Rio Tinto Interim Results2002
Rio Tinto PLC
25 July 2002
Sound result in difficult markets
* First half net earnings of $702 million were $139 million below net
earnings recorded in the first half of last year.
* Lower prices ($41 million), exchange rate movements ($20 million), and the
absence of asset sales ($54 million) all contributed to the lower result.
* Most markets remain soft - the thermal coal markets have deteriorated and
shipments of titanium dioxide feedstock were particularly weak.
* Where appropriate, production was reduced in line with demand. The effect
on net earnings of lower volumes was broadly offset by cost savings.
* Despite lower net earnings, cash flow from operations of $1,416 million was
seven per cent above the first half of last year as a result of favourable
working capital movements.
* First shipments from the new iron ore mine at West Angelas were made in
June. The recently announced projects - Comalco's alumina refinery and the
Hail Creek coking coal mine - are under way and a commitment was made to
build the HIsmelt(R) direct iron ore smelting plant.
Financial Summary
Half year to 30 June First half 2002 First half 2001 Change
Group turnover $5,079m $5,284m -4 %
Cash flow from operations $1,416m $1,320m +7 %
Cash flow from operations $1,637m $1,707m -4 %
plus dividends received
Net earnings $702m $841m -17 %
Earnings per share - US 51.0 61.2 -17 %
cents
As previously announced, the interim dividend for 2002 is set at 29.5 US
cents per share, being one half of the previous year's total dividend, 59.0
US cents.
All dollars are US$ unless otherwise stated.
Chairman's comments
Rio Tinto's chairman, Sir Robert Wilson, said: 'The decline from the record
earnings in the first half of 2001 should not come as a surprise. Since early
last year we have said that our markets were deteriorating and we could see
little to give us optimism that metals demand would recover before the second
half of this year at the earliest. Unfortunately this has proved to be the
case. Last year we experienced the sharpest fall in demand for metals for
over two decades and whilst markets now appear to have stabilised, we have
not yet seen much evidence of improvement.
'Against this background, the level of profitability in the first half of
2002 was satisfactory and reflected the quality of our assets and the
discipline we believe is essential in our industry - in terms of efficient
management of our current operations and resisting the temptation to pursue
high sales volumes in weak markets.
'We have attractive expansion opportunities across the range of our products
and will pursue these as and when market conditions permit. Meanwhile, we
have to remain patient. China's industrial growth continues to be a bright
spot in a gloomy environment, except in the case of thermal coal where it has
become a fast growing exporter.
'Elsewhere in our business, we see grounds for a modest improvement in
several areas during the second half of the year, but we remain of the view
that recovery to the levels of demand seen two years ago could be a slow
process.
'This may not add up to an exciting near-term outlook but nor is it cause for
excessive gloom. This was, after all, one of the highest first half earnings
achieved by the Group.'
Chief Executive's Comments
Leigh Clifford, Rio Tinto's chief executive, said: 'It's a tough environment
in which to do business but our operations continue to perform. We
concentrate on the things that we do well - managing our business by
controlling costs and delivering value creating investment projects. Where
our operations have under performed - notably at Kennecott Utah Copper and
the Iron Ore Company of Canada - we are taking the necessary steps to turn
them around.
'We have managed our production in line with market demand, although this has
inevitably had some impact on our cost base and the level of cost savings was
lower than we achieved in previous periods. Importantly, the actions we have
taken mean we should be in an even better position to benefit from any
economic recovery.
'I am extremely pleased with progress on our various major capital
investments. The first ore was shipped ahead of schedule from West Angelas
(iron ore), and Diavik (diamonds) and Hail Creek (coking coal) remain on
schedule to deliver in the first half and second half of next year
respectively. All of these projects are currently at or under budget. With
construction starting on Comalco's alumina refinery, the next group of
projects is already under way. These are all high quality and will be margin
enhancing.'
COMMENTARY ON THE GROUP FINANCIAL RESULTS
Net earnings of $702 million were $139 million below the corresponding period
of last year. The principal factors are shown in the table below.
US$m
2001 first half net earnings 841
Prices (41)
Exchange rates (20)
Inflation (37)
Volumes (21)
Cost savings 20
Interest 42
Absence of asset sales (54)
Other (28)
2002 first half net earnings 702
Prices & exchange
Aluminium prices averaged 11 per cent below the first half of 2001 and copper
prices were nearly eight per cent lower. These effects on earnings were
partly offset by a 13 per cent increase in average gold prices. There was
also a benefit from higher amounts realised for provisionally priced copper
because the copper price at 30 June was 11 per cent higher than at the start
of the year.
The net effect on earnings of the increase in coal prices effective from
April 2001 and the reduction effective from April 2002 was positive but
diamond and iron ore prices were lower.
The positive variance from the rand and other currencies that weakened
against the US dollar was more than offset by the negative impact of the
strengthening Australian dollar.
Volumes
Lower volumes reduced earnings by $21 million. The earnings contributions
from the Group's interests in Grasberg, through Freeport and the Joint
Venture, were lower as a result of a 48 per cent reduction in gold grade.
Reduced titanium dioxide sales volumes also impacted earnings. Escondida
announced in November 2001 and confirmed in May 2002 that production of
copper in concentrates would be cut by ten per cent in response to weak
market demand. Several operations achieved increased volumes. In particular,
there were increased sales of diamonds at Argyle and improved smelter and
refinery performance at Kennecott Utah Copper.
Cost savings
After tax cost savings achieved during the period were $20 million. Lower
operating costs were recorded at Kennecott Utah Copper, Comalco, Hamersley
and several other operations but were offset by higher costs elsewhere
including at Kennecott Energy and Rio Tinto Brasil.
Tax
The Group's effective tax rate was 32.3 per cent compared with 32.0 per cent
in first half 2001. Financial Reporting Standard 19 'Deferred Tax' was
implemented in the first half of 2002 and consequently the opening balance of
shareholders' funds has been reduced by $133 million. The impact on 2001
earnings was not significant and comparative figures for earnings have
therefore not been restated.
Interest charges
After tax interest charges were $42 million below the same period last year
despite higher average debt levels. The Group's policy is to have
predominantly floating rate debt which has allowed it to benefit from lower
interest rates.
Cash flow
Cash from operating activities of $1,416 million was seven per cent above the
$1,320 million recorded last year. This included a $146 million reduction in
accounts receivable which reversed the increase reported in 2001.
Cash flow from operating activities, together with dividends from joint
ventures and associates, totalled $1,637 million compared with $1,707 million
in the first half of 2001. The reduction is largely due to reduced dividends
from the Freeport Joint Venture and retention of earnings at Escondida to
finance the completion of the phase 4 expansion.
Expenditure of $635 million on property, plant and equipment was $31 million
above first half 2001. The major areas of expansionary investment in 2002
were the first instalment on the purchase of additional coal reserves at
North Jacobs Ranch, the Diavik diamond mine, the West Angelas iron ore mine
and Comalco's alumina refinery. Further information on major projects is
given on page 13.
Net disposals of businesses generated $225 million. This largely related to
units acquired with Peabody's Australian coal business in 2001, which the
Group on sold as planned. In the first half of 2001, $361 million was
invested in acquisitions, net of the proceeds of disposals.
Purchases of other investments absorbed a further $318 million of cash. These
investments included $316 million of US treasury bills held as security for
the deferred consideration on assets acquired during the period, which is
payable over the next four years. For this reason, they are not regarded as
liquid resources.
As a result of the Group's continuing investment programme and the purchase
of the above investments, there was a net cash outflow before management of
liquid resources and financing of $307 million.
Balance sheet
In the six months to 30 June 2002, shareholders' funds increased by $872
million to $7,915 million as a result of retained profits of $296 million and
an uplift of $562 million from exchange rate changes. Most important of these
was the strengthening of the Australian dollar by 12 per cent.
Net debt increased by $310 million to $6,021 million. The other investments
of $316 million, referred to above, generate interest income but are not
deducted in arriving at net debt. The ratio of net debt to total capital
decreased from 42.1 per cent, at 31 December 2001, to 40.5 per cent at 30
June 2002. The balance sheet remained in a strong condition with interest
covered 12 times.
Dividends
As announced in August 2001, the interim dividend for 2002 and subsequent
years will be set at one half of the total dividends for the previous year.
Therefore, interim dividends equivalent to 29.5 US cents per share have been
declared by Rio Tinto plc and Rio Tinto Limited. The interim dividend for
2001 was 20.0 US cents per share.
Dividends are determined in US dollars. Rio Tinto plc dividends are declared
and paid in pounds sterling and Rio Tinto Limited dividends are declared and
paid in Australian dollars, converted at exchange rates applicable on
Tuesday, 23 July 2002.
Rio Tinto plc shareholders will be paid an interim dividend of 18.87 pence
per ordinary share (2001: 14.03 pence).
Rio Tinto Limited shareholders will be paid an interim dividend of 54.06
Australian cents per ordinary share (2001: 39.42 Australian cents) which will
be fully franked at the tax rate of 30 per cent. The directors consider that
there are sufficient franking credits available for paying fully franked
dividends for at least the next year.
The respective dividends will be paid on Friday, 13 September 2002 to Rio
Tinto plc shareholders on the register at close of business on Friday, 16
August 2002 and to Rio Tinto Limited shareholders on the register at close of
business on Tuesday, 20 August 2002. The ex-dividend date for both Rio Tinto
plc and Rio Tinto Limited will be Wednesday, 14 August 2002. Dividends to Rio
Tinto ADR holders will be paid on Monday, 16 September 2002.
As usual, Rio Tinto will operate its Dividend Reinvestment Plan, details of
which can be obtained from the Company Secretaries' offices.
RIO TINTO FINANCIAL INFORMATION BY BUSINESS UNIT (1)
US$ millions Gross
Turnover Net
Rio Tinto (a) EBITDA (b) earnings (c)
interest First Half First Half First Half
% 2002 2001 2002 2001 2002 2001
Iron Ore
Hamersley
(inc. HIsmelt) 100.0 501 538 319 344 185 207
Robe River 53.0 102 103 61 52 19 19
Iron Ore
Company of
Canada 56.1 155 196 6 36 (4) 3
758 837 386 432 200 229
Energy
Kennecott
Energy 100.0 483 421 150 107 54 43
Pacific Coal 100.0 202 188 117 102 68 60
Kaltim Prima
Coal 50.0 101 85 43 42 15 15
Coal & Allied 72.7 312 340 107 118 44 38
Rossing 68.6 66 46 35 23 16 7
Energy
Resources of
Australia 68.4 40 41 15 18 3 5
Other energy 1 - 2 (1) 1 (1)
1,205 1,121 469 409 201 167
Industrial Minerals 797 822 293 322 115 134
Aluminium - Comalco 733 764 240 330 123 172
Copper
Kennecott
Utah Copper 100.0 389 352 130 128 50 31
Escondida 30.0 145 167 64 87 21 31
Freeport 16.5 130 159 48 69 (4) 8
Freeport
joint venture 40.0 133 165 70 107 33 52
Palabora 49.2 101 141 33 45 8 10
Peak/
Northparkes (d) 41 43 14 24 2 7
Other copper 80 79 43 44 11 14
Other metals (e) 120 135 11 28 (1) 10
1,139 1,241 413 532 120 163
Diamonds & Gold
Argyle 100.0 158 165 72 75 25 30
Diavik 60.0 - - - - - -
Kennecott
Minerals 100.0 104 96 50 44 19 19
Kelian 90.0 71 56 24 10 5 (3)
Rio Tinto
Zimbabwe 56.0 28 21 2 4 1 1
Brazil (f) 55 61 15 32 3 25
Other Diamonds
& Gold 16 44 6 10 3 8
432 443 169 175 56 80
Other items 15 56 (46) 68 (11) 32
Exploration and evaluation (58) (54) (49) (41)
Net interest (53) (95)
Total 5,079 5,284 1,866 2,214 702 841
References above are to notes on page 24.
RIO TINTO FINANCIAL INFORMATION BY BUSINESS UNIT (2)
US$ millions Capital Depreciation
expenditure & Operating
Rio Tinto (g) amortisation assets (h)
interest First Half First Half 30 June 30 June
% 2002 2001 2002 2001 2002 2001
Iron Ore
Hamersley
(inc.HIsmelt) 100.0 22 40 49 44 925 795
Robe River 53.0 53 79 20 16 1,384 1,139
Iron Ore
Company of
Canada 56.1 20 90 18 23 704 574
95 209 87 83 3,013 2,508
Energy
Kennecott
Energy 100.0 121 23 67 49 495 461
Pacific Coal 100.0 35 13 18 16 331 282
Kaltim Prima
Coal 50.0 2 2 10 11 61 52
Coal & Allied 72.7 28 7 20 36 587 789
Rossing 68.6 - - 2 3 14 31
Energy Resources
of Australia 68.4 2 (1) 9 8 170 171
Other energy - - - - (2) (2)
188 44 126 123 1,656 1,784
Industrial
Minerals 52 69 70 66 2,062 1,880
Aluminium - Comalco 91 31 58 64 2,099 1,689
Copper
Kennecott
Utah Copper 100.0 52 49 63 83 1,924 2,323
Escondida 30.0 85 81 25 25 462 443
Freeport 16.5 10 12 19 22 105 113
Freeport Joint
Venture 40.0 38 39 19 18 439 385
Palabora 49.2 29 44 9 11 226 232
Peak/
Northparkes (d) 13 15 9 13 125 113
Other copper 9 6 21 20 170 141
Other metals (e) 6 6 9 10 156 139
242 252 174 202 3,067 3,889
Diamonds & Gold
Argyle 100.0 20 13 30 25 537 435
Diavik 60.0 110 91 - - 450 226
Kennecott
Minerals 100.0 13 9 24 20 161 195
Kelian 90.0 2 2 12 14 40 88
Rio Tinto
Zimbabwe 56.0 1 1 1 1 11 11
Brazil (f) 5 10 7 4 105 122
Other Diamonds
& Gold 2 11 2 - 103 100
153 137 76 64 1,407 1,177
Other items 3 2 3 45 92 147
Less joint
ventures and
associates (g) (153) (93) (149) (143)
Total 671 651 445 504 13,936 13,074
Less net debt (6,021) (5,712)
Net assets 7,915 7,362
References above are to notes on page 24.
HALF YEAR 2002 REVIEW OF OPERATIONS
COMPARISON OF NET EARNINGS
2002 first half net earnings of $702 million were $139 million below the net
earnings of the corresponding period of 2001. The table below shows the
difference by product group. All financial amounts in the tables below are
US$ millions unless indicated otherwise.
$ m
2001 first half net earnings 841
Iron Ore (29)
Energy 34
Industrial Minerals (19)
Aluminium (49)
Copper (43)
Diamonds and Gold (24)
Exploration (8)
Interest 42
Other (43)
2002 first half net earnings 702
IRON ORE
First half First half Change Full year
2002 2001 2001
Production (million 44.1 42.9 +3 % 90.6
tonnes)
Turnover 758 837 -9 % 1,691
Net earnings 200 229 -13 % 502
EBITDA 386 432 -11 % 927
Capital expenditure 95 209 503
Market
China is the only geographic market showing sustained growth in demand for
iron ore although all markets in Asia have maintained demand at reasonable
levels. With the global steel industry operating at below capacity, strongest
demand has been for unagglomerated products rather than lump or pellets.
Price reductions effective from April 2002 of 2.4 per cent for fines, 5.0 per
cent for lump, 6.3 per cent for pellets and 3.0 per cent for concentrate were
agreed with major FOB customers. The European steel industry is beginning to
show signs of recovery through slowly improving demand and prices. Although
the absolute level of hot metal production from the North American steel
mills is relatively low, demand is growing while prices are showing
considerable improvement.
Hamersley Iron
Hamersley's net earnings of $185 million were $22 million below last year due
mainly to the effect of exchange rate movements and the unfavourable 2002
price settlement. Shipments were 30.2 million tonnes, 1.7 million tonnes
below the first half of 2001. Volumes to China and Japan were affected in the
first half of 2002 by customer uncertainty over the outcome of price
negotiations and future demand.
Production of 33.7 million tonnes was nearly two per cent higher than the
first half of last year and a new record was set for second quarter
production. Increased focus on maintenance processes is enhancing maintenance
capability and reducing costs.
The signing of the joint venture agreement with Shanghai Baosteel Group
Corporation in June further strengthened Hamersley's position in China.
Hamersley now has a significant proportion of its shipments to China secured
under long-term sales arrangements. This secured tonnage, coupled with
longstanding joint venture relationships, puts Hamersley in an unrivalled
position in what is otherwise predominantly a spot market.
Robe River
Net earnings of $19 million were equal to the first half of 2001. Shipments
were eight per cent higher than in the first half of 2001 and production of
8.1 million tonnes (Rio Tinto share) was 11 per cent higher, reflecting
strong demand for the Robe River product range as well as initial production
and trial shipments from the new West Angelas mine. Strong first quarter
production helped offset a poor second quarter resulting from an extended
shutdown at Cape Lambert. The effect of higher shipments and production was
offset by the unfavourable price settlement and higher non-cash costs.
Trial shipments of West Angelas ore were made in June. The initial production
rate is seven million tonnes per annum and production is expected to ramp up
to 20 million tonnes per annum in line with demand.
Iron Ore Company of Canada
IOCC made a net loss of $4 million compared with net earnings of $3 million
in the first half of 2001. Concentrate shipments were ten per cent lower than
the first half of 2001 while shipments of pellets were down seven per cent,
both reflecting the current state of the European and North American markets.
In response to weak demand for its products, IOCC is taking a four-week shut
down beginning in August. A major cost reduction and business improvement
initiative aimed at reducing costs by $65 million per year over the next two
and a half years has been launched.
ENERGY
First First Change Full
half 2002 half year
2001 2001
Production Coal (million
tonnes)
US 51.9 53.2 -2 % 106.6
Australia & 21.9 20.3 +8 % 42.3
Indonesia
Uranium 2,291 2,366 -3 % 4,705
(tonnes)
Turnover 1,205 1,121 +7 % 2,309
Net earnings 201 167 +20 % 373
EBITDA 469 409 +15 % 886
Capital expenditure 188 44 110
US coal - Kennecott Energy
Net earnings of $54 million were $11 million above the first half of 2001.
The US coal markets were sluggish in the first half of the year with a slow
economy combined with a mild winter and high inventories stifling demand.
Consequently, production of 51.9 million tonnes (Rio Tinto share) from
Kennecott Energy was two per cent below last year. Business improvement
initiatives have reduced truck and shovel downtime caused by mechanical and
electrical failures by 20 per cent over the last six months.
Kennecott Energy manages its production and commits to contracts in response
to changing market circumstances. Contracts have been negotiated for almost
all 2002 production and 70 per cent of 2003 production.
Asia Pacific Coal - Markets
The increase in exports of thermal coal from China by over 50 per cent in
2001 had a major impact on spot prices and influenced the subsequent
long-term contract negotiations. These resulted in negotiated price
reductions of six to ten per cent effective from April 2002 albeit following
an increase of 20 per cent negotiated last year. The net of these two price
movements had a positive effect on the first half earnings.
Soft demand was evidenced by production cuts by several companies. Coal &
Allied production will be reduced by one million tonnes in the second half of
2002 in response to market demand.
Pacific Coal
Net earnings of $68 million were $8 million above the first half of 2001, the
positive effect of prices being partially offset by lower volumes despite
Blair Athol benefiting from sales deferred from the fourth quarter of last
year. A method has now been developed for working through old underground
workings which impeded production last year.
Production from Kestrel was 30 per cent higher as the first half of last year
was affected by longwall performance issues. Work continued on opening up the
Ti Tree area of the Kestrel mine where longwall production will start in
2004. Pacific Coal's production is almost fully contracted in 2002.
Kaltim Prima
Net earnings of $15 million were the same as in the first half of 2001.
Production was 17 per cent above the first half of 2001 when blockades over
land compensation and industrial action had an adverse effect. Costs were
adversely affected by a higher stripping ratio and the end of Government fuel
subsidies.
Coal & Allied
Net earnings of $44 million were $6 million above the first half of 2001.
Production was six per cent higher due to full production from Peabody's
Australian mines acquired in January 2001. The Hunter Valley Operations (HVO)
will have a capacity of 14 million tonnes per annum following completion of
current pit development work.
Work on the integration of Warkworth and Mt Thorley mines continues with the
completion of the combined mine plan, harmonisation of processes and studies
under way on the infrastructure required to run an integrated mine.
Rossing
Net earnings of $16 million were $9 million above the first half of 2001.
Production was 21 per cent above the first half of last year reflecting the
timing of contract deliveries.
Energy Resources of Australia
Earnings of $3 million were $2 million below last year. ERA is in the process
of implementing performance enhancement projects which are targeted at
achieving a substantial reduction in operating costs by 2004.
INDUSTRIAL MINERALS
First First Change Full year
half 2002 half 2001 2001
Production Borates (000 260 287 -9 % 564
tonnes)
Titanium 646 727 -11 % 1,427
dioxide (000
tonnes)
Salt (000 2,188 1,920 +14 % 4,248
tonnes)
Talc (000 669 640 +5 % 1,267
tonnes)
Turnover 797 822 -3 % 1,768
Net earnings 115 134 -14 % 323
EBITDA 293 322 -9 % 797
Capital expenditure 52 69 146
Rio Tinto Borax
Net earnings from Rio Tinto Borax were $47 million, $5 million below the
first half of last year. Production of borates was nine per cent down at
260,000 tonnes. Sales were slightly ahead of the same period in 2001.
Continued North American construction activity, a tightening of the boric
acid market and successes with new borate applications in wood preservation,
gypsum and steel slag were all but offset by the effects of perborate
substitution.
Cost reduction efforts maintained their momentum but the effect on net
earnings was largely offset by a higher effective tax rate.
Rio Tinto Iron & Titanium
Net earnings of $49 million were $15 million below the first half of last
year. Although the results benefited from a generally weaker rand compared to
last year this was more than offset by exchange losses on US dollar accounts
receivable caused by the strengthening of the rand from its low in late 2001.
Despite improved titanium dioxide pigment demand in 2002, producers continued
to operate at reduced levels in early 2002 due to high pigment inventories
accumulated as a result of very weak demand in the fourth quarter of last
year.
Shipments of titanium dioxide feedstocks were lower than the corresponding
period last year due to a combination of customer plant closures in 2001,
continuing oversupply of high grade feedstocks, and persistent high feedstock
inventory levels at some customers. A major shipment out of Richards Bay in
late June was delayed by adverse weather conditions. Operational performance
was generally satisfactory, but production was curtailed compared with the
first half of 2001 in line with market demand. Conditions in iron and steel
co-product markets remained competitive, but there were signs during the
period that some end use markets were strengthening. Demand for zircon
remained firm throughout the period.
Luzenac
Net earnings were $7 million. Production of talc in the first half of 2002
was four per cent higher at 669,000 tonnes. Sales volumes declined in Europe
but revenues have been maintained half year on half year, due to a favourable
sales mix. The North American markets were affected by weak economic
conditions in the first quarter, but some recovery has since taken place,
notably in polymers and coatings. The worldwide paper market remains
uncertain. Sales to Asian markets have benefited from the acquisition of the
Three Springs mine in September 2001.
Dampier
Net earnings were $12 million. Total salt production was 14 per cent above
the first half of last year as a result of the acquisition of the Port
Hedland operation in Western Australia. Production levels at all sites
benefited from favourable growing conditions.
ALUMINIUM - COMALCO
First First Change Full year
half half 2001
2002 2001
Production Bauxite (000 5,739 5,972 -4 % 11,795
tonnes)
Alumina (000 981 807 +22 % 1,761
tonnes)
Aluminium 350 341 +3 % 695
(000 tonnes)
Turnover 733 764 -4 % 1,499
Net earnings 123 172 -28 % 313
EBITDA 240 330 -27 % 598
Capital expenditure 91 31 99
Aluminium price
The average aluminium price for the first half of 2002 was 62c/lb, 8c/lb
below the first half of last year. The effect of this and other price changes
was to reduce Comalco's earnings by $47 million. With costs predominantly in
Australian dollars, margins were further reduced by the weakening of the US
dollar.
Bauxite
Bauxite production was four per cent below the first half of last year whilst
shipments were slightly ahead. Traded sales have been consolidated with the
signing of a long term European supply contract.
Alumina
Comalco's share of alumina production was 22 per cent above the same period
last year following the acquisition of a further 8.3 per cent in Queensland
Alumina (QAL) in the second half of last year. QAL production was slightly
better than first half 2001when production was restricted by unscheduled
maintenance. Eurallumina production in first half 2002 has been similar to
first half 2001.
Aluminium
Demand for value added products has strengthened during the period although
aluminium prices remained weak. Process improvements have resulted in higher
line amperages at the Tiwai Point and Boyne Island smelters and the average
number of cells in operation was above last year at Boyne Island and Bell
Bay. Saleable production was therefore up two per cent despite production
being power constrained at Tiwai Point and also at Bell Bay towards the end
of the period.
COPPER
First First Change Full year
half 2002 half 2001 2001
Production Mined 429 476 -10 % 904
copper (000
tonnes)
Refined 213 185 +15 % 361
copper (000
tonnes)
Mined gold 805 1,238 -35 % 2,342
(000 oz)
Turnover 1,139 1,241 -8 % 2,292
Net earnings 120 163 -26 % 262
EBITDA 413 532 -22 % 943
Capital expenditure 242 252 525
Copper and gold prices
When compared to the first half of 2001, the effect of the lower average
copper prices (72c/lb vs 78c/lb) were more than offset by the effect of
provisional pricing and the higher average gold ($301/oz vs $266/oz) and
molybdenum prices.
Kennecott Utah Copper
First half net earnings of $50 million were $19 million above the first half
of 2001.
Mine copper production of 127,000 tonnes was 46,000 tonnes below the first
half of last year due principally to the closure of the North Concentrator
from June of last year. Average grades were lower and mill throughput was
adversely affected by the hardness of the ore.
A programme was initiated last year to improve efficiency and reduce costs.
The maintenance service provider assumed complete accountability for
maintenance of the smelter during February. This, plus the associated
operational focus, has driven record smelter performance during the first
half of 2002. By April 2002, all components of the smelter improvement
programme were in place and being implemented. Refined copper produced
increased 22 per cent over the same period of last year.
Escondida
Net earnings of $21 million were $10 million below the first half of last
year. Mined copper production was down eight per cent. In November 2001
Escondida announced that production of copper in concentrates would be cut by
ten per cent in response to weak market demand and confirmed, in May 2002,
that this cut would continue for the rest of this year. The flexibility to
increase production should market conditions warrant has been retained by
maintaining waste stripping levels. The production ramp up of the phase 4
concentrator in the fourth quarter will reflect this production cut.
Freeport and Freeport Joint Venture
Net earnings of $29 million were $31 million below the corresponding period
of last year due mainly to lower gold volumes. Rio Tinto's share of mined
gold production of 348,000 ounces was 330,000 ounces below the first half of
last year due to lower grades. Exceptionally wet weather at the end of June
hindered production and delayed shipments. Freeport expects to be mining
higher grade ore for the remainder of the year.
Palabora
Net earnings of $8 million were $2 million below the first half of last year.
Volumes of copper produced were four per cent below the first half of last
year as production from the open pit was replaced by production from the
underground mine which is ramping up to full capacity by the end of the year.
Peak/Northparkes
Net earnings of $2 million were $5 million below the first half of last year
due to lower volumes as Northparkes is in transition from lift 1 to lift 2.
This transition is expected to continue over the next two years.
Other copper operations
Net earnings from other copper operations, Alumbrera and Somincor, were
broadly in line with the first half of last year.
Other metals
Net earnings from other metals reported as part of the Copper product group,
comprising Rio Tinto Aluminium and Zinkgruvan were $11 million below the
first half of last year. Lower aluminium prices affected Rio Tinto Aluminium
and difficult mining conditions resulted in lower production from Zinkgruvan.
DIAMONDS & GOLD
First First Change Full year
half 2002 half 2001 2001
Production Mined gold 626 603 +4 % 1,235
(000 oz)
Turnover 432 443 -2 % 818
Net earnings 56 80 -30 % 133
EBITDA 169 175 -3 % 337
Capital expenditure 153 137 290
Argyle
Net earnings of $25 million were down by $5 million compared to the first
half of last year. Production volumes were higher as first half 2001
production was affected by pit development work. Diamond pipeline destocking
depressed prices in the latter part of last year and although there has been
some improvement in the first half of this year prices remain below the highs
of 2001.
Kennecott Minerals
Net earnings of $19 million were in line with the first half of last year.
Production of gold was down three per cent reflecting lower grades at Cortez.
A heap leach pad area and solution treatment capacity has been expanded to
increase gold production.
Kelian
Net earnings of $5 million were $8 million above the first half of last year.
Production volumes of gold were up 20 per cent reflecting both higher grade
and higher throughput. Sales of silver were resumed in the second quarter of
this year following resolution of a tax issue.
Rio Tinto Brasil
Net earnings of $3 million were $22 million below last year. Nickel
production was 35 per cent down as operations at Fortaleza suffered from poor
mining conditions. Working through these problems has resulted in the closure
of the underground operations in June and they will remain closed into the
third quarter. This has had an adverse effect on costs and output from the
smelter and refinery due to the processing of lower grade ores. The results
of last year were also boosted by the profits on the sale of two small coal
deposits.
Other operations
Efforts at Rio Tinto Zimbabwe continued to focus on controlling costs in a
high inflationary environment. Production from Lihir was down 13% due to
lower head grade.
EXPLORATION
First half First half Change Full year
2002 2001 2001
Post tax 49 41 +20 % 104
expenditure ($
million)
Exploration continued to focus on the most promising opportunities for a
world class mineral deposit. The 2002 programme has a strong focus on copper,
but opportunities were also pursued for nickel, gold, iron ore and industrial
minerals.
Encouraging results were obtained from the Marcona project in southern Peru,
where drilling has identified a significant iron oxide copper deposit. Good
results were also obtained from the Resolution project in the US, where
drilling continued to intersect deep high grade porphyry copper
mineralisation.
Substantial heavy mineral deposits were discovered in southern Mozambique,
with results to date suggesting resources of 120 million tonnes of ilmenite.
The deposits are mineable using low cost conventional dredging methods and
are accessible by national and regional roads. Delineation drilling also
continued at Simandou haematite project in Guinea.
Encouraging results continued to be obtained from copper and gold projects in
Turkey and Iran. Diamond programmes in India, Canada, Guinea and Botswana
also showed early promise. Near mine exploration commenced or continued at
Bingham Canyon, Freeport, Boron, Tincalayu and other Rio Tinto Group
operations.
BROWNFIELD DEVELOPMENTS
The scale and quality of Rio Tinto's asset portfolio offers the opportunity
to raise production from current mines and associated infrastructure to meet
market demand. Rio Tinto currently has a number of brownfield developments
under way and is evaluating the expansion of other operations.
The following are the major projects that are actually in construction.
Project Estimated Cost Status/Milestones
Iron Ore - West Angelas $450 m Production and shipments have
mine (Rio Tinto 53%). commenced. The mine plant,
Development of a new mine southern rail spur link and
in Western Australia with northern rail link were
a capacity of 20 million handed over to Robe
tonnes per annum. operations in April. The port
upgrade is
99% complete. Expectation is
that the project will close
out early and under budget.
Copper - Palabora $437 m Design capacity is still
Underground. 30,000 expected for the end of 2002.
tonnes of ore per day
block caving operation.
Copper - Escondida Phase $1,045 m Completion is expected in
4. A new 110,000 tonnes September 2002.
of ore per day copper
concentrator facility.
Copper - Freeport Deep $243 m The project has been
Ore Zone Expansion accelerated and design
project. Development of a capacity is now forecast to
new 25,000 tonne per day be reached in the second half
block cave mine. of 2002.
Copper - Northparkes Lift $76 m The current schedule
2 Expansion project. New forecasts a delay of
25,000 tonne of ore per approximately one month.
day block cave mine
approximately 400 metres
below the existing
underground operation.
GREENFIELD DEVELOPMENTS
Rio Tinto has a number of high quality greenfield projects under
construction. These projects represent a significant increase in the Group's
exposure to several commodities. The Comalco alumina project will make Rio
Tinto a major player in the traded alumina market. Hail Creek, together with
the opening up of the Ti Tree area at Kestrel, will make Rio Tinto a
significant supplier of hard coking coal. The Diavik mine will approximately
double the revenue from the Group's diamond production. In April the Group
committed to the construction of a commercial size HIsmelt(R) plant. This
technology, if commercially proven, has the capability to significantly
change the steel making process and to increase the value of Rio Tinto's
Pilbara ore reserves.
Project Estimated Cost Status/Milestones
Aluminium - Comalco's $750 m Vegetation clearing is
alumina refinery. complete, bulk earthworks are
Construction in more than half complete and
Queensland of a major concrete foundation
greenfield alumina pours have begun. Engineering
refinery with initial is almost 30% complete. First
annual capacity of 1.4 shipments planned for early
million tonnes but with 2005.
options to expand to 4.2
million tonnes.
Energy - Hail Creek (Rio $210 m Major contracts for dragline,
Tinto 92%). New coking plant and rail line
coal mine in Queensland construction have been
with a capacity of 5 awarded. First shipments are
million tonnes per year. planned for the second half of
2003.
Diamonds - Diavik (Rio $900 m Construction is about 80%
Tinto 60%) in the North complete. First production is
West Territories of expected in the first half of
Canada with annual 2003.
production of about six
million carats.
Iron Ore - HIsmelt(R) $200 m Creation of a joint venture
direct iron smelting between Rio Tinto (60%) Nucor
technology. The project Corporation (25%) Mitsubishi
has the potential to Corporation (10%) and Shougang
alter steel making Corporation (5%) to construct
technology worldwide and an 800,000 tonne capacity
offer a practical plant at Kwinana in Western
processing route for Australia. Pending Government
millions of tonnes of approvals, the plant will be
higher phosphorous commissioned in 2004.
Pilbara ores.
ACQUISITIONS
In January 2002, Kennecott Energy (KEC) purchased the North Jacobs Ranch coal
reserves for $380 million, payable in instalments over a five-year period.
The reserves are adjacent to KEC's existing Jacobs Ranch operation and
provide a basis for a low cost expansion in line with market demand.
In June, Comalco announced the acquisition of an additional 9.5 per cent
interest in reduction lines 1 and 2 of the Boyne Island smelter for $78.5
million. This increases Comalco's share in lines 1 and 2 of the world class,
low cost smelter from 50 per cent to 59.5 per cent. The interest in line 3
remains unchanged at 59.25 per cent.
DIVESTMENTS
During the first half of 2002 Coal & Allied completed the sale of Narama and
Ravensworth for $64 million and the sale of its 55 per cent interest in the
Moura Joint Venture for $166 million. These were classified as assets held
for resale and consequently their disposal had no effect on net earnings.
Under its 1982 Coal Agreement with the Indonesian Government, PT Kaltim Prima
Coal (KPC), in which Rio Tinto has a 50% interest, is required to offer up to
51% of its shares to Indonesian participants. Agreement has been reached with
the Indonesian Government on the value of the shares for the current offer,
but the offer, due to be made by 31 March 2002, was prevented by attachment
orders granted by the District Court of South Jakarta over KPC's shares.
Until such time as the attachment orders are removed unconditionally KPC
cannot make an offer of shares to Indonesian parties.
With the agreement of the Indonesian Government, the offer deadline has now
been extended to 31 July 2002 following an in principle agreement that is
intended to enable an offer of shares to proceed at the agreed price of
US$8.22m for each 1% of KPC's shares and for all litigation associated with
the KPC divestment matter to be terminated without any orders being made
against either KPC or its shareholders. The in principle agreement remains
subject to implementation documentation.
As announced previously, in July 2001 the East Kalimantan Provincial
Government filed a civil suit in the District Court of South Jakarta, seeking
damages of $776 million and other relief against KPC and its shareholders in
relation to KPC's alleged failure to meet its obligations to offer its shares
for sale. The Indonesian Government, the party to the Coal Agreement, has not
claimed that KPC is in default of its divestment obligations. KPC believes
that the claims are baseless and is contesting them vigorously.
The sale of Rio Tinto's 49 per cent share of the Neves Corvo mine in Portugal
remains uncompleted.
PRICE AND EXCHANGE SENSITIVITIES
The following sensitivities give the estimated effect on net earnings
assuming that the price or exchange rate moved in isolation. The relationship
between currencies and commodity prices is a complex one and movements in
exchange rates can cause movements in commodity prices and vice versa. The
exchange rate sensitivities quoted below include the effect on operating
costs of movements in exchange rates but exclude the effect due to the
revaluation of foreign currency working capital. They should therefore be
used with care.
Estimated effect on Rio Tinto's full year net earnings of:
Change in full year average US$m
Copper +/- 7c/lb 95
Gold +/-$27/oz 45
Aluminium +/- 6c/lb 75
Australian dollar +/- 5USc 105
South African rand +/- 1 rand 15
For further information, please contact:
LONDON AUSTRALIA
Media Relations Media Relations
Lisa Cullimore Ian Head
+ 44 (0) 20 7753 2305 (office) +61 (0) 3 9283 3620 (office)
+44 (0) 7730 418 385 (mobile) +61 (0) 408 360 101 (mobile)
Investor Relations Investor Relations
Peter Cunningham Dave Skinner
+ 44 (0) 20 7753 2401 (office) +61 (0) 3 9283 3628 (office)
+44 (0) 7711 596 570 (mobile) +61 (0) 408 335 309 (mobile)
Richard Brimelow Daphne Morros
+ 44 (0) 20 7753 2326 (office) +61 (0) 3 9283 3639 (office)
+ 44 (0) 7753 783 825 (mobile) +61 (0) 408 360 764 (mobile)
Website: www.riotinto.com
PROFIT AND LOSS ACCOUNT
First First First First First First
Half Half Half Half Half Half Year
2002 2001 2002 2001 2002 2001 2001
A$m A$m £m £m US$m US$m US$m
Gross turnover
(including share
of joint ventures
9,523 10,135 3,526 3,669 and associates) 5,079 5,284 10,438
Share of
joint ventures'
(1,481) (1,649) (549) (597) turnover (790) (860) (1,612)
Share of
associates'
(611) (671) (226) (243) turnover (326) (350) (674)
Consolidated
7,431 7,815 2,751 2,829 turnover 3,963 4,074 8,152
Net operating
costs (full year
2001 included
exceptional asset
write-downs of
(5,709) (5,773)(2,115) (2,090) US$715 million) (3,045) (3,010) (6,590)
Group operating
1,722 2,042 636 739 profit 918 1,064 1,562
Share of
operating profit
471 610 174 221 of joint ventures 251 318 554
Share of operating
profit of
193 251 72 91 associates 103 131 217
Profit on disposal
of interest in
- 104 - 38 joint venture - 54 54
Profit on ordinary
activities before
2,386 3,007 882 1,089 interest 1,272 1,567 2,387
Net interest
(223) (370) (83) (134) payable (119) (193) (347)
Amortisation of
discount related to
(58) (61) (22) (22) provisions (31) (32) (57)
Profit on ordinary
activities
before
2,105 2,576 777 933 taxation 1,122 1,342 1,983
Taxation (full year
2001 included tax
relief on
exceptional asset
write-downs of
(679) (823) (251) (298) US$132 million) (362) (429) (718)
Profit on ordinary
activities after
1,426 1,753 526 635 taxation 760 913 1,265
Attributable to
outside shareholders
(109) (138) (40) (50) (equity) (58) (72) (186)
Profit for the
financial period
1,317 1,615 486 585 (net earnings) 702 841 1,079
Dividends to
(761) (527) (282) (191) shareholders (406) (275) (812)
Retained profit
for the
556 1,088 204 394 period 296 566 267
Earnings per
95.7c 117.5c 35.3p 42.5p ordinary share 51.0c 61.2c 78.5c
Adjusted earnings
per ordinary
95.7c 117.5c 35.3p 42.5p share (d) 51.0c 61.2c 120.9c
Dividends per share
to Rio Tinto
shareholders
18.87p 14.03p -Rio Tinto plc 29.5c 20.0c 59.0c
54.06c 39.42c -Rio Tinto Ltd 29.5c 20.0c 59.0c
(a) Diluted earnings per share figures for the half year are 0.1 US cents
(First half 2001: 0.1 US cents) lower than the earnings per share figures
above.
(b) For the purpose of calculating earnings and adjusted earnings per
share, the weighted average number of Rio Tinto plc and Rio Tinto Limited
shares outstanding during the period was 1,376.4 million, being the average
number of Rio Tinto plc shares outstanding (1,065.2 million) plus the
average number of Rio Tinto Limited shares outstanding not held by Rio
Tinto plc (311.2 million).
(c) The results for all periods relate wholly to continuing operations.
(d) Full year 2001 profit is stated after exceptional asset write-downs;
these are added back in the table below to arrive at adjusted earnings.
First First First First First First
Half Half Half Half Half Half Year
2002 2001 2002 2001 2002 2001 2001
A$m A$m £m £m US$m US$m US$m
Profit for the
financial period
1,317 1,615 486 585 (net earnings) 702 841 1,079
Effect of exceptional
asset write-downs
on items in the above
profit and loss account:
Group operating
- - - - profit - - 715
- - - - Taxation - - (132)
Net exceptional
- - - - charge - - 583
1,317 1,615 486 585 Adjusted earnings 702 841 1,662
CASH FLOW STATEMENT
First First First First First First
Half Half Half Half Half Half Year
2002 2001 2002 2001 2002 2001 2001
A$m A$m £m £m US$m US$m US$m
Cash flow from
operating
activities
2,656 2,534 983 917 (see below) 1,416 1,320 2,767
Dividends from
joint ventures
414 742 153 269 and associates 221 387 648
Total cash flow
3,070 3,276 1,136 1,186 from operations 1,637 1,707 3,415
47 88 17 32 Interest received 25 46 64
(223) (374) (83) (135) Interest paid (119) (195) (335)
Dividends paid to
outside
(83) (90) (31) (33) shareholders (44) (47) (79)
Returns on investment
and servicing of
(259) (376) (97) (136) finance (138) (196) (350)
(836) (827) (310) (299) Taxation (446) (431) (615)
Purchase of property,
plant and
(1,191) (1,158) (441) (419) equipment (635) (604) (1,351)
Funding of Group
share of joint
ventures' and
associates'
(79) (113) (29) (41) capital expenditure (42) (59) (79)
Other funding of
joint ventures
and associates
- 15 - 6 repaid - 8 13
Exploration and
evaluation
(105) (125) (39) (45) expenditure (56) (65) (132)
Sale of property,
plant and
11 23 4 8 equipment 6 12 25
Purchases less
sales of other
(596) (111) (221) (40) investments (318) (58) (54)
Capital expenditure
and financial
(1,960) (1,469) (726) (531) investment (1,045) (766) (1,578)
Acquisitions less
422 (692) 156 (251) disposals 225 (361) (659)
Equity dividends
paid to Rio Tinto
(1,013) (999) (375) (362) shareholders (540) (521) (803)
Cash outflow before
management of
liquid resources
(576) (1,087) (216) (393) and financing (307) (568) (590)
Net cash inflow/
(outflow) from
management of liquid
302 (175) 112 (63) resources 161 (91) (18)
Ordinary shares
26 21 10 8 issued for cash 14 11 7
Loans received
285 1,061 106 384 less repaid 152 553 641
Management of liquid
resources and
613 907 228 329 financing 327 473 630
Increase/(decrease)
37 (180) 12 (64) in cash 20 (95) 40
Cash flow from
operating activities
Group operating
1,722 2,042 636 739 profit 918 1,064 1,562
Exceptional asset
- - - - write-downs - - 715
1,722 2,042 636 739 918 1,064 2,277
Depreciation and
834 967 309 350 amortisation 445 504 929
Exploration and
evaluation charged
109 104 40 38 against profit 58 54 130
64 54 24 19 Provisions 34 28 100
Utilisation of
(120) (107) (44) (39) provisions (64) (56) (148)
Change in
2 (232) 1 (84) inventories 1 (121) (227)
Change in accounts
receivable and
274 (56) 101 (20) prepayments 146 (29) (126)
Change in accounts
payable and
(152) (142) (56) (51) accruals (81) (74) (48)
(77) (96) (28) (35) Other items (41) (50) (120)
Cash flow from
operating
2,656 2,534 983 917 activities 1,416 1,320 2,767
Net debt of US$6,021 million at 30 June 2002 compares with US$5,711 million
at 31 December 2001. The increase of US$310 million comprises the cash
outflow before management of liquid resources and financing of US$307
million and other items totalling US$3 million. 'Purchases less sales of
other investments' for the period to 30 June 2002 includes US$316 million
relating to US treasury bills. These investments were purchased to be held
as security for the deferred consideration on assets acquired during the
period, which is payable over the next four years. For this reason they
are not regarded as liquid resources.
BALANCE SHEET
First First First First First First
Half Half Half Half Half Half Year
2002 2001 2002 2001 2002 2001 2001
Restated Restated Restated Restated
A$m A$m £m £m US$m US$m US$m
Intangible fixed
assets
1,860 1,387 690 501 Goodwill 1,053 705 1,022
Exploration and
104 276 39 100 evaluation 59 140 55
1,964 1,663 729 601 1,112 845 1,077
Tangible fixed
assets
Property, plant
22,450 23,950 8,333 8,656 and equipment 12,716 12,170 11,512
Investments
Share of gross
assets of joint
5,406 5,443 2,007 1,967 ventures 3,062 2,766 2,808
Share of gross
liabilities
of joint
(2,053) (1,988) (762) (718) ventures (1,163) (1,010) (1,125)
3,353 3,455 1,245 1,249 1,899 1,756 1,683
Investments in
associates/other
1,082 1,187 402 429 investments 613 603 607
4,435 4,642 1,647 1,678 Total investments 2,512 2,359 2,290
Total fixed
28,849 30,255 10,709 10,935 assets 16,340 15,374 14,879
Current assets
2,775 2,798 1,030 1,011 Inventories 1,572 1,422 1,482
Accounts receivable
and prepayments
Falling due within
2,890 2,987 1,073 1,080 one year 1,637 1,518 1,814
Falling due after
more than one
1,119 1,181 415 427 year 634 600 675
4,009 4,168 1,488 1,507 2,271 2,118 2,489
579 26 215 9 Investments 328 13 11
983 1,368 365 494 Cash 557 695 679
Total current
8,346 8,360 3,098 3,021 assets 4,728 4,248 4,661
Current liabilities
Short term
(5,857) (8,964)(2,174) (3,240) borrowings (3,318) (4,555) (3,835)
Accounts payable
(3,220) (3,324)(1,195) (1,201) and accruals (1,824) (1,689) (1,974)
Total current
(9,077)(12,288)(3,369) (4,441) liabilities (5,142) (6,244) (5,809)
Net current
(731) (3,928) (271) (1,420) liabilities (414) (1,996) (1,148)
Total assets less
current
28,118 26,327 10,438 9,515 liabilities 15,926 13,378 13,731
Liabilities due after
one year
Medium and long term
(5,777) (3,670)(2,144) (1,326) borrowings (3,272) (1,865) (2,566)
(546) (100) (203) (37)Accounts payable (309) (51) (101)
Provisions for
liabilities and
(6,182) (6,288)(2,295)(2,272) charges (3,502) (3,195) (3,194)
Outside
shareholders'
(1,638) (1,781) (608) (644) interests (equity) (928) (905) (827)
13,975 14,488 5,188 5,236 7,915 7,362 7,043
Capital and reserves
Share capital
272 303 101 110 - Rio Tinto plc 154 154 154
- Rio Tinto Limited
(excluding Rio
1,441 1,429 535 516 Tinto plc interest) 816 726 732
Share premium
2,841 3,147 1,054 1,137 account 1,609 1,599 1,600
533 555 198 201 Other reserves 302 282 294
Profit and loss
8,888 9,054 3,300 3,272 account 5,034 4,601 4,263
Equity share-
13,975 14,488 5,188 5,236 holders' funds 7,915 7,362 7,043
At 30 June 2002, Rio Tinto plc had 1,065.4 million ordinary shares in
issue and Rio Tinto Limited had 311.4 million shares in issue, excluding
those held by Rio Tinto plc.
In accordance with FRS 4, all commercial paper is classified as short term
borrowings though US$2 billion is backed by medium term facilities. Under
US and Australian GAAP, this amount would be grouped within non-current
borrowings at 30 June 2002.
The balance sheets at 30 June 2001 and 31 December 2001 have been restated
following the implementation of FRS 19 'Deferred Tax', which has reduced
shareholders' funds by US$133 million. The restatement also included an
increase in deferred tax provisions of US$57 million, an increase in
investments in associates of US$10 million and a reduction of US$86 million
in property, plant and equipment.
Current asset investments include US$316 million relating to US treasury
bills, which are held as security for the deferred consideration on assets
acquired during 2002.
RECONCILIATION WITH AUSTRALIAN GAAP
First First First First First First
Half Half Half Half Half Half Year
2002 2001 2002 2001 2002 2001 2001
Restated Restated Restated Restated
A$m A$m £m £m US$m US$m US$m
Adjusted earnings
reported under
1,317 1,615 486 585 UK GAAP 702 841 1,662
Exceptional asset
- - - - write-downs - - (583)
Net earnings
1,317 1,615 486 585 under UK GAAP 702 841 1,079
Increase/(decrease)
net of tax in
respect of:
Goodwill
(152) (152) (56) (55) amortisation (81) (79) (169)
(11) - (4) - Taxation (6) - 3
6 (4) 2 (2) Other 3 (2) (7)
Net earnings under
1,160 1,459 428 528 Australian GAAP 618 760 906
Earnings per ordinary
share under
84.3c 106.1c 31.1p 38.4p Australian GAAP 44.9c 55.3c 65.9c
Exceptional asset write-downs
Full year 2001 net earnings under UK and Australian GAAP were stated after
exceptional asset write-downs of US$583 million. For UK GAAP this charge
was excluded from adjusted earnings. For Australian reporting this is
disclosed as an 'individually significant item'.
Shareholders' funds
under UK GAAP
13,975 14,488 5,188 5,236 (as restated) 7,915 7,362 7,043
Increase/(decrease)
net of tax in
respect of:
2,029 2,590 753 936 Goodwill 1,149 1,316 1,227
143 168 53 60 Taxation 81 85 87
(41) (35) (15) (13) Other (23) (18) (22)
Shareholders' funds
under Australian
16,106 17,211 5,979 6,219 GAAP 9,122 8,745 8,335
Diluted earnings per share under Australian GAAP are 0.09 US cents (First
half 2001: 0.09 US cents) less than the above earnings per share figures.
The Group's financial statements have been prepared in accordance with
generally accepted accounting principles in the United Kingdom ('UK GAAP'),
which differ in certain respects from generally accepted accounting
principles in Australia ('Australian GAAP'). These differences relate
principally to the following items, and the effect of each of the
adjustments to net earnings and shareholders' funds which would be required
under Australian GAAP is set out above.
Goodwill
For 1997 and prior years, UK GAAP permitted the write off of purchased
goodwill on acquisitions directly against reserves. Under Australian GAAP,
goodwill is capitalised and amortised by charges against income over the
period during which it is expected to be of benefit, subject to a maximum
of 20 years. Goodwill previously written off directly to reserves in the
UK GAAP accounts has been reinstated and amortised for the purpose of the
reconciliation statements. For acquisitions in 1998 and subsequent years,
goodwill is capitalised under UK GAAP, in accordance with FRS 10.
Adjustments are required for Australian GAAP purposes where such
capitalised goodwill is amortised over periods exceeding 20 years in the UK
GAAP accounts.
Taxation
In its accounts for the first half of 2002, Rio Tinto has implemented FRS
19, the new UK Accounting Standard on deferred tax. This has resulted in a
prior year adjustment under UK GAAP, which reduced shareholders' funds at 1
January 2001 by US$133 million. Of this amount, US$46 million results from
the requirement under FRS 19 to provide in full for taxation on most timing
differences. Such provisions were already required under Australian GAAP.
The remaining US$87 million of the prior year adjustment relates to
features of FRS 19 that give rise to new variations from Australian GAAP.
Accordingly, this element of the prior year adjustment has been reversed in
arriving at Australian GAAP shareholders' funds. These variations, which
also affect the determination of earnings under Australian GAAP, relate
principally to the following:
Under FRS 19, provision for taxes arising on remittances of earnings can
only be made if dividends have been accrued or if there is a binding
agreement for the distribution of the earnings. Under Australian GAAP,
provision must be made for tax arising on expected future remittances of
past earnings.
Under FRS 19, tax benefits associated with goodwill charged directly to
reserves, in 1997 and previous years, must be accumulated in the deferred
tax provision account. This means that such tax benefits are not included
in earnings until the related goodwill is charged through the profit and
loss account on disposal or closure. For Australian GAAP, no provision is
required for such deferred tax because the goodwill that gave rise to these
tax benefits was capitalised and gives rise to amortisation charges against
profit.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
First First First First First First
Half Half Half Half Half Half Year
2002 2001 2002 2001 2002 2001 2001
Restated Restated Restated Restated
A$m A$m £m £m US$m US$m US$m
Profit for the
1,317 1,615 486 585 period 702 841 1,079
(761) (527) (282) (191)Dividends (406) (275) (812)
556 1,088 204 394 296 566 267
Adjustment on
currency
(377) 399 121 7 translation 562 (426) (449)
Share capital issued
26 21 10 8 less repurchased 14 11 14
205 1,503 335 409 872 151 (168)
Opening shareholders'
funds as
13,770 12,980 4,853 4,827 restated(a) 7,043 7,211 7,211
Closing shareholders'
13,975 14,488 5,188 5,236 funds 7,915 7,362 7,043
(a) Shareholders' funds at 1 January 2002 were originally US$7,176 million
before deducting the prior year adjustment of US$133 million.
PRIMA FACIE TAX RECONCILIATION
First First First First First First
Half Half Half Half Half Half Year
2002 2001 2002 2001 2002 2001 2001
A$m A$m £m £m US$m US$m US$m
Profit on ordinary
activities before
2,105 2,576 777 933 taxation 1,122 1,342 1,983
Prima facie tax
at UK and Australian
632 773 234 280 rate of 30% 337 403 595
Permanent differences
Other tax rates
applicable outside
the UK and
73 77 26 28 Australia 39 40 95
Resource depletion
and other
depreciation and
(54) (33) (20) (12) allowances (29) (17) (52)
Permanently disallowed
amortisation/
45 42 17 15 depreciation 24 22 52
Research, development
and other investment
(4) (6) (1) (2) allowances (2) (3) (13)
11 (34) 4 (12) Other 6 (18) (57)
71 46 26 17 38 24 25
Deferral of taxation
Impact of exceptional
- - - - asset write-downs - - 214
Other capital
allowances in
excess of
(96) (73) (35) (26) depreciation (51) (38) (131)
Other timing
(39) (4) (15) (1) differences (21) (2) 17
Total timing
differences
related to the
(135) (77) (50) (27) current period (72) (40) 100
Current taxation
charge for the
568 742 210 270 period 303 387 720
Deferred tax
recognised on
135 77 50 27 timing differences 72 40 (18)
Deferred tax
impact of changes
(28) - (10) - in tax rates (15) - -
Other deferred
4 4 1 1 tax items 2 2 16
Total taxation
charge for
679 823 251 298 the period 362 429 718
EXPLORATION AND EVALUATION PROPERTIES
First First First First First First
Half Half Half Half Half Half Year
2002 2001 2002 2001 2002 2001 2001
A$m A$m £m £m US$m US$m US$m
At cost less
amounts written off
1,325 1,413 467 525 At 1 January 678 785 785
Adjustment on
currency
(66) 62 - 8 translation 34 (36) (42)
Expenditure in
105 125 39 45 period 56 65 132
Charged against
profit for
(43) (35) (16) (13) the period (23) (18) (46)
Disposals, transfers
and other
(98) (79) (36) (28) movements (52) (41) (151)
1,223 1,486 454 537 At end of period 693 755 678
Provision
(1,217)(1,111) (429) (413)At 1 January (623) (617) (617)
Adjustment on
currency
61 (47) - (5) translation (31) 29 34
Charged against
profit for the
(66) (69) (24) (25) period (35) (36) (84)
Disposals, transfers
and other
103 17 38 6 movements 55 9 44
(1,119)(1,210) (415) (437)At end of period (634) (615) (623)
Net balance sheet
104 276 39 100 amount 59 140 55
PRODUCT ANALYSIS
First First First First First First
Half Half Half Half Half Half Year
2002 2001 2002 2001 2002 2001 2001
Restated Restated Restated Restated
A$m A$m £m £m US$m US$m US$m
Gross turnover
1,279 1,394 474 505 13.4 13.8 Copper 682 727 1,277
Gold (all
896 890 332 322 9.4 8.8 sources) 478 464 988
1,433 1,619 531 586 15.0 16.0 Iron ore 764 844 1,704
2,053 1,983 760 718 21.6 19.6 Coal 1,095 1,034 2,102
1,571 1,684 582 610 16.5 16.6 Aluminium 838 878 1,714
Industrial
1,539 1,644 570 595 16.2 16.2 minerals 821 857 1,825
Other products
(including
752 921 277 333 7.9 9.0 diamonds)(b) 401 480 828
9,523 10,135 3,526 3,669 100.0 100.0 Total 5,079 5,284 10,438
Net earnings
Copper, gold
278 338 103 122 18.2 18.5 and by-products 148 176 298
378 441 138 160 24.7 24.2 Iron ore 201 230 504
339 299 126 108 22.2 16.4 Coal 181 156 345
240 349 89 126 15.7 19.2 Aluminium 128 182 330
Industrial
219 267 81 97 14.4 14.6 minerals 117 139 332
Other products
(including
75 130 28 47 4.8 7.1 diamonds) (b) 40 67 97
1,529 1,824 565 660 100.0 100.0 815 950 1,906
Exploration and
(92) (79) (34) (28) evaluation (49) (41) (104)
(99) (182) (37) (66) Net interest (c) (53) (95) (167)
(21) 52 (8) 19 Other items (11) 27 27
1,317 1,615 486 585 702 841 1,662
Exceptional asset
- - - - write-downs - - (583)
1,317 1,615 486 585 702 841 1,079
GEOGRAPHICAL ANALYSIS (by country of origin)
First First First First First First
Half Half Half Half Half Half Year
2002 2001 2002 2001 2002 2001 2001
A$m A$m £m £m US$m US$m US$m
Gross turnover
3,008 2,973 1,115 1,076 31.6 29.3 North America 1,605 1,550 3,143
Australia and
3,979 4,298 1,473 1,556 41.8 42.4 New Zealand 2,122 2,241 4,386
503 558 186 202 5.3 5.5 South America 268 291 524
683 783 253 283 7.2 7.7 Africa 364 408 857
816 892 302 323 8.6 8.8 Indonesia 435 465 951
Europe and
534 631 197 229 5.5 6.3 other countries 285 329 577
9,523 10,135 3,526 3,669 100.0 100.0 Total 5,079 5,284 10,438
Net earnings
309 307 115 111 21.9 17.1 North America 165 160 359
Australia and
824 1,001 304 363 58.1 55.8 New Zealand 439 522 1,052
47 105 17 38 3.3 5.9 South America 25 55 56
114 104 42 38 8.1 5.8 Africa 61 54 143
90 140 33 51 6.4 7.8 Indonesia 48 73 128
Europe and
32 140 12 50 2.2 7.6 other countries 17 72 91
1,416 1,797 523 651 100.0 100.0 755 936 1,829
(99) (182) (37) (66) Net interest (c) (53) (95) (167)
1,317 1,615 486 585 702 841 1,662
Exceptional asset
- - - - write-downs - - (583)
1,317 1,615 486 585 Total 702 841 1,079
(a) The above analyses include the Rio Tinto share of the results of joint
ventures and associates including interest.
(b) Diamonds have been reclassified from 'Industrial Minerals' to 'Other
products' and comparative figures have been restated accordingly.
(c) The amortisation of discount related to provisions is included in the
applicable product category and geographical area. All other financing
costs of subsidiaries are included in 'Net interest'.
RECONCILIATION WITH US GAAP
First First First First First First
Half Half Half Half Half Half Year
2002 2001 2002 2001 2002 2001 2001
Restated Restated Restated Restated
A$m A$m £m £m US$m US$m US$m
Adjusted earnings
1,317 1,615 486 585 under UK GAAP 702 841 1,662
Exceptional asset
- - - - write-downs - - (583)
Net earnings under
1,317 1,615 486 585 UK GAAP 702 841 1,079
Increase/(decrease)
net of tax in
respect of:
Amortisation of
goodwill and
21 (111) 8 (40) intangibles 11 (58) (132)
Pensions/post
(9) (38) (3) (14) retirement benefits (5) (20) (49)
(19) (4) (7) (1) Asset write-downs (10) (2) 397
(47) (38) (17) (14) Other (25) (20) (96)
Exchange differences
taken to earnings
508 (320) 188 (116) under US GAAP 271 (167) (174)
Net income under
1,771 1,104 655 400 US GAAP 944 574 1,025
US GAAP earnings before
asset write-downs and
exchange differences
taken to
earnings under
1,263 1,424 467 516 US GAAP 673 741 1,382
Basic earnings per
ordinary share
under US GAAP
Net income before
asset write-downs
and exchange differences
taken to earnings
91.8c 103.6c 33.9p 37.5p under US GAAP 48.9c 53.9c 100.5c
Net income under
128.7c 80.3c 47.6p 29.1p US GAAP 68.6c 41.7c 74.5c
Shareholders'
funds under
UK GAAP
13,975 14,488 5,188 5,236 (as restated) 7,915 7,362 7,043
Increase/(decrease)
net of tax in
respect of:
2,987 3,637 1,109 1,314 Goodwill 1,692 1,848 1,778
210 - 78 - Intangibles 119 - -
143 168 53 60 Taxation 81 85 87
711 541 264 196 Proposed dividends 403 275 537
851 183 316 66 Asset write-downs 482 93 492
Reversal of
additional
provisions under
323 374 120 135 FRS 12 183 190 185
(120) (120) (45) (43) Start-up costs (68) (61) (64)
Mark to market of
derivative
(102) (380) (38) (137) contracts (58) (193) (172)
Pensions/post
(300) (157) (111) (57) retirement benefits(170) (80) (181)
(260) (105) (96) (38) Other (147) (53) (134)
Shareholders'
funds under
18,418 18,629 6,838 6,732 US GAAP 10,432 9,466 9,571
Diluted earnings per share under US GAAP are 0.13 US cents (First half
2001: 0.07 US cents) less than the above earnings per share figures.
The Group's financial statements have been prepared in accordance with
generally accepted accounting principles in the United Kingdom ('UK
GAAP')which differ in certain respects from those in the United States ('US
GAAP'). The effect of adjusting net earnings and shareholders' funds for
the following differences in treatment under US GAAP is set out above.
Goodwill - For 1997 and prior years, UK GAAP permitted the write off of
purchased goodwill on acquisition directly against reserves. For
acquisitions in 1998 and subsequent years, goodwill is capitalised and
amortised over its expected useful life under UK GAAP. Under US GAAP,
goodwill is capitalised and, until 2001, was amortised by charges against
income over the period during which it was expected to be of benefit,
subject to a maximum of 40 years. Goodwill previously written off directly
to reserves in the UK GAAP financial statements was therefore reinstated
and amortised, under US GAAP. From 1 January 2002, goodwill and indefinite
lived intangible assets are no longer amortised but are reviewed annually
for impairment under FAS 142. Goodwill amortisation charged against UK
GAAP earnings for the first half of 2002 is added back in the US GAAP
reconciliation. No impairment write-downs were required on the initial
introduction of FAS 142. Implementation of FAS 141 resulted in the
reclassification of US$119 million from goodwill to finite lived intangible
assets.
Asset write-downs - Following the implementation of FRS 11 in 1998,
impairment of fixed assets under UK GAAP is recognised and measured by
reference to the discounted cash flows expected to be generated by the
asset. Under US GAAP, impairment 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. The charge in the first half of 2002 is the
additional depreciation charged under US GAAP on the assets impaired under
UK GAAP in previous periods.
Tax - The introduction of FRS 19, the new UK standard on deferred tax, has
brought the UK onto a full provision basis for most timing differences.
Such provisions were already required under US GAAP. However, new GAAP
differences now exist, which impact of 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 19.
Provisions - Additional provisions were recognised for UK GAAP purposes on
implementation of FRS 12 in 1999. There was no corresponding change in US
accounting standards. The additional provisions are therefore reversed in
the calculation of shareholders' funds under US GAAP.
Exchange differences under US GAAP:
Debt - The Group finances its operations primarily in US dollars and a
significant proportion of the Group's US dollar debt is located in its
Australian operations. Under UK GAAP, this debt is dealt with in the
context of the currency status of the Group as a whole and exchange
differences reported by the Australian operations are adjusted through
reserves. US GAAP permits such exchange gains and losses to be taken to
reserves only to the extent that the US dollar debt hedges US dollar assets
in the Australian group. Net exchange gains of US$175 million on US dollar
debt that do not qualify for hedge accounting under US GAAP have therefore
been recorded in US GAAP earnings.
Derivatives - The Group is party to derivative contracts in respect of some
of its future transactions in order to hedge its exposure to fluctuations
in exchange rates against the US dollar. Under UK GAAP, these contracts
are accounted for as hedges: gains and losses are deferred and
subsequently recognised when the hedged transaction occurs. However,
certain of the Group's derivative contracts do not qualify for hedge
accounting under FAS 133, principally because the hedge is not located in
the entity with the exposure. Unrealised gains of US$96 million on such
derivatives have therefore been taken to US GAAP earnings.
ACCOUNTING PRINCIPLES
The financial information included in this report has been prepared in
accordance with United Kingdom Accounting Standards and an Order under
section 340 of the Australian Corporations Act 2001 issued by the
Australian Securities and Investments Commission on 9 April 2001. The
financial information has been drawn up on the basis of accounting policies
consistent with those applied in the financial statements for the year to
31 December 2001, except for the implementation of FRS 19 'Deferred Tax'.
Prior to the adoption of FRS 19, Rio Tinto provided for deferred tax where,
in the opinion of the directors, it was probable that a timing difference
would reverse within the foreseeable future. Under FRS 19, full provision
is made for deferred taxation on all timing differences that have arisen
but not reversed at the balance sheet date, except in limited
circumstances. The main exceptions are as follows:
- Tax payable on the future remittance of the past earnings of
subsidiaries, associates and joint ventures is provided only to the extent
that dividends have been accrued or there is a binding agreement to
distribute such past earnings (where previously the Group recognised such
deferred tax to the extent that it was probable that a liability would
crystallise).
- Deferred tax is not recognised on revaluations of non-monetary assets
arising on acquisition unless there is a binding agreement to sell the
asset and the gain or loss expected to arise from the disposal has been
recognised (where previously the Group recognised deferred tax in respect
of such adjustments).
- Deferred tax assets are recognised only to the extent that it is more
likely than not that they will be recovered.
FRS 19 requires that provisions for deferred tax are made in respect of tax
benefits related to goodwill that was charged directly to reserves on
acquisitions made prior to 1998. Such provisions are released when the
related goodwill is charged through the profit and loss account on disposal
or closure. Under the previous accounting policy, such tax benefits were
taken up in the profit and loss account in the year in which they were
received.
The balance sheets at 30 June 2001 and 31 December 2001 have been restated
following the implementation of FRS 19 'Deferred Tax', which has reduced
shareholders' funds by US$133 million. The restatement also included an
increase in deferred tax provisions of US$57 million, an increase in
investment in associates of US$10 million and a reduction of US$86 million
in property, plant and equipment.
The application of FRS 19 did not impact significantly on net earnings for
the first half of 2002, the first half of 2001 or the full year 2001.
Accordingly, prior year earnings have not been restated.
PRIOR YEAR FINANCIAL INFORMATION
Financial information for the year 2001 has been extracted from the full
financial statements prepared on the historical cost basis as filed with
the Registrar of Companies, as restated to comply with FRS 19. The
auditors' report on the financial statements for the year ended 31 December
2001 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).
INDEPENDENT REVIEW REPORT TO RIO TINTO PLC AND RIO TINTO LIMITED
Introduction
We have been instructed by the companies to review the financial
information of the Rio Tinto Group which comprises the profit and loss
account, the cash flow statement, the balance sheet, the reconciliation
with Australian GAAP and the related notes (including the financial
information by Business Unit). We have read the other information
contained in the interim report, including the reconciliation to 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.
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 2002.
PricewaterhouseCoopers PricewaterhouseCoopers
Chartered Accountants
London Perth
25 July 2002 25 July 2002
in respect of Rio Tinto plc in respect of Rio Tinto Limited
METAL PRICES AND EXCHANGE RATES
First First
Half Half Change Year
2002 2001 1h02 v 1h01 2001
Metal prices - average for the
period
Copper - US cents/lb 72c 78c (8%) 72c
Aluminium - US cents/lb 62c 70c (11%) 66c
Gold - US$/troy oz US$301 US$266 13% US$271
Average exchange rates in US$
Sterling 1.44 1.44 - 1.44
Australia 0.53 0.52 2% 0.52
Canada 0.63 0.65 (3%) 0.65
South Africa 0.09 0.13 (31%) 0.12
Period end exchange rates in US$
Sterling 1.53 1.41 8% 1.45
Australia 0.57 0.51 12% 0.51
Canada 0.66 0.66 - 0.63
South Africa 0.10 0.12 (17%) 0.08
CIRCULATION TO SHAREHOLDERS
This report will be circulated in full to shareholders of Rio Tinto plc and
is available on the Rio Tinto website.
NOTES TO FINANCIAL INFORMATION BY BUSINESS UNIT (Pages 5 and 6)
(a) Gross turnover includes 100 per cent of subsidiaries' turnover and the
Group's share of the turnover of joint ventures and associates.
(b) EBITDA of subsidiaries, joint ventures and associates represents
profit before: tax, net interest payable, depreciation and amortisation.
(c) Net earnings represent after tax earnings attributable to the Rio
Tinto Group. Earnings of subsidiaries are stated before interest charges
but after the amortisation of the discount related to provisions. Earnings
attributable to joint ventures and associates include interest charges.
(d) Rio Tinto has a 100 per cent interest in Peak and an 80 per cent
interest in the Northparkes joint venture.
(e) Includes Anglesey Aluminium in which Rio Tinto's interest is 51 per
cent.
(f) Includes Morro do Ouro in which Rio Tinto's interest is 51 per cent.
(g) Capital expenditure comprises the net cashflow on purchases less
disposals of property, plant and equipment. The details provided include
100 per cent of subsidiaries' capital expenditure and include Rio Tinto's
share of the capital expenditure of joint ventures and associates. Amounts
relating to joint ventures and associates not specifically funded by Rio
Tinto are deducted before arriving at total capital expenditure.
(h) Operating assets of subsidiaries comprise net assets before deducting
net debt. 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 5 and 6, Rio Tinto's shares of
operating assets, defined as for subsidiaries, are as follows: Escondida
US$886 million (2001: US$750 million), Freeport joint venture US$439
million (2001: US$385 million), Freeport associate US$571 million (2001:
US$510 million), Kaltim Prima US$128 million (2001: US$145 million).
(i) Business units have been classified in the analysis on pages 5 and 6
according to the Group's management structure. Generally, this structure
has regard to the primary product of each business unit but there are
exceptions. For example, the Copper group includes the gold revenues of
Kennecott Utah Copper and Freeport (Rio Tinto share) and the businesses of
Rio Tinto Aluminium and Zinkgruvan. This summary differs, therefore, from
the Product Analysis in which the contributions of individual business
units are attributed to several products as appropriate.
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