Interim Results

Rio Tinto PLC 03 August 2005 Record earnings from strong operational performance and markets â€¢ First half underlying earnings of $2,087 million were more than double those of the first half of 2004 ($993 million). â€¢ First half net earnings were $2,165 million (first half 2004 $1,611 million). â€¢ Cashflow from operations was a record $3,421 million, 69 per cent higher than that of the first half of 2004. â€¢ Consistent operational performance enabled record volumes of most products to be delivered into strong markets. Higher prices increased underlying earnings by $1,004 million and higher volumes by $460 million. â€¢ Construction of the major rail and port infrastructure expansion for the Western Australian iron ore operations remains on track. Commissioning of the port expansion has commenced and will progress through the second half of the year. â€¢ An agreement to form a joint venture to develop the Hope Downs iron ore deposits further strengthens Rio Tinto's position as the prime supplier of iron ore from Australia. â€¢ Approval for the construction of a new ilmenite operation in Madagascar and the associated upgrade of existing processing facilities in Canada is announced today. â€¢ In addition to the increased 2004 final dividend, shareholders benefited from the return of $774 million through the successful completion of Rio Tinto Limited's off-market buyback. As a result, over half of the $1.5 billion capital management programme was completed within three months of its announcement, on favourable terms. Six months to 30 June (All dollars are US$ unless otherwise stated) 2005 2004 Change Underlying earnings 2,087 993 +110% Net earnings 2,165 1,611 +34% Cash flow from operations (incl. associate and JV dividends) 3,421 2,020 +69% Underlying earnings per share - US cents 152.0 72.0 +111% Earnings per share - US cents 157.6 116.8 +35% Chairman's comments Rio Tinto's chairman Paul Skinner said, ' Very good operational performance across all our businesses enabled us to capitalise on the strong markets we experienced for our products. As a result, cash flows and earnings were at record levels. Cash flow from operations, including dividends from associates and joint ventures, was $3,421 million. 'Our top priority for the application of this strong cash flow remains the investment in value creating opportunities like Hope Downs and the ilmenite project in Madagascar. Reflecting our ability to develop investment options from our existing portfolio, capital expenditure in the first half of the year was over $1 billion and is likely to be higher in the second half. 'We are committed to efficient capital management in the interests of shareholders. The strength of our cash flow enables us to continue to return excess capital to shareholders while maintaining the flexibility to take advantage of opportunities as they arise. In February, we announced our intention to return $1.5 billion of capital to shareholders before the end of 2006 and, with the completion of the off-market buy back in May 2005, we have already returned over half this amount. 'Although the rate of growth in the major economies slowed somewhat in the first half of this year, we are still seeing strong markets for our products. In particular, demand from China remains strong. Low inventories and the time lag in the supply side response to increasing demand is likely to keep markets tight in the short to medium term. In the meantime, we continue to work on driving world class performance in all of our businesses to strengthen our long term competitive position.' Chief Executive's comments Leigh Clifford, Rio Tinto's chief executive said, 'Our operations have continued to respond well to the opportunities and challenges that strong markets bring and maximisation of production has been the priority across most of the business. Many of our operations produced record volumes. The ramp-up of the new Comalco Alumina Refinery which began late last year continued through the first half of 2005 and we completed the expansion of our upgraded slag (UGS) plant in Quebec. 'This is a challenging time to be undertaking major construction projects as the market for mining related materials, equipment and skills is particularly competitive. Notwithstanding this, we will be progressively commissioning the major expansion of our Dampier port in the Pilbara, Western Australia as scheduled during the second half of the year and the project remains on budget. 'In the first half of this year we committed a further $290 million to the expansion of existing Hamersley Iron mines in Western Australia. We also revised the scope of the Hail Creek expansion to facilitate further expansions beyond eight million tonnes in line with market demand and available infrastructure capacity. 'As well as developing opportunities from within our existing portfolio, we also search for opportunities to create value for our shareholders through acquisitions and alliances. The agreement to form a joint venture to develop the Hope Downs iron ore deposits, which we announced at the beginning of July, brings an excellent resource to the Group. The development of the project will strengthen Rio Tinto's position as Australia's prime supplier of iron ore. 'We have a number of projects in the advanced study phase. The development of one such project, the QMM ilmenite project in Madagascar and Canada, is announced today. This project, which will enhance our leadership position in this industry, will provide the catalyst for the broader economic development of one of the poorest regions of Madagascar. In addition to creating value for our shareholders, it gives us the opportunity to demonstrate the contribution that mining can make to sustainable development through the successful integration of financial, environmental and community objectives.' Net earnings and underlying earnings In order to provide insight into the underlying performance of its business, Rio Tinto presents underlying earnings. The differences between underlying earnings and net earnings are set out in the following table. Six months ended 30 June 2005 2004 US$m US$m Underlying earnings 2,087 993 Items excluded from underlying earnings Profits on disposals of interests in businesses 89 875 Impairment charge - (160) Effect of exchange on US dollar debt and intragroup balances 9 (89) Mark to market of derivatives not qualifying as hedges (20 ) (8) Net earnings 2,165 1,611 Commentary on the Group financial results Underlying earnings of $2,087 million and net earnings of $2,165 million were $1,094 million and $554 million above the comparable measures for the first half of 2004. The principal factors explaining the increases are set out in the table below. Six months ended 30 June Underlying Net earnings earnings US$m US$m First half 2004 993 1,611 Prices 1,004 Exchange rates (85) Inflation (73) Volumes 460 Costs (185) Other (27) 1,094 1,094 Profits on disposals of interests in businesses (786) Impairment charge 160 Effect of exchange on US dollar debt and intragroup balances 98 Mark to market of derivatives not qualifying as hedges (12) First half 2005 2,087 2,165 Prices and exchange rates Prices for the major products were significantly above those experienced in 2004. Compared with the first half of 2004 average copper prices were 21 per cent higher and average aluminium prices 12 per cent higher. The strength of the global iron ore market was reflected in the 71.5 per cent increase in the benchmark price, which was mainly effective from 1 April 2005. The seaborne thermal and coking coal markets were also strong. Molybdenum prices, which have generally been below $5/lb over the last decade, averaged over $30/lb in the first half of 2005. The US dollar was generally weaker than in the first half of 2004 relative to the currencies in which the Group incurs the majority of its costs. The Australian dollar was five per cent stronger, the Canadian dollar was eight per cent stronger and the South African rand seven per cent stronger. The effect of this was to reduce underlying earnings relative to the first half of 2004 by $85 million. Volumes Higher sales volumes increased earnings by $460 million compared with the first half of 2004. The ramp-up of new projects in iron ore (Eastern Range mine and Yandicoogina expansion), coking coal (Hail Creek) and alumina (CAR) all contributed higher volumes. To take advantage of the strong market for molybdenum, the mine sequencing at Kennecott Utah Copper was optimised to maximise molybdenum production. This, together with modifications to the molybdenum circuit at the concentrator, almost tripled production volume. Production of copper and gold from the Grasberg mine was also significantly above that of the first half of 2004. Costs Excluding the effects of inflation, higher costs reduced earnings by $185 million. Of this, $60 million was due to higher energy costs. Strong markets create cyclical cost pressures in the industry and operations continued to experience higher prices for skilled labour, steel, rubber, explosives, freight and other mining related supplies. Costs at Kennecott Utah Copper were also affected by a scheduled 17 day smelter maintenance shutdown. Port congestion at Dalrymple Bay resulted in higher demurrage charges. Tax The effective tax rate on underlying earnings, including associates and jointly controlled entities, was 30.1 per cent compared to 30.5 per cent in the first half of 2004. Other The net after tax interest expense was $12 million lower than in the first half of 2004 due to lower levels of net debt. First half 2004 underlying earnings included $52 million from businesses that have since been sold. Items excluded from underlying earnings In the first half of 2005 the net profit on the disposal of interests in businesses was $89 million relating mainly to the sale of Rio Tinto's interest in the Labrador Iron Ore Royalty Income Fund. Disposals in the first half of 2004, principally the holding in Freeport-McMoRan Copper & Gold, resulted in gains of $875 million. Net earnings for the first half of 2004 included an impairment of $160 million relating to the Colowyo coal operation. There were no such items in the first half of 2005. Exchange gains and losses on US dollar debt that are recorded in the US dollar income statement and gains and losses on 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 2004 or the first half of 2005. Cash flow Cash flow from operations, including dividends from equity accounted joint ventures and associated companies, was a record $3,421 million, 69 per cent higher than the first half of 2004. Net working capital levels improved with days inventories and receivables both continuing to fall. The Group's investment in the business continued. Purchase of property, plant and equipment of $1,110 million included the major port and rail infrastructure expansion in Western Australia, initial expenditure on the construction of a new dike at Diavik and payments in respect of North Jacobs Ranch coal reserves by Kennecott Energy. Dividends paid in the first half of 2005 of $622 million were $158 million higher than dividends paid in the first half of 2004. To reflect the increased capital base of the Group following a period of investment, dividends were increased by 20 per cent in 2004. Shareholders also benefited from the off-market buy back of Rio Tinto Limited shares ($774 million). This represents over half of the $1.5 billion capital management programme announced on 3 February 2005. Balance sheet The balance sheet strengthened during the period. Net debt reduced by $368 million to $3,451 million. Debt to total capital fell to 21 per cent and interest cover strengthened to 39 times. In the first half of 2005, net assets increased by $689 million. The profit for the period was $1,569 million greater than dividends paid. The Rio Tinto Limited share buyback reduced shareholders' equity by $774 million. The adoption of IAS 39 ('Financial Instruments: Recognition and Measurement') resulted in an increase of $109 million in net assets, less than one per cent of the total. This represents the net gain on marking to market of qualifying hedges, embedded derivatives, available for sale investments and certain derivatives that do not qualify as hedges, which were not previously recognised under IFRS. IFRS These financial results have been prepared in accordance with accounting policies which are consistent with International Financial Reporting Standards (IFRS). Presentation materials explaining in detail the effects of the transition to IFRS on the financial reporting of Rio Tinto were released on 5 May 2005 and are available on the Rio Tinto website (www.riotinto.com). IFRS is continuing to evolve through the issue and/or endorsement of new Standards and Interpretations and developments in the application of recently issued standards. For that reason, the basis of preparation and the accounting policies applied in preparing the information in this release may require adjustment before the Group issues its first complete set of IFRS financial statements. IFRS defines Profit for the period reported in the income statement inclusive of earnings attributable to outside shareholders in subsidiaries. For the first half of 2005, the Profit for the period was $2,263 million (2004 first half $1,623 million) of which $98 million (2004 first half $12 million) was attributable to outside shareholders, leaving $2,165 million (2004 first half $1,611 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 for the previous year. Therefore, interim dividends equivalent to 38.5 US cents per share (2004: 32.0 US cents per share) have been declared by Rio Tinto plc and Rio Tinto Limited. Rio Tinto plc dividends are declared and paid in pounds sterling and Rio Tinto Limited dividends are declared and paid in Australian dollars, converted at exchange rates applicable on Monday 1 August 2005. Rio Tinto plc shareholders will be paid an interim dividend of 21.75 pence per ordinary share (2004: 17.54 pence per share). Rio Tinto Limited shareholders will be paid an interim dividend of 50.56 Australian cents per ordinary share (2004: 45.53 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 8 September 2005 to Rio Tinto plc shareholders on the register at the close of business on Friday 12 August 2005 and to Rio Tinto Limited shareholders on the register at the close of business on Tuesday 16 August 2005. The ex-dividend date for both Rio Tinto plc and Rio Tinto Limited will be Wednesday 10 August 2005. Dividends will be paid to Rio Tinto ADR holders on Friday 9 September 2005. 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 17 August 2005. Rio Tinto financial information by business unit (1) Six months ended 30 June Rio Tinto Gross turnover (a) EBITDA (b) Net earnings (c) US $ millions interest % 2005 2004 2005 2004 2005 2004 Iron Ore Hamersley (inc. HIsmelt(R)) 100.0 1,425 840 766 348 474 179 Robe River 53.0 477 270 302 146 145 59 Iron Ore Company of Canada 58.7 422 238 207 49 67 14 Rio Tinto Brasil (d) 19 53 - 20 (5) 5 2,343 1,401 1,275 563 681 257 Energy Kennecott Energy 100.0 578 540 135 141 68 80 Rio Tinto Coal Australia 100.0 1,065 691 441 191 228 72 Rossing 68.6 60 48 11 11 1 - Energy Resources of Australia 68.4 98 72 41 28 10 5 1,801 1,351 628 371 307 157 Industrial Minerals 1,208 943 313 251 124 88 Aluminium (e) 1,383 1,119 416 323 203 162 Copper Kennecott Utah Copper 100.0 966 520 663 247 465 151 Escondida 30.0 538 461 378 315 219 182 Freeport (f) - 43 - 7 - (4) Grasberg joint venture (g) 254 47 167 6 85 (8) Palabora 49.2 168 152 28 (6) 6 (9) Kennecott Minerals 100.0 139 130 72 68 42 43 Other copper (h) 65 124 35 63 17 39 2,130 1,477 1,343 700 834 394 Diamonds Argyle 100.0 246 195 107 69 40 36 Diavik 60.0 186 170 136 129 50 54 Murowa 78.0 22 - 14 - 9 - 454 365 257 198 99 90 Other operations 65 94 29 38 7 11 9,384 6,750 4,261 2,444 2,255 1,159 Other items 55 55 (134) (105) (78) (74) Exploration and evaluation (64) (55) (59) (49) Net interest (31) (43) Underlying earnings 4,063 2,284 2,087 993 Items excluded from underlying earnings 98 865 78 618 Total 9,439 6,805 4,161 3,149 2,165 1,611 Depreciation and amortisation in subsidiaries (660) (566) Impairment charges - (150) Depreciation and amortisation in jointly controlled entities and (112) (109) associates Taxation and finance items in jointly controlled entities and associates (168) (161) Profit before finance costs and tax 3,221 2,163 References above are to notes on page 40 Rio Tinto financial information by business unit (2) Six months ended 30 June Rio Tinto Capital expenditure Depreciation Operating assets US$ millions interest (k) & (m) amortisation (l) % 2005 2004 2005 2004 2005 2004 Iron Ore Hamersley (inc. HIsmelt(R)) 100.0 431 329 81 83 2,388 1,680 Robe River 53.0 87 37 44 41 1,601 1,448 Iron Ore Company of Canada 58.7 25 12 22 17 466 470 Rio Tinto Brasil (d) 21 6 2 3 68 86 564 384 149 144 4,523 3,684 Energy Kennecott Energy 100.0 123 96 40 51 894 810 Rio Tinto Coal Australia 100.0 46 25 76 80 1,264 1,244 Rossing 68.6 - 1 8 8 45 52 Energy Resources of Australia 68.4 9 2 19 14 161 166 178 124 143 153 2,364 2,272 Industrial Minerals 107 73 84 85 2,212 2,051 Aluminium (e) 102 258 120 79 3,463 2,958 Copper Kennecott Utah Copper 100.0 64 26 65 46 1,108 1,149 Escondida 30.0 118 36 32 25 661 477 Freeport (f) - - - 3 - - Grasberg joint venture (g) 26 16 21 19 348 378 Palabora 49.2 7 19 15 22 322 472 Kennecott Minerals 100.0 19 13 19 17 132 114 Other copper (h) 9 38 15 15 182 159 243 148 167 147 2,753 2,749 Diamonds Argyle 100.0 27 47 46 16 610 531 Diavik 60.0 53 25 39 31 575 591 Murowa 78.0 2 8 3 - 16 10 82 80 88 47 1,201 1,132 Other operations 7 7 15 14 230 211 1,283 1,074 766 669 16,746 15,057 Other items 10 4 5 155 (771) (613) Exploration and evaluation - - 1 1 18 23 Less: jointly controlled entities and associates (191) (55) (112) (109) Total 1,102 1,023 660 716 15,993 14,467 Less: net debt (3,451) (4,553) Total shareholders' equity 12,542 9,914 References above are to notes on page 40 Review of operations Comparison of underlying earnings First half underlying earnings of $2,087 million were $1,094 million above the first half underlying earnings of 2004. The table below shows the difference by product group. All financial amounts in the tables below are US$ millions unless indicated otherwise. US$m First half 2004 underlying earnings 993 Iron ore 424 Energy 150 Industrial Minerals 36 Aluminium 41 Copper 440 Diamonds 9 Other operations (4) Exploration and evaluation (10) Interest 12 Other (4) First half 2005 underlying earnings 2,087 Iron Ore First half First half Change Full year 2005 2004 2004 Production (million tonnes) 59.8 51.5 +16% 107.8 Gross turnover ($ millions) 2,343 1,401 +67% 3,009 Underlying earnings ($ millions) 681 257 +165% 565 EBITDA ($ millions) 1,275 563 +126% 1,176 Capital expenditure ($ millions) 564 384 935 The above figures include Rio Tinto Brasil which was previously reported as part of the Copper product group. Comparative data has been adjusted accordingly. Market conditions Global demand for iron ore remained strong throughout the first half of 2005. The strength of the market was reflected in the increase in the benchmark price of 71.5 per cent for the 2005 contract year. Brownfield mine expansions at Tom Price, Marandoo and Nammuldi were announced in April 2005 to add to the extensive mine, rail and port expansion, construction of which is now well advanced. In July 2005 an agreement to form a joint venture with Hancock Prospecting for the development of the Hope Downs project was announced. This will further strengthen Rio Tinto's position as the prime supplier of iron ore from Australia. Hamersley First half 2005 underlying earnings of $474 million were $295 million above the first half of 2004. Hamersley achieved record shipments in 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 underlying earnings include a net loss of $4 million for HIsmelt (R) (First half 2004 $5 million net loss) due to scheduled pre-production and marketing costs. Construction has been completed and the operations phase began in April 2005. First hot metal was produced in June 2005. Reflecting the innovative nature of the technology, full production is expected to be reached over a three year ramp-up period. Robe River First half underlying earnings of $145 million were $86 million above the first half of 2005. First half production was four per cent above the first half of 2004 although May shipments were affected by heavy rain at Cape Lambert, and West Angelas production was affected by a planned two week shutdown as part of the expansion of capacity to 25 million tonnes per annum. The rail duplication is proceeding on schedule. Iron Ore Company of Canada Underlying earnings of $67 million were $53 million above the first half of 2004. Improved employee productivity under the new collective agreement and improved plant availability resulted in record first half pellet production, nine per cent above the first half of 2004. Rio Tinto Brasil Rio Tinto Brasil made an underlying loss of $5 million in the first half of 2005 compared with a net profit of $5 million in the first half of 2004, principally due to the sale of Rio Tinto's interest in the Morro do Ouro gold mine in December 2004 and some one-off tax provisions in the first half of 2005. Energy First half First half Change Full year 2005 2004 2004 Production Coal (million tonnes) Hard coking coal 3.9 3.3 +18% 6.8 Other Australian 15.3 15.9 -4% 32.9 US 58.2 56.3 +3% 117.7 Uranium (tonnes) 2,945 2,788 +6% 5,974 Gross turnover ($ millions) 1,801 1,351 +33% 3,008 Underlying earnings ($ millions) 307 157 +96% 431 EBITDA ($ millions) 628 371 +69% 912 Capital expenditure ($ millions) 178 124 244 US Coal - Kennecott Energy US coal production increased by approximately one per cent in the first half of 2005 in line with the increase in US power generation. However, western coal including that from the Powder River Basin gained market share over eastern production. Kennecott Energy's first half 2005 underlying earnings of $68 million were $12 million below the first half of 2004. Second quarter production was marginally below the first quarter of the year as shipments were disrupted by two train derailments on the main line in May in addition to ongoing railroad maintenance. Increased railroad maintenance, which is expected to continue through the summer and possibly later into the year, will adversely affect Powder River Basin coal shipments. Earnings were adversely affected by higher fuel costs. Approval was given for the expansion of Antelope mine and development of the West Antelope reserves. At a capital cost of US$87 million, this will optimise the usage of the current facilities and enable production to increase in line with market demand. Asia Pacific seaborne coal markets The global coking coal market has been strong, driven largely by increased Chinese steel production. With export thermal coal volumes from Australia and South Africa constrained by infrastructure, the partial withdrawal of Chinese supply from the export thermal coal market has been balanced by increased Indonesian and Colombian supply with the result that prices have remained relatively stable during the half. Rio Tinto Coal Australia Underlying earnings of $228 million were $156 million above the first half of 2004, reflecting both higher prices and volumes. Available port and rail capacity constrained export shipments from the Australian coal operations. In March 2005, the ship queue at Dalrymple Bay Coal Terminal peaked at over 54 vessels with a consequent impact on demurrage. A queue management system was successfully implemented from late April, although it was only in the latter part of the period that the vessel queue reduced significantly. At the port of Newcastle, the capacity balancing system that has been in place for over a year remained effective at reducing demurrage charges although the queue reached over 30 vessels in June as producers scheduled shipments to meet quarterly allocations. Production volumes reflected both the effects of shipping constraints and the normal variation in line with the mining sequence. The Rio Tinto Board approved an enhanced Hail Creek expansion project in the first quarter. The expanded capacity of the project will remain at eight million tonnes per annum, but the enhancement will allow further expansions in line with market demand and port and rail capacity. The revised capital expenditure for the increase in annual capacity from six million tonnes to eight million tonnes, reflecting both the scope change and an increase due to cyclical material and labour cost pressures, is $223 million. Uranium markets The further reduction of excess inventory has continued to push spot prices up to the $30/lb level. The lead time for significant new capacity from mines will be at least five years which is expected to keep prices firm in the short to medium term. As sentiment towards nuclear generation of power begins to change and China commits to a nuclear generation investment programme, the longer term outlook for uranium demand looks better than it has done for several years. Rossing Underlying earnings of $1 million were $1 million above the first half of 2004. Work continues on extending operations beyond the life of the existing open pit. Energy Resources Australia Underlying earnings of $10 million were $5 million above the first half of 2004 due to both higher volumes and prices. Industrial Minerals First half First half Change Full year 2005 2004 2004 Production Borates (000 tonnes) 268 275 -2% 565 Titanium dioxide (000 tonnes) 649 577 +12% 1,192 Salt (000 tonnes) 2,776 2,390 +16% 4,792 Talc (000 tonnes) 720 717 +0% 1,443 Gross turnover ($ millions) 1,208 943 +28% 2,126 Underlying earnings ($ millions) Rio Tinto Borax 32 43 -26% 93 Rio Tinto Iron & Titanium 72 28 +157% 116 Dampier Salt 9 5 +80% 13 Luzenac 11 12 -8% 21 124 88 +41% 243 EBITDA ($ millions) 313 251 +25% 554 Capital expenditure ($ millions) 107 73 248 Rio Tinto Borax Underlying earnings of $32 million were $11 million below the first half of 2004. First quarter borates production was affected by unusually wet weather at the Boron mine which also adversely affected mining costs for a prolonged period. Costs were also adversely affected by higher diesel, natural gas and raw materials prices. Sales into Asia were particularly strong. Rio Tinto Iron & Titanium Underlying earnings of $72 million were $44 million above the first half of 2004. Improvement in pigment markets flowed through into strong demand for chloride feedstocks and QIT's upgraded slag (UGS) product. The expansion of the UGS was completed on time and is being ramped-up to full capacity. Demand was also generally strong for Rio Tinto Iron & Titanium's co-products although the iron and steel markets softened somewhat towards the end of the half. The Board has recently approved the construction of a new ilmenite project in Madagascar. The project will involve the construction of a dredging operation and port in Madagascar at a cost of $585 million and the enhancement of existing smelting facilities in Sorel, Canada at a cost of $190 million. First production is expected towards the end of 2008 and the initial capacity, all of which will be smelted in Sorel, will be 750,000 tonnes per year of ilmenite. The final product will be a new, high quality chloride slag with 91 per cent titanium dioxide content. Dampier Salt Underlying earnings of $9 million were $4 million above the first half of 2004. The North Shore project, which will optimise production across the three sites, was completed in the first half of the year. Luzenac Underlying earnings of $11 million were $1 million below the first half of 2004. Increased sales to the polymer market were counteracted by higher freight and energy costs and the adverse effects of exchange rate movements. Aluminium First half First half Change Full year 2005 2004 2004 Production Bauxite (000 tonnes) 7,117 6,339 +12% 12,828 Alumina (000 tonnes) 1,490 1,030 +45% 2,231 Aluminium (000 tonnes) 421.6 417.1 +1% 836.5 Gross turnover ($ millions) 1,383 1,119 +24% 2,356 Underlying earnings ($ millions) 203 162 +25% 331 EBITDA ($ millions) 416 323 +29% 688 Capital expenditure ($ millions) 102 258 505 Prices The average aluminium price of 84c/lb was 12 per cent above the first half 2004 average price. The alumina market remained tight and spot prices continued to trade at over $400 per tonne. These, together with the effects of other price movements, increased earnings by $89 million. Bauxite Bauxite production was 12 per cent above the first half of 2004 in order to supply the new Comalco Alumina Refinery (CAR). The higher production was aided by the NeWeipa mine expansion which was completed in the second half of 2004. Alumina The ramp up of CAR is progressing well with 425,000 tonnes produced in the first half of 2005. The production processes at both Eurallumina and QAL were stable. First half production from QAL was a half year record and production from Eurallumina was only marginally below the record level achieved in the second half of 2004. Overall first half alumina production was up 45 per cent compared to the first half of 2004. Production costs were adversely affected by higher caustic soda prices, higher internal freight costs and higher fuel costs. Aluminium All of the aluminium smelters operated consistently at, or near, capacity. Earnings were adversely affected by higher average power and other input costs, partly offset by the benefits from stable operations and the Six Sigma improvement programme. Copper First half First half Change Full year 2005 2004 2004 Production Mined copper (000 tonnes) 378.3 373.4 +1% 753.1 Refined copper (000 tonnes) 139.8 169.0 -17% 332.6 Mined molybdenum (000 tonnes) 7.1 2.5 +184% 6.8 Mined gold (000 oz) 809 570 +42% 1,164 Gross turnover ($ millions) 2,130 1,477 +44% 3,033 Underlying earnings ($ millions) 834 394 +112% 860 EBITDA ($ millions) 1,343 700 +92% 1,503 Capital expenditure ($ millions) 243 148 326 Kennecott Utah Copper Underlying earnings of $465 million were $314 million higher than the first half of 2004. In order to take advantage of the strong market for molybdenum, mine sequencing was optimised to maximise molybdenum production and hence copper concentrate production was lower than in the first half of 2004. Both gold and molybdenum grades were significantly above the first half of 2004. An expansion of the molybdenum plant, which is designed to increase recoveries, was completed in June 2005. The smelter was shut down for 17 days in the second quarter for scheduled maintenance, which adversely affected production of both refined copper and gold. By the end of June, the smelter had returned to full production. Escondida Underlying earnings of $219 million were $37 million above the first half of 2004. Mined copper production was marginally below the first half reflecting variations in grade due to mine sequencing. Mill throughput continued to increase, resulting in improved daily production rates. Grasberg joint venture Underlying earnings of $85 million were $93 million above the first half of 2004, excluding the earnings attributable to Rio Tinto's holding in Freeport-McMoRan Copper & Gold prior to its disposal in March 2004. Both copper and gold production at the Grasberg mine were significantly above the first half of 2004 when efforts were focused on the recovery from the 2003 material slippage. Kennecott Minerals Underlying earnings of $42 million were $1 million below the first half of 2004. The effects of higher gold prices were offset by higher costs and lower sales volumes from Cortez due to lower grades. Palabora Underlying earnings of $6 million compare with an underlying loss of $9 million in the first half of 2004. The underground mine production exceeded its nameplate capacity of 30,000 tonnes per day in May and June. Earnings also benefited from lower operating costs following the business review in the second half of 2004. Northparkes Underlying earnings of $17 million were $6 million above the first half of 2004. Copper production was 71 per cent higher as the new Lift 2 block cave ramped-up to full capacity. Nameplate capacity was reached in June 2005. Other Rio Tinto's interests in Somincor, Morro do Ouro and Zinkgruvan which were reported in the Copper product group, were sold during 2004. Rio Tinto Brasil and Kennecott Land, which previously reported in the Copper product group now report in the Iron Ore product group and Other Operations respectively. Comparative data has been adjusted accordingly. Diamonds First half First half Change Full year 2005 2004 2004 Production Diamonds (000 carats) Argyle 18,057 6,282 +187% 20,620 Diavik 2,558 2,286 +12% 4,545 Gross turnover ($ millions) 454 365 +24% 744 Underlying earnings ($ millions) 99 90 +10% 188 EBITDA ($ millions) 257 198 +30% 419 Capital expenditure ($ millions) 82 80 152 Diamond markets Due to a strong US jewellery market, demand for rough diamonds, particularly smaller and larger stones, continued to increase through the first half of 2005. This resulted in price rises for Argyle and Diavik production. Polished prices continued to increase at the wholesale level. Diavik Underlying earnings of $50 million were $4 million below the first half of 2004. The effect of the weaker US dollar offset the benefit from higher prices. Argyle Underlying earnings of $40 million were $4 million above the first half of 2004. Production at Argyle returned to more normal levels in the second half of 2004 following the tight mining conditions experienced in the first half. The Argyle underground feasibility decision on mine closure or further mine development is expected around the end of the year. Murowa Underlying earnings from Murowa, which commenced production in the second half of 2004, were $9 million. Other operations First half First half Change Full year 2005 2004 2004 Underlying earnings ($ millions) 7 11 -36% 25 Kelian ceased processing ore in February 2005 and the final gold pour was in May 2005. At Kennecott Land's Project Daybreak, land sales started in mid-2004 and will ramp-up over a period of 5-6 years. To date builders have closed on over 400 lots. Exploration and evaluation First half First half Change Full year 2005 2004 2004 Post-tax charge ($ millions) 59 49 +20% 128 Exploration drilling continued on copper targets in Chile, Turkey, Mexico and in the US. Diamond exploration continued in Canada, Botswana, Mauritania, India and Brazil. Iron ore exploration continued in the Hamersley Basin (Western Australia) and in west Africa. Exploration for thermal and coking coal opportunities continued in southern Africa, Australia and Canada. At La Sampala (nickel, Indonesia), scoping studies are underway Brownfield exploration is under way at a number of Rio Tinto businesses, with notable efforts to expand resources being made in the Pilbara, at KUC, on the Freeport and Cortez joint ventures, at Greens Creek, and at Northparkes. Evaluation work continued at Eagle (nickel/copper, US), Sari Gunay (gold, Iran), Resolution (copper/gold, US), Potasio Rio Colorado (potash, Argentina) and Simandou (iron ore, Guinea). Reflecting the positive progress so far in its evaluation and pilot work at Potasio Rio Colorado, Rio Tinto exercised its option over the Potasio Rio Colorado project in July 2005 to take full ownership of the project. Capital projects Project Estimated Status/Milestones cost (100%) Completed in 2005 Iron ore - HIsmelt (R) (Rio Tinto 60%) direct iron $200m Construction was completed and the smelting technology. Construction of an 800,000 operations phase began in April 2005. tonne capacity plant in Kwinana, Western Australia. Full commissioning will take three years. First hot metal was produced in June 2005. Iron ore - Expansion of Yandicoogina mine (Rio $200m Commissioning ramp-up is progressing Tinto 100 %) from 24 million tonnes per annum to 36 well and the plant has been operating million tonnes per annum. at design capacity. Titanium dioxide - Expansion of Rio Tinto Iron & $76m Commissioning started in March 2005 Titanium's (Rio Tinto 100%) upgraded slag plant and the plant is ramping up to full (UGS) from 250,000 tonnes per annum to 325,000 capacity. tonnes per annum. Ongoing Iron ore - Expansion of Hamersley's (Rio Tinto $685m The project is 76 % complete and 100%) port capacity to 116 million tonnes per remains on track for completion by annum. the end of 2005. Iron ore - Expansion by Robe River (Rio Tinto 53%) $200m The project is 63 % complete and of rail capacity including completion of dual track laying is on schedule. tracking of 100 km mainline section. Iron ore - Expansion of West Angelas mine (Rio $105m At 30 June 2005 construction was 84 % Tinto 53%) from 20 million tonnes per annum to 25 complete and project completion is million tonnes per annum. expected in the third quarter of 2005. Coking coal - Hail Creek (Rio Tinto 82%) Expansion $223m A revised project scope, which will of annual capacity from 6 million tonnes to 8 facilitate expansions beyond 8 million tonnes per annum. million tonnes in line with market demand and port capacity, was approved in the first quarter of 2005. Copper - Escondida Norte (Rio Tinto 30%). $400m First production is expected in the Satellite deposit will provide mill feed to keep fourth quarter of 2005. Escondida capacity above 1.2 million tonnes per annum to the end of 2008. Copper - Escondida sulphide leach (Rio Tinto 30%). $870m First production is expected in the The project will produce 180,000 tonnes per annum second half of 2006. of copper cathode for more than 25 years. Diamonds - Construction at Diavik (Rio Tinto 60%) $265m The project was approved in December of the A418 dike, and funding for further study of 2004. Preparatory work has commenced the viability of underground mining, including the for the construction of the A418 construction of an exploratory decline. dike. Construction of the exploratory decline has commenced. First production from the A418 pit will be in 2008. Project Estimated Status/Milestones cost (100%) Recently approved Copper - Kennecott Utah Copper (Rio Tinto 100%) $170m The project was approved in East 1 pushback. The project extends the life of February 2005 and work on the the open pit to 2017 while retaining options for pushback has commenced. further underground or open pit mining thereafter. Titanium dioxide - Construction by QMM (Rio Tinto $775m The project was approved in August 80%) of a greenfield ilmenite operation in 2005 and first production is Madagascar and associated upgrade of processing expected in late 2008. facilities at QIT. Iron ore - Expansion of Hamersley's (Rio Tinto $290m Approved in April 2005, 100%) Tom Price and Marandoo mines and construction commissioning is expected to of new mine capacity at Nammuldi. commence from early 2006. Divestments The sale of Rio Tinto's holding in the Labrador Iron Ore Royalty Income Fund (LIORIF) for cash consideration of $130 million was completed in the first quarter of 2005. LIORIF has an equity interest of 15.1 per cent in, and receives royalties from, the Iron Ore Company of Canada (IOC). The transaction has no effect on Rio Tinto's 59 per cent interest in IOC. Price & exchange rate sensitivities The following sensitivities give the estimated effect on underlying earnings assuming that each individual price or exchange rate moved in isolation. The relationship between currencies and commodity prices is a complex one and movements in exchange rates can cause movements in commodity prices and vice versa. The exchange rate sensitivities quoted below include the effect on operating costs of movements in exchange rates but exclude the effect due to the revaluation of foreign currency working capital. They should therefore be used with care. Average price/exchange rate 10 per cent change Effect on full year for first half 2005 underlying earnings US$m Copper 151c/lb +/- 15.1c/lb 195 Aluminium 84c/lb +/-8.4c/lb 125 Gold $427/oz +/- $42.7/oz 55 Molybdenum $31/lb +/- $3.1/lb 40 Australian dollar 77USc +/-7.7USc 245 Canadian dollar 81USc +/-8.1 60 South African rand 16USc +/-1.6 20 For further information, please contact: LONDON AUSTRALIA Media Relations Media Relations Lisa Cullimore Ian Head Office: +44 (0) 20 7753 2305 Office: +61 (0) 3 9283 3620 Mobile: +44 (0) 7730 418 385 Mobile: +61 (0) 408 360 101 Investor Relations Investor Relations Nigel Jones Dave Skinner Office +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628 Mobile +44 (0) 7917 227 365 Mobile: +61 (0) 408 335 309 Richard Brimelow Susie Creswell Office: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639 Mobile: +44 (0) 7753 783 825 Mobile: +61 (0) 418 933 792 Website: www.riotinto.com Group income statement Six months Six months Year to 31 to 30 June to 30 June December 2005 2004 2004 US$m US$m US$m Gross turnover (including share of jointly controlled entities and associates) 9,439 6,805 14,530 Share of jointly controlled entities' and associates' turnover (768) (787) (1,576) Consolidated turnover 8,671 6,018 12,954 Operating costs (excluding impairment charges) (5,823) (4,846) (10,249) Impairment charges (a) - (160) (558) Profit on disposal of interests in businesses and investments (b) 98 875 1,180 Operating profit 2,946 1,887 3,327 Share of profit after tax of jointly controlled entities and associates 275 276 523 Profit before finance items and taxation 3,221 2,163 3,850 Finance items Exchange (losses)/gains on external debt and intragroup balances (14) (191) 119 (Losses)/gains on currency and interest rate derivatives not qualifying for hedge accounting (27) (9) 16 Interest receivable 23 11 28 Interest payable and similar charges (84) (82) (148) Amortisation of discount related to provisions (55) (41) (87) (157) (312) (72) Profit before taxation 3,064 1,851 3,778 Taxation (a),(b) (801) (228) (613) Profit for the period 2,263 1,623 3,165 - attributable to outside equity shareholders (a) 98 12 (53) - attributable to equity shareholders of Rio Tinto (Net earnings) 2,165 1,611 3,218 Basic earnings per ordinary share 157.6c 116.8c 233.3c Diluted earnings per ordinary share 157.3c 116.7c 232.9c Dividends per share: paid during the period 45.0c 34.0c 66.0c Dividends per share: proposed in the announcement of the results for the 38.5c 32.0c 45.0c period (a) The tax credit resulting from impairment charges for the year ended 31 December 2004 was US$108 million (half year 2004: nil), and the net charge attributable to outside equity shareholders was US$129 million (half year 2004: nil). (b) The net tax charge resulting from profit on disposal of interests in businesses and investments for the six months ended 30 June 2005 was US$9 million (half year 2004: nil; year ended 31 December 2004: US$9 million). Group cash flow statement Six months Six months Year to 31 to 30 June to 30 June December 2005 2004 2004 US$m US$m US$m Cash flow from consolidated operations 3,167 1,732 3,974 Dividends from jointly controlled entities and associates 254 288 478 Cash flow from operations 3,421 2,020 4,452 Interest received 23 14 28 Interest paid (90) (100) (179) Dividends paid to outside shareholders (73) (24) (56) Tax paid (424) (543) (865) Cash flow from operating activities 2,857 1,367 3,380 Cash flow from investing activities (Acquisitions) less disposals of subsidiaries, joint ventures & associates (2) 1,137 1,507 Purchase of property, plant & equipment and intangible assets (1,110) (1,028) (2,256) Funding of jointly controlled entities and associates 5 - 9 Exploration and evaluation expenditure (102) (73) (190) Proceeds from sale of property, plant and equipment and intangible assets 8 5 41 Sales less purchases of other investments 94 124 231 Cash flows from non-hedge derivatives not related to net debt 15 78 77 Cash (used in)/from investing activities (1,092) 243 (581) Cash flow before financing activities 1,765 1,610 2,799 Cash flow from financing activities Equity dividends paid to Rio Tinto shareholders (622) (464) (906) Own shares purchased from Rio Tinto shareholders (774) - - Net proceeds from issue of ordinary shares in Rio Tinto 52 13 26 Net proceeds from issue of ordinary shares in subsidiaries to outside shareholders - - 7 Finance lease principal payments (73) (11) (20) Net proceeds from issue of new borrowings 179 76 206 Repayment of borrowings (364) (1,217) (2,041) Cash flows from non-hedge derivatives related to net debt 5 - - Cash flows relating to liquid resources not classified as cash and cash 13 33 23 equivalents Cash used in financing activities (1,584) (1,570) (2,705) Effects of exchange rates on cash and cash equivalents (6) (49) (9) Net increase/(decrease) in cash and cash equivalents 175 (9) 85 Opening cash and cash equivalents 326 241 241 Closing cash and cash equivalents 501 232 326 Cash flow from consolidated operations Profit for the period 2,263 1,623 3,165 Taxation 801 228 613 Net interest payable and amortisation of discount 116 112 207 Share of profit after tax of jointly controlled entities and associates (275) (276) (523) Profit on disposal of interests in businesses and investments (98) (875) (1,180) Depreciation and amortisation 660 566 1,171 Impairment charges - 160 558 Exploration and evaluation charged against profit 93 72 190 Provisions 107 67 192 Utilisation of provisions (111) (70) (220) Change in inventories (228) (122) (217) Change in trade and other receivables (180) (95) (97) Change in trade and other payables (31) 103 234 (Gains)/losses on derivatives not qualifying as hedges under IFRS 27 9 (16) Exchange (gains)/losses on external debt and intragroup balances 14 191 (119) Other items 9 39 16 3,167 1,732 3,974 Group balance sheet 30 June 30 June 30 June 30 June 31 December 2005 2004 2005 2004 2004 A$m A$m US$m US$m US$m Non-current assets 1,397 1,428 Goodwill 1,062 985 1,075 254 241 Intangible assets 193 166 189 22,527 21,548 Property, plant and equipment 17,121 14,868 16,721 2,722 2,543 Investments in jointly controlled entities and 2,069 1,755 2,016 associates 161 188 Loans to jointly controlled entities 122 130 130 58 84 Inventories 44 58 68 933 1,122 Trade and other receivables 709 774 770 16 36 Deferred tax assets 12 25 52 178 180 Tax recoverable 135 124 125 524 487 Derivatives related to net debt 398 336 494 461 361 Other financial assets 350 249 275 29,231 28,218 22,215 19,470 21,915 Current assets 2,791 2,529 Inventories 2,121 1,745 1,952 63 62 Loans to jointly controlled entities 48 43 46 2,716 2,417 Trade and other receivables 2,064 1,668 1,832 29 35 Tax recoverable 22 24 29 4 6 Derivatives related to net debt 3 4 29 188 270 Other financial assets 143 186 99 - 3 Other liquid resources - 2 14 741 513 Cash and cash equivalents 563 354 392 6,532 5,835 4,964 4,026 4,393 Current liabilities (82) (177) Bank overdrafts repayable on demand (62) (122) (66) (1,084) (988) Borrowings (824) (682) (789) (2,241) (2,119) Trade and other payables (1,703) (1,462) (1,753) (57) - Other financial liabilities (43) - - (516) (142) Tax payable (392) (98) (142) (354) (335) Provisions (269) (231) (193) (4,334) (3,761) (3,293) (2,595) (2,943) 2,198 2,074 Net current assets 1,671 1,431 1,450 Non-current liabilities (4,613) (6,442) Borrowings (3,506) (4,445) (3,883) (1,043) (964) Trade and other payables (793) (665) (910) (30) - Derivatives related to net debt (23) - - (133) (112) Tax payable (101) (77) (87) (2,979) (2,725) Deferred tax liabilities (2,264) (1,880) (2,135) (5,157) (4,572) Provisions (3,919) (3,155) (3,759) (13,955) (14,815) (10,606) (10,222) (10,774) 17,474 15,477 Net assets 13,280 10,679 12,591 Capital and reserves Share capital 226 249 - Rio Tinto plc 172 172 172 1,384 1,452 - Rio Tinto Limited (excl. Rio Tinto plc interest) 1,052 1,002 1,133 2,436 2,628 Share premium account 1,851 1,813 1,822 339 (517) Other reserves 258 (357) 432 12,118 10,556 Retained earnings 9,209 7,284 8,318 16,503 14,368 Equity attributable to Rio Tinto shareholders 12,542 9,914 11,877 971 1,109 Attributable to outside equity shareholders 738 765 714 17,474 15,477 Total equity 13,280 10,679 12,591 Group statement of recognised income and expense Attributable Outside Six months Six months Year to 31 to interests to 30 June to 30 June December shareholders 2005 2004 2004 of Rio Tinto Total Total Total US$m US$m US$m US$m US$m Profit for the period 2,165 98 2,263 1,623 3,165 Currency translation adjustment (269) (22) (291) (508) 489 Cash flow hedge fair value gains 10 2 12 - - Gains on available for sale securities 18 1 19 - - Cash flow hedge (gains)/losses transferred to the income statement 4 (1) 3 - - (Gains)/losses on available for sale securities transferred to the income statement (76) - (76) - - Actuarial gains/(losses) on post retirement benefit plans 52 - 52 11 (153) Total recognised income for the year 1,904 78 1,982 1,126 3,501 (a) The amounts above are shown net of tax. Group statement of changes in equity Attributable Outside Six months Six months Year to 31 to interests to 30 June to 30 June December shareholders 2005 2004 2004 of Rio Tinto Total Total Total US$m US$m US$m US$m US$m Opening balance 11,877 714 12,591 10,023 10,023 Adjustment for adoption of IAS 39 90 19 109 - - Opening balance as restated 11,967 733 12,700 10,023 10,023 Total recognised income for the year 1,904 78 1,982 1,126 3,501 Employee share options charged to income statement 14 - 14 10 27 Dividends (621) (73) (694) (493) (966) Subsidiaries disposed of - - - - (27) Own shares purchased from Rio Tinto shareholders (774) - (774) - - Ordinary shares issued 52 - 52 13 33 Closing balance 12,542 738 13,280 10,679 12,591 The adoption of IAS 39 resulted in a US$90 million increase in equity attributable to Rio Tinto shareholders at 1 January 2005. This was net of consequential increases in deferred tax liabilities of US$24 million, and outside equity shareholders' interests of US$19 million. This represents the net gain on marking to market of qualifying hedges, embedded derivatives, available for sale investments and certain derivatives that do not qualify as hedges, which were not previously recognised under IFRS. The major balance sheet line items affected were financial assets: increase of US$287 million, financial liabilities: increase of US$66 million, and borrowings: increase of US$69 million. The net impact on other balance sheet items was a credit of US$19 million. Reconciliation of Net earnings to Underlying earnings Pre-tax Taxation Outside Six months Six months Year to 31 interests to 30 June to 30 June December 2005 2004 2004 Net Net Net amount amount amount Exclusions from Underlying earnings US$m US$m US$m Gains relating to disposal of interests in businesses and investments 98 (9) - 89 875 1,175 Impairment charges - Palabora - - - - - (161) - Colowyo - - - - (160) (160) - - - - (160) (321) Exchange differences and derivatives - Exchange gains/(losses) on external debt and intragroup balances (14) 12 15 13 (80) 80 - Gains/(losses) on derivatives, not qualifying as hedges (27) 7 - (20) (7) 8 - Gains/(losses) on external debt and derivatives not qualifying as hedges in jointly controlled entities and associates (net of tax) (4) (4) (10) 4 (45) 19 15 (11) (97) 92 Total excluded from Underlying earnings 53 10 15 78 618 946 Net earnings 3,064 (801) (98) 2,165 1,611 3,218 Underlying earnings 3,011 (811) (113) 2,087 993 2,272 '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. The items excluded from Net earnings in arriving at Underlying earnings are as follows: - Gains and losses arising on the disposal of interests in businesses and undeveloped properties - Charges and credits relating to impairment of non-current assets, excluding those related to current year exploration expenditure - Exchange gains and losses on US dollar debt and intragroup balances - Valuation changes on currency and interest rate derivatives which are ineligible for hedge accounting, other than those embedded in commercial contracts - The currency revaluation of embedded US dollar derivatives contained in contracts held by entities whose functional currency is not the US dollar - Other credits and charges that, individually, or in aggregate if of a similar type, are of a nature and size to require exclusion in order to provide additional insight into underlying business performance Consolidated net debt Cash and Other Borrowings 30 June 30 June 31 December cash liquid 2005 2004 2004 equivalents resources Net debt Net debt Net debt US$m US$m US$m Analysis of changes in consolidated net debt At 1 January 326 14 (4,149) (3,809) (5,710) (5,710) Adjustment for adoption of IAS 39 - - (10) (10) - - Opening balance as restated 326 14 (4,159) (3,819) (5,710) (5,710) Adjustment on currency translation (4) (1) 61 56 237 (203) Exchange gains/(losses) charged to the income statement (2) - 1 (1) (207) 161 (Losses) on derivatives related to net debt (44) (44) - - Exchange gains/(losses) recognised in reserves - - - - (32) 5 Subsidiaries disposed of - - - - 12 Finance leases raised less repaid - 9 9 11 20 Cash flow excluding exchange movements 181 (13) 180 348 1,148 1,906 Closing balance 501 - (3,952) (3,451) (4,553) (3,809) Cash and Other Borrowings 30 June 30 June 31 December cash liquid 2005 2004 2004 equivalents resources Net debt Net debt Net debt US$m US$m US$m Reconciliation to balance sheet categories Non-current - (3,506) (3,506) (4,445) (3,883) Current 563 - (824) (261) (326) (383) Bank overdrafts repayable on demand (62) - (62) (122) (66) Derivatives related to net debt: non-current 375 375 336 494 Derivatives related to net debt: current 3 3 4 29 Balances per above 501 - (3,952) (3,451) (4,553) (3,809) Primary segmental analysis (by product group) Six months Six months Year to 31 to 30 June to 30 June December 2005 2004 2004 US$m US$m US$m Turnover Iron ore 2,343 1,401 3,009 Energy 1,719 1,264 2,826 Industrial minerals 1,157 911 2,052 Aluminium 1,383 1,119 2,356 Copper 1,505 827 1,756 Diamonds 454 365 744 Other 110 131 211 Consolidated turnover 8,671 6,018 12,954 Share of jointly controlled entities and associates 768 787 1,576 Gross turnover 9,439 6,805 14,530 Consolidated profit before finance costs and taxation Iron ore (c) 1,210 419 887 Energy (c),(d) 461 27 455 Industrial minerals 206 158 362 Aluminium (c) 295 211 520 Copper (c),(d) 791 935 1,037 Diamonds 169 151 311 Other (c) (124) 20 (131) Exploration and evaluation (c) (62) (34) (114) Operating profit (segment result) 2,946 1,887 3,327 Share of profit after tax of jointly controlled entities and associates Copper 250 238 495 Other product groups 25 38 28 275 276 523 Profit before finance costs and taxation 3,221 2,163 3,850 (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 costs 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 of these financial statements, in which the contributions of individual business units are attributed to several products as appropriate. (b) The analysis of profit before finance costs and taxation includes the profit on disposal of interests in businesses and investments, and impairment charges, which are excluded from Underlying earnings, as detailed below. (c) Disposals of businesses and investments: gains of US$84 million are included within the Iron Ore product group (2004 half year: nil; 2004 full year: nil). Gains of US$11 million are included within the Aluminium product group (2004 half year: US$6 million; 2004 full year: US$4 million). Gains of US$3 million are included within Exploration and evaluation (2004 half year: US$22 million; 2004 full year: US$30 million). For the year ended 31 December 2004, gains of US$64 million were included within the Energy product group (2004 half year: US$3 million loss), US$976 million within the Copper product group (2004 half year: US$744 million) and US$136 million were included in 'other' (2004 half year: US$128 million). (d) Impairment charges of US$160 million were reported within the Energy product group for the six months ended 30 June 2004. For the year ended 31 December 2004, impairment charges of US$160 million were reported within the Energy product group, and US$398 million within the Copper product group. Commodity analysis Six months Six months Year to 31 First half First half to 30 June to 30 June December 2005 2004 2005 2004 2004 % % US$m US$m US$m Gross turnover 13.0 16.1 Copper 1,227 1,094 2,233 3.9 5.0 Gold (all sources) 370 338 634 24.8 20.0 Iron ore 2,343 1,360 2,931 17.4 18.1 Coal 1,643 1,230 2,709 14.7 16.2 Aluminium 1,383 1,103 2,320 13.1 14.2 Industrial minerals 1,233 967 2,175 4.8 5.4 Diamonds 454 366 744 8.3 5.0 Other products 786 347 784 100.0 100.0 9,439 6,805 14,530 Net earnings 36.9 35.6 Copper, gold and by-products 831 413 862 30.2 21.7 Iron ore 681 251 565 13.1 13.1 Coal 296 152 416 9.0 14.0 Aluminium 203 162 331 5.7 7.9 Industrial minerals 129 91 256 4.4 7.7 Diamonds 99 90 188 0.7 - Other products 16 - 25 100.0 100.0 2,255 1,159 2,643 Exploration and evaluation (59) (49) (128) Net interest (31) (43) (69) Other items (78) (74) (174) Underlying earnings 2,087 993 2,272 Items excluded from Underlying earnings 78 618 946 Net earnings 2,165 1,611 3,218 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. Geographical analysis (by country of origin) Six months Six months Year to 31 First half First half to 30 June to 30 June December 2005 2004 2005 2004 2004 % % US$m US$m US$m Gross turnover 31.5 31.8 North America 2,969 2,161 4,571 50.9 47.1 Australia and New Zealand 4,808 3,202 7,023 6.0 7.7 South America 566 523 1,131 5.3 5.6 Africa 501 383 850 3.2 2.4 Indonesia 299 165 314 3.1 5.5 Europe and other countries 296 371 641 100.0 100.0 9,439 6,805 14,530 Net earnings 34.2 34.9 North America 724 362 829 51.9 47.5 Australia and New Zealand 1,099 492 1,130 9.2 16.3 South America 195 169 364 2.0 (0.4) Africa 42 (4) 2 4.4 1.1 Indonesia 93 11 44 (1.7) 0.6 Europe and other countries (35) 6 (28) 100.0 100.0 2,118 1,036 2,341 Net interest (31) (43) (69) Underlying earnings 2,087 993 2,272 Items excluded from underlying earnings 78 618 946 Net earnings 2,165 1,611 3,218 The above analyses include Rio Tinto's share of the results of jointly controlled entities and associates including interest. The amortisation of discount is included in the applicable product category and geographical area. All other financing costs of subsidiaries are included in 'Net interest'. Prima facie tax reconciliation Six months Six months Year to 31 to 30 June to 30 June December 2005 2004 2004 US$m US$m US$m Profit before taxation 3,064 1,851 3,778 Deduct: share of net profit of jointly controlled entities and associates (275) (276) (523) Parent companies' and subsidiaries' profit before tax 2,789 1,575 3,255 Prima facie tax payable at UK and Australian rate of 30% (a) 837 473 977 Impact of items excluded from Underlying earnings (27) (262) (290) Permanent differences relating to: Other tax rates applicable outside the UK and Australia (23) (20) (33) Resource depletion and other depreciation allowances (5) (14) (25) Research, development and other investment allowances (3) (2) (7) Exchange differences relating to deferred tax balances - 16 (12) Other 22 37 3 (9) 17 (74) Total taxation charge 801 228 613 (a) 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. (b) This tax reconciliation relates to the parent companies and subsidiaries. The Group's share of profit of jointly controlled entities and associates is net of tax charges of US$136 million (2004 half year: US$114 million, 2004 full year: US$262 million). Other disclosures Capital commitments Contractual commitments to acquire fixed assets were US$618 million at 30 June 2005 (at 31 December 2004:US$700 million). Contingent liabilities There were no material changes in contingent liabilities or contingent assets during the period. Share buyback 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$36.70 per share. Under a matching buy back agreement, Rio Tinto Limited also bought back 16,367,000 of its shares held by a subsidiary of Rio Tinto plc. Related party matters Transactions and balances with jointly controlled entities and associates are included in the lines of the financial statements set out below. Purchases relate largely to amounts charged by jointly controlled entities for toll processing of bauxite and alumina. Sales relate largely to charges for supply of coal to jointly controlled marketing entities for onsale to third party customers. Six months Six months Year to 31 to 30 June to 30 June December 2005 2004 2004 Income statement items US$m US$m US$m Purchases from jointly controlled entities and associates (606) (539) (1,078) Sales to jointly controlled entities and associates 477 296 692 Balance sheet items US$m US$m US$m Investments in jointly controlled entities and associates 2,069 1,755 2,016 Loans to jointly controlled entities 170 173 176 Trade and other receivables: amounts due from jointly controlled entities and associates 659 574 672 Trade and other payables: amounts due to jointly controlled entities and associates (581) (511) (601) Non-adjusting post balance sheet event On 1 July 2005, Rio Tinto reached agreement with Hancock Prospecting Pty Ltd to purchase a 50 per cent joint venture interest in the Hope Downs iron ore resource. Reconciliation of 2004 UK GAAP Earnings to 2004 IFRS Earnings Six months Year to 31 to 30 June December 2004 2004 Attributable to Rio Tinto shareholders US$m US$m Net earnings under UK GAAP 1,439 2,813 Increase/(decrease) net of tax in respect of : Reversal of goodwill amortisation 37 77 Post retirement benefits 20 25 Share based payments (16) (27) Deferred tax 4 (7) Profit on disposal of interests in businesses and investments 269 262 Exchange gains/(losses) on US$ debt and intra-group balances (89) 80 Mark to market of derivatives (14) 12 Other (39) (17) Net earnings under IFRS 1,611 3,218 Six months Year to 31 to 30 June December 2004 2004 Outside equity shareholders' interests US$m US$m Profit under UK GAAP 20 (58) Increase/(decrease) net of tax in respect of : Post retirement benefits 1 2 Deferred tax 1 - Exchange gains/(losses) on US$ debt (9) 12 Other (1) (9) Profit under IFRS 12 (53) Six months Year to 31 to 30 June December 2004 2004 Profit for the period US$m US$m Profit under UK GAAP 1,459 2,755 Increase/(decrease) net of tax in respect of : Reversal of goodwill amortisation 37 77 Post retirement benefits 21 27 Share based payments (16) (27) Deferred tax 5 (7) Profit on disposal of interests in businesses and investments 269 262 Exchange gains/(losses) on US$ debt (98) 92 Mark to market of derivatives (14) 12 Other (40) (26) Profit under IFRS 1,623 3,165 Explanations of the IFRS adjustments affecting both earnings and shareholders' equity are given on the following pages. Reconciliation of 2004 shareholders' equity under UK GAAP to 2004 shareholders' equity under IFRS 31 December 30 June 2004 1 January 2004 2004 Attributable to Rio Tinto shareholders US$m US$m US$m Under UK GAAP 12,584 10,685 10,037 Increase/(decrease) net of tax in respect of : Deferred tax (899) (806) (885) Post retirement benefits (764) (613) (659) Dividends 626 433 469 Exchange differences on capital expenditure hedges 162 132 93 Goodwill 74 36 - Mark to market of derivative contracts 99 73 139 Other (5) (26) 6 Under IFRS 11,877 9,914 9,200 31 December 30 June 2004 1 January 2004 2004 Outside equity shareholders' interests US$m US$m US$m Under UK GAAP 936 934 1,003 Increase/(decrease) net of tax in respect of : Deferred tax (114) (102) (108) Post retirement benefits (91) (58) (66) Other (17) (9) (6) Under IFRS 714 765 823 31 December 30 June 2004 1 January 2004 2004 Total equity US$m US$m US$m Under UK GAAP 13,520 11,619 11,040 Increase/(decrease) net of tax in respect of : Deferred tax (1,013) (908) (993) Post retirement benefits (855) (671) (725) Dividends 626 433 469 Exchange differences on capital expenditure hedges 162 132 93 Goodwill 74 36 - Mark to market of derivative contracts 102 73 139 Other (25) (35) - Under IFRS 12,591 10,679 10,023 Items affecting the UK GAAP to IFRS reconciliations The Group's transition date for IFRS was 1 January 2004. The principal differences between UK GAAP and IFRS were described in detail in the IFRS restatement released on 5 May 2005. A summary of these differences is given below. Reversal of goodwill amortisation The systematic amortisation of goodwill under UK GAAP, by an annual charge to the profit and loss account, ceased under IFRS. The carrying value of goodwill is subject to annual impairment reviews. Post-retirement benefits Under UK GAAP, the Group applied SSAP 24, Accounting for Pension Costs under which post retirement benefit surpluses and deficits were spread over the expected average remaining service lives of relevant current employees. Under IAS 19 the basis of calculating the surplus or deficit differs from SSAP 24. In addition, IAS 19 permits three alternative ways in which the surplus or deficit can be recognised. The Group has chosen to recognise actuarial gains and losses directly in shareholders' equity via the Statement of Recognised Income and Expense (SORIE). The annual service cost and net financial income on the assets and liabilities of the Group's post retirement benefit plans are recognised through Net Earnings. Share based payments Under UK GAAP, no cost was recognised in respect of the Group's share option schemes. IFRS requires the economic cost of share option plans to be recognised by reference to fair value on the grant date, and charged to the Income Statement over the expected vesting period. Reconciliation of 2004 shareholders' equity under UK GAAP to 2004 shareholders' equity under IFRS (continued) Deferred tax on fair value adjustments arising on acquisitions IFRS requires deferred tax to be recognised on all fair value adjustments, other than those recorded as goodwill. The profit under IFRS will benefit as the additional deferred tax provisions on upward revaluations of non-monetary items, on which no deferred tax was provided under UK GAAP, are released to the Income Statement in line with the amortisation of the related fair value adjustments. For acquisitions prior to 1 January 2004, the increase in deferred tax provisions was reflected as a reduction in opening shareholders' equity. For acquisitions after 1 January 2004, these additional deferred tax provisions will be offset by increases to the value of goodwill or other acquired assets. Deferred tax on unremitted earnings Under UK GAAP, tax was only provided on unremitted earnings to the extent that dividends were accrued or if there was a binding agreement for the distribution of earnings at the reporting date. Under IFRS, full provision must be made for tax arising on unremitted earnings from subsidiaries, joint ventures and associated companies, except to the extent that the Group can control the timing of remittances and remittance is not probable in the foreseeable future. Deferred tax related to closure costs Under IFRS, deferred tax is not provided on the depreciation of capitalised closure costs, except to the extent that the capitalised amount was first recognised in accounting for an acquisition. Profits on disposal of subsidiaries, joint ventures, associates and undeveloped properties In 2004, the majority of additional profit on disposals under IFRS arose because under UK GAAP goodwill that had been eliminated against reserves at the time of the acquisition was reinstated and charged against earnings at the time of disposal. Such reinstatement does not apply under IFRS. Exchange differences on net debt The Group finances its operations primarily in US dollars. A substantial part of the Group's US dollar debt is located in subsidiaries having functional currencies other than the US dollar. Under IFRS, exchange gains and losses relating to US dollar debt and certain intragroup financing balances are included in the Group US dollar Income Statement, whereas under UK GAAP they were taken to reserves. Mark to market of derivative contracts Some derivative contracts that qualified for hedge accounting under UK GAAP do not qualify for hedge accounting under IFRS, for example because the instrument is not located in the operation which carries the exposure. These contracts are marked to market under IFRS, thereby giving rise to charges or credits to the income statement in periods before the hedged transaction is recognised. Dividends Under IFRS, dividends that do not represent a present obligation at the reporting date are not included in the balance sheet. Hence, the Companies' proposed dividends are not recognised in the Group accounts until the period in which they are declared by the directors or approved by shareholders. Subsidiaries, joint ventures and associates The basis for determining the presentation of partially owned operations in the Group's financial statements differs in certain respects between IFRS and UK GAAP. The Group has decided to adopt equity accounting for all jointly controlled entities. Material adjustments to the cash flow statement The pre-tax cash flows from operations for the six months to 30 June 2004, and for the year ended 31 December 2004, including dividends from equity accounted joint ventures and associates, were similar to those under UK GAAP. Some operations equity accounted under UK GAAP are proportionately consolidated under IFRS, and vice-versa, with the effect that the increase in cash flow from subsidiary operations is largely offset by lower reported dividends from equity accounted joint ventures and associates. In accordance with IAS 7 'Cash flow statements', cash equivalents include certain bank deposits with a maturity of greater than 24 hours. These were previously shown as current asset investments, as they did not fall within the definition of cash according to FRS 1 'Cash flow statements', under which only deposits having a maturity of not more than 24 hours may be classified as cash. Accounting principles ACCOUNTING POLICIES ADOPTED UNDER IFRS The basis of preparation and accounting policies used in preparing the interim accounts for the six months ended 30 June 2005 are set out below. The basis of preparation describes how IFRS has been applied under IFRS 1, the assumptions made by the Group about the Standards and Interpretations expected to be effective, and the policies expected to be adopted, when the Group issues its first complete set of IFRS financial statements for the year ending 31 December 2005. The basis of preparation and accounting policies, including the exemptions applied under IFRS 1 are consistent with those disclosed in the Group's 2004 IFRS restatement published on 5 May 2005, as amended for the adoption of IAS 32 'Financial instruments: disclosure and presentation', IAS 39 'Financial instruments: recognition and measurement' and IFRS 5 'Non-current assets held for sale and discontinued operations' from 1 January 2005. However, the basis of preparation and accounting policies may require adjustment before the Group issues its first complete set of IFRS financial statements. Standards currently in issue and endorsed by the EU are subject to Interpretations issued from time to time by the International Financial Reporting Interpretations Committee ('IFRIC'), and further Standards may be issued by the International Accounting Standards Board ('IASB') that will be adopted by the Group in its first complete set of IFRS financial statements for the year ending 31 December 2005. Also, the directors have assumed that the Group's first complete set of IFRS financial statements will be able to reflect certain Standards and Interpretations currently in issue which have yet to be endorsed by the EU. Additionally, IFRS is currently being applied in a large number of countries for the first time. Due to a number of new and revised Standards included within IFRS, there is not yet a significant body of established practice on which to draw in forming opinions regarding interpretation and application. Accordingly, practice is continuing to evolve. At this preliminary stage, therefore, the full financial effect of reporting under IFRS as it will be applied in the Group's first complete set of IFRS financial statements for the year ending 31 December 2005 may be subject to change. Basis of preparation Except as described below, the interim accounts for the six months ended 30 June 2005 have been prepared on the basis of all IFRS Standards and Interpretations published by 31 December 2004, and are prepared in accordance with IAS 34, 'Interim financial reporting'. The 2004 comparative financial information has also been prepared on this basis, with the exception of certain standards, details of which are given below, for which comparative information has not been restated. A number of IFRS Standards and Interpretations are not yet mandatory but can be adopted early under their respective transition arrangements. The Group has early adopted IFRS 6 'Exploration for and Evaluation of Mineral Resources', the amendment to IAS 19 'Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures' and IFRIC 5 'Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds'. These Standards and Interpretations have not yet been endorsed by the EU. The Group has not applied the pronouncement IFRIC 4 'Determining whether an arrangement contains a lease' for which adoption is not mandatory until the year ending 31 December 2006 and which has not yet been endorsed by the EU. The Group is currently evaluating the impact of this pronouncement and may decide to adopt it in the year ending 31 December 2005, assuming it is endorsed by the EU, in which case the information included in these interim accounts will need to be restated. The Group's transition date to IFRS is 1 January 2004. The rules for first-time adoption of IFRS are set out in IFRS 1 'First-time adoption of International Financial Reporting Standards'. In preparing the IFRS financial information, these transition rules have been applied to the amounts reported previously under generally accepted accounting principles in the United Kingdom ('UK GAAP'). IFRS 1 generally requires full retrospective application of the Standards and Interpretations in force at the first reporting date. However, IFRS 1 allows certain exemptions in the application of particular Standards to prior periods in order to assist companies with the transition process. Rio Tinto has applied the following exemptions: - The Group has elected to adopt IAS 32, IAS 39 and IFRS 5 with effect from 1 January 2005, with no restatement of comparative information for 2004. Accounting policy notes b), e) and i) explain the treatment of non-current assets held for sale prior to and after adopting IFRS 5. Accounting policy note p) explains the basis of accounting for financial instruments pre and post 1 January 2005. - The Group has applied IFRS 2 'Share-based Payment' to all share-based payments which had not vested at 1 January 2004, the date chosen by the Group as the effective date for application of IFRS 2. - The Group has not restated business combinations that occurred before the date of transition to comply with IFRS 3 'Business Combinations'. This means that: - The 1995 merger of the economic interests of Rio Tinto plc and Rio Tinto Limited into the dual listed companies ('DLC') structure continues to be accounted for as a merger. - Additional deferred tax provisions recognised in respect of upward revaluations of non-monetary assets held by previously acquired entities have been recognised as a reduction of shareholders' equity on the date of transition. - The Group has deemed cumulative translation differences for foreign operations to be zero at the date of transition. Any gains and losses on subsequent disposals of foreign operations will not therefore include translation differences arising prior to the transition date. In respect of the comparative financial information disclosed, IFRS 1 requires that estimates made under IFRS must be consistent with estimates made for the same date under UK GAAP except where adjustments are required to reflect any differences in accounting policies. Accounting principles (continued) (a) Accounting convention The financial information included in the interim accounts for the six months ended 30 June 2005, and for the related comparative periods, has been prepared under the historical cost convention as modified by the revaluation of certain derivative contracts as set out in the notes below. (b) Basis of consolidation The financial statements consist of the consolidation of the accounts of Rio Tinto plc and Rio Tinto Limited (together 'the Group') and their respective subsidiaries. Subsidiaries: Subsidiaries are entities over which the Group has the power to govern the financial and operating policies in order to obtain benefits from their activities. Control is presumed to exist where the Group owns more than one half of the voting rights (which does not always equate to percentage ownership) unless in exceptional circumstances it can be demonstrated that ownership does not constitute control. Control does not exist where joint venture partners hold veto rights over significant operating and financial decisions. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the parent and its subsidiaries after eliminating intercompany balances and transactions. For partly owned subsidiaries, the net assets and net earnings attributable to minority shareholders are presented as 'Attributable to outside equity shareholders' interests' on the consolidated balance sheet and consolidated income statement. Associates: An associate is an entity, that is neither a subsidiary nor a joint venture, over whose operating and financial policies the Group exercises significant influence. Significant influence is presumed to exist where the Group has between 20 per cent and 50 per cent of the voting rights, but can also arise where the Group holds less than 20 per cent if it is actively involved and influential in policy decisions affecting the entity. The Group's share of the net assets, post tax results and reserves of associates are included in the financial statements using the equity accounting method. This involves recording the investment initially at cost to the Group and then, in subsequent periods, adjusting the carrying amount of the investment to reflect the Group's share of the associate's results less any impairment of goodwill and any other changes to the associate's net assets such as dividends. Joint ventures: A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control such that significant operating and financial decisions require the consent of more than one venturer. The Group has two types of joint ventures: Jointly controlled entities ('JCEs'): A JCE is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has a long term interest. JCEs are accounted for using the equity accounting method. Jointly controlled assets ('JCAs'): A JCA is a joint venture in which the venturers have joint control over the assets contributed to or acquired for the purposes of the joint venture. JCAs do not involve the establishment of a corporation, partnership or other entity. This includes situations where the participants derive benefit from the joint activity through a share of the production, rather than by receiving a share of the results of trading. The Group's proportionate interest in the assets, liabilities, revenues, expenses and cash flows of JCAs are incorporated into the Group's financial statements under the appropriate headings. Acquisitions: The results of businesses acquired during the year are brought into the consolidated financial statements from the date of acquisition. Disposals: From 1 January 2005, individual non-current assets or 'disposal groups' (i.e. groups of assets and the liabilities directly associated with the assets to be disposed of) to be disposed of, by sale or otherwise in a single transaction, are classified as 'held for sale' if the following criteria are met: - the carrying amount will be recovered principally through a sale transaction rather than through continuing use, and - the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for such sales, and - the sale is highly probable. Disposal groups held for sale are carried at the lower of their pre- existing carrying amount and fair value less costs to sell and are presented separately on the face of the balance sheet with the related assets and liabilities being presented as a single asset and a single liability respectively. The results of disposal groups classified as held for sale are included in the consolidated financial statements for the period up to the date of classification as held for sale. Where a disposal group (or group of disposal groups) classified as held for sale represents a separate major line of business or geographical area of operations, and is part of a single co-ordinated plan of disposal or is a subsidiary acquired exclusively with a view to resale, it is classified as a discontinued operation and the net results attributable to the disposal group (or group of disposal groups) are shown separately. For a disposal group held for sale which continues to be carried at its pre-existing carrying amount, the profit on disposal, calculated as net sales proceeds less the pre-existing carrying amount, is recognised in the income statement in the period during which completion of the sale takes place. Where the fair value less costs to sell of a disposal group is lower than the pre-existing carrying amount, the resulting charge is recognised in the income statement in the period during which the disposal group is classified as held for sale. Prior to 1 January 2005, the results of businesses sold during the year were included in the consolidated financial statements for the period up to the date of disposal. Gains or losses on disposal were calculated as the difference between the sale proceeds (net of expenses) and the net assets attributable to the interest which had been sold. Accounting principles (continued) (c) Turnover Turnover comprises sales to third parties at invoiced amounts, with most sales being priced ex works, free on board (f.o.b.) or cost, insurance and freight (c.i.f.). Amounts billed to customers in respect of shipping and handling are classed as turnover where the Group is responsible for carriage, insurance and freight. All shipping and handling costs incurred by the Group are recognised as operating costs. If the Group is acting solely as an agent, amounts billed to customers are offset against the relevant costs. Turnover excludes any applicable sales taxes. Mining royalties are presented as an operating cost. Gross turnover shown in the income statement includes the Group's share of the turnover of equity accounted JCEs and associates. By-product revenues are included in turnover. A large proportion of Group production is sold under medium to long term contracts, but turnover is only recognised on individual sales when persuasive evidence exists indicating that all of the following criteria are met: - the significant risks and rewards of ownership of the product have been transferred to the buyer; - neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold has been retained; - the amount of revenue can be measured reliably; - it is probable that the economic benefits associated with the sale will flow to the Group; - the costs incurred or to be incurred in respect of the sale can be measured reliably. These conditions are generally satisfied when title passes to the customer. In most instances turnover is recognised when the product is delivered to the destination specified by the customer, which is typically the vessel on which it will be shipped, the destination port or the customer's premises. The turnover from sales of many products is subject to adjustment based on an inspection of the product by the customer. In such cases, turnover is initially recognised on a provisional basis using the Group's best estimate of contained metal. Any subsequent adjustments to the initial estimate of metal content are recorded in turnover once they have been determined. Certain products are 'provisionally priced', i.e. the selling price is subject to final adjustment at the end of a period normally ranging from 30 to 180 days after delivery to the customer, based on the market price at the relevant quotation point stipulated in the contract. Turnover is initially recognised when the conditions set out above have been met, using market prices at that date. At each reporting date the provisionally priced metal is marked to market based on the forward selling price for the quotational period stipulated in the contract until the quotational period expires. For this purpose, the selling price can be measured reliably for those products, such as copper, for which there exists an active and freely traded commodity market such as the London Metals Exchange and the value of product sold by the Group is directly linked to the form in which it is traded on that market. From 1 January 2005, under IAS 39, the marking to market of provisionally priced contracts is recorded as an adjustment to operating costs. Prior to 1 January 2005, the marking to market was recorded as an adjustment to turnover. (d) Currency translation The functional currency for each entity in the Group is determined as the currency of the primary economic environment in which it operates. For most entities, this is the local currency of the country in which it operates. Transactions other than those in the functional currency of the entity are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at year end exchange rates. On consolidation, income statement items are translated into US dollars, which is the Group's presentation currency, at average rates of exchange. Balance sheet items are translated into US dollars at year end exchange rates. Exchange differences on the translation of the net assets of entities with functional currencies other than the US dollar, and any offsetting exchange differences on net debt hedging those net assets, are dealt with through reserves. Exchange gains and losses which arise on balances between Group entities are taken to reserves where that balance is, in substance, part of a parent's net investment in its subsidiary. The Group finances its operations primarily in US dollars and a substantial part of the Group's US dollar debt is located in subsidiaries having functional currencies other than the US dollar. Except as noted above, exchange gains and losses relating to such US dollar debt are charged or credited to the Group's income statement in the year in which they arise. This means that the impact of financing in US dollars on the Group's income statement is dependent on the functional currency of the particular subsidiary where the debt is located. Except as noted above, or in note (p) below relating to derivative contracts, all exchange differences are charged or credited to the income statement in the year in which they arise. Accounting principles (continued) (e) Goodwill and intangible assets Goodwill represents the difference between the cost of acquisition and the fair value of the identifiable net assets acquired. Goodwill on acquisition of subsidiaries and JCAs is separately disclosed and goodwill on acquisitions of associates and JCEs is included within investments in equity accounted entities. In 1997 and previous years, goodwill was eliminated against reserves in the year of acquisition as a matter of accounting policy, as was then permitted under UK GAAP. Such goodwill was not reinstated under subsequent UK accounting standards or on transition to IFRS. Goodwill on the Group's opening IFRS balance sheet in respect of acquisitions prior to 1 January 2004 is therefore stated at its carrying amount on that date under UK GAAP. Goodwill is not amortised; rather it is tested annually for impairment and, under IFRS 1, was reviewed for impairment at the transition date. Goodwill is allocated to the cash generating unit or group of cash generating units expected to benefit from the related business combination for the purposes of impairment testing. Finite life intangible assets are amortised over their useful economic lives on a straight line or units of production basis as appropriate. From 1 January 2005, finite life intangible assets held for sale, or included within a disposal group held for sale, are not amortised. In accordance with the accounting requirements for disposal groups, intangible assets held for sale are carried at the lower of their pre-existing carrying amount and fair value less costs to sell, and are presented separately on the face of the balance sheet. (f) Exploration and evaluation The Group has continued its UK GAAP policy for the recognition and measurement of exploration and evaluation expenditure, in accordance with IFRS 6 'Exploration for and Evaluation of Mineral Resources'. Exploration and evaluation expenditure comprises costs which are directly attributable to: - researching and analysing existing exploration data; - conducting geological studies, exploratory drilling and sampling; - examining and testing extraction and treatment methods; and - compiling pre-feasibility and feasibility studies. Exploration and evaluation expenditure also includes the costs incurred in acquiring mineral rights, the entry premiums paid to gain access to areas of interest and amounts payable to third parties to acquire interests in existing projects. Capitalisation of exploration expenditure commences on acquisition of a beneficial interest or option in mineral rights. Capitalised exploration expenditure is reviewed for impairment at each balance sheet date. Full provision is made for impairment unless there is a high degree of confidence in the project's viability. If a project does not prove viable, all irrecoverable costs associated with the project and the related impairment provisions are written off. When it is decided to proceed with development, any impairment provisions raised in previous years are reversed to the extent that the relevant costs are expected to be recovered. If the project proceeds to development, the amounts included within intangible assets are transferred to property, plant and equipment. (g) Property, plant and equipment The cost of property, plant and equipment comprises its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Once a mining project has been established as commercially viable, expenditure other than that on land, buildings, plant and equipment is capitalised under 'Mining properties and leases' together with any amount transferred from 'Exploration and evaluation'. This includes costs incurred in preparing the site for mining operations, including stripping costs (see below). Costs associated with commissioning new assets, in the period before they are capable of operating in the manner intended by management, are capitalised. Development costs incurred after the commencement of production are capitalised to the extent they give rise to a future economic benefit. Interest on borrowings related to construction or development projects is capitalised until the point when substantially all the activities that are necessary to make the asset ready for its intended use are complete. (h) Deferred stripping As noted above, stripping (ie overburden and other waste removal) costs incurred in the development of a mine before production commences are capitalised as part of the cost of constructing the mine and subsequently amortised over the life of the operation. These may relate to a discrete section of the ore body, for example. The Group defers stripping costs incurred subsequently, during the production stage of its operations, for those operations where this is the most appropriate basis for matching the costs against the related economic benefits. This is generally the case where there are fluctuations in stripping costs over the life of the mine, and the effect is material. Deferred stripping costs are presented within 'Mining properties and leases'. The amount of stripping costs deferred is based on the ratio ('Ratio') obtained by dividing the tonnage of waste mined either by the quantity of ore mined or by the quantity of minerals contained in the ore. Stripping costs incurred in the period are deferred to the extent that the current period Ratio exceeds the life of mine Ratio. Such deferred costs are then charged against reported profits to the extent that, in subsequent periods, the Ratio falls short of the life of mine Ratio. The life of mine Ratio is based on proven and probable reserves of the operation. In some operations, there are distinct periods of new development during the production stage of the mine. The new development will be characterised by a major departure from the life of mine stripping Ratio. Excess stripping costs during such periods are deferred and charged against reported profits in subsequent periods on a units of production basis. If the Group were to expense production stage stripping costs as incurred, there would be greater volatility in the year to year results from operations and excess stripping costs would be expensed at an earlier stage of a mine's operation. Deferred stripping costs form part of the total investment in the relevant cash generating unit, which is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. Amortisation of deferred stripping costs is included in depreciation of 'Property, plant and equipment' or in the Group's share of the results of its equity accounted operations, as appropriate. Changes to the life of mine stripping Ratio are accounted for prospectively. Accounting principles (continued) (i) Depreciation and impairment Property, plant and equipment is depreciated over its useful life, or over the remaining life of the mine if shorter. The major categories of property, plant and equipment are depreciated on a units of production and/or straight-line basis as follows: Units of production basis For mining properties and leases and certain mining equipment, the economic benefits from the asset are consumed in a pattern which is linked to the production level. Except as noted below, such assets are depreciated on a units of production basis. Straight line basis Assets within operations for which production is not expected to fluctuate significantly from one year to another or which have a physical life shorter than the related mine are depreciated on a straight line basis as follows: Buildings 10 to 40 years Plant and equipment 3 to 35 years Land Not depreciated Residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Changes to the estimated residual values or useful lives are accounted for prospectively. In applying the units of production method, depreciation is normally calculated using the quantity of material extracted from the mine in the period as a percentage of the total quantity of material to be extracted in current and future periods based on proven and probable reserves (and, for some mines, mineral resources). Development costs that relate to a discrete section of an ore body and which only provide benefit over the life of those reserves, are depreciated over the estimated life of that discrete section. Development costs incurred which benefit the entire ore body are depreciated over the estimated life of the ore body. From 1 January 2005, property, plant and equipment held for sale, or which is part of a disposal group held for sale, is not depreciated. Property, plant and equipment held for sale is carried at the lower of its pre-existing carrying amount and fair value less costs to sell, and is presented separately on the face of the balance sheet. Property, plant and equipment and finite life intangible assets are reviewed for impairment if there is any indication that the carrying amount may not be recoverable. This applies to the Group's share of the assets held by associates and joint ventures as well as the assets held by the Group itself. In addition, from 1 January 2005, an impairment loss is recognised for any excess of carrying amount over the fair value less costs to sell of a non-current asset or disposal group held for sale. When a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of 'value in use' (being the net present value of expected future cash flows of the relevant cash generating unit) or 'fair value less costs to sell'. Where there is no binding sale agreement or active market, fair value less costs to sell is based on the best information available to reflect the amount the Group could receive for the cash generating unit in an arm's length transaction. Future cash flows are based on: - estimates of the quantities of the reserves and mineral resources for which there is a high degree of confidence of economic extraction; - future production levels; - future commodity prices (assuming the current market prices will revert to the Group's assessment of the long term average price, generally over a period of three to five years); and - future cash costs of production, capital expenditure, close down, restoration and environmental clean up. IAS 36 'Impairment of assets' includes a number of restrictions on the future cash flows that can be recognised in respect of future restructurings and improvement related capital expenditure. When calculating 'value in use', it also requires that calculations should be based on exchange rates current at the time of the assessment. For operations with a functional currency other than the US dollar, the impairment review is undertaken in the relevant functional currency. These estimates are based on detailed mine plans and operating budgets, modified as appropriate to meet the requirements of IAS 36. The discount rate applied is based upon the Group's weighted average cost of capital with appropriate adjustment for the risks associated with the relevant cash flows, to the extent that such risks are not reflected in the forecast cash flows. (j) Determination of ore reserves The Group estimates its ore reserves and mineral resources based on information compiled by Competent Persons as defined in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves of December 2004 (the JORC code). Reserves, and for certain mines resources, determined in this way are used in the calculation of depreciation, amortisation and impairment charges, the assessment of life of mine stripping ratios and for forecasting the timing of the payment of close down and restoration costs. In assessing the life of a mine for accounting purposes, mineral resources are only taken into account where there is a high degree of confidence of economic extraction. Accounting principles (continued) (k) Provisions for close down and restoration and for environmental clean up costs Close down and restoration costs include the dismantling and demolition of infrastructure and the removal of residual materials and remediation of disturbed areas. Close down and restoration costs are provided for in the accounting period when the obligation arising from the related disturbance occurs, whether this occurs during the mine development or during the production phase, based on the net present value of estimated future costs. Provisions for close down and restoration costs do not include any additional obligations which are expected to arise from future disturbance. The costs are estimated on the basis of a closure plan. The cost estimates are calculated annually during the life of the operation to reflect known developments and are subject to formal review at regular intervals. The amortisation or 'unwinding' of the discount applied in establishing the net present value of provisions is charged to the income statement in each accounting period. The amortisation of the discount is shown as a financing cost, rather than as an operating cost. Other movements in the provisions for close down and restoration costs, including those resulting from new disturbance, updated cost estimates, changes to the lives of operations and revisions to discount rates are capitalised within property, plant and equipment. These costs are then depreciated over the lives of the assets to which they relate. Where rehabilitation is conducted systematically over the life of the operation, rather than at the time of closure, provision is made for the outstanding continuous rehabilitation work at each balance sheet date. All other costs of continuous rehabilitation are charged to the income statement as incurred. Provision is made for the estimated present value of the costs of environmental clean up obligations outstanding at the balance sheet date. These costs are charged to the income statement. Movements in the environmental clean up provisions are presented as an operating cost, except for the unwind of the discount which is shown as a financing cost. (l) Inventories Inventories are valued at the lower of cost and net realisable value on a first in, first out ('FIFO') basis. Cost for raw materials and stores is purchase price and for partly processed and saleable products is generally the cost of production, including the appropriate proportion of depreciation and overheads. For this purpose the costs of production include: - labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore; - the depreciation of mining properties and leases and of property, plant and equipment used in the extraction and processing of ore; and - production overheads. Stockpiles represent ore that has been extracted and is available for further processing. If there is significant uncertainty as to when the stockpiled ore will be processed it is expensed as incurred. Where the future processing of this ore can be predicted with confidence because it exceeds the mine's cut off grade, it is valued at the lower of cost and net realisable value. If the ore will not be processed within the 12 months after the balance sheet date it is included within non-current assets. Work in progress inventory includes ore stockpiles and other partly processed material. Quantities are assessed primarily through surveys and assays. (m) Deferred tax Full provision is made for deferred taxation on all temporary differences existing at the balance sheet date with certain limited exceptions. Temporary differences are the difference between the carrying value of an asset or liability and its tax base. The main exceptions to this principle are as follows: - tax payable on the future remittance of the past earnings of subsidiaries, associates and joint ventures is provided for except where Rio Tinto is able to control the remittance of profits and it is probable that there will be no remittance in the foreseeable future; - deferred tax is not provided on the initial recognition of an asset or liability in a transaction that does not affect accounting profit or taxable profit and is not a business combination. Furthermore, deferred tax is not recognised on subsequent changes in the carrying value of such assets and liabilities, for example where they are depreciated; and - deferred tax assets are recognised only to the extent that it is more likely than not that they will be recovered. (n) Employee benefits For defined benefit post-employment plans, the difference between the fair value of the plan assets (if any) and the present value of the plan liabilities is recognised as an asset or liability on the balance sheet. Actuarial gains and losses arising in the year are taken to the Statement of Recognised Income and Expense. For this purpose, actuarial gains and losses comprise both the effects of changes in actuarial assumptions and experience adjustments arising because of differences between the previous actuarial assumptions and what has actually occurred. Other movements in the net surplus or deficit are recognised in the income statement, including the current service cost, any past service cost and the effect of any curtailment or settlements. The interest cost less the expected return on assets is also charged to the income statement. The amount charged to the income statement in respect of these plans is included within operating costs or in the Group's share of the results of equity accounted operations as appropriate. The values attributed to plan liabilities are assessed in accordance with the advice of independent qualified actuaries. The Group's contributions to defined contribution pension plans are charged to the income statement in the period to which the contributions relate. (o) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held on call with banks, short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value, and bank overdrafts which are repayable on demand. Accounting principles (continued) (p) Financial instruments The Group's policy with regard to 'Treasury management and financial instruments' is set out in the Financial Review on page 35 of the Group's 2004 Annual Report and financial statements . When the Group enters into derivative contracts these transactions are designed to reduce exposures related to assets and liabilities, firm commitments or anticipated transactions. The Group has adopted IAS 39 from 1 January 2005. A further description of the accounting for each class of financial instrument is given below. Adjustments have been made to the opening balance sheet at 1 January 2005 for the adoption of IAS 39; these are shown separately in the Group statement of changes in equity. Fair value: This is the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties. Where available, market values have been used to determine fair values. In other cases, fair values have been calculated using quotations from independent financial institutions, or by discounting expected cash flows at prevailing market rates. The fair values of the Group's cash, short term borrowings and loans to joint ventures and associates approximate to their carrying values, as a result of their short maturity or because they carry floating rates of interest. Borrowings: From 1 January 2005, borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, or are adjusted to reflect movements in the fair value of amounts designated as hedged items. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Prior to 1 January 2005, borrowings were stated at amortised cost. Borrowings backed by medium term facilities are classified as non-current borrowings. Investments: The Group has certain investments in companies that are not subsidiaries, associates or joint ventures. From 1 January 2005, these investments are classed as 'available for sale'. Such investments are held at fair value with unrealised gains and losses recognised in equity until the investment is disposed of. Impairment charges and exchange gains and losses on such investments are recognised directly in the income statement. Prior to 1 January 2005, these investments were accounted for at cost less provisions for diminution in value. Derivative financial instruments and hedge accounting From 1 January 2005, all derivatives are initially recognised at their fair value on the date the derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges) or hedges of highly probable forecast transactions (cash flow hedges). - Fair value hedges: Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability or firm commitment that is attributable to the hedged risk. Where derivatives are held with different counterparties to the underlying asset or liability or firm commitment, the fair value of the derivative is shown separately in the balance sheet as there is no legal right of offset. - Cash flow hedges: The effective portions of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit or loss (for instance, when the forecast sale that is being hedged takes place). - Derivatives that do not qualify for hedge accounting: Certain derivative contracts entered into by the Group in respect of its recognised assets or liabilities, firm commitments or anticipated transactions, in order to hedge its exposure to fluctuations in exchange rates against the US dollar are not located in the entity with the exposure. Such contracts, and any other derivative contracts that do not qualify for hedge accounting are marked to market at the balance sheet date. In respect of currency swaps, the gain or loss on the swap and the offsetting gain or loss on the financial asset or liability against which the swap forms an economic hedge are shown in separate lines in the income statement. In respect of other derivatives, the mark to market will give rise to charges or credits to the income statement in periods before the transaction against which the derivative is held as an economic hedge is recognised. - Embedded derivatives: Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to their host contracts. Prior to 1 January 2005, derivative financial instruments were accounted for as follows: - Amounts receivable and payable in respect of interest rate swaps were recognised as adjustments to net interest over the life of the contract. - Derivative contracts which had been entered into by the Group in respect of its firm commitments or anticipated transactions, in order to hedge its exposure to fluctuations in exchange rates against the US dollar, and which were located in the entity with the exposure, were accounted for as hedges: gains and losses were deferred and subsequently recognised when the hedged transaction occurred. Where such contracts were not located in the entity with the exposure they were fair valued at the balance sheet date. This gave rise to charges or credits to the income statement in periods before the transaction against which the derivative was held as an economic hedge was recognised. - Where contracts and financial instruments contained embedded derivatives under IAS 39, the derivative element was not treated as a separate derivative. - Gains or losses on foreign currency forward contracts and currency swaps relating to financial assets and liabilities were matched against the losses or gains on the hedged items in the income statement. Where currency swaps were held with different counterparties to the underlying borrowing the fair value of the swaps was shown separately in the balance sheet as there was no legal right of offset. Accounting principles (continued) (q) Share based payments Most of the Group's share based payment plans are settled by the issue of shares by the relevant parent company. The fair value of the share plans is recognised as an expense over the expected vesting period. The fair value of the share plans is determined at the date of grant, taking into account any market based vesting conditions attached to the award (e.g. Total Shareholder Return). When market prices are not available, the Group uses fair values provided by independent actuaries based on an actuarial binomial model. Non-market based vesting conditions (e.g. earnings per share targets) are taken into account in estimating the number of awards likely to vest. The estimate of the number of awards likely to vest is reviewed at each balance sheet date up to the vesting date, at which point the estimate is adjusted to reflect the actual awards issued. No adjustment is made after the vesting date even if the awards are forfeited or not exercised. (r) Taxation for interim periods The income tax expense for the interim period is accrued using the tax rate that would be applicable to expected total annual profit. Prior year financial information Financial information for the year to 31 December 2004 and for the half year to 30 June 2004 presented as comparative figures in this report, has been restated in accordance with International Financial Reporting Standards and on the basis set out in the Accounting principles section of this report. This 'IFRS restated' information was first published in a News release issued on 5 May 2005. The IFRS restated information for the year to 31 December 2004 was derived by restatement of information extracted from the full financial statements prepared under United Kingdom generally accepted accounting principles ('UK GAAP') on the historical cost basis. These full financial statements under UK GAAP were filed with the Registrar of Companies and the Australian Securities and Investments Commission. The Auditors' report on the full financial statements under UK GAAP for the year ended 31 December 2004 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). In addition to the restatement to IFRS of UK GAAP financial information reported in the Group's full financial statements for the year ended 31 December 2004 and half year report for the period ended 30 June 2004, the comparatives presented in this report have been modified as follows: - Turnover has been restated to gross up certain amounts charged to customers for freight and handling, which previously were deducted from operating costs. This has no effect on shareholders' equity, profit for the period, Net earnings or Underlying earnings. - The presentation of performance by business unit has been amended to reflect changes in management responsibilities. Rio Tinto Brasil is reported as part of the Iron Ore product group and Kennecott Land is reported in 'other operations'. Both were previously reported as part of the Copper product group. Reflecting the new management structure implemented in 2004, the results of Coal & Allied are combined with those of Rio Tinto Coal Australia. In line with its obligations as a listed company, Coal & Allied Industries Limited will continue to report its results separately. - Certain items previously reported as 'central items' within the financial information by Business Units have now been allocated to the Business Units to which they relate. 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 26 July 2005) 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 state of affairs of the Rio Tinto Group at 30 June 2005 and of the profit and cash flows of the Group 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 2005 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 2005 which comprises the Group interim balance sheet as at 30 June 2005, the Group interim statements of income, cash flows and changes in shareholders' equity 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 26 July 2005. As disclosed in notes to the financial information, the next annual financial statements of the Rio Tinto Group will be prepared in accordance with accounting standards adopted for use in the European Union. This interim report has been prepared in accordance with International Accounting Standard 34, 'Interim financial reporting'. The accounting policies are consistent with those that the directors intend to use in the next annual financial statements. This financial information has been prepared in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements (3 August 2005). The IFRS standards and IFRIC interpretations that will be applicable and adopted for use in the European Union at 31 December 2005 are not known with certainty at the time of preparing this financial information. 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 26 July 2005 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 2005. PricewaterhouseCoopers LLP PricewaterhouseCoopers Chartered Accountants Chartered Accountants London Perth 3 August 2005 3 August 2005 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) Rio Tinto sold its 51 per cent interest in Morro do Ouro on 31 December 2004. (e) Includes Rio Tinto's interests in Anglesey Aluminium (51 per cent) and Comalco (100 per cent). (f) On 30 March 2004 Rio Tinto sold its 13.1 per cent shareholding in Freeport-McMoRan Copper & Gold Inc. The sale of the shares does not affect the terms of the Grasberg joint venture referred to below. (g) 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. (h) During July 2004, Rio Tinto sold its interests in Somincor and Zinkgruvan. (i) 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 Product analysis in which the contributions of individual business units are attributed to several products as appropriate. (j) Certain items, which were reported in the 2004 financial statements as central items have been allocated to the Business Units to which they relate. (k) Capital expenditure comprises the net cash outflow on purchases less disposals of property, plant and equipment. The details provided include 100 per cent of subsidiaries' capital expenditure and Rio Tinto's share of the capital expenditure of 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 (l) 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. (m) 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 2004 June June June June June June 2005 2004 2005 2004 2005 2004 A$m A$m Â£m Â£m US$m US$m US$m 12,258 9,206 5,048 3,734 Gross turnover (including share of 9,439 6,805 14,530 equity accounted units) 3,979 2,504 1,639 1,016 Profit before taxation 3,064 1,851 3,778 2,710 1,342 1,116 546 Underlying earnings * 2,087 993 2,272 2,812 2,179 1,158 884 Net earnings attributable to Rio Tinto 2,165 1,611 3,218 shareholders 204.7c 158.0c 84.3p 64.1p Earnings per ordinary share 157.6c 116.8c 233.3c 197.4c 97.4c 81.3p 39.5p Underlying earnings per ordinary share * 152.0c 72.0c 164.8c Dividends per share to Rio Tinto shareholders 58.29c 44.68c 23.94p 18.68p - paid 45.0c 34.0c 66.0c 50.56c 45.53c 21.75p 17.54p - proposed 38.5c 32.0c 45.0c 2,292 2,176 944 885 Cash flow before financing activities 1,765 1,610 2,799 (4,541) (6,599) (1,907) (2,522) Net debt (3,451) (4,553) (3,809) 16,503 14,368 6,929 5,490 Equity attributable to Rio Tinto 12,542 9,914 11,877 shareholders * Underlying earnings for the six months to 30 June 2005 are stated after excluding items totalling US$78 million (Full year 2004: US$946 million, half year 2004: US$618 million), which are analysed on page 24. The financial data above have been extracted from the primary financial statements set out on pages 20 to 23. The Australian dollar and Sterling amounts are based on the US dollar amounts, retranslated at average or closing rates as appropriate. For further information on these exchange rates, please see below. Metal prices and exchange rates Six months Six months Year to 31 to 30 June to 30 June Change December 2005 2004 1H05 v 1H04 2004 Metal prices - average for the period Copper - US cents/lb 151c 125c 21% 130c Aluminium - US cents/lb 84c 75c 12% 78c Gold - US$/troy oz US$427 US$401 6% US$409 Average exchange rates in US$ Sterling 1.87 1.82 3% 1.83 Australian dollar 0.77 0.74 4% 0.73 Canadian dollar 0.81 0.75 8% 0.77 South African rand 0.160 0.150 7% 0.155 Period end exchange rates in US$ Sterling 1.81 1.81 (0%) 1.93 Australian dollar 0.76 0.69 10% 0.78 Canadian dollar 0.81 0.74 9% 0.83 South African rand 0.150 0.160 (6%) 0.177 The Australian dollar exchange rates, given above, are based on the Hedge Settlement Rate set by the Australian Financial Markets Association. Circulation to shareholders This report will be circulated to shareholders and is available on the Rio Tinto website. This information is provided by RNS The company news service from the London Stock Exchange

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