding period of
last year. The principal factors are shown in the table below.
US$m
2002 first half net earnings 702
Prices 87
Exchange rates (152)
Inflation (44)
Volumes 98
Energy costs (38)
Other costs (12)
Other -
2003 first half net earnings 641
Prices & exchange
Gold prices averaged 16 per cent higher than the same period in 2002, copper
prices were four per cent higher and aluminium prices were up two per cent.
Iron ore price increases of around nine per cent were agreed with major
customers with effect from April 2003 and earnings also benefited from increases
in diamond prices.
Seaborne traded coal prices fell by about seven per cent.
The net positive effect from prices was far outweighed by the effect of a weaker
US dollar. The Australian dollar was 15 per cent higher against the US dollar,
the Canadian dollar was up ten per cent and the South African rand was up 33 per
cent. The effect of these and other currency movements on non-US dollar
operating costs reduced earnings by $126 million. The effect of the shift in
exchange rates on balance sheet values further reduced earnings and this charge
was $43 million higher than the first half of 2002. These effects are partially
offset by gains on currency hedges ($17 million) initiated by North, Ashton and
Comalco before the acquisitions in 2000.
Volumes
Higher volumes increased earnings by $98 million. Demand for iron ore was again
strong in Asian markets and Hamersley's shipments increased by 18 per cent.
Volumes from the West Angelas mine, which began shipping in the second half of
last year, continued to increase ahead of the original expectations. Gold
volumes at Freeport almost doubled as a result of a recovery in ore grades.
Additional sales of Argyle product were made from inventories to meet robust
demand.
Volumes were lower at Utah Copper as a result of a substantial reduction in gold
and other by product grades and the failure in the first quarter of the final
absorption tower of the acid plant which had a significant effect on the volumes
of refined copper, gold and silver.
Costs
Higher energy costs, principally higher oil prices but also higher gas and
electricity prices, reduced earnings by $38 million. Oil prices were $5 per
barrel higher than the first half of 2002. Gas prices in the US market were
higher and there were also increases in Comalco's electricity prices,
principally in New Zealand.
Excluding the effects of inflation and energy, costs increased by $12 million.
Cost performance in the period was affected by three main issues - the smelter
shutdown at Kennecott Utah Copper referred to above, the transition between
block caves at Northparkes and higher demurrage costs at Hamersley and Coal &
Allied.
Tax
The effective tax rate at 32.1 per cent was similar to the first half of 2002.
The Group is considering the implications of adopting the new tax consolidation
regime in Australia. Until such time as a decision has been made, there is no
impact on the financial statements.
Other
The Group's policy of having predominantly floating rate debt continues to
produce benefits with lower prevailing interest rates. The after tax net
interest charge in the first half 2003 was $24 million lower than the first half
of 2002 although the level of net debt has not changed significantly. Earnings
also benefited from a profit of $19 million on the disposal of businesses during
the half year. Against this, earnings were reduced by $35 million as a result
of the impact of lower stock market values on accounting charges for pension
costs.
Cash flow
Cash flow from operating activities together with dividends from joint ventures
and associates totalled $1,569 million, four per cent below the same period last
year as a result of lower operating profit.
Capital expenditure and financial investment of $731 million was $314 million
below the first half of 2002 which included $304 million of US treasury bonds
purchased for the deferred consideration on the North Jacob's Ranch reserves.
During the period, $76 million of these bonds have been sold to fund the
deferred consideration. Further information on major projects is given on pages
15 to 17.
Disposals of businesses, principally Peak and the 25 per cent interest in
Alumbrera, generated a cash inflow of $221 million.
Dividends paid were $120 million lower than in the first half of 2002 as a
result of the change in policy for weighting of interim and final dividends
announced in 2001.
Balance sheet
Shareholders' funds increased by $1,329 million to $8,791 million with an uplift
of $1,087 million from exchange rate changes. The most significant of these was
the strengthening of the Australian dollar by a further 18 per cent against the
US dollar.
Net debt increased by $57 million to $5,804 million as a result of the increased
value in US dollar terms of that small part of the Group's debt which is
denominated in Australian and South African currencies. The ratio of net debt
to total capital decreased from 41.1 per cent, at 31 December 2002, to 37.5 per
cent at 30 June 2003. The balance sheet remains strong. Interest was covered
11 times.
Dividends
The interim dividend is set at one half of the total dividends for the previous
year. Therefore interim dividends equivalent to 30.0 US cents per share (2002:
29.5 US cents per share) have been declared by Rio Tinto plc and Rio Tinto
Limited.
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,
29 July 2002.
Rio Tinto plc shareholders will be paid an interim dividend of 18.45 pence per
ordinary share (2002: 18.87 pence).
Rio Tinto Limited shareholders will be paid an interim dividend of 45.02
Australian cents per ordinary share (2002: 54.06 Australian cents) 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 Friday, 12 September 2003 to Rio Tinto
plc shareholders on the register at close of business on Friday, 15 August 2003
and to Rio Tinto Limited shareholders on the register at the close of business
on Tuesday, 19 August 2003. The ex dividend date for both Rio Tinto plc and Rio
Tinto Limited will be Wednesday, 13 August 2003. Dividends will be paid to Rio
Tinto ADR holders on Monday, 15 September 2003.
As usual, Rio Tinto will operate its Dividend Reinvestment Plan, details of
which can be obtained from the Company Secretaries' offices. The last date for
receipt of the election notice for the Dividend Reinvestment Plans is 21 August
2003.
Rio Tinto financial information by Business Unit (1)
US$ millions Rio Tinto Gross turnover (c) EBITDA (d) Net earnings (e)
interest First half First half First half
% 2003 2002 2003 2002 2003 2002
Iron Ore
Hamersley (inc. HIsmelt(R)) 100.0 628 501 330 313 191 181
Robe River 53.0 172 102 97 61 30 19
Iron Ore Company of Canada 58.7 189 155 (3) 8 (6) (3)
989 758 424 382 215 197
Energy
Kennecott Energy 100.0 464 483 122 153 49 56
Pacific Coal 100.0 189 202 76 116 37 67
Kaltim Prima Coal 50.0 97 101 29 43 9 15
Coal & Allied 75.7 283 312 45 107 1 44
Rossing 68.6 41 66 (7) 34 (5) 16
ERA 68.4 53 40 24 15 5 3
1,127 1,204 289 468 96 201
Industrial Minerals 843 797 243 285 74 110
Aluminium (a) 902 838 227 245 102 124
Copper
Kennecott Utah Copper 100.0 321 389 73 137 10 54
Escondida 30.0 210 145 117 64 47 21
Freeport 16.4 176 130 89 48 15 (4)
Freeport joint venture 40.0 211 133 134 70 64 33
Palabora 49.2 103 101 18 33 5 8
Kennecott Minerals 100.0 119 104 59 50 30 19
Rio Tinto Brasil (b) 73 55 21 15 3 3
Other 94 136 30 56 (6) 7
1,307 1,193 541 473 168 141
Diamonds
Argyle 100.0 243 158 115 71 53 24
Diavik 60.0 - - - - - -
243 158 115 71 53 24
Other operations 119 115 57 32 22 9
Other items 31 16 (70) (32) (8) (2)
Exploration and evaluation - - (64) (58) (52) (49)
Net interest - - (29) (53)
Total 5,561 5,079 1,762 1,866 641 702
Reconciliation to the profit and loss account
Profit on ordinary activities before interest 1,104 1,272
Depreciation and amortisation in subsidiaries 488 445
Depreciation and amortisation in JVs and associates 170 149
1,762 1,866
References above are to notes on page 30
Rio Tinto financial information by Business Unit (2)
US$ millions Rio Capital Depreciation & Operating assets
Tinto Expenditure amortisation (g) (h)
interest (f)
First half
First half 30 June 30 June
% 2003 2002 2003 2002 2003 2002
Iron Ore
Hamersley (inc. HIsmelt(R)) 100.0 79 22 51 49 1,136 925
Robe River 53.0 28 53 35 20 1,659 1,384
Iron Ore Company of Canada 58.7 6 20 14 18 492 711
113 95 100 87 3,287 3,020
Energy
Kennecott Energy 100.0 133 121 57 67 567 527
Pacific Coal 100.0 105 35 22 18 591 331
Kaltim Prima Coal 50.0 1 2 11 10 55 61
Coal & Allied 75.7 9 28 36 20 729 587
Rossing 68.6 3 - 3 2 45 15
ERA 68.4 1 2 12 9 164 170
252 188 141 126 2,151 1,691
Industrial Minerals 51 52 84 70 2,060 2,021
Aluminium (a) 182 94 71 61 2,847 2,123
Copper
Kennecott Utah Copper 100.0 45 52 45 63 1,319 1,929
Escondida 30.0 20 85 38 25 491 462
Freeport 16.4 9 10 26 19 141 105
Freeport joint venture 40.0 22 38 22 19 405 439
Palabora 49.2 35 29 5 9 340 231
Kennecott Minerals 100.0 4 13 17 24 124 161
Rio Tinto Brasil (b) 6 5 7 7 85 105
Other 25 25 34 36 275 428
166 257 194 202 3,180 3,860
Diamonds
Argyle 100.0 12 20 32 30 520 537
Diavik 60.0 54 110 - - 646 450
66 130 32 30 1,166 987
Other operations 2 5 20 15 101 154
Other items 6 3 16 3 (197) 80
Less joint ventures and (68) (153) (170) (149)
associates
Total 770 671 488 445 14,595 13,936
Less net debt (5,804) (6,021)
Net assets 8,791 7,915
References above are to notes on page 30
Review of Operations
Comparison of net earnings
2003 first half net earnings of $641 million were $61 million below the net
earnings for the first half of 2002. The table below shows the difference by
product group. All financial amounts in the tables below are US$ millions
unless indicated otherwise.
$ m
2002 first half net earnings 702
Iron Ore 18
Energy (105)
Industrial Minerals (36)
Aluminium (22)
Copper 27
Diamonds 29
Other operations 13
Exploration (3)
Interest 24
Other (6)
2003 first half net earnings 641
Iron Ore
First half First half Change Full year
2002
2003 2002
Production (million tonnes) 48.3 43.8 +10% 90.1
Turnover 989 758 +30% 1,757
Net earnings 215 197 +9% 452
EBITDA 424 382 +11% 861
Capital expenditure 113 95 199
Market Conditions
The tight market conditions experienced in the second half of 2002 continued in
the first half of 2003. Chinese imports of iron ore were 44 per cent higher
than the first half of 2002; imports into Japan were up three per cent. Demand
for all products was strong.
Price increases effective from April 2003 of 8.9 per cent for lump ore and 9.0
per cent for fines and Yandi ores were negotiated with major customers.
Hamersley Iron
Net earnings of $191 million were $10 million above the first half of last year.
Hamersley continued to produce at capacity to meet strong demand. Shipments
of 35.7 million tonnes were 18 per cent above the first half of last year. The
resultant pressure on shipping schedules has resulted in demurrage charges
significantly higher than the first half of 2002 although lower than incurred in
the second half of 2002.
A feasibility study for expanding system capacity to 114 million tonnes will be
completed in the second half of the year.
Robe River
Net earnings of $30 million were $11 million above the first half of 2002. Due
to unprecedented demand, production from the West Angelas mine continued to ramp
up ahead of schedule reflecting widespread market acceptance and positive
customer feedback on sinter plant and blast furnace performance of the Marra
Mamba ore.
Current expectations are that West Angelas will reach its capacity of 20 million
tonnes in the first half of 2004, almost two years earlier than anticipated.
IOC
The net loss of $6 million in the first half of 2003 was $3 million greater than
the loss in the first half of 2002. The weakening of the US dollar reduced
earnings by $4 million. Production of concentrate was adversely affected by the
commissioning of the new control system for the automatic train operation,
crusher breakdowns and lower recoveries. Concentrate was diverted to support
pellet production for which demand was strong but concentrate sales remain
production constrained.
Energy
First half First half Change Full year 2002
2003 2002
Production Coal (million tonnes)
US 52.4 51.9 +1% 105.3
Australia & Indonesia 20.9 21.9 -5% 43.8
Uranium (tonnes) 2,357 2,291 +3% 4,955
Turnover 1,127 1,204 -6% 2,430
Net earnings 96 201 -52% 353
EBITDA 289 468 -38% 886
Capital expenditure 252 188 350
US Coal - Kennecott Energy
Earnings of $49 million were $7 million below the first half of last year. A
colder than average 2002/03 winter helped increase utility coal consumption by
eight per cent in the first quarter compared with the previous year but there
was no increase in demand in the second quarter. The increase in natural gas
capacity, whilst contributing to the volatility of prices in that market, has
softened the upward pressure on coal prices.
In the early part of the year, production and costs at Cordero Rojo were
adversely affected by the flow-on effects of pit wall instability. Production
and train availability in the second quarter were affected by unusually high
rainfall. First half earnings benefited from the release of prior period
provisions for royalties that are not now payable.
Asia Pacific Coal - Markets
Market conditions were extremely tough with lower prices, reduced contract
tonnage and the strengthening Australian dollar. The export thermal coal market
remains very competitive with increased supply, especially from China and
Indonesia. The reference price fell by $2/tonne for the second year running.
Pacific Coal
Net earnings of $37 million were $30 million below the first half of 2002.
Pacific Coal was affected by the movement in exchange rates and falling prices
despite its strong contract position. Total production from the three mines was
broadly in line with the first half of last year.
Kaltim Prima Coal
Net earnings of $9 million were $6 million below the first half of 2002 as the
effect of higher shipments was more than offset by lower prices. On 21 July
2003, Rio Tinto and BP announced that they had agreed to sell their interests in
PT Kaltim Prima Coal for a cash price of $500 million including assumed debt.
The sale is subject to various approvals and completion is anticipated in
October 2003. Each company will receive 50 per cent of the net proceeds.
Coal & Allied
Net earnings of $1 million were $43 million below the first half of 2002. Sales
volumes were 20 per cent below the first half of last year as a result of soft
markets. In response, production in 2003 will be four million tonnes below
capacity, slightly less than in 2002. In addition, clean coal stock piles will
be reduced by 500,000 tonnes and in-pit inventories will be reduced by 1.5
million tonnes.
Rossing
Rossing made a net loss of $5 million compared with net earnings of $16 million
in the first half of 2002. Average realised prices were significantly lower as
some higher priced long term contracts that ended in 2002 were replaced by new
long-term contracts that were priced in line with current market conditions.
Net earnings were also adversely affected by the strengthening of the Namibian
dollar.
Energy Resources of Australia
Net earnings of $5 million were $2 million above the first half of 2002. The
effect of higher sales volumes was partially offset by the effect of the
stronger Australian dollar.
Industrial Minerals
First half First half Change Full year
2003 2002 2002
Production Borates (000 tonnes) 282 260 +8% 528
Titanium dioxide (000 tonnes) 608 646 -6% 1,274
Salt (000 tonnes) 2,094 2,188 -4% 4,667
Talc (000 tonnes) 686 669 +3% 1,327
Turnover 843 797 +6% 1,847
Net earnings 74 110 -33% 286
EBITDA 243 285 -15% 717
Capital expenditure 51 52 133
Rio Tinto Borax
Net earnings of $39 million were $4 million below the first half of 2002.
Production of borates was eight per cent higher than the first half of last
year. Sales volumes were marginally above the first half of last year despite
poor market conditions. Cost improvements were offset by higher natural gas
prices. Due to rising global demand for boric acid, Borax is planning to
increase its boric acid capacity by 90,000 tonnes by early 2005.
Rio Tinto Iron & Titanium
Net earnings of $20 million were $29 million below the first half of 2002. The
revaluation of balance sheet items due to the weakening of the US dollar
together with its adverse effect on operating costs reduced earnings by $26
million.
Pigment demand only increased slowly in the first half of the year. Due to cold
weather the paint season has been slow to start in North America and European
producers appear to be affected by the stronger Euro and economic uncertainty.
Pigment inventories are high at some producers.
Both RBM and QIT continue to run below capacity in line with market demand,
compounded in the case of RBM by the run down of excess customer stocks. The
oversupply remained marked in the sector of conventional chloride slags and new
supply coming on stream in 2003 will only exacerbate the situation. Demand for
very high-grade chloride feedstock, such as QIT's UGS, remains healthy.
In the second half of 2003, QIT will complete a feasibility study for the
expansion of its UGS facility. The expanded capacity is expected to be in the
range of 325,000 to 380,000 tonnes per year and it could come on line in early
2005.
Dampier Salt
Net earnings of $7 million were $4 million below the first half of 2002. New
sources of salt supply to service the South-East Asian chemicals industry is
leading to overcapacity. This, together with higher freight rates, resulted in
an increasingly competitive environment in the chloralkali industry.
Luzenac
Net earnings of $8 million were $1 million above the first half of 2002. The
key paper market remains weak as the US advertising market continues to be soft.
Auto production in both the US and Europe also looks weak, with recently
announced cutbacks by major manufacturers affecting demand for polymers.
Aluminium
First half First half Change Full year 2002
2003 2002
Production Bauxite (000 tonnes) 6,194 5,739 +8% 11,724
Alumina (000 tonnes) 988 981 +1% 1,947
Aluminium (000 tonnes) 401 385 +4% 795.4
Turnover 902 838 +8% 1,662
Net earnings 102 124 -18% 256
EBITDA 227 245 -7% 510
Capital expenditure 182 94 269
The above figures include Anglesey Aluminium, the responsibility for which
passed from the Copper Product Group to the Aluminium Product Group during the
period.
Prices
The average aluminium price for the first half of 2003 was 63c/lb, two per cent
above the average price for the first half of 2002. Whilst the majority of
alumina is sold under long term contracts, the tightness in the market was
reflected in spot prices which peaked at over $290/tonne compared with prices
below $150/tonne throughout 2002.
The effect of these and other price movements was to increase net earnings by
$26 million but this was more than offset by the effect on costs of the
weakening US dollar.
Bauxite
Bauxite production from the Weipa mine of 6.0 million tonnes was eight per cent
above the first half of last year due to the timing of maintenance. Shipments
of bauxite were in line with the first half of last year.
Alumina
Alumina production in the first half of the year was in line with the first half
of 2002.
Aluminium
Rio Tinto's share of aluminium production, including the additional share of
Boyne Island that was purchased in July 2002, was four per cent above the second
half of 2002. Production at Tiwai Point was constrained by higher spot power
prices in New Zealand and production from Boyne Island was affected by anode
quality issues. Tiwai Point has now resumed taking spot power and is restarting
cells at the rate of one every two days.
Copper
First half First half Change Full year
2003 2002 2002
Production Mined copper (000 tonnes) 462.7 428.9 +8% 887.1
Refined copper (000 tonnes) 165.2 212.8 -22% 416.9
Mined gold (000 oz) 1,203 1,154 +4% 2,530
Turnover 1,307 1,193 +10% 2,468
Net earnings 168 141 +19% 341
EBITDA 541 473 +14% 997
Capital expenditure 166 257 451
Reflecting changes to the Copper Product Group which became effective during the
first half of the year, the figures above include Kennecott Minerals and Rio
Tinto Brasil but exclude Anglesey Aluminium.
Kennecott Utah Copper
Net earnings of $10 million were $44 million below the first half of 2002.
Whilst Kennecott benefited from stronger gold, copper and molybdenum prices,
this was more than offset by lower by-product grades. By-product grades will be
significantly lower than 2002 until they return to more normal levels in 2005.
Refined copper production was 30 per cent below the first half of last year.
The failure of the final absorption tower of the acid plant stopped smelter
production for three weeks. Smelter efficiency was also affected by the
processing of lower grade concentrate with lower copper to sulphur ratios. The
resultant shortage of anodes meant that output of refined copper, gold and
silver were significantly reduced. The refinery returned to full capacity by
the end of the half year.
The negotiation of a new labour agreement, which will expire in September 2009,
was concluded in June. An important part of the new agreement will be increased
flexibility for personnel and work assignments. There were no work stoppages in
the eight month impasse after the old agreement lapsed in September 2002.
Escondida
Net earnings of $47 million were $26 million above the first half of 2002.
Mined production of copper was up 41 per cent due to the commissioning of the
new Laguna Seca concentrator. Lower ore grades continued to be mined during the
period in line with the previously announced plan to constrain copper
production.
Freeport and Freeport Joint Venture
Net earnings of $79 million were $50 million above the first half of 2002 which
were unusually low due to lower gold grades. The Deep Ore Zone project which
was completed in the third quarter of 2002 was expanded from 25,000 tonnes per
day to 35,000 tonnes per day in the first quarter of 2003 and on occasion has
exceeded 40,000 tonnes per day.
Palabora
Net earnings of $5 million were $3 million below the first half of 2002
principally due to the relative strength of the South African rand. The ramp up
of production from the underground mine continues to be constrained by secondary
breaking issues and the effectiveness of the remote operated rock breaking
equipment. The underground mine produced at an average rate of 16,300 tonnes
per day in June 2003. New equipment has been introduced and the design capacity
of 30,000 tonnes per day is targeted by the end of this year. In the meantime,
ore from the underground is being supplemented with purchased concentrate and
ore scavenged from the open pit.
Kennecott Minerals
Net earnings of $30 million were $11 million above the first half of 2002 due
principally to the higher gold price.
Rio Tinto Brasil
Net earnings of $3 million were in line with the first half of last year.
Production from the Fortaleza nickel mine was halted in April to allow
additional support and mine development work to be carried out. Production
restarted in July. Production from Morro do Ouro was 10 per cent below the
first half of last year due to lower grades.
Other copper operations
The Group's other copper operations made a net loss of $6 million compared with
net earnings of $7 million in the first half of 2002 . The sale of Peak and the
25 per cent interest in Alumbrera was completed in March 2003. A profit of $19
million is recorded in other items.
The construction of Northparkes Lift 2 is about seven to eight months behind
schedule because variable ground conditions and higher than expected rock stress
have caused delays as additional ground support has been necessary to ensure the
safety of construction crews. Copper production was 38 per cent lower than the
first half of 2002 as a result of lower grades as ore is sourced from the near
exhausted Lift 1 and open cut mines.
Diamonds
First half First half Change Full year 2002
2003 2002
Production Diamonds (000 carats) 13,716 14,610 -6% 33,620
Turnover 243 158 +54% 372
Net earnings 53 24 +121% 63
EBITDA 115 71 +62% 175
Capital expenditure 66 130 237
Argyle
Net earnings of $53 million were $29 million above the net earnings in the first
half of 2002. The first quarter saw robust demand for rough diamonds on the
back of positive Christmas retail results and Argyle's results benefited from
inventory sales. Carats produced were 11 per cent below the first half of last
year as grades were lower and fewer tonnes were processed. There was an
extended maintenance shutdown in June.
Diavik
Diavik produced its first diamonds during the period. The process plant
start-up progressed ahead of schedule and production in the second quarter was
62 per cent of design capacity. Head grades are improving as mining progresses
into the ore body. The first sale of diamonds from the Diavik mine took place
in the first week in July. Prices were comfortably above those anticipated in
the feasibility study.
The bulk sample of pipe A154North has recently been completed with positive
results. The value of diamonds in this pipe is now assessed to be substantially
higher than in the original project study.
Other Operations
First half First half Change Full year 2002
2003 2002
Production Gold (000 oz) 326 279 +17% 604
Turnover 119 115 +3% 208
Net earnings 22 9 +144% 25
EBITDA 57 32 +78% 81
Capital expenditure 2 5 6
The gold price was 16 per cent higher than the first half of 2002. Costs and
grades at Kelian were both favourable. Mining operations were completed towards
the end of the first half of the year.
Exploration
First half First half Change Full year 2002
2003 2002
Post tax expenditure 52 49 +6% 109
Exploration focuses 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.
Cortez (Rio Tinto 40%) announced the discovery of a significant new oxidised
gold deposit called Cortez Hills located about 12 km south east of the existing
Pipeline/South Pipeline complex in Nevada.
Exploration continued on the Marcona copper project in Peru. The evaluation of
the Resolution project in Arizona is ongoing.
Exploration and metallurgical test work continued at the Dashkasan gold project
in Iran and drilling and metallurgical studies were ongoing at the Copler gold
project in Turkey.
Drilling and exploration continued on a number of diamond projects in Canada,
Botswana and India. Drilling was completed on the Aredor project in Guinea with
no further work planned.
Drilling on iron ore targets in the Hamersley Basin commenced during the second
quarter of the year. In advance of an order of magnitude study, evaluation work
continued at the Simandou iron ore project.
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 have been recently
completed:
Project Estimated Cost Status/Milestones
(100%)
Complete
Iron Ore - West Angelas mine (Rio Tinto 53%). $450 m The mine was completed in mid 2002 on
Development of a new mine in Western Australia time, on budget and with an outstanding
with a capacity of 20 million tonnes per annum. safety record. The mine is expected to
be operating at an annualised rate of 20
million tonnes by the end of the second
quarter of 2004, two years earlier than
originally scheduled.
Copper - Freeport Deep Ore Zone Expansion $243 m The mine was declared fully operational
project (Rio Tinto 43%). Development of a new from 1 October 2002. Completion was
25,000 tonne per day block cave mine. within budget and well within the original
schedule. In Q1 2003 an expansion to
35,000 tonnes per day was completed at a
cost of $34 million. The mine has
operated at above 40,000 tonnes per day.
Copper - Escondida Phase IV (Rio Tinto 30%). A $1,045 m The commissioning of the project was
new 110,000 tonnes of ore per day copper completed in the second quarter of 2003.
concentrator facility.
Ongoing
Copper - Palabora Underground (Rio Tinto 49%). $410 m The production ramp up has been
30,000 tonne per day block caving operation. constrained by inability to clear
drawpoints efficiently that have been
blocked with poorly fragmented, large
rocks. Average production in June was
16,300 tonnes per day and a daily record
of 24,400 tonnes was achieved in the
month. Further work is ongoing to reach
the target level of 30,000 tonnes per day
by the end of 2003.
Copper - Northparkes Lift 2 Expansion project $100 m Variable ground conditions and higher than
(Rio Tinto 80%). New 15,000 tonne per day expected rock stress have caused delays as
block cave mine approximately 400 metres below additional ground support has been
the existing underground operation. necessary to ensure the safety of
construction crews. The project cost has
increased from $76 million to $100
million. The project is 7 to 8 months
behind schedule.
Iron Ore - Eastern Range mine (Rio Tinto 54%). $67 m First shipments are expected in the first
Development of a new mine with a capacity of 10 half of 2004.
million tonnes per annum. The mine will
service a joint venture formed between
Hamersley and Shanghai Baosteel Group
Corporation.
Recently approved
Copper - Escondida Norte (Rio Tinto 30%). $400 m Project approved in June 2003. First
Satellite deposit will provide mill feed to production is expected in the fourth
keep Escondida capacity above 1.2 million quarter of 2005.
tonnes per annum to the end of 2008.
Reserves are 502mt of copper at 1.44% Cu (0.7%
Cu cut-off).
Aluminium - Expansion of Weipa (Rio Tinto $150 m The project is expected to be complete by
100%) bauxite production to 16.5 million the end of 2004.
tonnes, and move to a two mine operation. The
majority of the expenditure is for the
construction of a purpose-built beneficiation
plant at Andoom to process fine ore.
Expenditure to support Comalco's alumina
refinery is $20 million
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%)
Complete
Diamonds - Diavik (Rio Tinto 60%) in the $900 m The project was completed within budget
North West Territories of Canada with and well inside the original schedule.
average annual production of about six Currently the contact zone above the
million carats. orebody is being mined. The main orebody
will be accessed in the second half of the
year.
Ongoing
Aluminium - Comalco's alumina refinery (Rio $750 m The project is currently on track and on
Tinto 100%). Construction in Queensland of budget. As at the end of June 2003
a greenfield alumina refinery with initial engineering was 90% complete and
annual capacity of 1.4 million tonnes but construction 22% complete. A$1,074
with options to expand to 4.2 million million had been committed. First
tonnes. production is due in late 2004 with first
shipments in early 2005.
Energy - Hail Creek (Rio Tinto 92%). Coking $255 m The project is approximately 90% complete.
coal mine in Queensland with a capacity of The scope was expanded in 2002 to
5.5 million tonnes per year. include the purchase of mining equipment
following the decision to own/operate
rather than contract out various mining
activities. First shipments are expected
in October 2003.
Iron Ore - HIsmelt(R) direct iron smelting $200 m Engineering is 65% complete and
technology (Rio Tinto 60%). A joint venture construction 11% complete. A$250 million
between Rio Tinto (60%), Nucor Corporation has been committed to date. First
(25%) Mitsubishi Corporation (10%) and production is expected in the second half
Shougang Corporation (5%) to construct an of 2004.
800,000 tonne capacity plant at Kwinana,
Western Australia.
Other - Project Daybreak (formerly Project Initial cash Land sales are planned to start in 2004
Sunrise, Rio Tinto 100%). Development for requirement of and ramp up over a period of 5-6 years.
mixed use of a 4,100 acre area of land near $ 50 m
Salt Lake City, Utah.
Divestments
The sale of Rio Tinto's 25 per cent interest in Minera Alumbrera Limited,
Argentina together with its wholly owned Peak Gold Mine in New South Wales,
Australia was completed in March 2003. Cash consideration was $210 million and
the profit on disposal, which is disclosed separately on the face of the Profit
and Loss Account was $19 million.
On 21 July 2003, Rio Tinto and BP announced that they had agreed to sell their
interests in PT Kaltim Prima Coal for a cash price of $500 million, which
includes assumed debt. The sale is subject to various approvals and completion
is anticipated in October 2003. Each company will receive 50 per cent of the
net proceeds.
Price and exchange sensitivities
The following sensitivities give the estimated effect on net earnings assuming
that the price or exchange rate moved in isolation. The relationship between
currencies and commodity prices is a complex one and movements in exchange rates
can cause movements in commodity prices and vice versa. The exchange rate
sensitivities quoted below include the effect on operating costs of movements in
exchange rates but exclude the effect due to the revaluation of foreign currency
working capital. They should therefore be used with care.
Estimated effect on Rio Tinto's full year net earnings of:
Change in full year average US$m
Copper +/- 7c/lb 99
Gold +/-$35/oz 56
Aluminium +/- 6c/lb 88
Australian dollar +/- 6USc 139
Canadian dollar +/- 7USc 26
South African rand +/- 0.7 rand 16
For further information, please contact:
LONDON AUSTRALIA
Media Relations Media Relations
Lisa Cullimore Ian Head
Office: +44 (0) 20 7753 2305 Office: +61 (0) 3 9283 3620
Mobile: +44 (0) 7730 418 385 Mobile: +61 (0) 408 360 101
Investor Relations Investor Relations
Peter Cunningham Dave Skinner
Office: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628
Mobile: +44 (0) 7711 596 570 Mobile: +61 (0) 408 335 309
Richard Brimelow Daphne Morros
Office: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639
Mobile: +44 (0) 7753 783 825 Mobile: +61 (0) 408 360 764
Website: www.riotinto.com
Directors' report
Activities and review of operations
A detailed review of the Group's activities during the half year ended 30 June
2003 and likely future developments are given on pages 3 to 18.
Directors
Executive directors
Sir Robert Wilson KCMG, Chairman (note b)
R Leigh Clifford, Chief executive
Robert Adams
Guy R Elliott
Oscar L Groeneveld
Non executive directors
Sir Richard Giordano, Senior non executive director and deputy chairman (notes
a, b and d)
Leon A Davis, Deputy chairman (note d)
David C Clementi (notes a and c)
Andrew F J Gould (notes a and c)
David L Mayhew (notes a and b)
John P Morschel (notes b, c and d)
Paul D Skinner (notes a, b and d)
Sir Richard Sykes (note c)
Lord Tugendhat (note a and d)
Notes
a) Audit committee
b) Nominations committee
c) Remuneration committee
d) Committee on social and environmental accountability
Mr D C Clementi was appointed a non executive director on 28 January 2003. Mr J
C A Leslie resigned as an executive director on 31 March 2003 and The Hon R G H
Seitz, who had served as a non executive director since 1996, retired with
effect from the conclusion of the Rio Tinto Limited annual general meeting on 1
May 2003.
Dividends
Full details of dividends are given on page 5.
Corporate governance
Rio Tinto is committed to high standards of corporate governance, for which the
boards of directors are accountable to shareholders. A common approach to
corporate governance is adopted by both Rio Tinto plc and Rio Tinto Limited. The
Companies have, for the whole period under review, applied the principles of
good governance contained in Part 1 of the Combined Code on best practice in
corporate governance published in June 1998 and appended to The Listing Rules of
the UK Financial Services Authority, and support the guidelines of the
Australian Stock Exchange on disclosure of corporate governance practice.
Both Companies have policies in place to govern the dealing by directors and
employees in Rio Tinto securities. Under these policies, directors and employees
are prohibited from dealing in Rio Tinto securities when in possession of price
sensitive information. In addition directors and certain employees are
prohibited from dealing during 'close periods' of up to two months preceding a
profit announcement. These policies also prohibit directors and certain
employees from short term speculative dealing in Rio Tinto securities.
The directors have established four committees, the Audit committee, the
Remuneration committee, the Nominations committee and the Committee on social
and environmental accountability, which are fundamental for good corporate
governance in the Group. Regular reports of their activities are given to the
boards and minutes are circulated to all directors. Committee members, shown on
page 19, are all non executive directors, except for the Nominations committee,
which includes the chairman of Rio Tinto.
The directors are required by UK and Australian company law to prepare financial
statements for each financial period which give a true and fair view of the
state of affairs of the Group as at the end of the financial period and of the
profit or loss and cash flows for that period. To ensure that this requirement
is satisfied the directors are responsible for establishing and maintaining
adequate internal controls and procedures for financial reporting throughout the
Group.
Internal control
The boards have established a process for identifying, evaluating and managing
the significant risks faced by the Group. This process accords with the guidance
set out in Internal Control: Guidance for Directors on the Combined Code.
By order of the board
A V Lawless S J Consedine
Secretary Secretary
Rio Tinto plc Rio Tinto Limited
31 July 2003 31 July 2003
Profit and loss account
First First
half half Year
2003 2002 2002
US$m US$m US$m
Gross turnover (including share of 5,561 5,079 10,828
joint ventures and associates)
Share of joint ventures' turnover (875) (790) (1,662)
Share of associates' turnover (348) (326) (723)
Consolidated turnover 4,338 3,963 8,443
Net operating costs (full year 2002 included
exceptional charges of US$1,078 million) (3,648) (3,045) (7,612)
Group operating profit 690 918 831
Share of operating profit of joint ventures 259 251 532
Share of operating profit of associates 136 103 239
Profit on disposal of interests in subsidiary and 19 - -
associate
Profit on ordinary activities before interest 1,104 1,272 1,602
Net interest payable (101) (119) (237)
Amortisation of discount (39) (31) (54)
Profit on ordinary activities before taxation 964 1,122 1,311
Taxation (full year 2002 included tax relief on
exceptional charges of US$42 million) (309) (362) (708)
Profit on ordinary activities after taxation 655 760 603
Attributable to outside equity shareholders (full year
2002
included exceptional charges of US$173 million) (14) (58) 48
Profit for the financial period (net earnings) 641 702 651
Dividends to shareholders (413) (406) (826)
Retained profit/(loss) for the period 228 296 (175)
Earnings per ordinary share 46.5c 51.0c 47.3c
Adjusted earnings per ordinary share 46.5c 51.0c 111.2c
Dividends per share to Rio Tinto shareholders 30.0c 29.5c 60.0c
Diluted earnings per share figures for the half year are 0.1 US cents (First
half 2002: 0.1 US cents) lower than the earnings per share figures above.
For the purpose of calculating earnings and adjusted earnings per share, the
weighted average number of Rio Tinto plc and Rio Tinto Limited shares
outstanding during the period was 1,377.1 million, being the average number of
Rio Tinto plc shares outstanding (1,065.6 million) plus the average number of
Rio Tinto Limited shares outstanding not held by Rio Tinto plc (311.5 million).
The results for all periods relate wholly to continuing operations.
Full year 2002 profit is stated after exceptional charges; these are added back
in the table below to arrive at adjusted earnings.
First First
half half Year
2003 2002 2002
US$m US$m US$m
Profit for the financial period (net earnings) 641 702 651
Exceptional charges impact on the above
profit and loss account as follows:
Asset write downs - - (978)
Environmental remediation charge - - (116)
Taxation - - 42
Attributable to outside equity shareholders - - 173
Net exceptional charge - - (879)
Adjusted earnings 641 702 1,530
Cash flow statement
First First
half half Year
2003 2002 2002
US$m US$m US$m
Cash flow from operating activities (see below) 1,293 1,416 3,134
Dividends from joint ventures 211 174 513
Dividends from associates 65 47 96
Total cash flow from operations 1,569 1,637 3,743
Interest received 22 25 80
Interest paid (107) (119) (264)
Dividends paid to outside shareholders (54) (44) (117)
Returns on investment and servicing of finance (139) (138) (301)
Taxation (494) (446) (722)
Purchase of property, plant and equipment (666) (635) (1,296)
Funding of Group share of joint ventures' and
associates'
capital expenditure (107) (42) (137)
Other funding of joint ventures and associates
and repayments 19 - (6)
Exploration and evaluation expenditure (67) (56) (124)
Sale of property, plant and equipment 3 6 16
Sales less purchases of other investments 87 (318) (323)
Capital expenditure and financial investment (731) (1,045) (1,870)
Disposals less acquisitions 221 225 127
Equity dividends paid to Rio Tinto shareholders (420) (540) (948)
Cash inflow/(outflow) before management of
liquid resources and financing 6 (307) 29
Net cash (outflow)/inflow from management of
liquid resources (42) 161 213
Ordinary shares issued for cash 15 14 37
Loans received less repaid 44 152 (409)
Management of liquid resources and financing 17 327 (159)
Increase/(decrease) in cash 23 20 (130)
Cash flow from operating activities
Group operating profit 690 918 831
Exceptional charges (all non cash items) - - 1,078
690 918 1,909
Depreciation and amortisation 488 445 954
Exploration and evaluation charged against profit 64 58 130
Provisions 40 34 58
Utilisation of provisions (77) (64) (118)
Change in inventories (41) 1 85
Change in accounts receivable and prepayments 141 146 158
Change in accounts payable and accruals (51) (81) (57)
Other items 39 (41) 15
Cash flow from operating activities 1,293 1,416 3,134
Net debt of US$5,804 million at 30 June 2003 compares with US$5,747 million at
31 December 2002. The increase of US$57 million comprises the cash inflow
before management of liquid resources and financing of US$6 million and other
items, including the effect of exchange rate movements, of US$63 million.
Balance sheet
First First First First
half half half half Year
2003 2002 2003 2002 2002
A$m A$m US$m US$m US$m
Intangible fixed assets
1,657 1,860 Goodwill 1,104 1,053 1,015
101 104 Exploration and evaluation 67 59 57
1,758 1,964 1,171 1,112 1,072
Tangible fixed assets
20,406 22,450 Property, plant and equipment 13,592 12,716 12,183
Investments
5,073 5,406 Share of gross assets of joint ventures 3,379 3,062 3,109
(1,766) (2,053) Share of gross liabilities of joint ventures (1,176) (1,163) (1,188)
3,307 3,353 2,203 1,899 1,921
773 1,082 Investments in associates/other investments 515 613 656
4,080 4,435 Total investments 2,718 2,512 2,577
26,244 28,849 Total fixed assets 17,481 16,340 15,832
Current assets
2,507 2,775 Inventories 1,670 1,572 1,502
Accounts receivable and prepayments
2,461 2,890 Falling due within one year 1,639 1,637 1,598
971 1,119 Falling due after more than one year 647 634 641
3,432 4,009 2,286 2,271 2,239
353 579 Investments 235 328 306
571 983 Cash 380 557 325
6,863 8,346 Total current assets 4,571 4,728 4,372
Current liabilities
(4,061) (5,857) Short term borrowings (2,705) (3,318) (3,366)
(2,914) (3,220) Accounts payable and accruals (1,941) (1,824) (1,974)
(6,975) (9,077) Total current liabilities (4,646) (5,142) (5,340)
(112) (731) Net current liabilities (75) (414) (968)
26,132 28,118 Total assets less current liabilities 17,406 15,926 14,864
Liabilities due after one year
(5,234) (5,777) Medium and long term borrowings (3,486) (3,272) (2,708)
(357) (546) Accounts payable (238) (309) (304)
(5,996) (6,182) Provisions for liabilities and charges (3,994) (3,502) (3,612)
(1,347) (1,638) Outside shareholders' interests (equity) (897) (928) (778)
13,198 13,975 8,791 7,915 7,462
Capital and reserves
Share capital
233 272 - Rio Tinto plc 155 154 154
1,447 1,441 - Rio Tinto Limited (excluding Rio Tinto plc 964 816 816
interest)
2,431 2,841 Share premium account 1,619 1,609 1,610
479 533 Other reserves 319 302 303
8,608 8,888 Profit and loss account 5,734 5,034 4,579
13,198 13,975 Equity shareholders' funds 8,791 7,915 7,462
At 30 June 2003, Rio Tinto plc had 1,066 million ordinary shares in issue and
Rio Tinto Limited had 312 million shares in issue, excluding those held by Rio
Tinto plc.
At 30 June 2003, net tangible assets per share amounted to US$5.53 (30 June
2002: US$4.94).
In accordance with FRS 4, all commercial paper is classified as short term
borrowings though US$2.5 billion (30 June 2002: US$1.9 billion) is backed by
medium term facilities. Under US and Australian GAAP, this amount would be
grouped within non-current borrowings at 30 June 2003.
Current asset investments include US$228 million (30 June 2002: US$316million)
relating to US treasury bills, which are held as security for the deferred
consideration for assets acquired during 2002.
Reconciliation with Australian GAAP
First First First First
half half half half Year
2003 2002 2003 2002 2002
A$m A$m US$m US$m US$m
1,044 1,317 Adjusted earnings reported under UK GAAP 641 702 1,530
- - Exceptional charges - - (879)
1,044 1,317 Net earnings under UK GAAP 641 702 651
Increase/(decrease) net of tax in respect of :
(132) (152) Goodwill amortisation (81) (81) (167)
- - Asset write downs - - (19)
(11) (11) Taxation (7) (6) (13)
3 6 Other 2 3 3
904 1,160 Net earnings under Australian GAAP 555 618 455
65.6c 84.3c Earnings per ordinary share under Australian 40.3c 44.9c 33.1c
GAAP
Diluted earnings per share under Australian GAAP are 0.1 US cents (First half
2002: 0.1 US cents) less than the above earnings per share figures.
Exceptional charges
Full year 2002 net earnings under United Kingdom generally accepted accounting
principles ('UK GAAP') are stated after exceptional charges of US$879 million
relating to asset write downs and environmental remediation. Under generally
accepted accounting principles in Australia ('Australian GAAP') these items
totalled US$898 million. However, the concept of adjusted earnings does not
exist under Australian GAAP.
First First First First
half half half half Year
2003 2002 2003 2002 2002
A$m A$m US$m US$m US$m
13,198 13,975 Shareholders' funds under UK GAAP 8,791 7,915 7,462
Increase/(decrease) net of tax in respect of :
1,441 2,029 Goodwill 960 1,149 1,044
101 143 Taxation 67 81 74
620 - Dividends 413 - -
(39) (41) Other (26) (23) (23)
15,321 16,106 Shareholders' funds under Australian GAAP 10,205 9,122 8,557
The Group's financial statements have been prepared in accordance with UK GAAP,
which differs in certain respects from Australian GAAP.
These differences relate principally to the following items, and the effect of
each of the adjustments to net earnings and shareholders' funds which 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 acquisitions 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
Under UK GAAP, provision for 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.
Under UK GAAP, 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 in 2002 were US$19 million higher than
under UK GAAP because the relevant carrying values included goodwill that was
eliminated directly against reserves in the year of acquisition for UK GAAP
purposes.
Proposed dividends
Under UK GAAP, ordinary dividends are recognised in the financial year in
respect of which they are paid. Under Australian GAAP, with effect from 1
January 2003, such dividends are not recognised until they are declared,
determined or publicly recommended by the Board of directors. Prior to 1
January 2003, Australian GAAP was consistent with UK GAAP.
Reconciliation of movements in shareholders' funds
First First
half half Year
2003 2002 2002
US$m US$m US$m
Profit for the period 641 702 651
Dividends (413) (406) (826)
228 296 (175)
Adjustment on currency translation 1,087 562 579
Share capital issued 14 14 15
1,329 872 419
Opening shareholders' funds 7,462 7,043 7,043
Closing shareholders' funds 8,791 7,915 7,462
Prima facie tax reconciliation
First First
half half Year
2003 2002 2002
US$m US$m US$m
Profit on ordinary activities before taxation 964 1,122 1,311
Prima facie tax at UK and Australian rate of 30% 289 337 393
Impact of exceptional charges - - 328
Other permanent differences
Other tax rates applicable outside the UK and Australia 29 39 56
Resource depletion allowances (15) (29) (58)
Permanently disallowed amortisation/depreciation 23 24 51
Research, development and other investment allowances (5) (2) (7)
Other 9 6 24
41 38 66
Other deferral of taxation
Capital allowances in excess of depreciation charges (44) (51) (90)
Other timing differences 6 (21) 21
Total timing differences related to the current period (38) (72) (69)
Current taxation charge for the period 292 303 718
Deferred tax recognised on timing differences 38 72 27
Deferred tax impact of changes in tax rates - (15) (14)
Other deferred tax items (21) 2 (23)
Total taxation charge for the period 309 362 708
Exploration and evaluation properties
First First
half half Year
2003 2002 2002
US$m US$m US$m
At cost less amounts written off
At 1 January 694 678 678
Adjustment on currency translation 67 34 25
Expenditure in period 67 56 124
Charged against profit for the period (21) (23) (50)
Disposals, transfers and other movements (26) (52) (83)
At end of period 781 693 694
Provision
At 1 January (637) (623) (623)
Adjustment on currency translation (58) (31) (22)
Charged against profit for the period (43) (35) (80)
Disposals, transfers and other movements 24 55 88
At end of period (714) (634) (637)
Net balance sheet amount 67 59 57
Product analysis
First First First First
half half half half Year
2003 2002 2003 2002 2002
% % US$m US$m US$m
Gross turnover
12.3 13.4 Copper 685 682 1,348
10.5 9.4 Gold (all sources) 584 478 1,046
18.0 15.0 Iron ore 999 764 1,772
18.6 21.6 Coal 1,034 1,095 2,203
15.9 16.5 Aluminium 883 838 1,663
15.6 16.2 Industrial minerals 866 821 1,898
4.4 3.1 Diamonds 243 158 372
4.7 4.8 Other products 267 243 526
100.0 100.0 5,561 5,079 10,828
Net earnings
26.6 18.9 Copper, gold and by-products 194 152 369
29.4 24.6 Iron ore 215 198 455
13.2 22.6 Coal 96 182 318
13.4 15.4 Aluminium 98 124 257
10.7 13.9 Industrial minerals 78 112 292
7.3 3.0 Diamonds 53 24 63
(0.6) 1.6 Other products (4) 14 22
100.0 100.0 730 806 1,776
Exploration and evaluation (52) (49) (109)
Net interest (29) (53) (95)
Other items (8) (2) (42)
641 702 1,530
Exceptional charges - - (879)
641 702 651
Geographical analysis (by country of origin)
First First First First
half half half half Year
2003 2002 2003 2002 2002
% % US$m US$m US$m
Gross turnover
28.6 31.6 North America 1,590 1,605 3,377
43.8 41.8 Australia and New Zealand 2,436 2,122 4,500
5.6 5.3 South America 314 268 525
5.7 7.2 Africa 317 364 783
10.6 8.6 Indonesia 587 435 1,039
5.7 5.5 Europe and other countries 317 285 604
100.0 100.0 5,561 5,079 10,828
Net earnings
15.8 21.9 North America 106 165 326
57.2 58.1 Australia and New Zealand 383 439 939
11.0 3.3 South America 74 25 65
2.2 8.1 Africa 15 61 115
16.1 6.4 Indonesia 108 48 185
(2.3) 2.2 Europe and other countries (16) 17 (5)
100.0 100.0 670 755 1,625
Net interest (29) (53) (95)
641 702 1,530
Exceptional charges - - (879)
641 702 651
Comparative figures in the Product analysis have been restated following a
change in the basis of attribution of post retirement costs to business units,
and consequently to Product groups, which is explained further on page 30.
The above analysis includes Rio Tinto's share of the results of joint ventures
and associates including interest.
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'.
Reconciliation with US GAAP
First First
half half Year
2003 2002 2002
US$m US$m US$m
Net earnings under UK GAAP 641 702 651
Increase/(decrease) net of tax in respect of :
Amortisation of goodwill - subsidiaries and joint 37 46 90
arrangements
Amortisation of intangibles - subsidiaries and joint (23) (31) (59)
arrangements
Amortisation of intangibles - equity accounted companies (4) (4) (9)
Pensions/post retirement benefits 14 (5) 2
Share options (11) (8) (17)
Asset write downs (4) (10) (317)
Exchange differences taken to earnings under US GAAP 441 271 287
Other (35) (24) (47)
Income before cumulative effect of change in accounting 1,056 937 581
principle
Cumulative effect of change in accounting principle for close (178) - -
down and restoration costs
Net income under US GAAP 878 937 581
Basic earnings per ordinary share under US GAAP
Before cumulative effect of change in accounting principle 76.7c 68.1c 42.2c
After cumulative effect of change in accounting principle 63.8c 68.1c 42.2c
Shareholders' funds under UK GAAP 8,791 7,915 7,462
Increase/(decrease) net of tax in respect of :
Goodwill - subsidiaries and joint arrangements 1,124 1,007 1,065
Goodwill - equity accounted companies 352 447 352
Intangibles - subsidiaries and joint arrangements 260 304 271
Intangibles - equity accounted companies 46 53 49
Taxation 67 81 74
Proposed dividends 413 403 430
Asset write downs 258 482 262
Reversal of additional provisions under FRS 12 - 183 178
Start-up costs (78) (68) (70)
Mark to market of derivative contracts 181 (58) (14)
Pensions/post retirement benefits (453) (170) (371)
Share options (50) (28) (38)
Other (175) (125) (133)
Shareholders' funds under US GAAP 10,736 10,426 9,517
Diluted earnings per share under US GAAP are 0.1 US cents (First half 2002: 0.1
US 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 under US
GAAP but are reviewed annually for impairment under FAS 142, 'Goodwill and other
Intangible Assets'. Goodwill amortisation charged against UK GAAP earnings is
added back in the US GAAP reconciliation.
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 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, included amounts recognised in 2001 under UK GAAP and also an adjustment
for goodwill.
Tax - Differences exist between UK GAAP and US GAAP which impact on the
treatment of tax benefits related to goodwill previously written off to reserves
under UK GAAP, and on tax relating to future remittances of earnings. These
differences also arise in the Reconciliation with Australian GAAP and are
explained further on page 24.
Provisions for close down and restoration costs - FAS 143 'Accounting for Asset
Retirement Obligations' has been implemented with effect from 1 January 2003.
Under this US standard, provision is made in the accounting period when the
related environmental disturbance occurs, based on the net present value of
estimated future costs. The costs so recognised are capitalised and depreciated
over the estimated useful life of the related asset. Over time, the liabilities
will be accreted for the change in their present value. This accounting
treatment is broadly similar to Rio Tinto's established policy under UK GAAP.
Consequently, the 'Reversal of provisions under FRS 12' included in the above
reconciliation at 31 December 2002 is no longer appropriate. In future periods
any differences in the above costs recognised for US and UK reporting are
expected to be modest.
Share options - Under UK GAAP, no cost is accrued where the option scheme
applies to all relevant employees and the intention is to satisfy the share
options by the issuance of new shares. Prior to 2002, under US GAAP the Group
accounted for share option plans under the recognition and measurement
provisions of APB Opinion 25, 'Accounting for Stock Issued to Employees', and
related interpretations. In 2002 the Group adopted the fair value recognition
provisions of FAS 123, 'Accounting for Stock Based Compensation', which is
considered by the SEC to be a preferable accounting method for share based
employee compensation. Fair value is determined using an option pricing model.
Exchange differences, 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. Net exchange gains
of US$319 million on US dollar debt that do not qualify for hedge accounting
under US GAAP have therefore been recorded in US GAAP earnings.
Exchange differences, 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 (amended), Accounting for Derivative Instruments and Hedging Activities',
principally because the hedge is not located in the entity with the exposure.
Unrealised gains of US$122 million on such derivatives have therefore been taken
to US GAAP earnings.
Accounting principles
The financial information included in this report 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 21 July 2003. The UK GAAP financial information
has been drawn up on the basis of accounting policies consistent with those
applied in the financial statements for the year to 31 December 2002.
Prior year financial information
Financial information for the year 2002 has been extracted from the full
financial statements prepared on the historical cost basis as filed with the
Registrar of Companies. The auditors' report on the financial statements for
the year ended 31 December 2002 was unqualified and did not contain statements
under section 237(2) of the United Kingdom Companies Act 1985 (regarding
adequacy of accounting records and returns), or under section 237(3) (regarding
provision of necessary information and explanations).
Directors' declaration
The financial statements have been prepared in accordance with the Listing Rules
of the Financial Services Authority in the United Kingdom and with applicable
accounting standards, using the most appropriate accounting policies for Rio
Tinto's business and supported by reasonable and prudent judgements.
The financial statements give a true and fair view of the state of affairs of
the Rio Tinto Group at 30 June 2003 and of the profit and cash flows of the
Group for the half year then ended.
The financial statements have been prepared on the going concern basis since, in
our opinion, each of the Rio Tinto Group, Rio Tinto Limited and Rio Tinto plc
has adequate financial resources to continue in operational existence for the
foreseeable future and to pay its debts as and when they become due and payable.
By order of the board
G R Elliott
Finance Director
31 July 2003
Independent review report to Rio Tinto plc and Rio Tinto Limited
Introduction
We have been instructed by the companies to review the financial information of
the Rio Tinto Group which comprises the profit and loss account, the cash flow
statement, the balance sheet, the reconciliation with Australian GAAP and the
related notes (including the financial information by Business Unit). We have
read the other information contained in the interim report, including the
reconciliation with US GAAP, and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority in the United Kingdom which require
that the accounting policies and presentation applied to the interim figures
should be consistent with those applied in preparing the preceding annual
financial statements except where any changes, and the reasons for them, are
disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not
express an audit opinion on the financial information. This report, including
the conclusion, has been prepared for and only for the companies for the purpose
of the Listing Rules of the Financial Services Authority in the United Kingdom
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2003.
PricewaterhouseCoopers LLP PricewaterhouseCoopers
Chartered Accountants Chartered Accountants
London Perth
31 July 2003 31 July 2003
in respect of Rio Tinto plc in respect of Rio Tinto Limited
Summary financial data in Australian dollar, Sterling and US dollar
First First First First First First
half half half half half half Year
2003 2002 2003 2002 2003 2002 2002
A$m A$m £m £m US$m US$m US$m
9,054 9,523 3,454 3,526 Gross turnover (including share of 5,561 5,079 10,828
joint ventures and associates)
1,569 2,105 599 777 Profit on ordinary activities before 964 1,122 1,311
taxation
1,044 1,317 398 486 Adjusted earnings* 641 702 1,530
1,044 1,317 398 486 Profit for the financial period (net 641 702 651
earnings)
75.8c 95.7c 28.9p 35.3p Earnings per ordinary share 46.5c 51.0c 47.3c
75.8c 95.7c 28.9p 35.3p Adjusted earnings per ordinary share* 46.5c 51.0c 111.2c
Dividends per share to Rio Tinto
shareholders
18.45p 18.87p -Rio Tinto plc 30.0c 29.5c 60.0c
45.02c 54.06c -Rio Tinto Limited
2,554 3,070 975 1,136 Total cash flow from operations 1,569 1,637 3,743
(1,190) (1,960) (454) (726) Capital expenditure and financial (731) (1,045) (1,870)
investment
(8,714) (10,630) (3,511) (3,946) Net debt (5,804) (6,021) (5,747)
13,198 13,975 5,318 5,188 Equity shareholders' funds 8,791 7,915 7,462
* Adjusted earnings for full year 2002 excluded exceptional charges of US$879
million, which are analysed on page 21.
The financial data above have been extracted from the primary financial
statements set out on pages 21 to 23. The Australian $ and Sterling amounts are
based on the US $ amounts, retranslated at average or closing rates as
appropriate. For further information on these exchange rates, please see page
30.
Metal prices and exchange rates
First First
half half Change Year
2003 2002 1H03 v 1H02 2002
Metal prices - average for the
period
Copper - US cents/lb 75c 72c 4% 71c
Aluminium - US cents/lb 63c 62c 2% 61c
Gold - US$/troy oz US$ 350 US$ 301 16% US$ 309
Average exchange rates in US$
Sterling 1.61 1.44 12% 1.50
Australian dollar 0.61 0.53 15% 0.54
Canadian dollar 0.69 0.63 10% 0.64
South African rand 0.12 0.09 33% 0.09
Period end exchange rates in US$
Sterling 1.65 1.53 8% 1.60
Australian dollar 0.67 0.57 18% 0.57
Canadian dollar 0.74 0.66 12% 0.63
South African rand 0.13 0.10 30% 0.12
The Australian $ exchange rates, given above, are based on the Hedge Settlement
Rate set by the Australian Financial Markets Association.
Circulation to shareholders
This report will be circulated to shareholders and is available on the Rio Tinto
website.
Notes to financial information by business unit (Pages 6 and 7)
( a ) Includes Rio Tinto's interest in Anglesey Aluminium (51%) and Comalco
(100%).
( b ) Includes Rio Tinto's interest in Morro do Ouro (51%).
( c ) Gross turnover includes 100 per cent of subsidiaries' turnover and the
Group's share of the turnover of joint ventures and associates.
( d ) EBITDA of subsidiaries, joint ventures and associates represents profit
before: tax, net interest payable, depreciation and amortisation.
( e ) 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.
( f ) Capital expenditure comprises the net cash outflow on purchases less
disposals of property, plant and equipment. The details provided include 100
per cent of subsidiaries' capital expenditure and 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 the total capital expenditure for the Group.
( g ) Depreciation figures include 100 per cent of subsidiaries' depreciation
and goodwill amortisation and include Rio Tinto's share of the depreciation and
goodwill amortisation of joint ventures and associates. Amounts relating to
joint ventures and associates are deducted before arriving at the total
depreciation charge.
( 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 (ie net of such companies' debt). For
joint ventures and associates Rio Tinto's net investment is shown. For joint
ventures and associates shown in the Financial Information by Business Unit on
pages 6 and 7, Rio Tinto's shares of operating assets, defined as for
subsidiaries, are as follows: Escondida US$889 million (2002: US$886 million),
Freeport joint venture US$405 million (2002: US$439 million), Freeport associate
US$511 million (2002: US$571 million), Kaltim Prima US$119 million (2002: US$128
million).
Business units have been classified in the analysis on pages 6 and 7 according
to the Group's current management structure. Generally, this structure has
regard to the primary product of each business unit but there are exceptions.
For example, the Copper group includes certain gold operations. This summary
differs, therefore, from the Product analysis in which the contributions of
individual business units are attributed to several products as appropriate.
The Product group previously known as 'Diamonds and Gold' has been redesignated
the 'Diamonds' group, with effect from 1 January 2003. Kennecott Minerals and
Rio Tinto Brasil are now included in the 'Copper' group. Kelian, Lihir and Rio
Tinto Zimbabwe are included in 'Other Operations'. In addition, Rio Tinto
Aluminium has been transferred from 'Copper' to 'Aluminium'.
From 1 January 2003 the way in which post retirement costs are attributed to
business units, and consequently Product groups, has been revised. The regular
cost component of post retirement costs is included in business unit earnings
and the balance of post retirement cost is recognised centrally in 'other
items'. The analyses of half year 2002 Net Earnings, EBITDA and Operating
Assets have been restated to reflect this reallocation. There is no impact on
Net Earnings for the Group.
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