Interim Results
Rio Tinto PLC
03 August 2006
Continued strong operational performance delivers record Half Year earnings
• First half underlying earnings* of $3,751 million were a record, and 80 per
cent above the corresponding period in 2005.
• First half net earnings* were $3,796 million, up 75 per cent on the 2005
level of $2,165 million.
• Cashflow from operations was a record at $5,202 million, 52 per cent higher
than that of the first half of 2005.
• Increased volumes from investment in additional capacity, particularly in
copper and iron ore, contributed $129 million to earnings. Many operations
achieved record production in the period. Rising prices and strong demand
for most products increased underlying earnings by $1,804 million.
• Recognition of additional tax assets contributed $211 million to the
increase in underlying earnings compared with the first half of 2005.
• Industry wide cost pressures impacted the business in the first half,
reducing underlying earnings by $513 million, adjusted for inflation.
Adverse weather conditions reduced volumes and increased costs in
Australian businesses early in the year.
• Continuing investment in the growth of the business was reflected in record
capital expenditure of $1,758 million in the first half. The major
infrastructure and mine expansions of the Group's iron ore operations in
Western Australia are on track, and construction commenced on the
development of the Hope Downs deposit.
• Other significant development projects were progressed, including the
titanium dioxide project in Madagascar, the Cortez Hills gold deposit in
the US and the Argyle underground diamond mine in Australia.
• HIsmelt made its first shipment to customers in the US.
• As part of the Group's 2006/07 capital management programme, a special
dividend of $1,500 million was paid to shareholders in April, and $1,023
million of shares were bought back on the London market since February.
Six months to 30 June 2006 2005 Change
(All dollars are US$ millions unless otherwise stated)
Underlying earnings* 3,751 2,087 +80%
Net earnings* 3,796 2,165 +75%
Cash flow from operations (incl. dividends from JCE's and associates) 5,202 3,421 +52%
Underlying earnings per share - US cents 278.7 152.0 +83%
Earnings per share - US cents 282.0 157.6 +79%
* Net earnings and underlying earnings relate to profit attributable to equity
shareholders of Rio Tinto.
Underlying earnings is defined and reconciled to net earnings on page 24.
Chairman's comments
Rio Tinto chairman Paul Skinner said, 'Rio Tinto's underlying earnings in the
first half of 2006 were a record at $3,751 million, reflecting strong demand for
our products, very good operational performance and additional capacity at many
of our operations.
'The quality of our portfolio of high margin assets was demonstrated once again
as cashflows increased to a record of $5,202 million for the period, including
dividends from jointly controlled entities and associates.
'Our priority is to invest these cashflows in value adding expansion of the
business. Capital expenditure on existing assets and new projects reached a
record of $1,758 million and higher exploration and evaluation expenditure
reflected the number of quality prospects available to the Group.
'Our financial position remains very strong, notwithstanding the current level
of capital expenditure and the return of over $2.5 billion to shareholders
through the special dividend and share buybacks during the period.
'In February, we announced our intention to return $4 billion to shareholders by
the end of 2007, and we have been able to return approximately two thirds of
that amount within six months of the announcement of the programme. We continue
to review possible future capital management initiatives.
'Our financial strength allows us to pursue this substantial capital return to
shareholders while undertaking a record organic investment programme, and
retaining the flexibility to take advantage of opportunities as they arise.
'Although we have seen increased volatility in financial markets, underlying
demand for our products remains strong, and we remain positive about the outlook
for the global economy and our markets.'
Chief Executive's comments
Leigh Clifford, Rio Tinto's chief executive, said, 'Rio Tinto performed well in
the first half of 2006. In spite of weather related challenges early in the
year, including several cyclones which hit northern Australia and impacted many
of our operations in that region, we set a number of first half production
records. These included bauxite, alumina, iron ore, talc and US coal.
'We made good progress on the significant investment programme to expand our
iron ore mine and infrastructure capacity in Western Australia. The first phase
of the expansion of the port at Dampier was completed on time and on budget, and
the next phase of development is underway. When complete, total infrastructure
capacity will be approximately 200 million tonnes per annum and studies are in
progress to raise that capacity further.
'The markets for most of our products remained strong over the course of the
half year, and our focus remains on operational performance to take advantage of
these favourable conditions.
'Our programme to deliver best practice and common systems throughout our
operations has strong momentum. The group is very focussed on operational
improvement, which will help us to manage the continuing challenge of cost
pressures and supply shortages that the mining industry faces today.
'Construction also started on the first phase of the $1 billion Hope Downs
project, within ten months of the announcement of that joint venture. This will
have an initial annual capacity of 22 million tonnes.
'Progress continued on the construction of the Madagascar titanium dioxide
project and the Argyle underground diamond mine development. The Comalco Alumina
Refinery ramped up towards full capacity, at times exceeding a 90 per cent
production rate during the second quarter.
'Our exploration and evaluation activities increased substantially in the first
half, as we expanded our greenfield programme, continued evaluation of a number
of new projects and focussed on the newly established RioNor Joint Venture in
Russia.'
Net earnings and underlying earnings
To provide insight into the underlying performance of its business, Rio Tinto
presents underlying earnings. The differences between underlying earnings and
net earnings are set out in the following table.
Six months ended 30 June 2006 2005
US$m US$m
Underlying earnings 3,751 2,087
Items excluded from underlying earnings
Profits on disposals of interests in businesses 10 89
Adjustment to Kennecott Utah Copper environmental remediation provision 37 -
Effect of exchange on external net debt and intragroup balances 11 9
Mark to market of derivatives not qualifying as hedges (13) (20)
Net earnings 3,796 2,165
Commentary on the Group financial results
Underlying earnings of $3,751 million and net earnings of $3,796 million were
$1,664 million and $1,631 million above the comparable measures for the first
half of 2005. The principal factors explaining the increases are set out in the
table below.
Six months ended 30 June
Underlying Net
earnings earnings
US$m US$m
First half 2005 2,087 2,165
Prices 1,804
Exchange rates 7
Inflation (79)
Volumes 129
Costs (513)
Tax / Other 316
1,664 1,664
Profits on disposals of interests in businesses (79)
Adjustment to Kennecott Utah Copper environmental remediation provision 37
Effect of exchange on external net debt and intragroup balances 2
Mark to market of derivatives not qualifying as hedges 7
First half 2006 3,751 3,796
Prices and exchange rates
Prices for major products were significantly above those experienced in 2005.
Compared with the first half of 2005 average copper prices were 79 per cent
higher and average aluminium prices 37 per cent higher. The strength of the
global iron ore market was reflected in the 19 per cent increase in the
benchmark price, which was mainly effective from 1 April 2006. The seaborne
thermal and coking coal markets were also strong.
Higher copper prices contributed $1,006 million to underlying earnings,
including $294 million from the impact of the rise in the copper price on the
amount realised from provisionally priced sales, mostly at Escondida and
Northparkes.
Molybdenum prices averaged over $23 per pound in the first half of 2006. This
was a decline of 26 per cent compared with the same period of 2005.
There was movement in the US dollar in the first half of 2006 relative to the
currencies in which Rio Tinto incurs the majority of its costs. The Australian
dollar was four per cent weaker, the Canadian dollar was nine per cent stronger
and the South African rand one per cent weaker. The effect of these currency
movements was to increase underlying earnings relative to the first half of 2005
by $7 million.
Volumes
Higher sales volumes increased earnings by $129 million compared with the first
half of 2005. Higher copper in concentrate volumes, from improved grades at
Kennecott Utah Copper (KUC) and the commissioning of the Norte pit at Escondida,
along with higher production of molybdenum in concentrates at KUC, were the main
contributors. The ramp-up of new projects in iron ore (including the
Yandicoogina expansion), titanium dioxide feedstocks (QIT) and alumina (Comalco
Alumina Refinery), contributed to higher volumes. These gains helped to offset
significantly reduced volumes from lower grades at Grasberg which impacted
earnings by $195 million. Lower volumes were also experienced at Kennecott
Minerals from lower grades at Cortez and also at Hail Creek where reduced coking
coal volumes were in line with lower demand from customers.
Costs
Excluding the effects of inflation, higher costs reduced earnings by $513
million. Of this, $56 million was due to higher energy costs. The prevailing
strong markets create cyclical cost pressures in the resources industry and our
operations continued to experience higher prices for skilled labour,
contractors, steel, tyres, explosives and other mining related supplies.
Tax
The effective tax rate on underlying earnings, excluding jointly controlled
entities and associates, was 22.0 per cent compared with 29.7 per cent in the
first half of 2005. The tax rate for the first half year was reduced by 6.4
percentage points following recognition of $211 million of additional deferred
tax assets, reflecting improved projections of long term taxable earnings from
our US operations; and following a $46 million reduction in deferred tax
provisions as a result of a reduction in Canadian tax rates.
Other
The net after tax interest expense was $17 million lower than in the first half
of 2005 due to lower levels of net debt during the period.
Items excluded from underlying earnings
In the first half of 2006 a $10 million gain was realised from disposals of
interests in smaller businesses. Disposals in the first half of 2005 resulted in
gains of $89 million, principally from the sale of Rio Tinto's interest in the
Labrador Iron Ore Royalty Income Fund.
Net earnings for the first half of 2006 included a reduction of $37 million in
an environmental provision at Kennecott Utah Copper, reversing part of an
exceptional charge taken in 2002. There was no such item in the first half of
2005.
Exchange gains and losses on external net debt and intragroup balances that are
recorded in the US dollar income statement and gains and losses on currency and
interest rate derivative contracts that do not qualify as hedges under IFRS are
excluded from underlying earnings. Neither of these items were significant in
either the first half of 2005 or the first half of 2006.
Cash flow
Cash flow from operations, including dividends from jointly controlled entities
and associates, was a record $5,202 million, 52 per cent higher than the first
half of 2005. Working capital levels increased in absolute terms as a result of
increased prices and volumes.
The Group continued to invest at high levels to grow the business. Expenditure
on property, plant and equipment and intangible assets was a record $1,758
million during the first half of 2006. This included the major port, rail
infrastructure and iron ore mine expansions in Western Australia, the Spring
Creek and Antelope mine expansions at Rio Tinto Energy America and the Hail
Creek coking coal mine expansion in Queensland.
Dividends paid in the first half of 2006 of $2,024 million were $1,402 million
higher than dividends paid in the first half of 2005. These included the special
dividend totalling $1.5 billion which was paid to shareholders in April 2006.
Capital management activity also included the on-market buy back of Rio Tinto
plc shares in the first half of 2006, comprising $1,023 million from the 2006/07
programme and $95 million in January from the 2005/06 programme (net of $20
million proceeds from the exercise of options). In the first half of 2005 an
off-market buy back of Rio Tinto Limited shares returned $774 million to
shareholders.
Balance sheet
The balance sheet remained strong during the period, although record capital
expenditure and the increased capital management activity resulted in an
increase in net debt from $1,313 million at 31 December 2005 to $2,623 million
at 30 June 2006. Debt to total capital rose to 14 per cent and interest cover
strengthened to 95 times.
In the first half of 2006, net assets increased by $600 million. The profit for
the period was $1,808 million greater than dividends paid. The Rio Tinto plc
share buyback reduced shareholder equity by $1,118 million.
International Financial Reporting Standards (IFRS)
IFRS require that the profit for the period reported in the income statement
should also include earnings attributable to outside shareholders in
subsidiaries. For the first half of 2006, the profit for the period was $3,968
million (2005 first half $2,263 million) of which $172 million (2005 first half
$98 million) was attributable to outside shareholders, leaving $3,796 million
(2005 first half $2,165 million) of net earnings attributable to Rio Tinto
shareholders. Both net earnings and underlying earnings, which are the focus of
the commentary in this report, deal with amounts attributable to equity
shareholders of Rio Tinto.
Dividends
Dividends are determined in US dollars. The interim dividend is set at one half
of the total dividends declared for the previous year excluding any special
dividends. Therefore, interim dividends equivalent to 40.0 US cents per share
(2005: 38.5 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 1 August 2006.
Rio Tinto plc shareholders will be paid an interim dividend of 21.42 pence per
ordinary share (2005: 21.75 pence per share). Rio Tinto Limited shareholders
will be paid an interim dividend of 52.48 Australian cents per ordinary share
(2005: 50.56 Australian cents per share), which will be fully franked. The
Board expects Rio Tinto Limited to be in a position to pay fully franked
dividends for the reasonably foreseeable future.
The respective dividends will be paid on Thursday 7 September 2006 to Rio Tinto
plc shareholders on the register at the close of business on Friday 11 August
2006 and to Rio Tinto Limited shareholders on the register at the close of
business on Tuesday 15 August 2006. The ex-dividend date for both Rio Tinto plc
and Rio Tinto Limited will be Wednesday 9 August 2006. Dividends will be paid to
Rio Tinto ADR holders on Friday 8 September 2006.
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 Wednesday 16 August 2006.
Rio Tinto financial information by business unit
Six months ended 30 June Rio Tinto Gross turnover (a) EBITDA (b) Net earnings (c)
US$ millions interest
% 2006 2005 2006 2005 2006 2005
Iron Ore
Hamersley (inc. HIsmelt) 100.0 1,889 1,425 1,088 766 698 474
Robe River 53.0 608 477 393 302 197 145
Iron Ore Company of Canada 58.7 435 422 168 207 54 67
Rio Tinto Brasil 100.0 43 19 14 - 6 (5)
2,975 2,343 1,663 1,275 955 681
Energy
Rio Tinto Energy America 100.0 714 578 150 135 90 68
Rio Tinto Coal Australia (d) 1,149 1,065 500 441 272 228
Rossing 68.6 74 60 20 11 7 1
Energy Resources of Australia 68.4 114 98 38 41 8 10
2,051 1,801 708 628 377 307
Industrial Minerals 1,252 1,208 313 313 137 124
Aluminium (e) 1,658 1,383 673 416 369 203
Copper
Kennecott Utah Copper 100.0 1,562 966 1,136 663 1,033 465
Escondida 30.0 1,311 538 1,144 378 700 219
Grasberg joint venture (f) 149 254 140 167 65 85
Palabora 46.4 276 168 105 28 38 6
Kennecott Minerals 100.0 101 139 56 72 45 42
Northparkes 80.0 245 65 208 35 124 17
3,644 2,130 2,789 1,343 2,005 834
Diamonds
Argyle 100.0 201 246 90 107 41 40
Diavik 60.0 197 186 135 136 70 50
Murowa 77.8 13 22 5 14 2 9
411 454 230 257 113 99
Other operations 120 120 17 47 16 25
12,111 9,439 6,393 4,279 3,972 2,273
Other items (132) (152) (127) (96)
Exploration and evaluation (87) (64) (80) (59)
Net interest (14) (31)
Underlying earnings 6,174 4,063 3,751 2,087
Items excluded from underlying earnings 45 98 45 78
Total 12,111 9,439 6,219 4,161 3,796 2,165
Depreciation and amortisation in subsidiaries (706) (660)
Depreciation and amortisation in jointly controlled entities and associates (122) (112)
Taxation and finance items in jointly controlled entities and associates (427) (168)
Profit on ordinary activities before finance items and tax 4,964 3,221
References above are to notes on page 30
Rio Tinto financial information by business unit (continued)
Six months ended 30 June Rio Tinto Capital Depreciation Operating assets
interest expenditure & (j)
US$ millions (h) amortisation
(i)
% 2006 2005 2006 2005 2006 2005
Iron Ore
Hamersley (inc. HIsmelt) 100.0 788 431 98 81 3,531 2,388
Robe River 53.0 36 87 44 44 1,587 1,601
Iron Ore Company of Canada 58.7 37 25 26 22 594 466
Rio Tinto Brasil 100.0 11 21 4 2 88 68
872 564 172 149 5,800 4,523
Energy
Rio Tinto Energy America 100.0 177 123 56 40 1,097 894
Rio Tinto Coal Australia (d) 104 46 80 76 1,366 1,264
Rossing 68.6 16 - 4 8 64 45
Energy Resources of Australia 68.4 19 9 16 19 160 161
316 178 156 143 2,687 2,364
Industrial Minerals 149 107 92 84 2,471 2,212
Aluminium (e) 114 102 125 120 3,291 3,463
Copper
Kennecott Utah Copper 100.0 119 64 75 65 1,421 1,108
Escondida 30.0 103 118 37 32 916 661
Grasberg joint venture (f) 22 26 26 21 346 348
Palabora * 46.4 12 7 22 15 (245) 322
Kennecott Minerals 100.0 35 19 11 19 162 132
Northparkes 80.0 6 8 30 15 137 168
297 242 201 167 2,737 2,739
Diamonds
Argyle 100.0 49 27 28 46 560 610
Diavik 60.0 42 53 50 39 664 575
Murowa 77.8 1 2 1 3 14 16
92 82 79 88 1,238 1,201
Other operations 19 9 - 15 209 202
1,859 1,284 825 766 18,433 16,704
Other items 74 9 3 5 (339) (729)
Exploration and evaluation 1 - - 1 (5) 18
Less: jointly controlled entities and associates (171) (191) (122) (112)
Total 1,763 1,102 706 660 18,089 15,993
Less: net debt (2,623) (3,451)
Total shareholders' equity 15,466 12,542
References above are to notes on page 30
* The Operating assets of Palabora at 30 June 2006 are net of the liability of
$550 million (30 June 2005: zero) arising from the mark to market of its forward
copper contracts, which were entered into as a condition of its loan agreement.
These contracts hedge future copper sales but are valued in the balance sheet
under IAS39.
Review of operations
Comparison of underlying earnings
First half underlying earnings of $3,751 million were $1,664 million above the
first half underlying earnings of 2005. The table below shows the difference by
product group. All financial amounts in the tables below are US$ millions
unless indicated otherwise.
US$m
First half 2005 underlying earnings 2,087
Iron ore 274
Energy 70
Industrial Minerals 13
Aluminium 166
Copper 1,171
Diamonds 14
Other operations (9)
Exploration and evaluation (21)
Interest 17
Other (31)
First half 2006 underlying earnings 3,751
All subsequent references to earnings within the business unit section refer to
underlying earnings. Production numbers represent the Rio Tinto share.
Iron Ore
First half First half Change Full year
2006 2005 2005
Production (million tonnes) 62.0 59.8 +4% 124.5
Gross turnover ($ millions) 2,975 2,343 +27% 5,497
Underlying earnings ($ millions) 955 681 +40% 1,722
EBITDA ($ millions) 1,663 1,275 +30% 3,102
Capital expenditure ($ millions) 872 564 +55% 1,229
Market conditions
Global iron ore demand remained strong in all markets during the first half of
2006. During May and June 2006, Hamersley and Robe agreed a 19 per cent increase
in the benchmark price for their products for the 2006 contract year. In June
2006, the Iron Ore Company of Canada agreed a 17.3 per cent increase in the
price of its iron ore concentrate and a 3.5 per cent decrease in the price of
pellets.
Construction of the $1 billion Hope Downs iron ore project in Western Australia
(Rio Tinto share $685 million) began in April 2006, following Western Australian
Government approval and the ratification of the Hope Downs Joint Venture.
Hamersley
First half 2006 earnings of $698 million were $224 million above the first half
of 2005. Commissioning of the major port expansion commenced and will continue
progressively through the second half of the year.
Hamersley's first half earnings include a net loss of $13 million for HIsmelt
(first half 2005 $4 million net loss) due to scheduled pre-production and
marketing costs. HIsmelt made its first shipment of almost 40,000 tonnes of pig
iron to the US in June 2006.
Robe River
First half earnings of $197 million were $52 million above the first half of
2005. Higher prices and volumes more than compensated for higher costs
associated with the severe cyclone season.
Iron Ore Company of Canada
Earnings of $54 million were $13 million below the first half of 2005. Pellet
and concentrate production increased marginally but the stronger Canadian dollar
and higher costs associated with extreme winter conditions in 2006 impacted
margins. The reduction in Canadian tax rates has led to a $4 million release of
deferred tax provisions.
Rio Tinto Brasil
Price increases and volume growth lifted Rio Tinto Brasil's earnings to $6
million in the first half of 2006 compared with a loss of $5 million in the
first half of 2005.
Energy
First half First half Change Full year
2006 2005 2005
Production Coal (million tonnes)
US 61.2 58.2 +5% 115.6
Hard coking coal 2.7 3.9 -31% 7.2
Other Australian 15.7 15.3 +3% 30.9
Uranium (tonnes) 2,506 3,050 -18% 6,582
Gross turnover ($ millions) 2,051 1,801 +14% 3,867
Underlying earnings ($ millions) 377 307 +23% 733
EBITDA ($ millions) 708 628 +13% 1,442
Capital expenditure ($ millions) 316 178 +78% 412
US Coal - Rio Tinto Energy America (RTEA)
RTEA's first half 2006 earnings of $90 million were $22 million above the first
half of 2005, with higher prices, improved volumes and a $14 million tax credit
following the recognition of a deferred tax asset. These offset the impact from
increased costs, notably higher labour, fuel and explosive costs.
US Coal production increased by five per cent in the first half of 2006 compared
with the same period of 2005, following the recovery of rail capacity from the
2005 maintenance campaign. The Antelope and Spring Creek mines set new half year
records with additional contributions from their current expansions.
Asia Pacific seaborne coal markets
Demand for seaborne coking coal has softened as high prices have seen Chinese
domestic coking coal and metallurgical coke producers respond accordingly. With
export thermal coal volumes from Australia and Indonesia constrained by
infrastructure in the short term, and Chinese supply currently being partially
diverted to meet domestic demand, the Asia Pacific export thermal coal market
has remained tight and prices have been buoyant.
Rio Tinto Coal Australia
Earnings of $272 million were $44 million above the first half of 2005, with
higher prices more than compensating for lower coking coal volumes.
Production of hard coking coal at Hail Creek reflected lower demand from
customers. Production from the Hunter Valley operations was in line with the
allocation set under the Port Waratah Coal Services capacity balancing system,
contributing to a three per cent increase in thermal coal production half year
on half year.
Uranium markets
The virtual elimination of stockpiles has pushed spot uranium prices close to
$50 per pound. Lead times for significant new capacity from mines of at least
five years are expected to keep short to medium term prices firm, whilst a
finite life for the supply of reprocessed ex-military material and the
commitment by China to a nuclear generation investment programme combine to
improve the longer term outlook for uranium demand.
Rossing
Earnings of $7 million were $6 million above the first half of 2005, reflecting
the benefit of higher realised prices.
Energy Resources Australia
Earnings of $8 million were $2 million below the first half of 2005 with
production declining by just under one third, mainly due to wet weather
associated with cyclone Monica and unusually high rainfall throughout the summer
wet season that prevented access to high grade ore at the Ranger mine.
Production was further impacted by a reduction in the volume of ore treated due
to difficulties experienced in bringing the acid plant back to full production
after a planned maintenance shutdown. The full impact of rising uranium prices
will only flow through to sales contract prices as new contracts come into
effect.
Industrial Minerals
First half First half Change Full year
2006 2005 2005
Production Titanium dioxide (000 tonnes) 699 649 +8% 1,312
Borates (000 tonnes) 272 268 +1% 560
Salt (000 tonnes) 2,650 2,776 -5% 5,507
Talc (000 tonnes) 727 690 +5% 1,364
Gross turnover ($ millions) 1,252 1,208 +4% 2,487
Underlying earnings ($ millions)
Rio Tinto Iron & Titanium 83 72 +15% 128
Rio Tinto Minerals 54 52 +4% 59
137 124 +10% 187
EBITDA ($ millions) 313 313 0% 563
Capital expenditure ($ millions) 149 107 +39% 235
Rio Tinto Iron & Titanium
Earnings of $83 million were $11 million above the first half of 2005. The
titanium dioxide feedstock market remained in reasonable balance during the
period with prices still firm for co-products, notably zircon, Sorelmetal and
steel billet. These factors, together with higher volumes, in line with the
current expansion of the Upgraded Slag (UGS) plant in Quebec from 325,000 tonnes
to 375,000 tonnes, more than offset the impact of a stronger Canadian dollar. In
addition, a reduction in Canadian tax rates has resulted in an $18 million
release of deferred tax provisions.
Rio Tinto Minerals
Earnings of $54 million were $2 million above the first half of 2005. Rio Tinto
Minerals benefited from the new organisational structure implemented in 2005,
although an additional $4 million of restructuring costs were incurred in the
first half of 2006. The recognition of a $5 million deferred tax asset and
higher prices offset the impact of higher energy and raw material costs.
Aluminium
First half First half Change Full year
2006 2005 2005
Production Bauxite (000 tonnes) 7,658 7,117 +8% 15,474
Alumina (000 tonnes) 1,632 1,490 +10% 2,963
Aluminium (000 tonnes) 413.7 421.6 -2% 853.7
Gross turnover ($ millions) 1,658 1,383 +20% 2,744
Underlying earnings ($ millions) 369 203 +82% 392
EBITDA ($ millions) 673 416 +62% 855
Capital expenditure ($ millions) 114 102 +12% 242
Prices
The average aluminium price of 115 cents per pound was 37 per cent above the
first half 2005 average price. The alumina market remained tight and spot
prices continued to trade at over $450 per tonne, albeit representing a 20 per
cent decline from recent highs. Chinese demand for alumina has been increasingly
met by domestic supply. These effects, together with the impacts of other price
movements, increased earnings by $242 million.
Bauxite
Half year bauxite production was eight per cent higher than the comparative
period in 2005 due to the successful commissioning of the Andoom mine and
processing plant which form part of the NeWeipa project.
Alumina
Half year production from the Comalco Alumina Refinery, at 578,000 tonnes, was
36 per cent above the corresponding period of 2005, with increased digestion
pump availability resulting in good production rates. There are two phased major
shutdowns planned for the Comalco Alumina Refinery for the third quarter,
reducing production by approximately one month's total output. Production at
Queensland Alumina and Eurallumina was in line with the same period as last
year.
Overall first half alumina production was up ten per cent compared with the
first half of 2005. Production costs were adversely affected by higher input
prices.
Aluminium
Production at the aluminium smelters was lower than the first half of 2005,
primarily due to cells being taken out of circuit at Tiwai Point, because of low
rainfall in the hydropower catchment area.
Copper
First half First half Change Full year
2006 2005 2005
Production Mined copper (000 tonnes) 410.8 378.3 +9% 784.4
Refined copper (000 tonnes) 169.5 139.8 +21% 314.5
Mined molybdenum (000 tonnes) 7.9 7.1 +11% 15.6
Mined gold (000 oz) 460 809 -43% 1,626
Gross turnover ($ millions) 3,644 2,130 +71% 4,839
Underlying earnings ($ millions) 2,005 834 +140% 2,020
EBITDA ($ millions) 2,789 1,343 +108% 3,191
Capital expenditure ($ millions) 297 242 +23% 505
Prices
The average copper price of 271 cents per pound was 79 per cent above the first
half 2005 average price. This, together with the effects of provisional pricing
movements, increased earnings by $1,006 million.
Kennecott Utah Copper
Earnings of $1,033 million were $568 million higher than the first half of 2005
with the operation benefiting from improved volumes and a tax credit of $215
million, following recognition of deferred tax assets. The optimisation of mine
production in favour of molybdenum continued, although mined copper and gold
volumes also increased as a result of higher grades.
Refined copper production was significantly higher in the first half compared
with the same period of 2005 due to strong operational performance at the
smelter and a 17 day planned maintenance shutdown in May 2005. The smelter will
undergo a 45 day planned maintenance shutdown in September and October 2006.
Escondida
Earnings of $700 million were $481 million above the first half of 2005. Mined
copper production was 19 per cent higher than the same period of 2005 as a
result of the commissioning of the Norte pit in September 2005 and the
commencement of sulphide leaching in 2006.
Grasberg joint venture
Earnings of $65 million were $20 million below the first half of 2005. Lower
grades for copper, gold and silver as a result of mine sequencing led to
significantly lower production for all three metals compared with the same
period of 2005. In addition, a relatively small section of ore in the 6 North
pushback was encountered in the second quarter of 2006 with abnormally high clay
content, which adversely affected ore flow, mill recoveries and concentrate
grades.
Kennecott Minerals
Earnings of $45 million were $3 million above the first half of 2005. The
effects of higher gold prices and the recognition of a $10 million deferred tax
asset were offset by higher costs and lower sales volumes from Cortez due to
lower grades.
Palabora
Earnings of $38 million were $32 million above the first half of 2005,
benefiting from the sale of some smelter stocks and low grade concentrate, and
the revaluation of the remaining smelter stocks. This was partly offset by a
planned smelter shutdown in the first quarter of 2006.
Northparkes
Earnings of $124 million were $107 million above the first half of 2005. Mined
copper production increased by 77 per cent reflecting the continued mining of
higher grade ore from the Lift 2 area. Operational performance exceeded design
capacity and mill recoveries averaged over 90 per cent.
Diamonds
First half First half Change Full year
2006 2005 2005
Production Diamonds (000 carats)
Argyle 12,722 18,026 -29% 30,476
Diavik 2,705 2,558 +6% 4,963
Murowa 103 104 0% 195
Gross turnover ($ millions) 411 454 -9% 1,076
Underlying earnings ($ millions) 113 99 +14% 281
EBITDA ($ millions) 230 257 -11% 617
Capital expenditure ($ millions) 92 82 +12% 203
Diamond markets
Conditions in the rough diamond market have softened somewhat, in contrast to
the polished market, which has remained robust, particularly for the larger
sized stones.
Argyle
Earnings of $41 million were $1 million above the first half of 2005. Carat
production declined following adverse weather conditions earlier in the year.
This was compensated by higher prices and the impact of a weaker Australian
dollar.
Diavik
Earnings of $70 million were $20 million above the first half of 2005. Diamond
output recovered from the first half of 2005, in line with higher grades and a
relatively constant mix from higher grade A154S ore and lower grade A154N ore.
This offset the impact of higher costs from the early closure of the ice road.
In addition, a reduction in Canadian tax rates has led to a $21 million release
of deferred tax provisions.
Murowa
Earnings of $2 million were $7 million below the corresponding period of 2005,
attributable to an adverse sales mix, with the extraction of smaller stones as
mining moves below the enriched surface layer.
Other operations
First half First half Change Full year
2006 2005 2005
Underlying earnings ($ millions) 16 25 -36% 2
The sale of the last remaining gold inventories at Kelian generated earnings of
$15 million, compared with $9 million in the first half of 2005.
At Kennecott Land's Project Daybreak, land sales increased steadily. During the
first half of 2006, over 300 residential lots were sold. This compared with
sales of just over 450 lots for the full year 2005.
Exploration and evaluation
First half First half Change Full year
2006 2005 2005
Post-tax charge ($ millions) 80 59 +36% 174
Central exploration and evaluation costs of $80 million, on a post-tax basis,
were 36 per cent higher than the first half of 2005. The greenfield programme
was extended into new territories whilst projects under evaluation progressed.
Exploration drilling was sustained on copper targets in Chile, Argentina, Mexico
and the US. Exploration in Russia ramped up as part of the RioNor Joint Venture.
Diamond exploration remained focussed on targets in Canada, Botswana,
Mauritania, India and Brazil. Iron ore exploration continued in Western
Australia and west Africa. Exploration for thermal and coking coal
opportunities continued in southern Africa, North America, South America and
Mongolia.
Evaluation work continued on a number of projects including Eagle (nickel/
copper, US), Resolution (copper/gold, US), Potasio Rio Colorado (potash,
Argentina), La Granja (copper, Peru) and Simandou (iron ore, Guinea). Rio Tinto
has taken a 9.9 per cent equity position in Northern Dynasty Minerals, which
controls the Pebble copper-gold-molybdenum deposit in Alaska. Contract of Work
negotiations continue at La Sampala nickel in Indonesia.
Brownfield exploration is underway at a number of Rio Tinto businesses,
including the Pilbara, Kennecott Utah Copper, the Freeport and Cortez Joint
Ventures, the Ranger mine, Greens Creek and Northparkes. This expenditure is
charged directly against business unit earnings and totalled $18 million
(post-tax) in the first half of 2006.
Capital projects
Project Estimated Status/Milestones
cost
(100%)
Completed in 2006
Iron ore - Expansion of Hamersley's (Rio Tinto $685m Project completed on budget and ahead
100%) port capacity (Phase A) to 116 million tonnes of schedule.
per annum.
Iron ore - Expansion of Hamersley's (Rio Tinto $290m The Marandoo and Nammuldi components
100%) Tom Price and Marandoo mines and construction are complete and Tom Price is
of new mine capacity at Nammuldi. scheduled for completion by the end
of 2006.
Iron ore - Expansion by Robe River (Rio Tinto 53%) $200m Project completed on budget and ahead
of rail capacity including completion of dual of schedule.
tracking of 100 km mainline section.
Copper - Escondida sulphide leach (Rio Tinto 30%). $925m The first cathode production from the
The project will produce 180,000 tonnes per annum sulphide leach plant occurred in June
of copper cathode for more than 25 years. 2006.
Ongoing
Copper - Kennecott Utah Copper (Rio Tinto 100%) $170m The project was approved in February
East 1 pushback. The project extends the life of 2005 and work on the pushback
the open pit to 2017 while retaining options for continues. Commissioning of the
further underground or open pit mining thereafter. pebble crusher is expected in the
third quarter of 2006.
Coking coal - Hail Creek (Rio Tinto 82%) Expansion $223m Project is on budget with the new
of annual capacity from 6 million tonnes to dragline due to be commissioned early
nameplate 8 million tonnes per annum. in the third quarter of 2006.
Diamonds - Construction at Diavik (Rio Tinto 60%) $265m The project was approved in 2004. The
of the A418 dike, and funding for further study of A418 dike was closed off in late
the viability of underground mining, including the 2005. It will be completed in 2007
construction of an exploratory decline. with production from the A418 pipe
commencing in 2008. Construction of
the exploratory decline is
progressing well.
Iron ore - Brownfields mine expansion of $530m Both projects were approved in
Hamersley's (Rio Tinto 100%) Yandicoogina mine from October 2005 and completion is
36 million tonnes per annum to 52 million tonnes expected by the end of 2007.
per annum
Iron ore - Expansion of Hamersley's (Rio Tinto $803m
100%) Dampier port (Phase B) from 116 million
tonnes per annum to 140 million tonnes per annum
capacity and additional rolling stock and
infrastructure.
Titanium dioxide - Construction by QMM (Rio Tinto $585m Basic infrastructure is being put in
80%) of a greenfield ilmenite operation in place. The main port construction
Madagascar and associated upgrade of processing + contract is expected to be awarded in
facilities at QIT. the second half of 2006. First
$190m production is forecast in late 2008.
Titanium dioxide - further expansion of annual $79m The expansion is proceeding on
capacity at the UGS plant from 325,000 tonnes to schedule and is due to come onstream
375,000 tonnes by the end of 2006.
Diamonds - Argyle (Rio Tinto 100%) development of $910m Approved in December 2005, the
underground mine and open pit cutback, extending underground mine is due to start
the life of the mine to 2018. ramping up from 2007.
Project Estimated Status/Milestones
cost
(100%)
Ongoing (continued)
Gold - Development of Cortez Hills (Rio Tinto 40%) $455m Approved in September 2005, the
project continues to focus on
permitting requirements.
Energy - Rossing (Rio Tinto 68.6%) uranium mine $82m Approved in December 2005, works have
life extension to 2016 now commenced.
Recently approved
Iron ore - Hope Downs development (Rio Tinto share: $980m Construction is underway. First
50% of mine and 100% of infrastructure). production expected in early 2008.
Construction of 22 million tonnes per annum mine
and related infrastructure.
Price & exchange rate sensitivities
The following sensitivities give the estimated effect on underlying earnings
assuming that each individual price or exchange rate moved in isolation. The
relationship between currencies and commodity prices is a complex one and
movements in exchange rates can cause movements in commodity prices and vice
versa. The exchange rate sensitivities quoted below include the effect on
operating costs of movements in exchange rates but exclude the effect due to the
revaluation of foreign currency working capital. They should therefore be used
with care.
Average price/exchange rate for Change Effect on full year
first half 2006 underlying earnings
US$m
Copper 271c/lb +/- 10c/lb 138
Aluminium 115c/lb +/-10c/lb 144
Gold $588/oz +/- $50/oz 38
Molybdenum $23/lb +/- $5/lb 67
Australian dollar 74USc +/-5USc 175
Canadian dollar 88USc +/-5USc 33
South African rand 16USc +/-2USc 32
For further information, please contact:
LONDON AUSTRALIA
Media Relations Media Relations
Nick Cobban Ian Head
Office: +44 (0) 20 7753 2305 Office: +61 (0) 3 9283 3620
Mobile: +44 (0) 7920 041 003 Mobile: +61 (0) 408 360 101
Investor Relations Investor Relations
Nigel Jones Dave Skinner
Office: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628
Mobile: +44 (0) 7917 227 365 Mobile: +61 (0) 408 335 309
David Ovington Susie Creswell
Office: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639
Mobile: +44 (0) 7920 010 978 Mobile: +61 (0) 418 933 792
Website: www.riotinto.com
High resolution photographs available at: www.newscast.co.uk
Group income statement
Six months Six months Year to 31
to 30 June to 30 June December
2006 2005 2005
US$m US$m US$m
Gross turnover (including share of jointly controlled entities and 12,111 9,439 20,742
associates) (a)
Consolidated turnover 10,621 8,671 19,033
Operating costs (excluding impairment charges) (6,465) (5,823) (12,436)
Net impairment reversals/(charges) - - 3
Profit on disposal of interests in businesses (including investments) (b) 8 98 322
Operating profit 4,164 2,946 6,922
Share of profit after tax of jointly controlled entities and associates 800 275 776
Profit before finance items and taxation 4,964 3,221 7,698
Finance items
Exchange gains/(losses) on external net debt and intragroup balances 29 (14) (128)
Losses on currency and interest rate derivatives not qualifying
for hedge accounting (18) (27) (51)
Interest receivable and similar income 64 23 82
Interest payable and similar charges (104) (84) (173)
Amortisation of discount (56) (55) (116)
(85) (157) (386)
Profit before taxation 4,879 3,064 7,312
Taxation (b) (911) (801) (1,814)
Profit for the period 3,968 2,263 5,498
- attributable to outside equity shareholders 172 98 283
- attributable to equity shareholders of Rio Tinto (Net earnings) 3,796 2,165 5,215
Basic earnings per ordinary share (c) 282.0c 157.6c 382.3c
Diluted earnings per ordinary share 280.9c 157.3c 381.1c
Dividends per share: paid during the period
- Regular dividend 41.5c 45.0c 83.5c
- Special dividend 110.0c - -
Dividends per share: declared in the announcement of the results for the
period
- Regular dividend 40.0c 38.5c 41.5c
- Special dividend - - 110.0c
(a) Gross turnover includes the turnover of jointly controlled entities and
associates of US$1,490 million (half year 2005: US$768 million; full year 2005:
US$1,709 million) in addition to Consolidated turnover, which relates only to
subsidiary companies.
(b) The net tax charge resulting from profit on disposal of interests in
businesses (including investments) for the six months ended 30 June 2006 was nil
(half year 2005: US$9 million; year ended 31 December 2005: US$11 million).
(c) For the purpose of calculating basic earnings per ordinary share, the
weighted average number of Rio Tinto plc and Rio Tinto Limited shares
outstanding during the period was 1,345.9 million, being the weighted average
number of Rio Tinto plc shares outstanding (1,060.2 million) plus the weighted
average number of Rio Tinto Limited shares outstanding not held by Rio Tinto plc
(285.7 million).
Group cash flow statement
Six months Six months Year to 31
to 30 June to 30 June December
2006 2005 2005
US$m US$m US$m
Cash flow from consolidated operations 4,414 3,167 7,657
Dividends from jointly controlled entities and associates 788 254 600
Cash flow from operations 5,202 3,421 8,257
Interest received 67 23 51
Interest paid (116) (90) (179)
Dividends paid to outside shareholders (122) (73) (169)
Tax paid (1,615) (424) (1,017)
Cash flow from operating activities 3,416 2,857 6,943
Cash used in investing activities
Disposals of subsidiaries, joint ventures and associates (less acquisitions) 3 (2) 321
Purchase of property, plant and equipment and intangible assets (1,758) (1,110) (2,552)
(Funding to)/repayments from jointly controlled entities and associates (13) 5 17
Exploration and evaluation expenditure (137) (102) (264)
Proceeds from sale of property, plant and equipment and intangible assets 2 8 36
Sales of other investments 286 130 133
Purchases of other financial assets (30) (36) (231)
Government grants received 8 - 26
Cash flows from non-hedge derivatives not related to net debt 9 15 31
Cash used in investing activities (1,630) (1,092) (2,483)
Cash flow before financing activities 1,786 1,765 4,460
Cash used in financing activities
Equity dividends paid to Rio Tinto shareholders (2,024) (622) (1,141)
Own shares purchased from Rio Tinto shareholders (1,098) (774) (877)
Proceeds from issue of ordinary shares in Rio Tinto 30 52 100
Proceeds from issue of ordinary shares in subsidiaries
to outside shareholders 6 - 4
Finance lease principal payments (9) (73) (86)
Proceeds from issue of new borrowings 38 179 388
Repayment of borrowings (133) (364) (807)
Cash flows from non-hedge derivatives related to net debt (1) 5 2
Cash flows relating to liquid resources not classified as
cash and cash equivalents - 13 6
Cash used in financing activities (3,191) (1,584) (2,411)
Effects of exchange rates on cash and cash equivalents (3) (6) (8)
Net (reduction)/increase in cash and cash equivalents (1,408) 175 2,041
Opening cash and cash equivalents 2,367 326 326
Closing cash and cash equivalents 959 501 2,367
Cash flow from consolidated operations
Profit for the period 3,968 2,263 5,498
Adjustments for:
Taxation 911 801 1,814
Finance items 85 157 386
Share of profit after tax of jointly controlled entities and associates (800) (275) (776)
Profit on disposal of interests in businesses (including investments) (8) (98) (322)
Net impairment (reversals)/charges - - (3)
Depreciation and amortisation 706 660 1,334
Exploration and evaluation charged against profit 113 93 250
Provisions (11) 107 202
Utilisation of provisions (148) (111) (261)
Change in inventories (269) (228) (249)
Change in trade and other receivables (232) (180) (530)
Change in trade and other payables 42 (31) 279
Other items 57 9 35
4,414 3,167 7,657
Group balance sheet
30 June 30 June 31 December
2006 2005 2005
US$m US$m US$m
Non current assets
Goodwill 1,022 1,062 1,020
Intangible assets 247 193 220
Property, plant and equipment 19,178 17,121 17,620
Investments in jointly controlled entities and associates 2,014 2,069 1,829
Loans to jointly controlled entities 139 122 159
Inventories 82 44 141
Trade and other receivables 770 709 703
Deferred tax assets 281 12 55
Tax recoverable 127 135 122
Derivatives related to net debt - 308 254
Other financial assets 238 241 199
24,098 22,016 22,322
Current assets
Loans to jointly controlled entities 15 48 -
Inventories 2,300 2,121 2,048
Trade and other receivables 2,727 2,064 2,488
Tax recoverable 31 22 30
Derivatives related to net debt 396 93 62
Other financial assets 143 252 469
Other liquid resources 6 - 5
Cash and cash equivalents 989 563 2,379
6,607 5,163 7,481
Current liabilities
Bank overdrafts repayable on demand (30) (62) (12)
Borrowings (2,275) (824) (1,190)
Trade and other payables (2,169) (1,703) (2,190)
Derivatives related to net debt (1) (8) (8)
Other financial liabilities (226) (43) (78)
Tax payable (642) (392) (987)
Provisions (301) (269) (321)
(5,644) (3,301) (4,786)
Net current assets 963 1,862 2,695
Non current liabilities
Borrowings (1,686) (3,506) (2,783)
Trade and other payables (240) (793) (269)
Derivatives related to net debt (22) (15) (20)
Other financial liabilities (426) - (93)
Tax payable (91) (101) (51)
Deferred tax liabilities (2,214) (2,264) (2,197)
Provisions (4,043) (3,919) (3,865)
(8,722) (10,598) (9,278)
Net assets 16,339 13,280 15,739
Capital and reserves
Share capital
- Rio Tinto plc 172 172 172
- Rio Tinto Limited (excl. Rio Tinto plc interest) 1,029 1,052 1,019
Share premium account 1,918 1,851 1,888
Other reserves (435) 258 (24)
Retained earnings 12,782 9,209 11,893
Equity attributable to Rio Tinto shareholders 15,466 12,542 14,948
Attributable to outside equity shareholders 873 738 791
Total equity 16,339 13,280 15,739
(a) At 30 June 2006, Rio Tinto plc had 1,048.6 million ordinary shares in
issue and Rio Tinto Limited had 285.7 million shares in issue, excluding those
held by Rio Tinto plc.
Group statement of recognised income and expense
Attributable to Outside Six months Six months Year to 31
shareholders interests to 30 June to 30 June December
of Rio Tinto 2006 2005 2005
Total Total Total
US$m US$m US$m US$m US$m
Currency translation adjustment 168 2 170 (286) (445)
Cash flow hedge fair value (losses)/gains (a) (550) (47) (597) 14 (142)
Gains on available for sale securities 12 2 14 19 37
Cash flow hedge losses transferred to the income
statement 18 24 42 2 1
Gains on available for sale securities transferred
to the income statement (4) - (4) (83) (88)
Actuarial gains on post retirement benefit plans 230 14 244 55 178
Tax recognised directly in equity (7) 29 22 (2) 57
Net (expense)/income recognised directly in equity (133) 24 (109) (281) (402)
Profit after tax for the period 3,796 172 3,968 2,263 5,498
Total recognised income for the period 3,663 196 3,859 1,982 5,096
(a) The cash flow hedge fair value loss, for the six months to 30 June 2006,
relates almost entirely to forward copper sales contracts entered into by
Palabora as a condition of its loan agreement.
Group statement of changes in equity
Attributable Outside Six months Six months Year to 31
to shareholders interests to 30 June to 30 June December
of Rio Tinto 2006 2005 2005
Total Total Total
US$m US$m US$m US$m US$m
Opening balance 14,948 791 15,739 12,591 12,591
Adjustment for adoption of IAS 39 (net of tax)
to:
- retained earnings - - - (11) (11)
- other reserves - - - 120 120
Opening balance as restated 14,948 791 15,739 12,700 12,700
Total recognised income for the year 3,663 196 3,859 1,982 5,096
Employee share options charged
to income statement 11 - 11 14 24
Dividends (2,038) (122) (2,160) (694) (1,312)
Subsidiaries disposed of - 2 2 - 4
Own shares purchased from Rio Tinto shareholders
- Under capital management programme (1,098) - (1,098) (774) (877)
- To satisfy share options (45) - (45) - -
Ordinary shares issued 30 6 36 52 104
Other movements (5) - (5) - -
Closing balance 15,466 873 16,339 13,280 15,739
Reconciliation with Australian IFRS
Six months Six months Year to 31
to 30 June to 30 June December
2006 2005 2005
US$m US$m US$m
Profit for the period under EU IFRS 3,968 2,263 5,498
Differences - - -
Profit for the period under Australian IFRS 3,968 2,263 5,498
Six months Six months Year to 31
to 30 June to 30 June December
2006 2005 2005
US$m US$m US$m
Total recognised income for the period under EU IFRS 3,859 1,982 5,096
Exchange differences relating to:
Goodwill 1 - -
Total recognised income for the period under Australian IFRS 3,860 1,982 5,096
Six months Six months Year to 31
to 30 June to 30 June December
2006 2005 2005
US$m US$m US$m
Total equity under EU IFRS 16,339 13,280 15,739
Increase in respect of:
Goodwill 744 741 743
Total equity under Australian IFRS 17,083 14,021 16,482
The profit, income and equity figures set out above include amounts attributable
to outside shareholders in subsidiaries.
The Group's financial statements have been prepared in accordance with IFRS as
adopted for use in the European Union ('EU IFRS'), which differs in certain
respects from the version of IFRS that is applicable in Australia ('Australian
IFRS').
The transition to EU IFRS was based on the UK GAAP financial statements as at 1
January 2004. Under UK GAAP, goodwill on acquisitions prior to 1998 was
eliminated directly against equity. Under IFRS 1, goodwill previously recognised
as a reduction in equity is not reinstated on transition to IFRS. The
Australian equivalent, AASB 1, does not include this relief provision. As a
consequence, shareholders' funds under Australian IFRS include the residue of
such goodwill.
Reconciliation of Net earnings to Underlying earnings
Pre-tax Taxation Outside Six months Six months Year to 31
interests to 30 June to 30 June December
2006 2005 2005
Net Net Net
amount amount amount
US$m US$m US$m
Exclusions from Underlying earnings
Gains relating to disposal of interests in
businesses (including investments) (a) 8 - 2 10 89 311
Net impairment reversals/(charges) (b) - - - - - 4
Exchange differences and derivatives
- Exchange gains/(losses) on external net
debt and intragroup balances (c) 29 (29) 12 12 13 (87)
- (Losses)/gains on currency and interest
rate derivatives not qualifying for hedge
accounting (d),(e) (18) 4 1 (13) (20) (40)
- Losses on external net debt and derivatives
not qualifying as hedges in jointly controlled
entities and associates (net of tax) (c),(d),(e) (1) - - (1) (4) (12)
Adjustment to environmental remediation
provision (f) 37 - - 37 - 84
Total excluded from Underlying earnings 55 (25) 15 45 78 260
Net earnings 4,879 (911) (172) 3,796 2,165 5,215
Underlying earnings 4,824 (886) (187) 3,751 2,087 4,955
'Underlying earnings' is an alternative measure of earnings, which is reported
by Rio Tinto to provide greater understanding of the underlying business
performance of its operations. Underlying earnings and Net earnings both
represent amounts attributable to Rio Tinto shareholders. Items (a) to (f)
below are excluded from Net earnings in arriving at Underlying earnings.
(a) Gains and losses arising on the disposal of interests in businesses
(including investments) and undeveloped properties.
(b) Charges and credits relating to impairment of non-current assets.
(c) Exchange gains and losses on US dollar debt and intragroup balances.
(d) Valuation changes on currency and interest rate derivatives which are
ineligible for hedge accounting, other than those embedded in commercial
contracts.
(e) The currency revaluation of embedded US dollar derivatives contained in
contracts held by entities whose functional currency is not the US dollar.
(f) Other credits and charges that, individually, or in aggregate if of a
similar type, are of a nature or size to require exclusion in order to
provide additional insight into underlying business performance. The
'Adjustment to environmental remediation provision' of US$37 million
(2005 full year: US$84 million) relates to the obligations of Kennecott
Utah Copper. It reverses part of an exceptional charge taken up in 2002,
which was excluded from Adjusted earnings at that time. This reversal
is therefore excluded in arriving at Underlying earnings.
Consolidated net debt
Cash and Other liquid Borrowings 30 June 30 June 31 December
cash resources 2006 2005 2005
equivalents Net debt Net debt
US$m US$m US$m
Analysis of changes in consolidated
net debt
At 1 January 2,367 5 (3,685) (1,313) (3,809) (3,809)
Adjustment for adoption of IAS 39 - - - - (10) (10)
Opening balance as restated 2,367 5 (3,685) (1,313) (3,819) (3,819)
Adjustment on currency translation (1) 1 (24) (24) 56 96
Exchange gains/(losses) charged to the income
statement (2) - 9 7 (1) 13
Gains/(losses) on derivatives related to net debt 25 25 (44) (85)
Subsidiaries disposed of - - 2 2 - -
Finance leases raised less repaid - - 9 9 9 22
Cash flow excluding exchange movements (1,405) - 96 (1,309) 348 2,460
Other movements - - (20) (20) - -
Closing balance 959 6 (3,588) (2,623) (3,451) (1,313)
Reconciliation to balance sheet categories
Non-current - - (1,686) (1,686) (3,506) (2,783)
Current 989 6 (2,275) (1,280) (261) 1,194
Bank overdrafts repayable on demand (30) - - (30) (62) (12)
Derivatives related to net debt - - 373 373 378 288
Consolidated net debt 959 6 (3,588) (2,623) (3,451) (1,313)
Primary segmental analysis (by product group)
Six months Six months Year to 31
to 30 June to 30 June December
2006 2005 2005
US$m US$m US$m
Turnover
Iron ore 2,975 2,343 5,497
Energy 1,974 1,719 3,693
Industrial minerals 1,192 1,157 2,374
Aluminium 1,658 1,383 2,744
Copper 2,291 1,505 3,433
Diamonds 411 454 1,076
Other 120 110 216
Consolidated turnover 10,621 8,671 19,033
Share of jointly controlled entities and associates 1,490 768 1,709
Gross turnover 12,111 9,439 20,742
Consolidated profit before finance items and taxation
Iron ore (c) 1,491 1,210 2,872
Energy (c) 526 461 1,067
Industrial minerals (c) 198 206 362
Aluminium (c) 500 295 502
Copper (c) 1,509 791 1,954
Diamonds 151 169 459
Exploration and evaluation (c) (87) (62) (193)
Other (c) (124) (124) (101)
Operating profit (segment result) 4,164 2,946 6,922
Share of profit after tax of jointly controlled entities and associates
Copper 710 250 660
Other product groups 90 25 116
800 275 776
Profit before finance items and taxation 4,964 3,221 7,698
(a) The product groups shown above reflect the Group's management structure
and are the Group's primary segments in accordance with IAS 14 'Segment
reporting'. The analysis deals with the turnover and profit before
finance items and taxation for subsidiary companies and proportionally
consolidated joint ventures. The amounts presented for each product group
exclude equity accounted units, and include the amounts attributable to
outside equity shareholders. The classification is consistent with the
financial information by business unit data included on pages 7 and 8 of
this news release. However, that information includes the results of
equity accounted units and presents different financial measures.
Generally this product group structure has regard to the primary product
of each business unit, but there are exceptions. For example, the Copper
group includes certain gold operations. The classification differs,
therefore, from the Commodity analysis which is included on page 26, in
which the contributions of individual business units are attributed to
several products as appropriate.
(b) The analysis of profit before finance items and taxation includes the
profit on disposal of interests in businesses (including investments),
and net impairment reversals/(charges), which are excluded from Underlying
earnings.
(c) Disposals of businesses (including investments) included gains/(losses),
as follows:
Six months Six months Year to 31
to 30 June to 30 June December
2006 2005 2005
US$m US$m US$m
Iron ore - 84 85
Energy (1) - -
Industrial minerals 4 - -
Aluminium - 11 11
Copper 5 - 30
Exploration and evaluation - 3 3
Other - - 193
8 98 322
Commodity analysis
Six months Six months Year to 31
First half First half Year to 30 June to 30 June December
2006 2005 2005 2006 2005 2005
% % % US$m US$m US$m
Gross turnover
23.1 13.0 14.3 Copper 2,794 1,227 2,968
2.3 3.9 3.6 Gold (all sources) 277 370 754
24.6 24.8 26.5 Iron ore 2,975 2,343 5,497
15.4 17.4 16.9 Coal 1,863 1,643 3,499
13.7 14.7 13.2 Aluminium 1,660 1,383 2,744
10.6 13.1 12.2 Industrial minerals (b) 1,279 1,233 2,535
3.4 4.8 5.2 Diamonds 411 454 1,076
6.9 8.3 8.1 Other products 852 786 1,669
100.0 100.0 100.0 12,111 9,439 20,742
Net earnings
50.6 36.6 37.2 Copper, gold and by-products 2,011 831 1,998
24.0 30.0 32.0 Iron ore 955 681 1,722
9.1 13.0 13.2 Coal 362 296 707
9.3 8.9 7.3 Aluminium 371 203 393
3.5 5.7 3.7 Industrial minerals (b) 139 129 200
2.8 4.4 5.2 Diamonds 113 99 281
0.7 1.4 1.4 Other products 21 34 74
100.0 100.0 100.0 3,972 2,273 5,375
Exploration and evaluation (80) (59) (174)
Net interest (14) (31) (44)
Other items (127) (96) (202)
Underlying earnings 3,751 2,087 4,955
Items excluded from Underlying 45 78 260
earnings
Net earnings 3,796 2,165 5,215
(a) This analysis is strictly by commodity. In this regard it differs from
the primary segmental analysis on page 25, and the financial information
by business unit on pages 7 and 8, both of which are based on the Group's
management structure. The notes to the primary segmental analysis by
product group provide further detailed explanation of differences in
presentation between the commodity analysis above and the primary
segmental analysis.
(b) This category includes by-products arising from the production of
titanium dioxide.
Geographical analysis (by country of origin)
Six months Six months Year to 31
First half First half Year to 30 June to 30 June December
2006 2005 2005 2006 2005 2005
% % % US$m US$m US$m
Gross turnover
30.6 31.5 30.8 North America 3,705 2,969 6,397
48.7 50.9 51.2 Australia and New Zealand 5,898 4,808 10,613
11.2 6.0 6.3 South America 1,362 566 1,302
5.4 5.3 5.5 Africa 654 501 1,149
1.4 3.2 3.4 Indonesia 172 299 702
2.7 3.1 2.8 Europe and other countries 320 296 579
100.0 100.0 100.0 12,111 9,439 20,742
Net earnings
33.7 34.2 31.7 North America 1,269 724 1,584
45.3 51.9 53.2 Australia and New Zealand 1,706 1,099 2,659
18.1 9.2 10.5 South America 680 195 526
2.4 2.0 2.1 Africa 92 42 103
2.1 4.4 4.6 Indonesia 80 93 230
(1.6) (1.7) (2.1) Europe and other countries (62) (35) (103)
100.0 100.0 100.0 3,765 2,118 4,999
Net interest (14) (31) (44)
Underlying earnings 3,751 2,087 4,955
Items excluded from Underlying 45 78 260
earnings
Net earnings 3,796 2,165 5,215
(a) The above analyses include Rio Tinto's share of the results of jointly
controlled entities and associates including interest.
(b) The amortisation of discount is included in the applicable product
category and geographical area. All other financing costs of subsidiaries
are included in 'Net interest'.
Tax reconciliation
Six months Six months Year to 31
to 30 June to 30 June December
2006 2005 2005
US$m US$m US$m
Profit before taxation 4,879 3,064 7,312
Deduct: share of net profit of jointly controlled entities and associates (800) (275) (776)
Parent companies' and subsidiaries' profit before tax 4,079 2,789 6,536
Prima facie tax payable at UK and Australian rate of 30% 1,224 837 1,961
Impact of items excluded from Underlying earnings 8 (27) (102)
Other differences
Additional recognition of deferred tax assets (a) (211) - -
Adjustments to deferred tax liabilities following changes in tax rates (46) - -
(a)
Other tax rates applicable outside the UK and Australia (b) (46) (23) (23)
Resource depletion and other depreciation allowances (13) (5) (22)
Research, development and other investment allowances (9) (3) (21)
Other 4 22 21
(321) (9) (45)
Total taxation charge 911 801 1,814
(a) The tax rate for the six months to 30 June 2006 was reduced by two
credits.
- The 'Additional recognition of deferred tax assets' of US$211 million
reflects improved prospects for future earnings from the Group's US
operations.
- The 'Adjustments to deferred tax liabilities following changes in tax
rates', totalling US$46 million, results from a reduction in Canadian
tax rates.
(b) The benefit of 'other tax rates applicable outside UK and Australia'
includes the effect of the US Alternative Minimum Tax rate of 20 per
cent.
(c) This tax reconciliation relates to the parent companies and
subsidiaries.
(d) The total taxation charge includes UK - US$33 million, Australia -
US$675 million and Other - US$203 million (2005 full year: UK -
US$(10) million, Australia - US$1,056 million and Other -
US$768 million).
(e) The Group's share of profit of jointly controlled entities and
associates is net of tax charges of US$403 million (2005 half year:
US$136 million, 2005 full year: US$361 million).
Other disclosures
Capital commitments
Future capital commitments, including those relating to joint ventures and
associates, were US$1,846 million at 30 June 2006 (at 31 December 2005: US$1,322
million).
Contingent liabilities
There were no material changes in contingent liabilities or contingent assets
during the period.
Share buyback
Between 1 January 2006 and 30 June 2006, Rio Tinto plc bought back 21,965,000 of
its own shares from public shareholders at an average buy back price of £28.02.
During 2005, Rio Tinto plc bought back 2,600,000 of its own shares from public
shareholders at an average buy back price of £22.47. These shares are being held
in treasury except for those applied on exercise of share options.
In May 2005, Rio Tinto Limited bought back 27,294,139 of its own shares from
public shareholders at a buy back price of A$36.70 per share. Under a matching
buy back agreement, Rio Tinto Limited also bought back 16,367,000 of its shares
held by a subsidiary of Rio Tinto plc.
Related party matters
Transactions and balances with jointly controlled entities and associates are
included in the lines of the financial statements set out below. Purchases
relate largely to amounts charged by jointly controlled entities for toll
processing of bauxite and alumina. Sales relate largely to charges for supply of
coal to jointly controlled marketing entities for on sale to third party
customers.
Six months Six months Year to 31
to 30 June to 30 June December
2006 2005 2005
Income statement items US$m US$m US$m
Purchases from jointly controlled entities and associates (645) (606) (1,259)
Sales to jointly controlled entities and associates 573 477 1,296
Balance sheet items US$m US$m US$m
Investments in jointly controlled entities and associates 2,014 2,069 1,829
Loans to jointly controlled entities 154 170 159
Loans from jointly controlled entities (32) (51) (14)
Trade and other receivables: amounts due from jointly controlled
entities and associates
521 659 530
Trade and other payables: amounts due to jointly controlled entities
and associates
(112) (581) (199)
Cash flow statement items US$m US$m US$m
(Loans to) / loans repaid by jointly controlled entities and (13) 5 17
associates
Accounting policies
The financial information included in this report is unaudited and has been
prepared in accordance with International Financial Reporting Standards adopted
by the European Union ('EU IFRS') including IAS 34 'Interim financial
reporting', and an Order under section 340 of the Australian Corporations Act
2001 issued by the Australian Securities and Investments Commission on 27
January 2006. The EU IFRS 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 2005, except for the following:
- the adoption of IFRIC 4 'Determining whether an arrangement contains
a lease'.
- a change to the Group's policy on accounting for exploration and
evaluation expenditure. Previously, the Group capitalised exploration
expenditure on acquisition of a beneficial interest or option in mineral
rights. Full provision was made for impairment unless there was a high
degree of confidence in the project's viability and hence it was
considered probable that future economic benefits would flow to the
Group. If, as a result of developments in subsequent periods, the
expenditure was considered to be recoverable, such provisions were
reversed. Under the Group's revised policy, exploration expenditure
is not capitalised until the point is reached at which there is a high
degree of confidence in the project's viability and it is considered
probable that future economic benefits will flow to the Group.
- in addition, a clarification to IAS 21 relating to the treatment of
exchange gains and losses on balances between fellow subsidiary
companies was issued in December 2005. The clarification means that, in
certain circumstances, such loans can now be included as part of the
reporting entity's net investment in foreign operations. The
clarification was implemented in the accounts for the full year to 31
December 2005.
The effect of the above adjustments is not material to Group earnings or to
shareholders' funds in the current or prior periods; therefore, prior period
information has not been restated.
Prior year financial information
Financial information for the year to 31 December 2005 has been extracted from
the full financial statements prepared under the historical cost convention, as
modified by the revaluation of certain derivative contracts and financial
assets, as filed with the Registrar of Companies. The Auditors' report on the
full financial statements for the year to 31 December 2005 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 237(3)
(regarding provision of necessary information and explanations).
Directors' declaration
In the directors' opinion:
The financial statements and notes have been prepared in accordance with the
Listing Rules of the Financial Services Authority in the United Kingdom,
applicable accounting standards and the Australian Corporations Act 2001 (as
modified by an order of the Australian Securities and Investments Commission
dated 27 January 2006) using the most appropriate accounting policies for Rio
Tinto's business and supported by reasonable and prudent judgements.
The financial statements and notes give a true and fair view of the Rio Tinto
Group's financial position as at 30 June 2006 and of its performance, as
represented by the results of its operations, recognised income and expense and
its cash flows for the half year then ended.
There are reasonable grounds to believe that 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
3 August 2006
Auditors' Independence Declaration
As lead auditor for the review of Rio Tinto Limited for the half year ended 30
June 2006, I declare that to the best of my knowledge and belief, there have
been:
(a) no contraventions of the auditor independence requirements of the
Corporations Act 2001 in relation to the review; and
(b) no contraventions of any applicable code of professional conduct in
relation to the review.
This declaration is in respect of Rio Tinto Limited and the entities it
controlled during the period.
John O'Connor Perth
Partner 3 August 2006
PricewaterhouseCoopers
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 (comprising the Companies and their subsidiaries) for the
six months ended 30 June 2006 which comprises the Group interim balance sheet as
at 30 June 2006, the Group interim statements of income, cash flows and
recognised income and expense for the six months then ended and the related
notes (including the financial information by Business Unit). We have read the
other information contained in the interim report 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 of the Companies.
The directors are responsible for preparing the interim report in accordance
with the Listing Rules of the Financial Services Authority in the United Kingdom
and the Australian Corporations Act 2001 as amended by the Australian Securities
and Investments Commission Order dated 27 January 2006.
The Listing Rules of the London Stock Exchange require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
This interim report has been prepared in accordance with International
Accounting Standard 34, 'Interim financial reporting'.
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 disclosed accounting policies have
been applied. 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 and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for Rio
Tinto plc for the purpose of the Listing Rules of the Financial Services
Authority in the United Kingdom and for Rio Tinto Limited for the purpose of the
Australian Corporations Act 2001 as amended by the Australian Securities and
Investments Commission Order dated 27 January 2006 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 2006.
PricewaterhouseCoopers LLP PricewaterhouseCoopers
Chartered Accountants Chartered Accountants
London Perth
3 August 2006 3 August 2006
in respect of Rio Tinto plc in respect of Rio Tinto Limited
Notes to financial information by business unit (Pages 7 and 8)
(a) Gross turnover includes 100 per cent of subsidiaries' turnover and the
Group's share of the turnover of jointly controlled entities and
associates.
(b) EBITDA of subsidiaries and the Group's share of jointly controlled
entities and associates represents profit before: tax, net finance items,
depreciation and amortisation.
(c) Net earnings represent profit after tax for the period attributable to
the Rio Tinto Group. Earnings of subsidiaries are stated before finance
items but after the amortisation of the discount related to provisions.
Earnings attributable to jointly controlled entities and associates
include interest charges and amortisation of discount. Earnings
attributed to business units exclude amounts that are excluded in
arriving at Underlying earnings.
(d) Includes Rio Tinto's interests in Rio Tinto Coal Australia (100 per
cent) and Coal & Allied (75.7 per cent).
(e) Includes Rio Tinto's interests in Comalco (100 per cent) and Anglesey
Aluminium (51 per cent).
(f) Under the terms of a joint venture agreement, Rio Tinto is entitled to
40 per cent of additional material mined as a consequence of expansions
and developments of the Grasberg facilities since 1998.
(g) Business units have been classified according to the Group's management
structure. Generally, this structure has regard to the primary product
of each business unit but there are exceptions. For example, the Copper
group includes certain gold operations. This summary differs, therefore,
from the Commodity analysis in which the contributions of individual
business units are attributed to several products as appropriate.
(h) Capital expenditure comprises the net cash outflow on purchases less
disposals of property, plant and equipment and intangible assets other
than exploration. The details provided include 100 per cent of
subsidiaries' capital expenditure and Rio Tinto's share of the capital
expenditure of jointly controlled entities and associates. Amounts
relating to jointly controlled entities and associates not specifically
funded by Rio Tinto are deducted before arriving at total capital
expenditure for the Group.
(i) Depreciation figures include 100 per cent of subsidiaries' depreciation
and amortisation and include Rio Tinto's share of the depreciation
and amortisation of jointly controlled entities and associates. Amounts
relating to jointly controlled entities and associates are deducted before
arriving at the total depreciation and amortisation charge.
(j) 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 (i.e. net of such
companies' debt). For jointly controlled entities and associates,
Rio Tinto's net investment is shown.
Summary financial data in Australian dollars, Sterling and US dollars
Six Six Six Six Six Six Year to 31
months months months months months months December
to 30 to 30 to 30 to 30 to 30 to 30 2005
June June June June June June
2006 2005 2006 2005 2006 2005
A$m A$m £m £m US$m US$m US$m
16,366 12,258 6,766 5,048 Gross turnover 12,111 9,439 20,742
14,353 11,261 5,934 4,637 Consolidated turnover 10,621 8,671 19,033
6,593 3,979 2,726 1,639 Profit before taxation 4,879 3,064 7,312
5,362 2,939 2,217 1,210 Profit for the period 3,968 2,263 5,498
5,130 2,812 2,121 1,158 Net earnings attributable to Rio Tinto 3,796 2,165 5,215
shareholders
5,069 2,710 2,096 1,116 Underlying earnings * 3,751 2,087 4,955
381.1c 204.7c 157.6p 84.3p Basic earnings per ordinary share 282.0c 157.6c 382.3c
Basic underlying earnings per ordinary
share *
376.6c 197.4c 155.7p 81.3p 278.7c 152.0c 363.2c
Dividends per share to Rio Tinto
shareholders
200.28c 58.29c 85.24p 23.94p - paid (including special dividend) 151.5c 45.0c 83.5c
- proposed (including special dividend)
52.48c 50.56c 21.42p 21.75p 40.0c 38.5c 151.5c
2,414 2,292 998 944 Cash flow before financing activities 1,786 1,765 4,460
(3,545) (4,541) (1,426) (1,907) Net debt (2,623) (3,451) (1,313)
Equity attributable to Rio Tinto
shareholders
20,900 16,503 8,405 6,929 15,466 12,542 14,948
* Underlying earnings for the six months to 30 June 2006 are stated after
excluding items totalling US$45 million (Full year 2005: US$260 million, half
year 2005: US$78 million), which are analysed on page 24.
The financial data above have been extracted from the primary financial
statements set out on pages 19 to 22. The Australian dollar and Sterling
amounts are based on the US dollar amounts, retranslated at average or closing
rates as appropriate, except for the dividends which are the actual amounts
payable.
Metal prices and exchange rates
Six months Six months Change Year to 31
to 30 June to 30 June 1H06 v December
2006 2005 1H05 2005
Metal prices - average for the period
Copper - US cents/lb 271c 151c 79% 166c
Aluminium - US cents/lb 115c 84c 37% 86c
Gold - US$/troy oz US$588 US$427 38% US$444
Molybdenum - US$/lb US$23 US$31 (26%) US$31
Average exchange rates in US$
Sterling 1.79 1.87 (4%) 1.82
Australian dollar 0.74 0.77 (4%) 0.76
Canadian dollar 0.88 0.81 9% 0.83
South African rand 0.159 0.160 (1%) 0.157
Period end exchange rates in US$
Sterling 1.84 1.81 2% 1.73
Australian dollar 0.74 0.76 (3%) 0.73
Canadian dollar 0.90 0.81 11% 0.86
South African rand 0.140 0.150 (7%) 0.158
The Australian dollar exchange rates, given above, are based on the Hedge
Settlement Rate set by the Australian Financial Markets Association.
Availability of this report
This report is available on the Rio Tinto website.
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