Interim Results

Rio Tinto PLC 29 July 2004 Record first half result • Record first half adjusted earnings* of $993 million were $352 million (55 per cent) above the first half of 2003. Net earnings were a record $1,439 million. • Cash flow from operations of $2,027 million was also a first half record, 29 per cent above the first half of 2003. In addition, stronger markets created opportunities for the disposal of non-core assets, which generated proceeds of $1.2 billion. • Stronger markets for most products were evidenced by higher prices. Compared to the first half of 2003, higher prices, principally for copper, aluminium and iron ore, increased earnings by $722 million. The full benefit of a stronger seaborne thermal coal market will flow through in the second half of 2004. • Earnings benefited from increased production from new projects at Diavik (diamonds), Eastern Range (iron ore), Hail Creek (coking coal) and Escondida (copper). • Increased costs and lower volumes due to the material slippage at the Grasberg mine reduced earnings by $166 million. Output from the mine increased in the second quarter and the recovery process is progressing well. • Western Australian iron ore operations essentially returned to normal following the impact of tropical cyclone Monty which had a prolonged effect on operations and therefore on volumes, product mix and costs. • Major capital projects are progressing well. The Comalco Alumina Refinery remains on track for first shipments in early 2005. The major expansion of iron ore capacity in Western Australia is now underpinned by long term contracts with leading steel mills in China and Japan. 6 months to 30 June (All dollars are US$) 2004 2003 Change Gross turnover $6,621m $5,561m +19% Cash flow from operations (incl. associate and JV dividends) $2,027m $1,569m +29% Adjusted earnings* $993m $641m +55% Net earnings (after exceptional items)* $1,439m $641m +124% Adjusted earnings per share - US cents 72.0 46.5 +55% Earnings per share - US cents 104.4 46.5 +124% Dividends per share - US cents 32.0 30.0 +7% *2004 first half earnings are stated after net exceptional items of $446 million comprising gains on asset disposals of $606 million and an investment write down and provision for related contract obligations of $160 million. Adjusted earnings and adjusted earnings per share exclude exceptional items of such magnitude that their exclusion is necessary in order that adjusted earnings fulfil their purpose of reflecting the underlying performance of the business. Chairman's comments Rio Tinto's chairman Paul Skinner said, 'The first quarter presented Rio Tinto with a number of operational challenges. However, improved performance in the second quarter enabled us to produce record first half earnings and cashflow. 'As we expected, we have seen stronger markets and improved prices for key products. Our strong operating cashflow, together with the disposal of non-core assets, has further strengthened our balance sheet and we are well placed to take advantage of opportunities as and when they arise. 'Strength in our markets has been supported by continuing improvement in the OECD economies combined with sustained Chinese demand for raw materials. While we do not expect that Chinese demand for metals and minerals will continue to grow at the rate of the last year, we do expect it to continue to underpin the markets for many of our products longer term. 'Much of the momentum built up in metals and minerals markets during the first half of the year should continue through the second. Global markets are benefiting from generally improved economic performance but will continue to reflect political and other uncertainties, including pending elections in some of our key countries, developments in the Middle East and the outcome of the Doha development round.' Chief Executive's comments Leigh Clifford, Rio Tinto's chief executive said, 'I am pleased with the way we have overcome many of the operational challenges that we faced in the early part of the year. The iron ore operations are now essentially back to normal following the effects of tropical cyclone Monty. Production from the Grasberg open pit resumed in the second quarter and is in the process of ramping up to normal levels. 'Many of our businesses now have greater opportunities than they have had for a number of years as a result of the strength in demand for their products from China and elsewhere. Our long life operations give us the potential to expand to meet market growth. 'Our new operations and major expansions continue to meet or exceed expectations. The Hail Creek coking coal mine has ramped up to design capacity much quicker than originally planned and we have now committed to a further expansion to an annual capacity of 8 million tonnes. The performance of the Diavik diamond mine has been very encouraging. 'We have high quality projects under construction across a range of products. The major expansion of our iron ore infrastructure in the Pilbara is progressing well and remains on schedule for completion at the end of 2005. The new capacity is now largely underwritten by long term contracts with leading customers. The operational preparations for higher iron ore production, including an acceleration of material movement and increased maintenance, are also going well, although in the short term impacting operating costs. The Comalco Alumina Refinery remains on course for first shipments in early 2005. 'While we welcome the current strong markets we continue to be disciplined and rigorous in our project appraisal. 'Looking at longer term opportunities, the strength of our exploration portfolio was demonstrated by the transfer of recent discoveries at Eagle (nickel) and Dashkasan (gold) to product groups for further study.' Webcast A live webcast of the results presentation starting at 10-00 BST (19-00 Australian Eastern Standard Time) on 29 July 2004 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 Adjusted earnings of $993 million were $352 million above the corresponding period of last year. Net earnings of $1,439 million were $798 million above the corresponding period of last year. The principal factors are shown in the tables below. Adjusted earnings US$m Net earnings US$m 2003 first half 641 2003 first half 641 Prices 722 Prices 722 Exchange rates (114) Exchange rates (114) Inflation (63) Inflation (63) Grasberg slippage (166) Grasberg slippage (166) Volumes 119 Volumes 119 Costs (80) Costs (80) Other (66) Other (66) 2004 exceptional items 446 2004 first half 993 2004 first half 1,439 Adjusted earnings exclude the exceptional items which are described below. Prices and exchange Stronger markets resulted in higher prices for most of the Group's products. Compared with the first half of 2003, average copper prices of 125c/lb were 67 per cent higher, average aluminium prices of 75c/lb were 19 per cent higher and average gold prices of $401/oz were 15 per cent higher. The benchmark iron ore price increased 19 per cent. This resulted in increased iron ore prices mainly effective from 1 April. The strengthening seaborne thermal coal market was reflected in rising spot prices. The benefits of this have begun to flow through, and will continue to do so progressively during the rest of the year. The US dollar weakened against those currencies in which the Group incurs the majority of its costs. Against the Australian dollar it averaged 21 per cent weaker. The effect of this and other currency movements on operating costs reduced earnings by $213 million. The effect on earnings of the revaluation of monetary items to period end exchange rates was slightly favourable, although relative to a substantial net charge in the first half of 2003, it had a positive effect of $80 million. Gains on currency hedges initiated by North, Ashton and Comalco before 2000 increased earnings by $19 million compared with the first half of 2003. Grasberg slippage Production of both copper and gold from the Freeport managed Grasberg mine was significantly below preceding quarters as a consequence of the material slippage in the fourth quarter of 2003. The effect of this on volumes and costs was to reduce earnings by $166 million. Volumes Excluding the effects of the Grasberg slippage, higher volumes, mainly from new projects at Diavik (diamonds), Escondida (copper), Hail Creek (coking coal) and West Angelas (iron ore) increased earnings by $119 million. As a result of the effects of tropical cyclone Monty, which hit the Western Australian iron ore operations in March, volume growth from these operations was more modest than would otherwise have been the case. Costs Excluding the effect of inflation and the Grasberg slippage, the impact on earnings of increased costs was $80 million. At Hamersley, higher costs reduced earnings by $60 million due to increased material movement, including pre-stripping, and higher maintenance activity in the first half of the year in preparation for volume growth. Tropical cyclone Monty had a prolonged effect on the costs as well as volumes of Hamersley and Robe. Adverse cost variances at Argyle were attributable largely to lower volumes and at Palabora to lower volumes and increased depreciation following the commissioning of the underground project. Tax Excluding exceptional items, the effective tax rate of 30 per cent compares with 32 per cent in the first half of 2003. The 2004 tax charge benefits from an additional $29 million one-off benefit as a result of the proposed entry into the Australian tax consolidation regime and a favourable mix of profits towards jurisdictions with lower effective rates of tax. Other The variation in other items of $66 million is due primarily to the absence of earnings from divested businesses of $36 million, the absence of a $19 million profit reported in the first half of 2003 on the sale of Peak/Alumbrera and a $21 million profit on the sale of SouthernEra. There were also minor increases in pensions charges. Exceptional items Exceptional items of $446 million included net profits on disposal of non-core assets ($606 million) and a charge of $160 million relating to Colowyo. The sale of shares in Freeport-McMoRan Copper & Gold Inc. (FCX) generated a profit of $518 million. The other asset sales included interests in Fortaleza, Sepon, Zinkgruvan, Somincor and Boke. A detailed review of the mine plan and projected cash flows of the Colowyo coal business was completed in June 2004; this indicated that future operating and development costs are substantially higher than previously estimated. As a consequence of this an exceptional charge has been recorded for the write-down of Colowyo and recognition of related contract obligations. Cash flow The Group was strongly cash positive in the first half of the year. Cashflow from operations, including dividends received from joint ventures and associates, increased 29 per cent to over $2,027 million. Investment in the business continued. Purchase of property plant and equipment of $957 million was 44 per cent higher than the first half of 2003 due mainly to major projects in iron ore and alumina. Net sales of other investments of $158 million includes the sale of the Group's interests in Sepon and Boke and the disposal of US treasury bonds held as security for the deferred consideration on the acquisition of North Jacobs Ranch. Disposals, predominantly the sale of shares in FCX but also including interests in Fortaleza, Zinkgruvan and Somincor, generated a cash inflow of $1,137 million. Balance sheet Shareholders' funds increased by $648 million to $10,685 million. Profits exceeded dividends by $998 million and there was a write back of goodwill relating to asset disposals of $228 million. These were partially offset by the effect of exchange rate movements of $591 million. As a result of the strong cashflow, both from operations and from asset disposals, net debt fell from $5,646 million to $4,486 million. The ratio of net debt to total capital fell to 28 per cent at 30 June 2004 from 34 per cent at 31 December 2003. Interest was covered 18 times. Dividends Dividends are determined in US dollars. The interim dividend is set at one half of the total dividends for the previous year. Therefore interim dividends equivalent to 32.0 US cents per share (2003: 30.0 US cents per share) have been declared by Rio Tinto plc and Rio Tinto Limited. Rio Tinto plc dividends are declared and paid in pounds sterling and Rio Tinto Limited dividends are declared and paid in Australian dollars, converted at exchange rates applicable on Tuesday 27 July 2004. Rio Tinto plc shareholders will be paid an interim dividend of 17.54 pence per ordinary share (2003: 18.45 pence). Rio Tinto Limited shareholders will be paid an interim dividend of 45.53 Australian cents per ordinary share (2003: 45.02 Australian cents per share), which will be fully franked. The directors consider that there are sufficient franking credits available for paying fully franked dividends for at least the next year. The respective dividends will be paid on Friday 10 September 2004 to Rio Tinto plc shareholders on the register at the close of business on Friday 13 August 2004 and to Rio Tinto Limited shareholders on the register at the close of business on Tuesday 17 August 2004. The ex-dividend date for both Rio Tinto plc and Rio Tinto Limited will be Wednesday 11 August 2004. Dividends will be paid to Rio Tinto ADR holders on Monday 13 September 2004. As usual, Rio Tinto will operate its Dividend Reinvestment Plan, details of which can be obtained from the Company Secretaries' offices and from the Rio Tinto website (www.riotinto.com). The last date for receipt of the election notice for the Dividend Reinvestment Plans is Tuesday 19 August 2004. Rio Tinto financial information by business unit (1) US$ millions Rio Tinto Gross turnover (a) EBITDA (b) Net earnings (c) interest % 2004 2003 2004 2003 2004 2003 Iron Ore Hamersley (inc. HIsmelt(R)) 100.0 733 628 358 330 185 191 Robe River 53.0 249 172 149 97 50 30 Iron Ore Company of Canada 58.7 238 189 49 (3) 13 (6) 1,220 989 556 424 248 215 Energy Kennecott Energy 100.0 528 464 128 122 39 49 Rio Tinto Coal Australia 100.0 325 189 136 76 69 37 Kaltim Prima Coal (d) - 97 - 29 - 9 Coal & Allied 75.7 343 283 55 45 2 1 Rossing 68.6 48 41 11 (7) - (5) ERA 68.4 72 53 28 24 5 5 1,316 1,127 358 289 115 96 Industrial Minerals 909 843 258 243 99 74 Aluminium (e) 1,143 902 337 227 159 102 Copper Kennecott Utah Copper 100.0 524 321 244 73 136 10 Escondida 30.0 461 210 315 117 183 47 Freeport (f) 43 176 7 89 (4) 15 Grasberg joint venture (g) 44 211 9 134 (6) 64 Palabora 49.2 152 103 (6) 18 (9) 5 Kennecott Minerals 100.0 130 119 67 59 40 30 Rio Tinto Brasil (h) 53 73 20 21 5 3 Other (d) 123 94 64 30 40 (6) 1,530 1,307 720 541 385 168 Diamonds Argyle 100.0 195 243 69 115 32 53 Diavik 60.0 171 - 129 - 54 - 366 243 198 115 86 53 Other operations 90 119 41 57 15 22 Other items 47 31 (97) (70) (22) (8) Exploration and evaluation (72) (64) (59) (52) Net interest (33) (29) Adjusted earnings 993 641 Exceptional items 446 - 446 - Total 6,621 5,561 2,745 1,762 1,439 641 Reconciliation to the profit and loss account Profit on ordinary activities before interest 2,031 1,104 Depreciation and amortisation in subsidiaries 586 488 Depreciation and amortisation in JVs and associates 128 170 2,745 1,762 References above are to notes on page 27 Rio Tinto financial information by business unit (2) US$ millions Rio Tinto Capital Depreciation & Operating assets interest Expenditure (i) amortisation (j) (k) 30 June 30 June % 2004 2003 2004 2003 2004 2003 Iron Ore Hamersley (inc. HIsmelt(R)) 100.0 325 79 86 51 1,663 1,136 Robe River 53.0 38 28 46 35 1,694 1,659 Iron Ore Company of Canada 58.7 12 6 16 14 479 492 375 113 148 100 3,836 3,287 Energy Kennecott Energy 100.0 102 133 65 57 453 567 Rio Tinto Coal Australia 100.0 9 105 35 22 610 591 Kaltim Prima Coal (d) - 1 - 11 - 55 Coal & Allied 75.7 8 9 43 36 706 729 Rossing 68.6 1 3 8 3 52 45 ERA 68.4 2 1 14 12 166 164 122 252 165 141 1,987 2,151 Industrial Minerals 78 51 87 84 2,055 2,060 Aluminium (e) 219 182 90 71 3,220 2,847 Copper Kennecott Utah Copper 100.0 36 45 46 45 1,271 1,319 Escondida 30.0 36 20 25 38 498 491 Freeport (f) - 9 3 26 - 141 Grasberg joint venture (g) 17 22 19 22 405 405 Palabora 49.2 19 35 22 5 472 340 Kennecott Minerals 100.0 13 4 16 17 134 124 Rio Tinto Brasil (h) 6 6 3 7 75 85 Other (d) 32 25 15 34 159 275 159 166 149 194 3,014 3,180 Diamonds Argyle 100.0 47 12 20 32 567 520 Diavik 60.0 25 54 32 - 615 646 72 66 52 32 1,182 1,166 Other operations 5 2 14 20 72 101 Other items 12 6 9 16 (195) (197) Less joint ventures and associates (78) (68) (128) (170) - - Total 964 770 586 488 15,171 14,595 Less net debt (4,486) (5,804) Net assets 10,685 8,791 References above are to notes on page 27 Review of Operations Comparison of adjusted earnings 2004 adjusted earnings of $993 million were $352 million above the adjusted earnings of the first half of 2003. The table below shows the difference by product group. All financial amounts in the tables below are US$ millions unless indicated otherwise. Adjusted earnings $ m 2003 first half 641 Iron Ore 33 Energy 19 Industrial Minerals 25 Aluminium 57 Copper 217 Diamonds 33 Other operations (7) Exploration (7) Interest (4) Other (14) 2004 first half 993 Iron Ore First Half First Half Change Full year 2004 2003 2003 Production (million tonnes) 51.0 48.3 +6% 101.5 Turnover 1,220 989 +23% 2,145 Net earnings 248 215 +15% 499 EBITDA 556 424 +31% 971 Capital expenditure 375 113 410 Market conditions Demand remained strong across the product range and in all markets. In addition to strong demand from China, the Japanese steel industry operated near capacity and crude steel production in Korea and Taiwan was at record levels. Reflecting the strength of the market, 18.6 per cent price increases were achieved for fiscal year 2004 for both lump and fines following the nine per cent price increases agreed in 2003. In June, new long term agreements with leading Chinese steel mills for the sale of an incremental 40 million tonnes per annum of iron ore were announced. These agreements, together with the Nippon Steel and the Shanghai Baosteel Group arrangements announced earlier in the year, underpin the current phase of Rio Tinto's expansion of port, rail and mine capacity that is on schedule for completion at the end of 2005. Hamersley Iron Net earnings of $185 million were three per cent below the first half of 2003. Hamersley's first half shipments were in line with those of the first half of 2003, although the shipments through Cape Lambert were less than anticipated. Production was severely disrupted by tropical cyclone Monty which hit the Pilbara in early March. Mines and port facilities were closed and the subsequent flooding also affected mining operations and transport infrastructure. Operations had essentially returned to normal by the end of April, although material handling issues remain. Tom Price remained flood affected late into the second quarter, adversely affecting volumes, product mix and costs. In preparation for volume growth, material movement and maintenance activity increased during the period, as the business prepared for a significant increase in production from the end of 2005. The new Eastern Range mine was opened in mid-April and shipped its first product in the second quarter. Robe River Net earnings of $50 million were $20 million above the first half of 2003. The West Angelas mine reached its design capacity of 20 million tonnes per annum two years ahead of schedule in the first quarter, and mine production continued at this rate for the remainder of the period. Production of Mesa J ore from Pannawonica was also affected by flooding associated with tropical cyclone Monty. Although production levels returned to normal relatively quickly, product quality was affected for a prolonged period. IOC Net earnings of $13 million compared with a net loss of $6 million for the first half of 2003 due principally to higher iron ore prices and lower operating costs. Operations in the first half of 2003 were adversely affected by production interruptions during the commissioning of a new rail control system and by crusher breakdowns. The labour contract at IOC expired at the end of February 2004, and negotiations for a new labour contract have been ongoing. IOC presented its final offer to the workforce's union representatives on 18 July, but was advised that the offer was unacceptable. The workforce has been on strike since 19 July. At present, shiploading from port stockpiles continues but mine operations have ceased. Energy First Half First Half Change Full year 2004 2003 2003 Production Coal (million tonnes) Hard coking coal 3.3 0.8 +313% 2.3 Other Australian/Indonesian* 15.9 20.1 -21% 38.3 US 56.3 52.4 +7% 108.2 Uranium (tonnes) 2,788 2,357 +18% 5,158 Turnover 1,316 1,127 +17% 2,344 Net earnings 115 96 +20% 157 EBITDA 358 289 +24% 544 Capital expenditure 122 252 305 *Other Australian/Indonesian coal for 2003 includes production from Kaltim Prima Coal which was sold in the second half of 2003. US Coal - Kennecott Energy Net earnings of $39 million were $10 million lower than the net earnings in the first half of 2003 which included a one-off benefit relating to a provision release. Stockpiles of coal at US power utilities continued to fall from the 2003 highs although they are only slightly below normal levels for the time of year. Prices have firmed for deliveries for 2005 and beyond. Volume increases largely reflect higher output from the Jacobs Ranch mine and strong demand for the higher energy coals. Work continued on lowering the high wall at Cordero Rojo to alleviate the stability issues that have affected production over the last two years. There were no such incidents in the first half of 2004. Asia Pacific Coal Markets The market for thermal coal strengthened during the first half of the year and the benefits of rising prices will flow through progressively in the second half of the year. The market for coking coal, into which Rio Tinto is introducing production from the new Hail Creek mine, was also strong. Rio Tinto Coal Australia (formerly Pacific Coal) Net earnings of $69 million were $32 million above the first half of 2003. The ramp up of the new Hail Creek coking coal mine continued. Design capacity rates of 5.5 million tonnes per annum have already been achieved. An expansion to eight million tonnes at a cost of $120 million has recently been approved. The proportion of coking coal from the Kestrel mine has increased since mining commenced in the new 300 series area. Blair Athol shipments were constrained for a period of seven weeks in February and March due to the failure of a reclaimer at the independently managed Dalrymple Bay Coal Terminal. Throughput returned to close to normal from the beginning of April. Coal & Allied Net earnings of $2 million were in line with the first half of 2003. In the first quarter, sales through the port of Newcastle (NSW) continued to be affected by port and rail congestion and demurrage charges averaged over US$2 per tonne. Following the approval of a port rationing agreement by the Australian Competition and Consumer Commission in mid-March ship queues, which had reached over 50 vessels in the first quarter, fell to around 12 by the end of June. As a consequence, demurrage charges fell as the second quarter progressed. Coal & Allied was brought under unified management with Rio Tinto Coal Australia with effect from 1 February 2004. In addition, Mount Thorley and Warkworth mines have been managed as one operation since late January 2004. Both these organisational changes are aimed at improving operational efficiency and reducing costs. Rossing Net earnings of nil compared with a loss of $5 million in the first half of 2003. Earnings benefited from lower inventory values following a stock write down in the second half of 2003. Work continues on studying opportunities to extend the mine beyond the life of the existing pit. Energy Resources of Australia Net earnings of $5 million were in line with the first half of 2003. Industrial Minerals First Half First Half Change Full year 2004 2003 2003 Production Borates (000 tonnes) 275 282 -2% 559 Titanium dioxide (000 tonnes) 577 608 -5% 1,192 Salt (000 tonnes) 2,390 2,094 +14% 4,633 Talc (000 tonnes) 717 686 +5% 1,357 Turnover 909 843 +8% 1,801 Net earnings Rio Tinto Borax 42 39 +8% 80 Rio Tinto Iron & Titanium 41 20 +105% 47 Dampier Salt 4 7 -43% 10 Luzenac 12 8 +50% 17 EBITDA 258 243 +6% 465 Capital expenditure 78 51 139 Rio Tinto Borax Net earnings of $42 million were $3 million above the first half of 2003. The borates business has benefited both from continuing strength in the US housing sector and strong global demand for boric acid. Rio Tinto Iron & Titanium Net earnings of $41 million were $21 million above the first half of 2003 which included an adverse effect of the revaluation of balance sheet items of around $20 million due to the rapid weakening of the US dollar. Although the conventional feedstock market remained in oversupply, and is expected to remain so for some time, Rio Tinto Iron & Titanium has benefited from the strong markets for its iron, steel, rutile and zircon co-products. Production of conventional slags remained below capacity whereas production of the high purity upgraded slag (UGS) was at capacity. Expansion of the UGS plant to 325,000 tonnes per annum is on schedule for start up in early 2005. Dampier Salt Net earnings of $4 million were $3 million below the first half of 2003, due principally to the effects of the weaker US dollar. Luzenac Net earnings of $12 million were $4 million above the first half of 2003. Earnings benefited from recovery in the US paper industry and new product developments. European polymers and coatings markets also improved following reformulation work and higher talc penetration in the automobile industry. Aluminium First Half First Half Change Full year 2004 2003 2003 Production Bauxite (000 tonnes) 6,339 6,194 +2% 12,316 Alumina (000 tonnes) 1,030 988 +4% 2,014 Aluminium (000 tonnes) 417 401 +4% 818 Turnover 1,143 902 +27% 1,936 Net earnings 159 102 +56% 200 EBITDA 337 227 +48% 488 Capital expenditure 219 182 436 Prices The aluminium price averaged 75 c/lb, 19 per cent above the average for the first half of 2003. While the majority of alumina is sold under long term contracts, the strength of the market was demonstrated by spot prices which averaged over $440/tonne compared with around $270/tonne in the first half of 2003. The effect of these, and other price movements, was to increase first half earnings by $90 million. This was partially offset by the adverse effects of the movements in exchange rates ($20 million). Bauxite Record levels of bauxite production were achieved in the second quarter following a first quarter where production was affected by heavy rains. The first shipment of bauxite was delivered to the new Comalco Alumina Refinery at Gladstone in June, in advance of commissioning in the second half of the year. Alumina Production from both alumina refineries reflected good production flows and process stability. Aluminium Improved power availability in New Zealand and process stability at the Boyne Island smelters contributed to higher aluminium production compared with the first half of 2003. The timing of maintenance at NZAS and equipment downtime at Bell Bay affected production towards the end of the period. Copper First Half First Half Change Full year 2004 2003 2003 Production Mined copper (000 tonnes) 373.4 462.8 -19% 867 Refined copper (000 tonnes) 169 165 +2% 348 Mined gold (000 oz) 570 1,203 -53% 2,207 Turnover 1,530 1,307 +17% 2,725 Net earnings 385 168 +129% 440 EBITDA 720 541 +33% 1,149 Capital expenditure 159 166 378 Kennecott Utah Copper Net earnings of $136 million were $126 million above the first half of 2003 principally due to higher copper prices but also due to higher sales volumes. Since the final quarter of 2003, ore produced from the Bingham Canyon mine contained high arsenic levels which affect smelter and molybdenum circuit efficiency. As expected, production of gold and silver continued to be affected by lower grades. Anode production was affected by maintenance of the east anode refining furnace in February and a ten day shutdown for smelter maintenance in late April. Anode production in the first half of 2003 was adversely affected by a failure in the acid plant. Escondida Net earnings of $183 million were $136 million above the first half of 2003 due mainly to higher copper prices and higher volumes. Production from Escondida has increased following the previously announced return to its normal mine plan from the beginning of the year. Problems with water recovery, which constrained production in the first quarter, have been resolved. Freeport and Grasberg Joint Venture A net loss of $10 million compared with net earnings of $79 million in the first half of 2003. Both copper and gold production from the Grasberg mine was significantly below the first half of last year as a consequence of the material slippage in the fourth quarter of 2003. Early in the year, efforts were directed to accelerating the removal of waste material to restore safe access to the higher grade areas of the open pit. As a consequence, mill throughput remained below capacity. Freeport, the manager of the Grasberg mine, resumed mining activities in the high grade ore areas of the open pit in the second quarter of 2004. The recovery process is progressing well and ore grades are expected to improve throughout the remainder of the year. Rio Tinto's share of production, and hence net earnings, is based on a preliminary allocation of volumes between the joint venture partners, Rio Tinto and Freeport. This allocation will not be finalised until full production has been restored. Rio Tinto sold its holding in Freeport-McMoRan Copper & Gold Inc. (FCX) to FCX for net consideration of $882 million in March 2004. The sale of FCX shares has no effect on the terms of the joint venture, nor the management of the Grasberg mine. The profit on the sale of these shares is treated as an exceptional item and is not included in the summary above. Palabora A net loss of $9 million compared with net earnings of $5 million in the first half of 2003. Although Palabora benefited from higher copper prices, this was largely offset by the effect of a stronger South African rand. First half production at Palabora remained below target. The underground block cave project is becoming more productive as fragmentation improves and more fine material is being drawn into the drawpoints but secondary breaking of the oversized material remained a constraint on production. Additional equipment to handle secondary breaking was delivered in the second quarter. Palabora's management is currently reviewing all opportunities to improve business performance. Kennecott Minerals Net earnings of $40 million were $10 million above the first half of 2003 as both Cortez and Greens Creek benefited from higher prices. Other copper operations Rio Tinto Brasil's net earnings of $5 million were $2 million above the first half of 2003 due to higher prices and the favourable effects of exchange rate movements. Northparkes' net earnings of $12 million compared with a net loss of $10 million in the first half of 2003. In addition to higher copper and gold prices, the processing of oxide stockpiles and the transition to open cut material following the exhaustion of the final low grade Lift 1 material in 2003 assisted first half performance. Diamonds First Half First Half Change Full year 2004 2003 2003 Production Diamonds (000 carats) Argyle 6,282 12,913 -51% 30,910 Diavik 2,286 759 +201% 2,300 Turnover 366 243 +51% 556 Net earnings 86 53 +62% 113 EBITDA 198 115 +72% 304 Capital expenditure 72 66 100 Diamond market The diamond market has continued to be strong. The 2003 Christmas period saw strong growth in retail jewellery sales in the US and the Japanese market grew for the first time in a number of years. US retail jewellery sales continued to grow in the first half of the year. Industry rough prices have improved, particularly for large, clean, white rough diamonds where demand has been consistently in excess of supply. Prices also improved for rough smalls. Polished prices have also improved but not to the same extent. Argyle Net earnings of $32 million were $21 million lower than the first half of 2003. Diamond production was significantly lower than the first half of 2003. Tight mining conditions at Argyle, as a result of the deepening open pit, limited mine production throughout the first half of the year. Ore processed consisted of lower grade ore from the open pit supplemented by lower grade ore from stockpiles. The effect on sales volumes was less pronounced as first half 2004 sales included diamonds produced in late 2003. Diavik First half net earnings were $54 million. Diavik, where production continues to ramp up, has exceeded expectations in nearly all respects. The second quarter produced record volumes as the process plant comfortably exceeded design throughput on a consistent basis. Grades improved but will continue to reflect the processing of mud rich material that surrounds the kimberlite proper for the remainder of the year. Other Operations First Half First Half Change Full year 2004 2003 2003 Production Gold (000 oz) 188 326 -43% 524 Turnover 90 119 -24% 184 Net earnings 15 22 -32% 21 EBITDA 41 57 -28% 77 Capital expenditure 5 2 4 Net earnings from other operations of $15 million were $7 million below the first half of 2003. Gold production from Kelian was almost 50 per cent lower than the first half of 2003. Mining operations ceased in 2003 although processing will continue into 2005. Exploration First Half First Half Change Full year 2004 2003 2003 Post tax expenditure 59 52 +13% 98 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 at a number of locations. Exploration drilling continued on copper porphyry targets in Peru, Turkey and Mexico. Diamond exploration continued in India, Canada, Botswana and Brazil. Iron ore exploration continued in the Pilbara (Western Australia) and at Simandou (Guinea), the order of magnitude study continued. Placer Dome, the manager of the Cortez mine (Rio Tinto 40%), has announced the initiation of a feasibility study at Cortez Hills where further drilling has increased proven and probable reserves of gold from 5.3 million ounces to 7.5 million ounces. In the first quarter, responsibility for the Eagle (nickel, USA) and Dashkasan (gold, Iran) projects was transferred to the Copper group and Technology group respectively for the next stage of evaluation. The pre-feasibility study at Resolution (copper, USA) continues. At the Potasio Rio Colorado potash project in Argentina a high density three dimensional seismic survey has been completed and a resource drilling programme is being carried out to expand the known resource. Pilot solution mining will begin in the second half of the year. In the second quarter, an in principle agreement was reached with Chariot Resources over the sale of a copper resource at Marcona in Peru. Capital Projects The following major projects have recently been approved, are in construction or were completed during the first half of the year. Project Estimated Cost Status/Milestones (100%) Completed in 2004 Iron ore - Eastern Range mine (Rio Tinto 54%). $67m Construction completed on time and within Development of a new mine with a capacity of 10 budget. The mine was officially opened in million tonnes per annum. The mine will April 2004. service a joint venture formed between Hamersley and Shanghai Baosteel Corporation. Ongoing Aluminium - Comalco Alumina Refinery (Rio Tinto $750 m The project is currently on track and on 100%). Construction in Queensland of a budget. The project is 96% complete, and greenfield alumina refinery with initial annual commissioning has started. First production capacity of 1.4 million tonnes but with options is due in late 2004 with first shipments in to expand to 4.2 million tonnes. early 2005. 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 caused a short delay to block cave mine approximately 400 metres below the project. The project cost increased from the existing underground operation. an initial estimate of $76 million to $100 million. Production commences in the second half of 2004 and ramps up to full production in 2005. Copper - Palabora Underground (Rio Tinto 49%). $465 m The production ramp-up has been constrained 30,000 tonnes of ore per day block caving by the inability to clear drawpoints operation. efficiently that have been blocked with poorly fragmented, large rocks. Additional equipment was delivered in the second quarter. Iron Ore - HIsmelt(R) (Rio Tinto 60%) direct $200 m Engineering is 99% complete and construction iron smelting technology. Construction of an 84% complete at the end of June. First 800,000 tonne capacity plant at Kwinana, production remains scheduled for the end of Western Australia. 2004. Other - Project Daybreak (formerly Project Initial cash Land sales started in mid 2004 and ramp up Sunrise, Rio Tinto 100%). Development for requirement of over a period of 5-6 years. mixed use of a 4,100 acre area of land near $50 m Salt Lake City, Utah. 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 quarter keep Escondida capacity above 1.2 million of 2005. tonnes per annum to the end of 2008 Aluminium - NeWeipa. Expansion of Weipa (Rio $150 m The project is on track and on budget and is Tinto 100%) bauxite production to 16.5 million 42% complete. It is expected to be complete tonnes, and move to a two mine operation. The by the end of 2004. majority of the expenditure is for the construction of a purpose built beneficiation plant at Andoom to process fine ore. Expenditure to support the Comalco Alumina Refinery is $20 million. Iron ore - Expansion of Hamersley's (Rio Tinto $685m Construction is 20% complete and remains on 100%) port capacity to 116 million tonnes per schedule for completion in late 2005. annum. Iron ore - Expansion by Robe River (Rio Tinto $200m Construction began in June 2004 and is 53%) of rail capacity including completion of scheduled for completion by mid-2006. dual tracking of 145 km mainline section. Iron ore - Expansion of Yandicoogina mine (Rio $200m The plant area bulk earthworks are complete. Tinto 100%) from 24 million tonnes per annum to Completion is scheduled for the first half of 36 million tonnes per annum. 2005. Iron ore - Expansion of West Angelas mine (Rio $105m Completion is expected for mid-2005. Tinto 53%) from 20 million tonnes per annum to 25 million tonnes per annnum Recently approved Coking coal - Hail Creek (Rio Tinto 92%) $120 m Production is currently ramping up to 5.5 Expansion of annual capacity from 5.5 million million tonnes per annum. Approval of an tonnes per annum to 8 million tonnes per annum. expansion to 8 million tonnes per annum was given in July 2004. Copper - Escondida sulphide leach (Rio Tinto $870 m The approval of the project was announced on 30%). The project will produce 180,000 tonnes 6 April 2004 and production is expected to per annum of copper cathode for more than 25 begin in the second half of 2006. years. Titanium dioxide - Expansion of Rio Tinto Iron $76 m The approval of the project was announced on & Titanium's (Rio Tinto 100%) upgraded slag 19 January 2004 and production is scheduled plant (UGS) from 250,000 tonnes per annum to to start-up in early 2005. 325,000 tonnes per annum. Divestments The strengthening market conditions brought Rio Tinto a number of opportunities to divest non-core assets generating proceeds of $1.2 billion. Rio Tinto sold its holding in Freeport-McMoRan Copper & Gold Inc. (FCX) to FCX for net consideration of $882 million. In addition to the holding in FCX, Rio Tinto has a joint venture interest in production from the Grasberg mine, which is managed by FCX. The sale of FCX shares does not affect the terms of the joint venture, nor the management of the Grasberg mine. In addition, Rio Tinto completed the sale of Fortaleza, (nickel, Brazil), Zinkgruvan (zinc, Sweden), its remaining 20 per cent interest in Sepon (copper/ gold, Laos), its 49 per cent interest in Somincor (copper/tin, Portugal) and four per cent interest in Boke (bauxite, Guinea). Price and exchange sensitivities The following sensitivities give the estimated effect on net earnings assuming that the price or exchange rate moved in isolation. The relationship between currencies and commodity prices is a complex one and movements in exchange rates can cause movements in commodity prices and vice versa. The exchange rate sensitivities quoted below include the effect on operating costs of movements in exchange rates but exclude the effect due to the revaluation of foreign currency working capital. They should therefore be used with care. Estimated effect on Rio Tinto's full year net earnings of: Change in full year average US$m Copper +/- 12.5c/lb 160 Gold +/- $40/oz 45 Aluminium +/- 7.5c/lb 105 Australian dollar +/- 7.4 USc 200 Canadian dollar +/- 7.5 USc 45 South African rand +/- 0.7 Rand 25 For further information, please contact: LONDON AUSTRALIA Media Relations Media Relations Lisa Cullimore Ian Head Office: +44 (0) 20 7753 2305 Office: +61 (0) 3 9283 3620 Mobile: +44 (0) 7730 418 385 Mobile: +61 (0) 408 360 101 Investor Relations Investor Relations Peter Cunningham Dave Skinner Office: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628 Mobile: +44 (0) 7711 596 570 Mobile: +61 (0) 408 335 309 Richard Brimelow Susie Creswell Office: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639 Mobile: +44 (0) 7753 783 825 Mobile: +61 (0) 418 933 792 Website: www.riotinto.com Profit and loss account First half First half Year 2004 2003 2003 US$m US$m US$m Gross turnover (including share of joint ventures and associates) 6,621 5,561 11,755 Share of joint ventures' turnover (1,034) (875) (1,820) Share of associates' turnover (257) (348) (707) Consolidated turnover 5,330 4,338 9,228 Net operating costs (First half 2004 includes exceptional charges of US$160 (4,399) (3,648) (7,732) million) Group operating profit 931 690 1,496 Share of operating profit of joint ventures 408 259 536 Share of operating profit of associates 86 136 234 Profit on disposal of interests in operations 606 19 126 Profit on ordinary activities before interest and taxation 2,031 1,104 2,392 Net interest payable (87) (101) (206) Amortisation of discount (48) (39) (92) Profit on ordinary activities before taxation 1,896 964 2,094 Taxation (437) (309) (567) Profit on ordinary activities after taxation 1,459 655 1,527 Attributable to outside equity shareholders (20) (14) (19) Profit for the financial period (net earnings) 1,439 641 1,508 Dividends to shareholders (441) (413) (882) Retained profit for the period 998 228 626 Earnings per ordinary share 104.4c 46.5c 109.5c Adjusted earnings per ordinary share 72.0c 46.5c 100.3c Dividends per share to Rio Tinto shareholders 32.0c 30.0c 64.0c Diluted earnings per share figures for the half year are 0.2 US cents (First half 2003: 0.1 US cents) lower than the earnings per share figures above. For the purpose of calculating earnings and adjusted earnings per share, the weighted average number of Rio Tinto plc and Rio Tinto Limited shares outstanding during the period was 1,378.9 million, being the average number of Rio Tinto plc shares outstanding (1,067.2 million) plus the average number of Rio Tinto Limited shares outstanding not held by Rio Tinto plc (311.7 million). The results for all periods relate wholly to continuing operations. Profit is stated after exceptional items, which are set out in the reconciliation below. First half First half Year 2004 2003 2003 US$m US$m US$m Profit for the financial period (net earnings) 1,439 641 1,508 Exceptional items impact on the above profit and loss account as follows: Profit on disposal of interests in operations 606 - 126 Investment write down and provision for related contract obligation (160) - - Net exceptional items 446 - 126 Adjusted earnings 993 641 1,382 The above exceptional items have no impact on taxation or amounts attributable to minority shareholders. For further details of exceptional items, see page 4. Cash flow statement First half First half Year 2004 2003 2003 US$m US$m US$m Cash flow from operating activities (see below) 1,601 1,293 2,888 Dividends from joint ventures 372 211 470 Dividends from associates 54 65 128 Total cash flow from operations 2,027 1,569 3,486 Interest received 12 22 30 Interest paid (95) (107) (231) Dividends paid to outside shareholders (24) (54) (76) Returns on investment and servicing of finance (107) (139) (277) Taxation (546) (494) (917) Purchase of property, plant and equipment (957) (666) (1,533) Funding of Group share of joint ventures' and associates' capital expenditure (12) (107) (94) Other funding of/repayments from joint ventures and associates - 19 (18) Exploration and evaluation expenditure (79) (67) (130) Sale of property, plant and equipment 5 3 19 Sales less purchases of other investments 158 87 83 Capital expenditure and financial investment (885) (731) (1,673) Disposals less acquisitions 1,137 221 405 Equity dividends paid to Rio Tinto shareholders (464) (420) (833) Cash inflow before management of liquid resources and financing 1,162 6 191 Net cash inflow/(outflow) from management of liquid resources 34 (42) (105) Ordinary shares issued for cash 13 15 33 Loans (repaid) less received (1,127) 44 (202) Management of liquid resources and financing (1,080) 17 (274) Increase/(decrease) in cash 82 23 (83) Cash flow from operating activities Group operating profit 931 690 1,496 Investment write down and provision for related contract obligation 160 - - Depreciation and amortisation 586 488 1,006 Exploration and evaluation charged against profit 72 64 127 Provisions 65 40 154 Utilisation of provisions (72) (77) (159) Change in inventories (101) (41) (43) Change in accounts receivable and prepayments (81) 141 154 Change in accounts payable and accruals 23 (51) 66 Other items 18 39 87 Cash flow from operating activities 1,601 1,293 2,888 Net debt of US$4,486 million at 30 June 2004 compares with US$5,646 million at 31 December 2003. The decrease of US$1,160 million comprises the cash inflow before management of liquid resources and financing of US$1,162 million and other items of US$(2) million. Balance sheet 30 June 30 June 30 June 30 June 31 December 2004 2003 2004 2003 2003 A$m A$m US$m US$m US$m Intangible fixed assets 1,562 1,657 Goodwill 1,078 1,104 1,185 125 101 Exploration and evaluation 86 67 69 1,687 1,758 1,164 1,171 1,254 Tangible fixed assets 21,289 20,406 Property, plant and equipment 14,689 13,592 15,196 Investments 4,501 5,073 Share of gross assets of joint ventures 3,106 3,379 3,233 (1,422) (1,766) Share of gross liabilities of joint ventures (981) (1,176) (1,010) 3,079 3,307 2,125 2,203 2,223 514 773 Investments in associates/other investments 355 515 517 3,593 4,080 Total investments 2,480 2,718 2,740 26,569 26,244 Total fixed assets 18,333 17,481 19,190 Current assets 2,632 2,507 Inventories 1,816 1,670 1,783 Accounts receivable and prepayments 2,368 2,461 Falling due within one year 1,634 1,639 1,674 1,161 971 Falling due after more than one year 801 647 809 3,529 3,432 Total accounts receivable and prepayments 2,435 2,286 2,483 225 353 Investments 155 235 230 517 571 Cash 357 380 395 6,903 6,863 Total current assets 4,763 4,571 4,891 Current liabilities (1,990) (4,061) Short term borrowings (1,373) (2,705) (2,194) (3,005) (2,914) Accounts payable and accruals (2,074) (1,941) (2,140) (4,995) (6,975) Total current liabilities (3,447) (4,646) (4,334) 1,908 (112) Net current assets/(liabilities) 1,316 (75) 557 28,477 26,132 Total assets less current liabilities 19,649 17,406 19,747 Liabilities falling due after more than one year (5,032) (5,234) Medium and long term borrowings (3,472) (3,486) (3,849) (216) (357) Accounts payable and accruals (149) (238) (322) (6,390) (5,996) Provisions for liabilities and charges (4,409) (3,994) (4,536) (1,354) (1,347) Outside shareholders' interests (equity) (934) (897) (1,003) 15,485 13,198 Net Assets 10,685 8,791 10,037 Capital and reserves Share capital 225 233 - Rio Tinto plc 155 155 155 1,452 1,447 - Rio Tinto Limited (excluding Rio Tinto plc 1,002 964 1,085 interest) 2,378 2,431 Share premium account 1,641 1,619 1,629 368 479 Other reserves 254 319 334 11,062 8,608 Profit and loss account 7,633 5,734 6,834 15,485 13,198 Equity shareholders' funds 10,685 8,791 10,037 At 30 June 2004, Rio Tinto plc had 1,067 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 2004, net tangible assets per share amounted to US$6.90 (30 June 2003: US$5.53). In accordance with FRS 4, all commercial paper is classified as short term borrowings though US$0.6 billion (30 June 2003: US$2.5 billion) is backed by medium term facilities. Under United States generally accepted accounting principles ('US GAAP') and Australian generally accepted accounting principles ('Australian GAAP'), this amount would be grouped within non-current borrowings at 30 June 2004. Current asset investments include US$153 million (30 June 2003: US$228 million) relating to US treasury bills, which are held as security for the deferred consideration for assets acquired during 2002. Reconciliation with Australian GAAP First half First half First half First half Year 2004 2003 2004 2003 2003 A$m A$m US$m US$m US$m 1,342 1,044 Adjusted earnings reported under UK GAAP 993 641 1,382 603 - Exceptional items 446 - 126 1,945 1,044 Net earnings under UK GAAP 1,439 641 1,508 Increase/(decrease) net of tax in respect of : (97) (132) Goodwill amortisation (72) (81) (164) 134 - Profit on sale of operations 99 - - (14) (11) Taxation (10) (7) (5) - 3 Other - 2 7 Net earnings attributable to members under 1,968 904 Australian GAAP 1,456 555 1,346 142.7c 65.6c Earnings per ordinary share under Australian 105.6c 40.3c 97.7c GAAP Diluted earnings per share under Australian GAAP are 0.2 US cents (First half 2003: 0.1 US cents) less than the above earnings per share figures. Exceptional items Net earnings under United Kingdom generally accepted accounting principles ('UK GAAP') include exceptional items of US$446 million, (Full year 2003: US$126 million). The concepts of Adjusted earnings and exceptional items do not exist under Australian GAAP. 30 June 30 June 30 June 30 June 31 December 2004 2003 2004 2003 2003 A$m A$m US$m US$m US$m 15,485 13,198 Shareholders' funds under UK GAAP 10,685 8,791 10,037 Increase/(decrease) net of tax in respect of : 981 1,441 Goodwill 677 960 872 86 101 Taxation 59 67 69 629 620 Dividends 434 413 469 (30) (39) Other (21) (26) (24) 17,151 15,321 Shareholders' funds under Australian GAAP 11,834 10,205 11,423 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 Financial Reporting Standard 10. Adjustments are required for Australian GAAP purposes where such capitalised goodwill is amortised over periods exceeding 20 years in the UK GAAP accounts. Profit on sale of operations Under UK GAAP, goodwill previously written off to reserves is reinstated for the purpose of calculating profit on the sale of an operation. Under Australian GAAP, the equivalent goodwill is capitalised and is subject to amortisation. The profit on sale of operations adjustment under Australian GAAP reflects the lower book value of operations sold under Australian GAAP compared to UK GAAP, which results from the above amortisation. 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. Proposed dividends Under UK GAAP, ordinary dividends are recognised in the financial year in respect of which they are paid. Under Australian GAAP such dividends are not recognised until they are declared, determined or publicly recommended by the Board of directors. Reconciliation of movements in shareholders' funds First half First half Year 2004 2003 2003 US$m US$m US$m Profit for the period 1,439 641 1,508 Dividends (441) (413) (882) 998 228 626 Adjustment on currency translation (591) 1,087 1,924 Goodwill written back on disposal of investment 228 - - Share capital issued 13 14 25 648 1,329 2,575 Opening shareholders' funds 10,037 7,462 7,462 Closing shareholders' funds 10,685 8,791 10,037 Prima facie tax reconciliation First half First half Year 2004 2003 2003 US$m US$m US$m Profit on ordinary activities before taxation 1,896 964 2,094 Prima facie tax payable at UK and Australian rate of 30% 569 289 628 Impact of exceptional items (134) - (38) Other permanent differences Other tax rates applicable outside the UK and Australia 33 29 59 Permanently disallowed amortisation/depreciation 26 23 53 Research, development and other investment allowances (3) (5) (5) Resource depletion allowances (41) (15) (54) Other 5 9 (24) 20 41 29 Other deferral of taxation Capital allowances in excess of other depreciation charges (20) (44) (48) Other timing differences 12 6 14 Total timing differences related to the current period (8) (38) (34) Current taxation charge for the period 447 292 585 Deferred tax recognised on timing differences 8 38 34 Other deferred tax items (18) (21) (52) Total taxation charge for the period 437 309 567 Exploration and evaluation properties First half First half Year 2004 2003 2003 US$m US$m US$m At cost less amounts written off At 1 January 834 694 694 Adjustment on currency translation (41) 67 119 Expenditure in period 79 67 130 Charged against profit for the period (8) (21) (47) Disposals, transfers and other movements (10) (26) (62) At end of period 854 781 834 Provision At 1 January (765) (637) (637) Adjustment on currency translation 35 (58) (104) Charged against profit for the period (64) (43) (80) Disposals, transfers and other movements 26 24 56 At end of period (768) (714) (765) Net balance sheet amount 86 67 69 Product analysis First half First half First half First half Year 2004 2003 2004 2003 2003 % % US$m US$m US$m Gross turnover 16.5 12.3 Copper 1,090 685 1,495 5.1 10.5 Gold (all sources) 338 584 1,068 18.6 18.0 Iron ore 1,234 999 2,165 18.1 18.6 Coal 1,196 1,034 2,125 17.0 15.9 Aluminium 1,125 883 1,847 14.1 15.6 Industrial minerals 933 866 1,849 5.5 4.4 Diamonds 366 243 556 5.1 4.7 Other products 339 267 650 100.0 100.0 6,621 5,561 11,755 Net earnings 36.5 26.6 Copper, gold and by-products 404 194 429 22.4 29.4 Iron ore 248 215 500 9.9 13.2 Coal 110 96 163 14.4 13.4 Aluminium 159 98 189 9.2 10.7 Industrial minerals 102 78 159 7.8 7.3 Diamonds 86 53 111 (0.2) (0.6) Other products (2) (4) 33 100.0 100.0 1,107 730 1,584 Exploration and evaluation (59) (52) (98) Net interest (33) (29) (59) Other items (22) (8) (45) 993 641 1,382 Exceptional items 446 - 126 1,439 641 1,508 Geographical analysis (by country of origin) First half First half First half First half Year 2004 2003 2004 2003 2003 % % US$m US$m US$m Gross turnover 32.2 28.6 North America 2,135 1,590 3,567 45.5 43.8 Australia and New Zealand 3,011 2,436 5,152 7.9 5.6 South America 523 314 682 5.5 5.7 Africa 364 317 662 2.5 10.6 Indonesia 162 587 1,037 6.4 5.7 Europe and other countries 426 317 655 100.0 100.0 6,621 5,561 11,755 Net earnings 33.5 15.8 North America 344 106 363 47.3 57.2 Australia and New Zealand 485 383 754 16.6 11.0 South America 170 74 156 (0.1) 2.2 Africa (1) 15 12 1.2 16.1 Indonesia 12 108 181 1.5 (2.3) Europe and other countries 16 (16) (25) 100.0 100.0 1,026 670 1,441 Net interest (33) (29) (59) 993 641 1,382 Exceptional items 446 - 126 1,439 641 1,508 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'. Accounting principles The financial information included in this report is unaudited and 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 2003. Prior year financial information Financial information for the year 2003 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 2003 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 2004 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 29 July 2004 Independent review report to Rio Tinto plc and Rio Tinto Limited ('the Companies') 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 2004. PricewaterhouseCoopers LLP PricewaterhouseCoopers Chartered Accountants Chartered Accountants London Perth 29 July 2004 29 July 2004 in respect of Rio Tinto plc in respect of Rio Tinto Limited Reconciliation with US GAAP First half First half Year 2004 2003 2003 US$m US$m US$m Net earnings under UK GAAP 1,439 641 1,508 Increase/(decrease) net of tax in respect of: Amortisation of goodwill 36 37 76 Amortisation of intangibles (26) (27) (47) Profit on sale of operations 114 - - Pensions/post retirement benefits 3 14 44 Share options (8) (11) (21) Exploration and evaluation (34) (10) (22) Effect of historical average commodity prices in ore reserve determination (51) - (82) Exchange differences taken to earnings under US GAAP (332) 441 813 Other (40) (29) (114) Income before cumulative effect of change in accounting principle 1,101 1,056 2,155 Cumulative effect of change in accounting principle for close down and restoration costs - (178) (178) Net income under US GAAP 1,101 878 1,977 Basic earnings per ordinary share under US GAAP Before cumulative effect of change in accounting principle 79.8c 76.7c 156.4c After cumulative effect of change in accounting principle 79.8c 63.8c 143.5c Shareholders' funds under UK GAAP 10,685 8,791 10,037 Increase/(decrease) net of tax in respect of: Goodwill 1,420 1,476 1,550 Intangibles 256 306 282 Pensions/post retirement benefits (230) (453) (352) Exploration and evaluation (156) (110) (132) Effect of historical average commodity prices in ore reserve determination (133) - (82) Adjustment to asset carrying values 251 258 223 Proposed dividends 434 413 469 Mark to market of derivative contracts 194 181 255 Start-up costs (84) (78) (89) Other (146) (115) (186) Taxation 61 67 69 Shareholders' funds under US GAAP 12,552 10,736 12,044 Diluted earnings per share under US GAAP are 0.1 US cents (First half 2003: 0.1 US cents) less than the above earnings per share figures. The Group's financial statements have been prepared in accordance with UK GAAP which differ in certain respects from 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. 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. Profit on sale of operations - Under UK GAAP, goodwill previously written off to reserves is reinstated for the purpose of calculating profit on the sale of an operation. Under US GAAP, the equivalent goodwill is capitalised and is subject to amortisation in the period from acquisition until 2001. The profit on sale of operations balance under US GAAP reflects the lower book values of operations sold under US GAAP compared to UK GAAP, as a result of such amortisation. 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 issue of new shares. The Group applies 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. Exploration and evaluation - Under UK GAAP, expenditure on a project can be carried forward after it has reached a stage where there is a high degree of confidence in its viability. US GAAP does not allow expenditure to be carried forward unless the viability of the project is supported by a final feasibility study. In addition, under UK GAAP, provisions made against exploration and evaluation in prior years can be reversed when the project proceeds to development to the extent that the relevant costs are recoverable. US GAAP does not allow such provisions to be reversed. Effect of historical average commodity prices in ore reserve determination - For UK and Australian reporting, the Group's Ore reserve estimates are determined in accordance with the JORC code and are based on forecasts of future commodity prices. For US reporting, historical price data is used which has led to reduced ore reserve quantities for US reporting purposes for certain of the Group's operations, resulting in lower earnings for US reporting, largely as a result of higher depreciation charges. Adjustments to asset carrying values - 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. Under UK GAAP, impairment provisions may be written back in a future year if the expected recoverable amount of the asset increases. Such write backs of impairment provisions are not permitted under US GAAP. Therefore, any credits to UK GAAP earnings resulting from such write backs are reversed in the US GAAP reconciliation. 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 losses of US$315 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, Mark to market of derivative contracts - 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 losses of US$60 million on such derivatives have therefore been recorded in US GAAP earnings. Realised gains of US$43 million, which have been capitalised under UK GAAP, have been included in earnings under US GAAP. Start-up costs - Under US GAAP, Statement of Position 98-5, 'Reporting on the Costs of Start-up Activities', requires that the costs of start up activities are expensed as incurred. Under UK GAAP, some of these start up costs qualify for capitalisation and are amortised over the economic lives of the relevant assets. Taxation - 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 22. 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: exceptional items, 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) During June 2004 Rio Tinto sold its interests in Somincor and Zinkgruvan. During 2003 Rio Tinto sold its interests in Kaltim Prima Coal, Alumbrera and Peak. (e) Includes Rio Tinto's interest in Anglesey Aluminium (51%) and Comalco (100%). (f) On 30 March 2004 Rio Tinto sold its 13.1% shareholding in Freeport-McMoRan Copper & Gold Inc. The sale of the shares does not affect the terms of the joint venture, referred to below. (g) Through a joint venture agreement Rio Tinto is entitled to 40% of additional material mined as a consequence of expansions and developments of the Grasberg facilities since 1998. (h) Includes Rio Tinto's interest in Morro do Ouro (51%). Rio Tinto sold its interest in Fortaleza with effect from 1 January 2004. (i) 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. (j) 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. (k) 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$893 million (2003: US$889 million), Grasberg joint venture US$405 million (2003: US$405 million). (l) Business units have been classified in the analysis on pages 6 and 7 according to the Group's current management structure. Generally, this structure has regard to the primary product of each business unit but there are exceptions. For example, the Copper group includes certain gold operations. This summary differs, therefore, from the Product analysis in which the contributions of individual business units are attributed to several products as appropriate. Summary financial data in Australian dollars, Sterling and US dollars First First First First First First half half half half half half Year 2004 2003 2004 2003 2004 2003 2003 A$m A$m £m £m US$m US$m US$m 8,947 9,054 3,638 3,454 Gross turnover (including share of joint ventures and associates) 6,621 5,561 11,755 2,562 1,569 1,042 599 Profit on ordinary activities before taxation 1,896 964 2,094 1,342 1,044 546 398 Adjusted earnings * 993 641 1,382 1,945 1,044 791 398 Profit for the financial period (net earnings) 1,439 641 1,508 141.1c 75.8c 57.4p 28.9p Earnings per ordinary share 104.4c 46.5c 109.5c 97.3c 75.8c 39.6p 28.9p Adjusted earnings per ordinary share * 72.0c 46.5c 100.3c Dividends per share to Rio Tinto shareholders 17.54p 18.45p - Rio Tinto plc 32.0c 30.0c 64.0c 45.53c 45.02c - Rio Tinto Limited 32.0c 30.0c 64.0c 2,739 2,554 1,114 975 Total cash flow from operations 2,027 1,569 3,486 (1,196) (1,190) (486) (454) Capital expenditure and financial investment (885) (731) (1,673) (6,501) (8,714) (2,478) (3,511) Net debt (4,486) (5,804) (5,646) 15,485 13,198 5,903 5,318 Equity shareholders' funds 10,685 8,791 10,037 * Adjusted earnings for First half 2004 exclude exceptional items of US$446 million (Full year 2003: US$126 million), which are analysed on page 19. The financial data above have been extracted from the primary financial statements set out on pages 19 to 21. The Australian dollar and Sterling amounts are based on the US dollar amounts, retranslated at average or closing rates as appropriate. For further information on these exchange rates, please see below. Metal prices and exchange rates First First half half Change Year 2004 2003 1H04 v 1H03 2003 Metal prices - average for the period Copper - US cents/lb 125c 75c 67% 80c Aluminium - US cents/lb 75c 63c 19% 65c Gold - US$/troy oz US$401 US$350 15% US$363 Average exchange rates in US$ Sterling 1.82 1.61 13% 1.63 Australian dollar 0.74 0.61 21% 0.65 Canadian dollar 0.75 0.69 9% 0.71 South African rand 0.15 0.12 25% 0.13 Period end exchange rates in US$ Sterling 1.81 1.65 10% 1.78 Australian dollar 0.69 0.67 3% 0.75 Canadian dollar 0.74 0.74 - 0.77 South African rand 0.16 0.13 23% 0.15 The Australian dollar 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. This information is provided by RNS The company news service from the London Stock Exchange

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