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Rio Tinto: Record Results Underline Strong Earnings and Performance Momentum

Posted on: Tuesday, 26 August 2008, 09:01 CDT

Rio Tinto (NYSE:RTP):

-- Record underlying EBITDA* of $11,408 million, 73 per cent above first half 2007.

-- Record underlying earnings* of $5,474 million, 55 per cent above first half 2007.

-- Record net earnings* of $6,914 million, 113 per cent above first half 2007.

-- Cash flow from operations up 54 per cent to a record of $8,860 million - a run rate of approximately $1.5 billion of cash flow per month.

-- Half year production records achieved in iron ore, bauxite, alumina, aluminium, borates, titanium dioxide and thermal coal (on a like for like basis).

-- Record capital expenditure of $3.7 billion, 91 per cent higher than first half 2007, on investments in value adding growth projects.

-- New capital commitments of over $6 billion (100 per cent basis) announced during the year, including substantial expansions of iron ore operations in Australia, Brazil and Canada.

-- Rio Tinto Alcan integration is making good progress, and remains on track to deliver $1.1 billion of after tax synergies from the end of 2009.

-- Interim dividend increased 31 per cent to 68 US cents, with a continued commitment to increase the total 2008 and 2009 dividends by at least 20 per cent in each year.

-- The divestment programme made good progress with $3 billion of sales announced to date. The Group remains on track to announce $10 billion of divestments in 2008.

Six months to 30 June (All dollars are US$ millions unless otherwise stated) 2008 2007 Change ---------------------------------------------------------------------- Underlying EBITDA* 11,408 6,613 +73% ---------------------------------------------------------------------- Underlying earnings* 5,474 3,529 +55% ---------------------------------------------------------------------- Net earnings* 6,914 3,253 +113% ---------------------------------------------------------------------- Cash flow from operations (incl. dividends from equity accounted units) 8,860 5,739 +54% ---------------------------------------------------------------------- Underlying earnings per share - US cents 426.5 272.6 +56% ---------------------------------------------------------------------- Earnings per share - US cents 538.7 251.3 +114% ---------------------------------------------------------------------- Ordinary interim dividends per share - US cents 68.0 52.0 +31% ----------------------------------------------------------------------

* Net earnings and underlying earnings relate to profit attributable to equity shareholders of Rio Tinto. Underlying earnings is defined and reconciled to net earnings on page 29. EBITDA is defined on page 39. Underlying EBITDA excludes the same items that are excluded from underlying earnings.

Chairman's comments

Rio Tinto's chairman Paul Skinner said, "These are outstanding results. The 55 per cent increase in the Group's half year underlying earnings to $5.5 billion clearly demonstrates the quality of Rio Tinto's portfolio and the strength of our existing markets, operations and management. The Group continues to perform strongly, and the outlook remains positive.

"The benefits of the Alcan acquisition in 2007 continue to show through in line with the investment thesis supporting this strategic move to create the global aluminium leader. Rio Tinto Alcan's large source of secure, hydro-based power supply is a major competitive advantage given emerging energy shortages around the world, including China.

"We continue to develop our strong pipeline of growth projects, which remains a significant competitive strength. During the year we have announced further expansions of our iron ore operations in the Pilbara region of Western Australia, expansions of our Brazilian and Canadian iron ore operations, and funding for the pre-feasibility studies for our Resolution copper project in Arizona in the US. Unlike many companies in the resources sector, we have the capacity to grow strongly from our existing base and create added value for shareholders over the decade ahead.

"Although we have seen some moderation in global growth rates from tightened availability of credit, the impact on our markets has been modest. The driver of demand for our products is urbanisation and industrialisation in heavily populated countries like China and India, and these economies continue to grow strongly. Prices for our products remain high by historic standards. While the equity markets are currently focused on downside risks, we believe there are potential offsets on the upside based on continued strength in commodity demand, low inventory levels and a supply side which continues to face multiple constraints.

"We increased our 2008 interim dividend by 31 per cent in line with our policy of paying an interim dividend that is half of the total dividend (expressed in US dollars) for the previous year. We are committed to increase the full year dividend by at least 20 per cent in 2008, and again in 2009.

"BHP Billiton's pre-conditional offer to acquire all the shares in Rio Tinto has now been referred to a second phase review by the EU competition authorities. Our Boards rejected this offer on the basis that it undervalued the company and its prospects and we now await the outcome of the EU and other important regulatory reviews. In the meantime the Group's performance in the first half, together with our growth potential, supports the Boards' view that Rio Tinto presents a very strong standalone value proposition for shareholders."

Chief executive's comments

Tom Albanese, Rio Tinto's chief executive said, "Rio Tinto's earnings performance in the first half of 2008 easily eclipsed the same period in 2007, which was itself a record. There is no question that we are living in an era of unprecedented demand for minerals and metals, and we believe rapid demand growth and supply side challenges will be maintained.

"In this environment, the importance of having long life reserves and resources is critical, and Rio Tinto is particularly advantaged in this regard. When demand and prices are strong, growth options become increasingly valuable, and we have these in abundance.

"The Group set a half year production record in iron ore of 79 million tonnes on an attributable basis, as we deliver on our capital investment plans. Half year records were also established for bauxite, alumina, aluminium, borates, titanium dioxide and thermal coal (on a like for like basis).

"I am determined to continue driving operational excellence across the Group. Safety is at the top of my priorities and there was an improvement in the rate of lost time injuries again in the first half.

"We continue to make good progress with the integration of the Alcan assets that we acquired in 2007. We are on track to deliver annual synergies of $1.1 billion after tax from the end of 2009, considerably higher than our initial estimate of $600 million. As we have now become more familiar with the company, I am delighted by the quality of Alcan's assets and its people.

"We have created an aluminium industry leader with an outstanding bauxite resource, a competitive refining position, sustainable hydro power, and industry leading smelting technology. We are currently studying a doubling of our bauxite production at Weipa in Australia, we are expanding our refinery capacity and examining a number of exciting smelter expansion opportunities in Canada and around the world. The Sohar smelter project in Oman was recently completed on time and on budget.

"In June the Group announced a weighted average price increase of 86 per cent for our Australian iron ore, a great result reflecting very strong demand and a valuation premium for our Pilbara product. Rio Tinto has a well defined growth path to increase annual production capacity in Australia from 220 million tonnes* in late 2008 to 320 million tonnes* in 2013, with a conceptual pathway to 420 million tonnes*, taking advantage of our excellent resource position and expandable port and rail infrastructure.

"Globally, the Group has plans to increase iron ore production to over 600 million tonnes* per annum, including growth in Canada, Brazil and Guinea. While there has been a challenge to Rio Tinto's tenure of the Simandou project in Guinea, we believe our legal title is clear and we and our partner the International Finance Corporation (a division of the World Bank) are working with the Guinean authorities to clarify the situation. We believe there is no better company than Rio Tinto to deliver this project for the benefit of all parties.

"In copper, we have announced additional resources of 628 million tonnes at Kennecott Utah Copper and substantial resources of over 1 billion tonnes at Resolution in the USA and 2.8 billion tonnes at La Granja in Peru (refer to press releases dated 16 May 2008 and 29 May 2008). In Mongolia, we are making progress with negotiations with the new government to develop the significant Oyu Tolgoi copper / gold deposit. These substantial assets will form part of the next generation of copper mines, which will be required to meet rapid copper demand growth.

"We continue to address cost escalation in the industry through overhead reduction and innovative technological solutions. During the first half, we unveiled plans for the "mine of the future", with remote operations centres and driverless trucks and trains. As part of that plan we announced a $371 million (Rio Tinto share $350 million) investment to automate our 1300 km iron ore railway in the Pilbara, which we believe will lead to driverless trains within five years.

"Our targeted divestment programme continued during the first half, and we are on track to announce $10 billion of divestments this year. We have achieved strong prices for the assets that we have sold so far. Proceeds from these divestments, together with our strong organic cash flows from operations which are now running at the rate of $1.5 billion per month, are steadily strengthening our balance sheet.

"Rio Tinto is in great shape, and is getting stronger. My personal commitment is to drive the business to deliver all the shareholder value of which it is capable, based on its outstanding assets, growth options and people."

*100 per cent basis. Rio Tinto's attributable share of 320 Mtpa and 420 Mtpa of iron ore production at its Pilbara operations is approximately 80 to 85%. Rio Tinto's attributable share of its global iron ore production beyond 600 Mtpa is approximately 85%.

Net earnings and underlying earnings

In order to provide additional insight into the 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 2008 2007 US$m US$m Underlying earnings 5,474 3,529 Items excluded from underlying earnings Profits on disposal of interests in businesses 1,482 - Impairment (charges) less reversals (3) (314) Exchange differences and derivatives 81 25 Other, including non-recurring consequences of Alcan acquisition (120) 13 ----- ----- Net earnings 6,914 3,253 ===== =====

Commentary on the Group financial results

2008 first half underlying earnings of $5,474 million and 2008 first half net earnings of $6,914 million were $1,945 million above and $3,661 million above the comparable measures for 2007. The principal factors explaining the movements are set out in the table below.

Underlying Net earnings earnings US$m US$m First half 2007 3,529 3,253 Prices 2,790 Exchange rates (253) Volumes 616 General inflation (118) Energy (132) Other cash costs (378) Exploration and evaluation costs (219) Interest/tax/other (361) 1,945 1,945 Profits on disposal of interests in businesses 1,482 Impairment (charges) less reversals 311 Exchange differences and derivatives 56 Other, including non-recurring consequences of Alcan acquisition (133) ---------- -------- First half 2008 5,474 6,914 ========== ========

Prices

The effect of price movements on all major commodities was to increase earnings by $2,790 million. Prices for many of the Group's major products reached record levels in the first half: average copper prices were 20 per cent higher, and Rio Tinto negotiated record benchmark pricing levels for its iron ore production, with effect from 1 April 2008. Agreement was reached with major iron ore customers for a 96.5 per cent increase for lump ore and 79.88 per cent increase for fines for the 2008 contract year, representing an 85.7 per cent weighted average increase. The seaborne thermal and coking coal markets were also buoyant, reflecting strong demand and tight supply. Molybdenum prices averaged $34 per pound during the first half of 2008, an increase of 21 per cent compared with 2007 first half.

Exchange rates

There was significant movement in the US dollar in the first six months of 2008 relative to the currencies in which Rio Tinto incurs the majority of its costs. Compared with the first half of 2007, the Australian dollar was 14 per cent stronger, the Canadian dollar was 13 per cent stronger and the Euro was 15 per cent stronger. The effect of all currency movements was to decrease underlying earnings relative to the first half of 2007 by $253 million.

Volumes

Higher sales volumes, particularly from iron ore growth projects and the inclusion of a full six months of Alcan, benefited earnings by $616 million relative to 2007 first half. These gains were partly offset by lower copper, gold and molybdenum volumes across the copper product group, caused primarily by lower grades at Kennecott Utah Copper.

Costs

The Group continued to invest further in the future development of the business with an increased charge to underlying earnings of $219 million from exploration and evaluation costs. Increased energy costs reduced underlying earnings by $132 million. Higher freight, contractor, maintenance and input costs were experienced throughout the Group, notably in the energy & minerals and copper & diamonds product groups, as industry supply constraints persisted.

Interest/tax/other

The effective tax rate on underlying earnings, excluding equity accounted units, was 30 per cent compared with 32 per cent in the first half of 2007.

The group interest charge was $487 million higher than in 2007 first half, mainly reflecting increased net debt following the acquisition of Alcan.

Items excluded from underlying earnings

The previously announced divestment programme has resulted in the sale of the Cortez Gold mine (Rio Tinto share 40 per cent) on 5 March 2008 and the Greens Creek silver / zinc / lead mine (Rio Tinto share 70.3 per cent) on 16 April 2008. In addition the Tarong Coal mine was divested on 31 January 2008. The profits on disposal from these divestments have been excluded from underlying earnings.

Cash flow

Cash flow from operations, including dividends from equity accounted units, was a record $8,860 million, 54 per cent higher than the first half of 2007.

The Group invested at record levels, in particular in expansion projects. Net capital expenditure on property, plant and equipment and intangible assets was $3,652 million in the first half of 2008, an increase of $1,736 million over the same period of 2007. This included the expansion of the Cape Lambert port and the Hope Downs mine in Western Australia, the expansion of the Yarwun alumina refinery and the construction of the Clermont thermal coal mine in Queensland, the A418 dike at the Diavik diamond mine and the Madagascar ilmenite mine.

Dividends paid in the first half of 2008 of $1,083 million were $246 million higher than dividends paid in the first half of 2007, following the 31 per cent increase in the 2007 final dividend. The share buy back programme was discontinued after the announcement of the Alcan acquisition on 12 July 2007: returns to shareholders from the on-market buy back of Rio Tinto plc shares in the first half of 2007 totalled $1,417 million (net of $11 million proceeds from the exercise of options).

Balance sheet

Rio Tinto commissioned expert valuation consultants to advise on the fair values of Alcan's assets. As required under International Financial Reporting Standards (IFRS), the tangible and intangible assets of the acquired business have been uplifted to fair value. The residue of the purchase price not allocated to specific assets and liabilities has been attributed to goodwill. The provisional values incorporated in the 2007 financial statements will be subject to revision within 12 months of the date of acquisition as permitted by the relevant accounting standard, IFRS 3.

Net debt decreased by $3.0 billion over the six month period to $42.1 billion, predominantly from cash received from asset disposals. Debt to total capital duly declined to 56 per cent at 30 June 2008 and interest cover was 11 times.

Profit for the year

IFRS require that the profit for the period reported in the income statement should also include earnings attributable to outside shareholders in subsidiaries. For the first half of 2008, the profit for the year was $7,291 million (2007 first half $3,401 million) of which $377 million (2007 first half $148 million) was attributable to outside shareholders, leaving $6,914 million (2007 first half $3,253 million) of net earnings attributable to Rio Tinto shareholders. 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

The Group has a progressive dividend policy and a multi decade track record of continual dividend growth over time. Dividends are determined in US dollars. The interim dividend is set at one half of the total dividends declared for the previous year excluding any special dividends. Therefore, interim dividends equivalent to US 68 cents per share (2007 interim: US 52 cents per share) have been declared by Rio Tinto plc and Rio Tinto Limited.

The 2008 interim dividend represents a 31 per cent increase on the previous year's interim, in US dollar terms. Further increases of at least 20 per cent in each full year have already been announced for 2008 and 2009.

Rio Tinto plc shareholders will be paid an interim dividend of 36.25 pence per ordinary share (2007: 25.59 pence per share). Rio Tinto Limited shareholders will be paid an interim dividend of 77.35 Australian cents per ordinary share (2007: 60.69 Australian cents per share), which will be fully franked. The Boards expect Rio Tinto Limited to be able to pay fully franked dividends for the reasonably foreseeable future.

Rio Tinto dividends are declared in US dollars and paid in pounds sterling and Australian dollars, converted at exchange rates applicable on 21 August 2008.

The respective dividends will be paid on Thursday 2 October 2008 to holders of ordinary shares, with ADR holders to be paid on Friday 3 October 2008. This will apply to Rio Tinto plc and ADR shareholders on the register at the close of business on Friday 5 September 2008 and to Rio Tinto Limited shareholders on the register at the close of business on Tuesday 9 September 2008. The ex-dividend date for Rio Tinto plc, Rio Tinto Limited and Rio Tinto ADR holders will be Wednesday 3 September 2008.

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 Plan is Thursday 11 September 2008.

Rio Tinto financial information by business unit Six months ended Rio Gross sales EBITDA (b) Net earnings 30 June Tinto revenue (a) (c) US$ millions interest % 2008 2007 2008 2007 2008 2007 -------- --------------- -------------- ------------- Iron Ore Hamersley (inc. HIsmelt) (d) 100.0 5,595 2,564 3,381 1,398 2,239 861 Robe River (e) 53.0 1,330 761 922 460 488 233 Iron Ore Company of Canada 58.7 1,048 379 588 103 205 28 Rio Tinto Brasil 100.0 69 32 17 2 6 (1) --------------- -------------- ------------- Product group operations 8,042 3,736 4,908 1,963 2,938 1,121 Evaluation projects/other 44 44 (48) (22) (61) (22) --------------- -------------- ------------- 8,086 3,780 4,860 1,941 2,877 1,099 --------------- -------------- ------------- Aluminium (f) Product group operations 12,544 1,749 2,564 739 1,036 406 Evaluation projects/other 18 17 (45) - (41) - --------------- -------------- ------------- 12,562 1,766 2,519 739 995 406 --------------- -------------- ------------- Copper & Diamonds Kennecott Utah Copper 100.0 1,606 1,736 1,083 1,267 673 785 Escondida 30.0 1,946 1,655 1,525 1,364 912 835 Grasberg joint venture (g) 120 183 64 127 30 63 Palabora 57.7 310 352 116 116 34 32 Kennecott Minerals 100.0 76 171 46 93 25 56 Northparkes 80.0 76 227 35 148 20 93 Diamonds (h) 571 445 239 228 108 90 --------------- -------------- ------------- Product group operations 4,705 4,769 3,108 3,343 1,802 1,954 Evaluation projects/other - - (157) (75) (109) (49) --------------- -------------- ------------- 4,705 4,769 2,951 3,268 1,693 1,905 --------------- -------------- ------------- Energy & Minerals Rio Tinto Energy America 100.0 852 727 172 139 65 46 Rio Tinto Coal Australia (i) 1,775 1,127 731 306 401 177 Rossing 68.6 198 215 131 110 51 44 Energy Resources of Australia 68.4 149 92 73 25 22 2 Rio Tinto Iron & Titanium (j) 889 783 310 247 112 79 Rio Tinto Minerals (k) 736 595 124 128 57 60 --------------- -------------- ------------- Product group operations 4,599 3,539 1,541 955 708 408 Evaluation projects/other 50 50 (31) (50) (29) (38) --------------- -------------- ------------- 4,649 3,589 1,510 905 679 370 --------------- -------------- ------------- Other Operations 8 29 (73) (6) (39) (4) --------------- -------------- ------------- Other items (5) (3) (292) (289) (170) (260) Exploration and evaluation (67) 55 (62) 25 Net interest - - (499) (12) -------------- ------------- Underlying earnings 11,408 6,613 5,474 3,529 Items excluded from underlying earnings 2,082 10 1,440 (276) ---------------- -------------- ------------- Total 30,005 13,930 13,490 6,623 6,914 3,253 --------------- -------------- ------------- Depreciation & amortisation in subsidiaries (1,785) (865) Impairment charges (6) (449) Depreciation & amortisation in equity accounted units (228) (140) Taxation and finance items in equity accounted units (720) (507) -------------- Profit before finance items and taxation 10,751 4,662 -------------- References above are to notes on page 39

Rio Tinto financial information by business unit (continued) Six months ended 30 June Depreciation US$ millions Rio Capital & Operating Tinto Expenditure amortisation assets interest (l) (m) % 2008 2007 2008 2007 2008 2007 -------- ------------- ------------ ---------------- Iron Ore Hamersley (inc. HIsmelt) (d) 100.0 788 854 230 153 7,487 5,530 Robe River (e) 53.0 290 73 61 49 2,384 1,805 Iron Ore Company of Canada 58.7 80 36 42 34 722 755 Rio Tinto Brasil 100.0 64 10 6 3 204 112 Other 28 - 3 - 31 - ------------- ------------ ---------------- 1,250 973 342 239 10,828 8,202 ------------- ------------ ---------------- Aluminium (f) 1,093 120 1,072 146 44,647 3,866 Copper & Diamonds Kennecott Utah Copper 100.0 162 86 121 126 1,749 1,656 Escondida 30.0 63 87 48 50 1,237 1,102 Grasberg joint venture (g) 29 26 12 19 389 359 Palabora 57.7 17 9 30 19 (9) 55 Kennecott Minerals 100.0 33 39 4 12 (364) 233 Northparkes 80.0 41 22 7 15 262 215 Diamonds (h) 362 232 72 81 1,434 986 Other 1 13 - - 700 566 ------------- ------------ ---------------- 708 514 294 322 5,398 5,172 ------------- ------------ ---------------- Energy & Minerals Rio Tinto Energy America 100.0 83 104 64 63 1,173 1,139 Rio Tinto Coal Australia (i) 197 85 83 85 1,946 1,592 Rossing 68.6 26 17 9 5 179 19 Energy Resources of Australia 68.4 87 17 23 22 353 192 Rio Tinto Iron & Titanium (j) 241 188 61 57 2,154 1,619 Rio Tinto Minerals (k) 29 (5) 37 46 1,149 1,129 Other 1 - (3) - 63 25 ------------- ------------ ---------------- 664 406 274 278 7,017 5,715 ------------- ------------ ---------------- Other Operations 110 7 - - 413 214 Net assets held for sale (n) - - - - 4,606 - Other items 45 41 31 20 935 324 Less: equity accounted units (218) (145) (228) (140) - - ------------- ------------ ---------------- Total 3,652 1,916 1,785 865 73,844 23,493 ------------- ------------ ---------------- Less: Net debt (42,124) (2,862) ---------------- Total Rio Tinto shareholders' equity 31,720 20,631 ---------------- References above are to notes on page 39

Review of operations

Comparison of underlying earnings

First half 2008 underlying earnings of $5,474 million were $1,945 million above first half 2007 underlying earnings. The table below shows the difference by product group. All financial amounts in the tables below are US$ millions unless indicated otherwise.

US$m First half 2007 underlying earnings 3,529 Iron ore 1,817 Aluminium 630 Copper & Diamonds (152) Energy & Minerals 300 Product group evaluation projects/other (131) Other operations (35) Central exploration, evaluation and technology (87) Interest (487) Other 90 -------------------- First half 2008 underlying earnings 5,474 ====================

All subsequent references to earnings within the business unit section refer to underlying earnings. Production numbers represent the Rio Tinto share.

Iron ore

First half First half Full year 2008 2007 Change 2007 -------------------------------------- Production (million tonnes - Rio Tinto share) 79.2 69.4 +14% 144.7 Gross sales revenue ($ millions) 8,086 3,780 +114% 8,924 Product group operations earnings ($ millions net of tax) 2,938 1,121 +162% 2,746 Evaluation projects/other ($ millions net of tax) (61) (22) +177% (95) EBITDA ($ millions) 4,860 1,941 +150% 4,617 Capital expenditure ($ millions) 1,250 973 +28% 2,065

Market conditions

Rio Tinto negotiated record benchmark pricing levels for its iron ore production in 2008. Agreement was reached with major customers for a 96.5 per cent increase for lump ore and 79.88 per cent for fines from the Pilbara operations for the 2008 contract year, representing an 85.7 per cent weighted average increase. Demand remains very strong.

Hamersley

Earnings of $2,239 million were $1,378 million above first half 2007, benefiting from the benchmark price increases, higher volumes and spot sales. During the first half of 2008, Hamersley achieved record shipments and record production, following the completion of the second phase mine, port and rail expansions. Hope Downs produced 4.5 million tonnes (100 per cent basis) during the first half as it ramped up towards its 30 million tonnes per annum total capacity targeted for early 2009.

Hamersley's first half 2008 earnings include a net loss of $31 million at HIsmelt (2007 first half: $24 million net loss). The ramp up of the HIsmelt commercial plant continued. Following extensive maintenance in the first quarter, operational stability improved and record levels of hot metal production were achieved in the second quarter.

Robe River

Earnings of $488 million were $255 million above 2007 first half, attributable to higher prices, higher volumes, spot sales and a favourable sales mix.

Iron Ore Company of Canada

Earnings of $205 million, which were $177 million above 2007 first half, benefited from higher prices and an increase in sales volumes due to the absence of a seven week strike in 2007 first half.

Rio Tinto Brasil

Higher volumes from the Corumba mine turned a small loss in 2007 first half into earnings of $6 million in 2008 first half.

Iron ore projects

Expenditure at the Simandou project in Guinea accelerated as the pre-feasibility study progressed, with the decision to invest expected to be made at the end of 2009. In the first half of 2008 Rio Tinto announced resources of 2.25 billion tonnes of iron ore at Simandou (refer to 29 May 2008 and 1 August 2008 press releases).

Rio Tinto Alcan

First half First half Full Year 2008 2007 Change 2007 proforma(1) vs proforma(1) proforma(1) ------------------------------------------------- Production (Rio Tinto share) Bauxite (000 tonnes) 17,324 15,063 +15% 31,960 Alumina (000 tonnes) 4,486 4,095 +10% 8,515 Aluminium (000 tonnes) 2,039 2,012(2) +1% 4,057(2)

(1) Includes Alcan data from 1 January 2007. (2) Excludes the Vlissingen smelter (Netherlands), which was divested in the first half of 2007. The Lannemezan smelter (France) was closed in the first quarter of 2008. Production has therefore been excluded in the 2007 comparatives from 1 April 2007.

US$ millions Gross sales revenue EBITDA Net earnings First half First half First half 2008 2007 2008 2007 2008 2007 proforma proforma proforma ------------------- -------------- -------------- Bauxite & Alumina 1,933 1,762 380 633 88 290 Primary Metal 6,553 6,146 1,894 2,175 863 1,098 Other product group items 4,058 4,362 290 378 85 187 ------------------- -------------- -------------- Product group operations 12,544 12,270 2,564 3,186 1,036 1,575 Evaluation projects / other 18 17 (45) (27) (41) (19) ------------------- -------------- -------------- Product group total 12,562 12,287 2,519 3,159 995 1,556 Less: proforma - (10,521) - (2,420) - (1,150) ------------------- -------------- -------------- Rio Tinto Alcan (per page 7) 12,562 1,766 2,519 739 995 406 ------------------- -------------- --------------

Rio Tinto acquired Alcan on 23 October 2007. The following commentary on the Rio Tinto Alcan product group compares the 2008 first half to the 2007 first half on a proforma basis.

Prices

The average aluminium price of 128 cents per pound was two per cent above the 2007 first half average price. However, the Group's physical aluminium and alumina sales contracts are priced on a basis that lags the LME price by between one and three months. Lower prices realised on such contracts reduced earnings by $16 million compared with the first half of 2007. Legacy fixed price forward contracts continued to have an adverse impact on earnings but the expiry of some of these contracts reduced this adverse impact, increasing earnings by $105 million compared with 2007 first half.

Earnings

Product group earnings of $995 million were $561 million lower than 2007 proforma first half with the net improvement from prices described above and higher volumes outweighed by the impact of adverse exchange rate movements, higher costs, notably for oil, caustic soda, pitch and coke, and a smaller benefit from reductions in Canadian tax rates than in 2007 first half.

The Engineered Products business unit of Rio Tinto Alcan is included in the product group numbers within "Other product group items". The Packaging business unit does not impact the Income and Cash flow statements and is included on the Balance sheet as an Asset held for sale.

Bauxite

Bauxite production was 15 per cent higher than 2007 first half on a proforma basis, reflecting increased capacity at Weipa following the commissioning of the second shiploader.

Alumina

Alumina production was ten per cent higher than 2007 first half on a proforma basis.

Expansion work on the Yarwun alumina refinery is progressing on budget and on track with the first shipment of alumina from the expansion expected in the second half of 2010. The project is scheduled for completion in the second half of 2011. Ramp up of production is expected to take 12 months following completion. The $1.8 billion project, announced in July 2007, will increase annual capacity from 1.4 million tonnes to 3.4 million tonnes by 2011. A pipeline blockage at Yarwun in August 2008 is expected to lead to approximately one month's lost alumina production but this is not expected to impact aluminium production for the year.

The 1.8 million tonne per annum expansion of the Gove refinery is being commissioned and the ramp up continues, with 2.6 million tonnes expected to be produced in 2008. The target operating rate of over 3.4 million tonnes per annum is expected to be achieved by the end of 2009.

Aluminium

Aluminium production was one per cent higher than 2007 first half on a proforma basis. The Sohar smelter in Oman began operating in June, on time and on budget, with first hot metal produced during the same month.

Capacity creep, notably in Canada, offset production cutbacks at the Tiwai Point smelter in New Zealand. Low rainfall in New Zealand affected power availability, with a resultant reduction in monthly output of 2,900 tonnes at the Tiwai Point smelter. This situation is expected to continue into the third quarter of 2008. In June 2008 a localised fire at the Anglesey smelter in Wales resulted in a loss of power across the smelter, which is currently operating at reduced capacity.

Aluminium projects

The cost of aluminium evaluation projects are reported within the product group. The increased charge primarily related to projects in the Saguenay and Sarawak as they progressed during the year.

Copper & Diamonds First half First half Full year 2008 2007 Change 2007 -------------------------------------- Production (Rio Tinto share) Mined copper (000 tonnes) 400.1 384.6 +4% 737.9 Refined copper (000 tonnes) 161.1 202.3 -20% 390.0 Mined molybdenum (000 tonnes) 5.7 8.5 -33% 14.9 Mined gold (000 oz)(1) 207 476 -57% 970 Diamonds (000 carats) 7,853 11,446 -31% 26,023 Gross sales revenue ($ millions) 4,705 4,769 -1% 9,521 Product group operations earnings ($ millions net of tax) 1,802 1,954 -8% 3,914 Evaluation projects/other ($ millions net of tax) (109) (49) +122% (163) EBITDA ($ millions) 2,951 3,268 -10% 6,336 Capital expenditure ($ millions) 708 514 +38% 1,241

(1) Mined gold for all periods presented excludes production from Greens Creek and Cortez, which were divested in the first half of 2008.

Prices

The average copper price of 367 cents per pound was 20 per cent above the 2007 first half. The gold price averaged $910 per ounce, an increase of 38 per cent on the prior year first half, whilst the average molybdenum price was $34 per pound, an increase of 21 per cent compared with first half 2007. The total impact of price changes on the Copper & Diamonds product group, including the effects of provisional pricing movements, was to increase earnings by $601 million.

Kennecott Utah Copper

Earnings of $673 million were $112 million lower than 2007 first half. Higher prices were more than offset by lower volumes of copper, gold and molybdenum and higher costs. Production decreases at the smelter and refinery from 2007 to 2008 were the consequence of lower copper head grades leading to lower concentrate production. Lower molybdenum grades and production resulted from changes in mine sequencing. Higher maintenance costs and higher manpower and contractor numbers also impacted the 2008 first half earnings.

Escondida

Earnings of $912 million were $77 million above 2007 first half, benefiting from higher prices which were partly offset by increased freight costs and higher contractor and material costs, notably sulphuric acid.

Grasberg joint venture

Earnings of $30 million were $33 million below 2007 first half, mainly attributable to lower gold volumes. Low gold grades reduced Rio Tinto's share of gold production to nil in the first half of 2008.

Kennecott Minerals

Earnings of $25 million were $31 million below 2007 first half following the disposal of Rio Tinto's interests in Cortez and Greens Creek earlier in the year.

Palabora

Earnings of $34 million, which were $2 million above the prior year, benefited from higher prices and the weaker South African rand which offset the impact of lower refined volumes.

Northparkes

Earnings of $20 million were $73 million below 2007 first half following a 64 per cent decline in copper production due to the treatment of lower grade stockpile material sourced from the open cut.

Diamond markets

Overall demand for rough diamonds in the first half of 2008 has been strong as demand from emerging markets has balanced declining demand from the US market. The demand picture, however, has been divided. Demand for better quality goods has been very strong while demand for lower quality goods has remained weak.

Argyle

Earnings of $26 million were $3 million below 2007 first half, mainly attributable to higher costs at the Argyle mine as high production costs from 2007 flowed through to cost of sales. In May access was re-established to the high grade areas of the pit, which had been restricted due to geotechnical issues and wet weather earlier in the year.

Diavik

Earnings of $80 million were $16 million above 2007 first half. The effect of the stronger Canadian dollar was more than compensated by higher prices and higher sales volumes. Production was 27 per cent below the same period of 2007, primarily as a result of lower grades encountered in the A154S pipe.

Murowa

Earnings from Murowa of $3 million compared with break even in 2007 first half, attributable to higher volumes.

Copper & Diamonds projects

Higher costs were incurred as the projects progressed through the various stages of evaluation.

Following an extensive drilling programme at La Granja, Peru Rio Tinto announced an Inferred Mineral Resource of 2.8 billion tonnes grading 0.51 per cent copper and 0.1 per cent zinc, representing a copper equivalent grade of 0.56 per cent at a copper equivalent cut-off of 0.3 per cent (refer to 29 May 2008 press release).

Exploration and evaluation drilling continued at the 55 per cent owned Resolution copper project in the US. Rio Tinto announced an Inferred Resource of 1.34 billion tonnes containing 1.51 per cent copper and 0.040 per cent molybdenum (refer to 29 May 2008 press release). In August 2008, the Group announced an investment of $652 million in the continued pre-feasibility studies at Resolution.

The Sulawesi nickel laterite deposit in Indonesia (162 million tonnes of resources at 1.62% Ni and 0.08% Co, refer to Rio Tinto press release on 28 May 2008) was declared a discovery and handed over to the Rio Tinto copper group.

At the Oyu Tolgoi copper project in Mongolia, Rio Tinto holds a 9.9 per cent equity interest in property owner Ivanhoe Mines and a 16 per cent interest in Entree Gold who share the adjacent Javhlant concession with Ivanhoe. Exploration by Ivanhoe on the Javhlant concession led to discovery of the Heruga porphyry copper-gold deposit at a depth of over 850 metres. The deposit remains open in several directions and delineation drilling continues.

Provisional pricing

At 30 June 2008, the Group had 273 million pounds of copper sales that were provisionally priced at US 389 cents per pound. The final price of these sales will be determined during the second half of 2008. This compared with 270 million pounds of open shipments at 31 December 2007 provisionally priced at US 304 cents per pound. Provisional pricing movements in 2008 first half resulted in a net benefit to earnings of $42 million compared with 2007 first half.

Energy & Minerals First half First half Full year 2008 2007 Change 2007 -------------------------------------- Production (Rio Tinto share) Coal (million tonnes) US 61.6 60.7 +1% 125.1 Hard coking coal 3.1 3.1 - 6.2 Other Australian(1) 11.0 10.1 +8% 19.9 Uranium (000's pounds) 6,495 6,006 +8% 12,616 Titanium dioxide (000 tonnes) 761 718 +6% 1,458 Borates (000 tonnes) 324 274 +18% 560 Gross sales revenue ($ millions) 4,649 3,589 +30% 7,666 Product group operations earnings ($ millions net of tax) 708 408 +74% 759 Evaluation projects/other ($ millions net of tax) (29) (38) -24% (57) EBITDA ($ millions) 1,510 905 +67% 1,846 Capital expenditure ($ millions) 664 406 +64% 1,171

(1) Other Australian coal for all periods presented excludes production from the Tarong Coal mine, which was divested in the first half of 2008.

US Coal - Rio Tinto Energy America

Earnings of $65 million were $19 million above 2007 first half, with improved prices and volumes offsetting higher energy and repairs and maintenance costs. Increased production from the successful ramp up of the overland conveyor at Jacobs Ranch was offset by the effects of rail delays, following severe flooding of the railway tracks in the Mid West.

On 8 August 2008 the Group announced that its wholly owned subsidiary, Cloud Peak Energy Inc., comprised of most of the North American coal assets of Rio Tinto Energy America, had filed a registration statement on Form S-1 with the United States Securities and Exchange Commission (SEC) in connection with Cloud Peak Energy's proposed initial public offering (IPO) of its common stock.

Rio Tinto expects to make a final decision on whether to pursue a listing of the shares of Cloud Peak Energy or to pursue another form of divestment once these options have been more fully explored.

Asia Pacific seaborne coal

Asian seaborne thermal coal prices rose sharply in the first half of 2008 mainly due to supply disruptions from key producing countries, notably in Queensland, Australia following extensive flooding earlier in 2008. Issues relating to infrastructure controlled by external parties are likely to continue to contribute to market tightness for the foreseeable future.

Rio Tinto Coal Australia

Earnings of $401 million were $224 million above 2007 first half, with higher prices more than offsetting the impact of increased rail and sea freight costs and energy costs.

Hard coking coal production from the Queensland coal operations recovered significantly from the regional flooding during the first quarter. In the Hunter Valley region of New South Wales, production of soft coking coal increased to take advantage of stronger prices. Whilst vessel queues were reduced at the port of Newcastle, New South Wales, production continued to be in line with received allocation of port capacity.

The budget for the Clermont coal project has been revised to take account of cost inflation and a stronger Australian dollar. The latest estimate indicates a likely capital investment of $ 1.29 billion (on a 100 per cent basis). The project remains on schedule.

Uranium markets

Spot uranium prices declined 23 per cent in the first five months of the year as investment demand dried up and aggressive discretionary purchasing by utilities had the effect of forcing prices down. In recent months, however, some spot demand has returned and prices have improved accordingly. While industry supply challenges continue, plans for nuclear new-build continue to gather pace on a global basis. As such, the outlook for long-term uranium demand continues to be bullish.

Rossing

Earnings of $51 million, which were $7 million above 2007 first half, benefited from higher realised prices as legacy contracts continued to be replaced by higher performing ones. Higher grades at Rossing led to a 26 per cent improvement in production in 2008 first half compared with the same period of 2007, when a waste removal campaign occurred. This increased production was applied to rebuild inventories which had been drawn down in 2007.

Energy Resources of Australia

Earnings of $22 million were $20 million above 2007 first half. Prices continued to benefit from the gradual replacement of legacy contracts with newer contracts written in an environment of higher prices.

Rio Tinto Iron & Titanium

Earnings of $112 million were $33 million above 2007 first half. Higher prices for metallics and slag reflected strong demand for all products. Together with higher volumes, these more than offset the increased cost of coal and higher labour and consumable costs.

Rio Tinto Minerals

Earnings of $57 million were $3 million below 2007 first half. Higher prices for borates, talc and salt and notably higher volumes for borates were offset by higher energy, freight and consumables.

Exploration and Evaluation First half First half Full year 2008 2007 Change 2007 --------------------------------------- Post-tax credit / (charge) ($ millions) (62) 25 -348% 20

The post-tax centrally reported exploration charge is presented net of the gain on disposal of exploration properties.

2008 first half exploration and evaluation expenditure (pre-disposals and post tax) was $74 million, compared with $73 million in 2007 first half. As part of Rio Tinto's continuing focus on optimising its portfolio, $12 million (post-tax earnings) was realised from exploration divestments in 2008 first half compared with $98 million in 2007 first half, including the sale of the Penasquito royalty rights.

High priority targets have been identified within the broader Tamarac nickel copper project in Minnesota (formerly known as Lakeview). Initial drilling has identified significant disseminated sulphide mineralisation. The final hole of the winter programme returned 138m @ 1.6% Ni, 1.1% Cu including 28m @ 3.6% Ni, 2% Cu (refer to Rio Tinto Value & Growth seminar on 29 May 2008). An Order of Magnitude Study has been established for the project.

In June Rio Tinto announced that it had lodged mining lease applications for its Bunder diamond project in India, a vital step in the development of what could be the first world class diamond mine in India. It also announced the exploration target for diamond mineralisation at the Bunder project of 40 to 70 million tonnes at a grade of between 0.3 and 0.7 carats per tonne (refer to Rio Tinto press release on 23 June 2008).

The Serbian jadar lithium borates project Order of Magnitude study gained momentum during the half year. The targeted mineralisation for the project was released, showing a target of 80 -100 Mt @ 1.8-2.2% Li2O, 13.5 - 16.5% B2O3 (refer to Rio Tinto Value & Growth seminar on 29 May 2008) from the lower mineralised zone.

Mine-lease exploration continued at a number of Rio Tinto businesses including Kennecott Utah Copper, Northparkes, Rossing, Argyle, Diavik and Rio Tinto Iron Ore in Australia.

On 12 August 2008 Rio Tinto completed the sale of the Kintyre uranium project located in Western Australia to a joint venture comprising subsidiaries of Cameco Corporation and Mitsubishi Development Pty Ltd for $495 million.

Capital projects Project Estimated Status/Milestones cost (100%) ---------------------------------------------------------------------- Completed in 2008 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Aluminium - Development of the 360,000 $1.7bn Approved in tonne per annum greenfield Sohar February 2005, smelter in Oman (Rio Tinto 20%). first hot metal was produced in June 2008. ---------------------------------------------------------------------- Aluminium - Aluminium spent pot lining $225m Approved in recycling plant in Quebec (Rio Tinto September 2006, 100%). the plant commenced operations in April 2008. ---------------------------------------------------------------------- ---------------------------------------------------------------------- Ongoing ---------------------------------------------------------------------- ---------------------------------------------------------------------- Copper - Kennecott Utah Copper (Rio $170m The project was Tinto 100%) East 1 pushback. The approved in project extends the life of the open February 2005 pit to 2020 while retaining options for and work on the further underground or open pit mining pushback thereafter. continues. The pebble crushing unit was commissioned in the third quarter of 2006. ---------------------------------------------------------------------- Titanium dioxide - Construction by QMM $1.0bn Construction is (Rio Tinto 80%) of a greenfield underway. The ilmenite operation in Madagascar and budget was associated upgrade of processing revised in 2007. facilities at QIT. First production is expected at the end of 2008. ---------------------------------------------------------------------- Alumina -Expansion of the Gove Alumina $2.3bn Approved in Refinery (Rio Tinto 100%) from 2.0 to September 2004, 3.8 million tonnes per annum. the expansion is expected to reach an operating rate of over 3.4 million tonnes by the end of 2009. ---------------------------------------------------------------------- Uranium - Rossing (Rio Tinto 68.6%) $112m Approved in uranium mine life extension to 2016. December 2005, works are on schedule and on budget to prolong the life of the mine to 2016 and beyond. The mine life extension estimate remains at $82m with $30m of sustaining capital expenditure. ---------------------------------------------------------------------- Diamonds - Argyle (Rio Tinto 100%) less than Approved in development of underground mine and $1.5bn December 2005, open pit cutback, extending the life of the underground the mine to 2018. development consisting of 34 km of tunnels and excavations is currently 50% complete. Construction of the major underground infrastructure commenced in February 2008, and full production from the underground mine is on schedule to be achieved in December 2010. ---------------------------------------------------------------------- Copper - Northparkes (Rio Tinto 80%) E48 $229m Approved in block cave project extending mine life November 2006, to 2016. the project scope has been expanded with completion estimated for December 2009. First production is ahead of schedule and is expected to commence in February 2009. ---------------------------------------------------------------------- Energy - Clermont (Rio Tinto 50.1%) is $1.29bn Approved in expected to ramp up to 12.2 million (indicative January 2007, tonnes per annum, replacing Blair estimate) first coal is Athol. expected in the first quarter of 2010 with full capacity being reached in 2013. The estimated cost has risen in line with local cost inflation and a stronger Australian currency. ---------------------------------------------------------------------- Iron ore - Cape Lambert port expansion $952m Approved in (Rio Tinto 53%) from 55 to 80 million January 2007, tonnes per annum and additional rolling the project is stock and infrastructure. forecast to be complete by the end of 2008, with progressive capacity ramp up in the first half of 2009. The estimated capital cost now includes $92m for additional rolling stock and infrastructure. ---------------------------------------------------------------------- Alumina - Expansion of Yarwun Alumina $1.8bn Approved in July Refinery from 1.4 to 3.4 million tonnes 2007, the per annum. expansion will more than double annual production at Yarwun. First shipment expected in the second half of 2010 and expansion scheduled for completion in the second half of 2011. ----------------------------------------------------------------------

Project Estimated Status/Milestones cost (100%) ---------------------------------------------------------------------- Ongoing (continued) ---------------------------------------------------------------------- ---------------------------------------------------------------------- Iron ore - Expansion of Hope Downs Stage 2 $350m Approved in (Rio Tinto 50%) from 22 to 30 million August 2007, the tonnes per annum. expansion will be complete by early 2009. ---------------------------------------------------------------------- Diamonds - Construction at Diavik (Rio $787m Capital Tinto 60%) of the underground mining. investment of $563 million was approved in November 2007 in addition to $224 million invested in 2006-2007 for the feasibility studies and related capital projects. First production from the underground mine is expected to commence in 2009. ---------------------------------------------------------------------- Iron ore - Mesa A development (Rio Tinto $901m Approved in 53%): construction of a 25 million tonne November 2007, per annum mine and related the mine is infrastructure. forecast to be complete by 2010 with a progressive ramp up to a projected 25 million tonnes per annum by 2011.(1) ---------------------------------------------------------------------- Iron ore - Brockman 4 development (Rio $1.5bn Approved in Tinto 100%): construction of a 22 million November 2007, tonne per annum mine (Phase A) and Phase A of the related infrastructure. project to 22 million tonnes per annum, is forecast to be complete by 2010, with scope to expand further to 36 million tonnes per annum by 2012. ---------------------------------------------------------------------- Coking coal - extension and expansion of $991m Approved in Kestrel mine (Rio Tinto share 80%). December 2007, the investment is expected to extend the life of the mine to 2031 and increase production to an average of 5.7mtpa. ---------------------------------------------------------------------- Nickel - Development of Eagle nickel mine $300m Approved in in Michigan, US. December 2007, this high grade nickel and copper mine is expected to commence production in 2010, delivering 16,000 tonnes of nickel per annum over a seven year period. ---------------------------------------------------------------------- Aluminium - Replacement of overhead cranes $270m Approved in and upgrade of crane runways on Lines 1 February 2008, and 2 at Boyne Smelters (Rio Tinto the mobile 59.4%). cranes and associated runways on reduction Lines 1 and 2 will be replaced and will result in a more efficient crane / alumina transport system. The project is estimated to be completed by late 2010. ---------------------------------------------------------------------- Aluminium - Replacement of Lines 1 and 2 $347m Approved in carbon bake furnace at Boyne Smelters February 2008, (Rio Tinto 59.4%). the carbon baking furnace that supplies anodes to Lines 1and 2 will be replaced and will result in reduced onsite greenhouse gas emissions. The project is estimated to be completed by mid 2011. ----------------------------------------------------------------------

(1) There are currently no reserves for the Mesa A development. Accordingly, this production rate is subject to defining sufficient reserves for the proposed Mesa A operations.

Recently approved ---------------------------------------------------------------------- ---------------------------------------------------------------------- Iron ore - Expansion of $475m Approved in March 2008, this is the the Iron Ore Company of first phase of an IOC expansion Canada's (IOC) annual program that may see production production of iron ore capability increase 50 per cent by concentrate to 22 2011. million tonnes (Rio Tinto 58.7%). ---------------------------------------------------------------------- Molybdenum - Construction $270m Approved in June 2008, the MAP of a new Molybdenum facility will allow for the Autoclave Process (MAP) recovery of an additional 69 facility at Kennecott million pounds of molybdenum from Utah Copper (Rio Tinto the commencement of production in 100%). the third quarter of 2010 should the current mine life be extended to 2036. ---------------------------------------------------------------------- Iron ore - Investment to $371m Approved in June 2008, the roll-out automate iron ore of automation is part of a wider railway in the Pilbara project to upgrade the rail network region of Western over 18 months. Australia (Rio Tinto 94.3%). ---------------------------------------------------------------------- Iron ore - Funding of $667m Approved in June 2008, $518 million infrastructure and (Rio Tinto 66.2%) will fund the studies for mine early commencement of expansions as part of infrastructure works and drive to increase annual acquisition of long-lead items such capacity of Pilbara as heavy mobile equipment. The operations to 320 balance of $149 million (Rio Tinto million tonnes(2) by the 100%) is directed to a study of a end of 2012 (Rio Tinto new iron ore mine on the Western 73.8%). Turner Syncline. The proposed mine would eventually ramp up to 29 Mtpa capacity, feeding into existing Tom Price processing plant, with production scheduled to commence in the fourth quarter of 2010. ---------------------------------------------------------------------- Iron ore - Investment in $503m Approved in June 2008, the cleaner, more construction of generation and sustainable power transmission infrastructure will generation to support supply electricity to port and mine expansion of iron ore operations. The power station will mining capacity in be commissioned in 2010. Western Australia (Rio Tinto 78.9%). ---------------------------------------------------------------------- Iron ore - Investment in $2.15bn Approved in July 2008, the project a major expansion of will boost annual capacity more mine in Corumba, Brazil than six-fold from 2 million tonnes (Rio Tinto 100%). per annum to 12.8 million tonnes, with new production commencing in the fourth quarter of 2010. The estimated capital cost includes a significant spend on port facilities and the river fleet. ---------------------------------------------------------------------- Copper - Investment in $652m Approved in August 2008, Pre- continued pre- feasibility studies are expected to feasibility studies on a be completed by 2012 with large, tier-one copper production

Source: Business Wire

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