20-F 1 d497913d20f.htm FORM 20-F Form 20-F
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F

(Mark One)

 

      ¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

     x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: 31 December 2012

or

 

      ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from:             to             

or

 

      ¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report             

 

Commission file number: 1-10533   Commission file number: 001-34121

 

Rio Tinto plc  

Rio Tinto Limited

ABN 96 004 458 404

(Exact Name of Registrant as Specified in Its Charter)   (Exact Name of Registrant as Specified in Its Charter)

 

England and Wales   Victoria, Australia
(Jurisdiction of Incorporation or Organisation)   (Jurisdiction of Incorporation or Organisation)

 

2 Eastbourne Terrace   Level 33, 120 Collins Street
London, W2 6LG, United Kingdom   Melbourne, Victoria 3000, Australia
(Address of Principal Executive Offices)   (Address of Principal Executive Offices)

Julie Parent, T: 514-848-8519, E: julie.parent@riotinto.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange

On Which Registered

 

Title of Each Class

 

Name of Each Exchange

On Which Registered

American Depositary Shares*   New York Stock Exchange    
Ordinary Shares of 10p each**   New York Stock Exchange    
6.500% Notes due 2018   New York Stock Exchange   6.500% Notes due 2018   New York Stock Exchange
7.125% Notes due 2028   New York Stock Exchange   7.125% Notes due 2028   New York Stock Exchange
1.875% Notes due 2015   New York Stock Exchange   1.875% Notes due 2015   New York Stock Exchange
3.500% Notes due 2020   New York Stock Exchange   3.500% Notes due 2020   New York Stock Exchange
5.200% Notes due 2040   New York Stock Exchange   5.200% Notes due 2040   New York Stock Exchange
8.950% Notes due 2014   New York Stock Exchange   8.950% Notes due 2014   New York Stock Exchange
9.000% Notes due 2019   New York Stock Exchange   9.000% Notes due 2019   New York Stock Exchange
2.500% Notes due 2016   New York Stock Exchange   2.500% Notes due 2016   New York Stock Exchange
4.125% Notes due 2021   New York Stock Exchange   4.125% Notes due 2021   New York Stock Exchange
1.125% Notes due 2015   New York Stock Exchange   1.125% Notes due 2015   New York Stock Exchange
2.000% Notes due 2017   New York Stock Exchange   2.000% Notes due 2017   New York Stock Exchange
3.500% Notes due 2022   New York Stock Exchange   3.500% Notes due 2022   New York Stock Exchange
4.750% Notes due 2042   New York Stock Exchange   4.750% Notes due 2042   New York Stock Exchange
1.625% Notes due 2017   New York Stock Exchange   1.625% Notes due 2017   New York Stock Exchange
2.875% Notes due 2022   New York Stock Exchange   2.875% Notes due 2022   New York Stock Exchange
4.125% Notes due 2042   New York Stock Exchange   4.125% Notes due 2042   New York Stock Exchange
2.250% Notes due 2016   New York Stock Exchange   2.250% Notes due 2042   New York Stock Exchange
3.750% Notes due 2021   New York Stock Exchange   3.750% Notes due 2042   New York Stock Exchange

 

* Evidenced by American Depositary Receipts. Each American Depositary Share Represents one Rio Tinto plc Ordinary Share of 10p each.
** Not for trading, but only in connection with the listing of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

Title of Class

       

Title of Class Shares

None     

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

None      None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

Title of each class

  

Number

  

Number

  

Title of each class

Ordinary Shares of 10p each    1,425,375,466    435,758,720    Shares
DLC Dividend Share of 10p    1    1    DLC Dividend Share
Special Voting Share of 10p    1    1    Special Voting Share

Indicate by check mark if the registrants are well-known seasoned issuers, as defined in rule 405 of the Securities Act.  Yes  x  No  ¨

If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes  ¨  No  x

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:  Yes  x  No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*  Yes  x  No  ¨

 

* This requirement does not apply to the registrant until its fiscal year ending December 31, 2012.

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  x                Accelerated Filer  ¨                 Non-Accelerated Filer  ¨

Indicate by check mark which basis of accounting the registrants have used to prepare the financial statements included in this filing:

 

US GAAP  ¨   

International Financial Reporting Standards as issued

by the International Accounting Standards Board  x

   Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrants have elected to follow:  Item 17  ¨  Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x

This document comprises the annual report on Form 20-F and the annual report to shareholders for the year ended December 31, 2012 of Rio Tinto plc and Rio Tinto Limited (the 2012 Form 20-F). Reference is made to the cross reference to Form 20-F table on pages i to iii hereof (the Form 20-F Cross reference table). Only (i) the information in this document that is referenced in the Form 20-F Cross reference table, (ii) the cautionary statement concerning forward-looking statements on page v and (iii) the Exhibits, shall be deemed to be filed with the Securities and Exchange Commission for any purpose, including incorporation by reference into the Registration Statement on Form F-3 File No. 333-175037, and Registration Statements on Form S-8 File Nos. 333-184397, 33-46865, 333-8270, 33-64380, 333-7328, 333-10156, 333-13988, 333-147914 and 333-156093 and any other documents, including documents filed by Rio Tinto plc and Rio Tinto Limited pursuant to the Securities Act of 1933, as amended, which purport to incorporate by reference the 2012 Form 20-F. Any information herein which is not referenced in the Form 20-F Cross reference table, or the Exhibits themselves, shall not be deemed to be so incorporated by reference.

 

 

 


Table of Contents

Form 20-F Cross Reference Table

 

Item Number    Number Description    Report section reference        

1.

   Identity of directors, senior management and advisors    Not applicable         

2.

   Offer statistics and expected timetable    Not applicable         

3.

   Key Information      

A

   Selected financial information    Performance highlights      v   
      Five Year review      42   
      Dual listed companies structure      127   
      Dividend rights      127   
      Exchange rates      132   

B

   Capitalisation and indebtedness    Not applicable   

C

   Reasons for the offer and use of proceeds    Not applicable   

D

   Risk factors    Risk factors      10-12   

4.

   Information on the company      

A

   History and development of the company    Shareholder information   
     

Organisational structure

     127   
     

Nomenclature and financial data

     127   
     

History

     127   
      Registered offices      232   
      Acquisition and divestments      43   
      Capital projects      44-45   

B

   Business overview    Strategic context      5   
      Group strategy and business model      6-7   
      Group overview      2-3   
      Key performance indicators      8-9   
      Financial review   
     

Iron Ore

     37   
     

Aluminium

     37   
     

Copper

     37   
     

Energy

     38   
     

Diamonds & Minerals

     38   
      Corporate governance   
     

Governmental regulations

     90   

C

   Organisational structure    Financial statements   
     

Notes 34-37

     197-199   

D

   Property, plant and equipment    Metals and minerals production      47-50   
      Ore reserves      51-60   
      Mines and production facilities      62-69   
      Financial statements   
     

Note 14- property, plant and equipment

     174   

4A.

   Unresolved staff comments    None         

5.

   Operating and financial review and prospects      

A

   Operating results   

Aluminium

     22-23   
     

Copper

     24-25   
     

Diamond & Minerals

     26-27   
     

Energy

     28-29   
     

Iron Ore

     30-31   
      Sustainable development      14   

B

   Liquidity and capital resources    Financial review   
     

Cash Flow

     38-39   
     

Statement of financial position

     39   
     

Financial instrument and risk management

     39   
     

Capital and liquidity risk management

     39   
     

Treasury management and financial

  
     

instruments

     40   
      Financial statements   
     

Note 31- financial risk management

     186-194   

 

i


Table of Contents
Item Number    Number Description    Report section reference        

C

   Research and development, patents and licenses    Business support & operations   
     

Exploration

     32   
      Technology & Innovation      33   

D

   Trend information    Group overview      2-3   
      Chairman’s letter      1   
      Chief executive’s statement      4   

E

   Off-balance sheet arrangements    See item 5.A   
      Financial review   
     

Off balance sheet arrangements and contractual commitments

     41   
      Financial statements   
     

Note 32- contingent liabilities and commitments

     195   

F

   Tabular disclosure of contractual obligations    Financial review   
     

Off balance sheet arrangements and contractual commitments

     41   

6.

   Directors, senior management and employees              

A

   Directors and senior management    Board of directors      83-85   
      Executive committee      86   

B

   Compensation    Remuneration report      92-126   
      Remuneration report tables      114 -125   

C

   Board practices    Board of directors      83-85   
      Executive committee      86   
      Corporate governance      72-82   

D

   Employees    Financial statements   
     

Note 5- employment costs

     165   
     

Note 33- average number of employees

     196   

E

   Share ownership    Remuneration report tables   
         

Table 3

     118   

7.

   Major shareholders and related party transactions      

A

   Major shareholders    Shareholder information   
     

Substantial shareholders

     130   
     

Analysis of ordinary shareholders

     130   
     

Twenty largest registered shareholders

     131   

B

   Related party transactions    Financial statements   
     

Note 41- related party transactions

     206   

C

   Interests of experts and counsel    Not applicable         

8.

   Financial Information      

A

   Consolidated statements and other      
   Financial information    See Item 18 below   
      Financial statements   
     

Note 32- contingent liabilities and commitments

     195   
      Shareholder information   
     

Dividends

     131-132   

B

   Significant changes    Financial statements   
         

Note 44- events after the statement of financial position date

     206   

9.

   The offer and listing      

A

   Offer and listing details    Shareholder information   
     

Markets

     129   
     

Share price information

     132   

B

   Plan of distribution   

Not applicable

  

C

   Markets    Shareholder information   
     

Markets

     129   

D

   Selling shareholders    Not applicable   

E

   Dilution    Not applicable   

F

   Expenses of the issue    Not applicable         

 

ii


Table of Contents
Item Number    Number Description    Report section reference        

10.

   Additional Information      

A

   Share capital    Not applicable   

B

   Memorandum and articles of association    Shareholder information   
     

Material contracts

     133-134   
     

Dual listed companies structure

     127-128   

C

   Material contracts    Shareholder information   
     

Material contracts

     133-134   

D

   Exchange controls    Shareholder information   
     

Exchange controls and foreign investment

     134   

E

   Taxation    Shareholder information   
     

Taxation

     135-137   

F

   Dividends and paying agents    Not applicable   

G

   Statement by experts    Not applicable   

H

   Documents on display    Shareholder information   
     

Document on display

     137   

I

   Subsidiary information    Not applicable         

11.

   Quantitative and qualitative disclosures about market risk    Financial review      34-41   
      Cautionary statement about   
          forward looking statements      v   

12.

   Description of securities other than equity securities    Shareholder information   
     

Markets

     129-130   

13.

   Defaults, dividend arrearages and delinquencies    Not applicable         

14.

   Material modifications to the rights of security holders and use of proceeds    Not applicable         

15.

   Controls and procedures    Corporate governance   
         

Financial reporting

     81-82   

16.

        

A

   Audit committee financial expert    Corporate governance   
     

Audit committee

     75-76   

B

   Code of ethics    Corporate governance   
     

Global code of conduct

     80   

C

   Principal Accountant fees and services    Director’s report   
     

Fees for audit and non-audit services

     91   
      Corporate governance   
     

Governance process

     75-76   
     

Auditors

     91   
      Financial statements   
     

Note 40- Auditors remuneration

     205   

D

   Exemptions from the listing standards for audit committees    Not applicable   

E

   Purchases of equity securities by the issuer and      
   affiliated purchasers    Directors’ report   
     

Share capital

     88   
     

Purchases

     89   

F

   Change in Registrant’s Certifying Accountant    Not applicable   

G

   Corporate Governance    Corporate governance   
     

Statement of compliance with governance codes and standards in 2012

     72   

H

   Mine safety disclosure    Exhibit 99.1      14   

17.

   Financial statements    Not applicable         

18.

   Financial statements    Report of independent registered public accounting firms      226   
          Consolidated financial statements      138-223   

19.

   Exhibits              

 

iii


Table of Contents

LOGO

 

 

 

LOGO

2012 Annual report

 

 

 

Overview

Performance highlights      v   
Chairman’s letter      1   
Group overview      2   
Chief executive’s statement      4   
Strategic context      5   
Group strategy and business model      6   
Key performance indicators      8   
Risk factors      10   

 

Performance

Sustainable development      14   
Product groups   

Aluminium

     22   

Copper

     24   

Diamonds & Minerals

     26   

Energy

     28   

Iron Ore

     30   
Business Support & Operations      32   

Exploration

     32   
Technology & Innovation      33   
Financial review      34   
Five year review      42   
Acquisitions and divestments      43   
Capital projects      44   

 

Production, reserves and operations

Metals and minerals production      47   
Ore reserves      51   
Mines and production facilities      62   

Governance

Letter from the chairman      71   
Corporate governance      72   
Board of directors      83   
Executive Committee      86   
Directors’ report      87   
Remuneration Report – Letter from the chairman      92   

Remuneration Policy Report

     95   

Remuneration Implementation Report

     102   

Remuneration Report appendix – tables

     111   
Shareholder information      127   

Financial statements

Detailed contents      138   
Group income statement      139   
Group statement of comprehensive income      140   
Group cash flow statement      141   
Group statement of financial position      142   
Group statement of changes in equity      143   
Reconciliation with AAS      145   
Outline of dual listed companies structure and basis of financial statements      145   
Notes to the 2012 financial statements      146   
Financial information by business unit      219   
Summary of ASIC relief      223   
Report of independent registered public accounting firms      226   

Additional information

Financial calendar      231   
Useful information      232   
 
 

 

iv


Table of Contents

2012 Annual report

 

 

This report forms part of our

2012 corporate reporting suite.

You can view our Annual report,

Annual review and Sustainable

development report online at:

riotinto.com/reportingcentre2012

 

LOGO

 

Annual review: Highlights from

around our business, including a

summary of our 2012 performance

 

Sustainable development report:

Our sustainable development

strategy and performance,

and our approach in action

 

LOGO

 

Scan this code to view the reporting

centre on your mobile or tablet

  

Performance highlights

 

2012 financial results

Our underlying financial results reflect record iron ore production and shipments and a second half recovery in copper volumes. This was in the context of lower average market prices in 2012 which reduced underlying earnings by US$5.3 billion compared with 2011:

 

•      Underlying earnings1 of US$9.3 billion.

 

•      Net loss of US$3.0 billion after impairments of US$14.4 billion, primarily relating to aluminium businesses as well as coal assets in Mozambique.

 

•      15 per cent increase in full year dividend to 167 US cents per share.

  

  

    

         

          

         

  

12 months to 31 December

(All amounts are US$ millions unless otherwise stated)

     2012         2011         Change   
   Underlying earnings1      9,303         15,549         -40%   
   Net (loss)/earnings1      (2,990)         5,826         -151%   
   Cash flows from operations      16,450         27,388         -40%   
   Capital expenditure      17,418         12,298         +42%   
   Underlying earnings per share – US cents      503.1         808.5         -38%   
   Basic (loss)/earnings per share from continuing operations – US cents      (161.3)         303.5         -153%   
   Ordinary dividends per share – US cents      167.0         145.0         +15%   
  

The financial results are prepared in accordance with IFRS.

 

1.   Underlying earnings is the key financial performance indicator which management uses internally to assess performance. It is presented here to provide greater understanding of the underlying business performance of the Group’s operations attributable to the owners of Rio Tinto. Net earnings and underlying earnings relate to profit attributable to owners of Rio Tinto. Underlying earnings is defined and reconciled to net earnings in note 2 on page 162.

  

         

           
           
           
           
           
           
           
           
           
           
           
           
           
           

 

 

This Annual report complies with Australian and UK reporting requirements.

 

Copies of Rio Tinto’s shareholder documents are available on the website at riotinto.com. They can also be obtained free of charge from the Company. Some shareholders may prefer to receive the Annual review which contains summary financial statements for 2012, although shareholders should note that it does not allow as full an understanding of the Group as the Annual report.

 

Cautionary statement about forward-looking statements

This document contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Rio Tinto Group. These statements are forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, and Section 21E of the US Securities Exchange Act of 1934. The words “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believes”, “expects”, “may”, “should”, “will”, or similar expressions, commonly identify such forward-looking statements.

 

Examples of forward-looking statements in this Annual report include those regarding estimated ore reserves, anticipated production or construction dates, costs, outputs and productive lives of assets or similar factors. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors set forth in this document that are beyond the Group’s control. For example, future ore reserves will be based in part on market prices that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, demand for our products, changes to the assumptions regarding the recoverable value of our tangible and intangible assets, the effect of foreign currency exchange rates on market prices and operating costs, and activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty.

 

In light of these risks, uncertainties and assumptions, actual results could be materially different from projected future results expressed or implied by these forward-looking statements which speak only as to the date of this Annual report. Except as required by applicable regulations or by law, the Group does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward-looking statements will not differ materially from actual results.

 

v

 


Table of Contents

Chairman’s letter

 

Our business performed well in 2012, generating strong cash flows and underlying earnings of US$9.3 billion. Although lower than last year, principally due to lower commodity prices and higher costs, these results demonstrate the quality of our assets and the sustainable cash-generating abilities of our underlying businesses.

However, as foreshadowed at the beginning of the year, we recorded impairments of US$14.4 billion, resulting in the Group reporting a net loss of US$3 billion for 2012. These write-downs are deeply disappointing. In particular the substantial impairment of our Mozambique coal business is unacceptable.

Following these impairments, Tom Albanese stood down from the board by mutual agreement, recognising his accountability as chief executive for these impairments. On behalf of the board, I would like to acknowledge Tom’s contribution and dedication to the company over his 30 years of service.

The board’s objective is to ensure that the business delivers sustainable growth in value to you, our shareholders. Your directors are confident that Sam Walsh, who succeeded Tom Albanese as chief executive, will lead a renewed and focused organisation to do just this and we are working closely together with this objective in mind.

Disciplined capital management

Your board aims to unlock greater value for our shareholders through investing in the best opportunities to deliver attractive returns that are well above our cost of capital.

Recent events demonstrate that there is a need for greater discipline across our business, particularly in the way we manage and allocate capital. Under Sam’s leadership, we will be simplifying and strengthening our systems in this area, and seeking greater accountability for decision-making across the organisation.

Your board regularly evaluates opportunities put forward by the business against all competing uses for cash, striving to achieve the right balance between disciplined investment, strengthening our balance sheet and returning cash to investors.

Our commitment to a strong balance sheet, ensures discipline and flexibility in our investment approach, helping us to build a robust and strongly performing business over the long term.

Our confidence is reflected in the 15 per cent increase in our annual dividend in 2012. Our cash returns to shareholders totalled US$4.5 billion in 2012, including completion of the Group’s US$7 billion share buy-back programme as well as the ordinary dividend payment.

Focus of the board

One of the primary roles of Rio Tinto’s board is to provide oversight of strategy development and delivery, while maintaining the highest standards of corporate governance.

The board conducted its annual strategy review with the executive team in September, reaffirming our commitment to invest in and operate large, long-term, expandable, low-cost mines and businesses. The board also took the opportunity in 2012 to visit a number of the Group’s operations in Australia and Southern Africa to gain a deeper understanding of the strategic issues at play.

Amidst continuing volatility in the global economy and major structural shifts affecting the sector, improvements need to be made in how we execute this strategy. The board has tasked Sam Walsh and his executive team with ensuring we improve capital allocation, deliver our growth projects and improve productivity at all of our sites, while building on our industry leading capabilities in areas such as stakeholder engagement and sustainable development.

As geopolitical risks continue, we have continued to look for new ways to form more effective relationships and partnerships around the world. Rio Tinto has always taken its role as a responsible business very seriously.

We believe earning the trust of our host communities and governments is vital in creating sustainable shareholder value. As the company enters its 140th year of operation this year, we recognise we wouldn’t still be in business without the support of our many stakeholders.

In 2012, considerable time was spent engaging with investors on issues ranging from our capital allocation methodology to executive remuneration. More recently, we undertook an assessment of board effectiveness and, for the first time, the board’s annual evaluation was conducted by an independent expert. Considerable attention will be given to the outcomes of our shareholder engagement and this evaluation exercise in the year to come.

In my letter last year, I commented on the importance of succession planning. My goal is to make sure the board combines a broad set of skills and international experience. Rio Tinto’s board should be diverse in the widest sense with the best blend of appropriately skilled and experienced people from our industry, but also outside of it.

We announced last year that Guy Elliott will step down from the board at the end of 2013. I would like to thank Guy for his invaluable contribution over 33 years with the company. Chris Lynch, who joined the board as a non-executive director in 2011, will formally succeed Guy as chief financial officer on 18 April at the conclusion of the Rio Tinto plc annual general meeting. We are fortunate to have appointed someone so well-qualified to take over from Guy.

As well as succession planning, the board committees have always played an important oversight role, freeing the board to focus on strategic matters. All of our committees have been very active this year and have dealt with a number of challenges. I would like to record my personal appreciation to all of the directors who have been unstinting in their considerable support in a challenging year.

Our Remuneration Committee has taken a fresh look at our reward structures to ensure we recruit, motivate and retain the best talent, but not at any cost. I believe our approach to rewarding our people must balance the company’s priorities of driving financial performance, meeting our expectations as a corporate citizen and creating greater value for our shareholders.

Looking ahead

The wider world did not stand still in 2012. The macroeconomic environment remained volatile, and prices for our products were generally lower than the year before. However, the global economy ended the year in a healthier state than forecast, with a recovery in China, and greater confidence in a recovery in the Organisation for Economic Co-operation and Development (OECD) countries.

We remain very positive about the long-term future of our business. As billions of people move from rural to urban areas over the coming decades, there will be increased demand for the metals and minerals we produce.

This is a great company, pursuing a consistent strategy with a renewed executive team and excellent people. I thank you and all of our employees for your continued support. When I report back to you on Rio Tinto’s progress at this point next year, I am sure I will be reporting on an even stronger and safer organisation focused on delivering value for each of you, our shareholders.

 

LOGO

 

 

Jan du Plessis

Chairman

6 March 2013

 

LOGO

 

 

 

riotinto.com    1


Table of Contents

Group overview

 

Introduction to Rio Tinto

Rio Tinto is a leading international mining group that focuses on finding, mining and processing the Earth’s mineral resources in order to maximise shareholder value. We have a diverse portfolio and a global presence: our 71,000 people work in more than 40 countries.

To deliver superior returns to shareholders over time, we take a long-term and responsible approach to our activities. This means concentrating on developing first-class orebodies into large, long-life and efficient low-cost operations, capable of providing competitive returns through business cycles.

Sustainable development is integrated into everything we do. Our operations give us the opportunity to bring long-lasting positive change to the communities, regions and countries in which we work, and our metals and minerals are transformed into end products that contribute to higher living standards.

Our responsible approach to mineral development ensures we gain and maintain our licence to operate. It means we provide confidence to our stakeholders, and improve our access to the mineral resources, people and capital we need. Our five product groups summarised below are supported by our Exploration and Technology & Innovation groups (also see pages 22 to 31).

 

 

Aluminium product group

Building on more than a century of experience and expertise, Rio Tinto Alcan is a global leader in the aluminium industry. Our fully-integrated facilities include high-quality bauxite mines, large-scale alumina refineries, and some of the world’s lowest-cost, most technologically-advanced primary aluminium smelters.

Bauxite production (2012 vs 2011)

+11%

Products

Bauxite

Bauxite is the natural ore used to make aluminium. It is refined into alumina which is smelted into aluminium metal. Our wholly-owned and joint venture bauxite mines are located in Australia, Brazil and Guinea.

Alumina

Alumina (aluminium oxide) is extracted from bauxite via a refining process. Approximately four tonnes of bauxite are required to produce two tonnes of alumina, which in turn makes one tonne of aluminium metal. Our wholly-owned and joint venture alumina refineries are located in Australia, Brazil and Canada.

Aluminium

Aluminium is a unique and versatile modern metal. Light, strong, flexible, non-corrosive and infinitely recyclable, aluminium is one of the most widely-used metals. Its largest markets are transportation, machinery and construction. Our smelters are mainly concentrated in Canada. We also have plants in France, Cameroon, Iceland, Norway, the UK and the Middle East.

Key strengths

Ÿ   Access to the largest and best-quality bauxite reserves in the industry.

 

Ÿ   Industry-benchmark smelting technology.

 

Ÿ   Enviable hydropower position, which delivers significant cost and other advantages in today’s carbon-constrained world.

 

Ÿ   Industry-leading cost position for aluminium smelting, and moving into the second quartile of the cost curve for alumina refining.

 

Ÿ   Lowest-cost quartile for bauxite production.
Key production locations    Key sales destinations

Ÿ   Canada

  

Ÿ   Asia

Ÿ   Europe

  

Ÿ   Americas

Ÿ   Australia

  

Ÿ   Europe

Full operating review on page 22.

 

 

Copper product group

Rio Tinto’s Copper group has a global presence and holdings in some of the world’s largest copper mines. We are among the world’s largest producers of copper, gold and molybdenum, and are uniquely positioned to deliver exceptional long-term value due to our high-quality assets, leading technology and a keen focus on managing costs and improving efficiency.

Mined copper production (2012 vs 2011)

+6%

Products

Copper

The world uses more than 19 million tonnes of copper every year. Copper’s malleability, strength and conductivity make it useful in a broad range of building, construction and electrical applications. Copper is found in nearly every home and vehicle and is a critical element of today’s industrialised world.

Gold

Gold’s conductivity and non-corrosive properties make it a vital fabrication material in technology, electronics, jewellery, space exploration and dentistry. Rio Tinto is currently one of the top 15 gold producers in the world, and the largest among the diversified miners. We have interests in two of the largest gold resources, at Oyu Tolgoi and Grasberg. The latter contains the largest gold reserves in the world.

Silver

Silver has very good electrical and thermal properties. It is used in many electrical and electronic applications, such as photovoltaic cells, and is the principal ingredient of x-ray film. Silver is also regarded as a precious metal used as an investment and to make jewellery.

Molybdenum

Molybdenum is a metallic element frequently used to produce stainless steel and other metal alloys. It enhances the metal’s toughness, high temperature strength and corrosion resistance.

Key strengths

Ÿ   Participation in and ownership of high-quality, low-cost assets with meaningful opportunities for expansion and efficiencies.

 

Ÿ   Management of the Oyu Tolgoi project, scheduled to be a top five copper producer and a significant gold producer.

 

Ÿ   Investment in substantial growth projects.

 

Ÿ   Industry-leading technology and innovation.

 

Key production locations    Key sales destinations

Ÿ   US

  

Ÿ   US

Ÿ   Chile

  

Ÿ   China

Ÿ   Mongolia

  

Ÿ   Japan

Full operating review on page 24.

 

 

 

 

 

2    Rio Tinto 2012 Annual report


Table of Contents

Diamonds & Minerals product group

The Diamonds & Minerals group comprises mining, refining and marketing operations across four sectors. Rio Tinto Diamonds is one of the world’s leading diamond producers, active in mining, sales and marketing. Rio Tinto Minerals is a world leader in borates, with mines, processing plants, commercial and research facilities. Dampier Salt is one of the world’s largest producers of seaborne salt. Rio Tinto Iron & Titanium is an industry leader in high grade titanium dioxide feedstocks. The Diamonds & Minerals group also includes the Simandou iron ore project in Guinea.

Titanium dioxide production (2012 vs 2011)

+11%

Products

Diamonds

Diamonds share a role with gold as an important component in jewellery that ranges from top-end jewellery through to more affordable diamond jewellery accessories. Rio Tinto is able to service both established and emerging markets as it produces the full range of diamonds in terms of size, quality and colour distribution.

Borates

Refined borates are used in hundreds of products and processes. They are a vital ingredient of many home and automotive applications, and are essential nutrients for crops. They are commonly used in glass and ceramic applications including fibreglass, television screens, floor and wall tiles, and heat-resistant glass.

Salt

Salt is one of the basic raw materials for the chemicals industry and is indispensable to a wide array of automotive, construction and electronic products, as well as for water treatment, food and healthcare.

Titanium dioxide

The minerals ilmenite and rutile, together with titanium dioxide slag, can be transformed into a white titanium dioxide pigment or titanium metal. The white pigment is a key component in paints, plastics, paper, inks, textiles, food, sunscreen and cosmetics. Titanium metal’s key properties of light weight, chemical inertness and high strength make it ideal for use in medical applications and in the aerospace industry.

Other products include high purity iron, metal powders, zircon and rutile.

Key strengths

Ÿ   Poised to benefit from late-cycle demand growth.

 

Ÿ   Substantial brownfield and greenfield development pipeline including the Simandou project in Guinea.

 

Key production locations    Key sales destinations

Ÿ   North America

  

Ÿ   North America

Ÿ   Australia

  

Ÿ   China

Ÿ   South Africa

  

Ÿ   Japan

Full operating review on page 26.

 

 

Energy product group

We are a leading seaborne supplier of thermal and coking coal to Asian customers and are one of the world’s largest uranium producers, serving electric power utilities worldwide. The Rio Tinto Energy product group has operations, exploration and development projects in Australia, southern Africa and Canada.

Thermal coal production (2012 vs 2011)

+16%

Products

Coal

Coal is abundant, relatively inexpensive and safe and easy to transport. We are a large supplier to the export thermal coal market. Thermal coal is used for electricity generation in power stations. We also produce higher-value coking, or metallurgical, coal which, when mixed in furnaces with iron ore, produces steel.

Uranium

Uranium is one of the most powerful natural energy sources known, used in the production of clean, stable, base-load electricity. After uranium ore is mined, it is milled into uranium oxide – the mine product that is sold for processing into fuel rods for use in nuclear power stations.

Key strengths

Ÿ   Strong customer relationships and high-quality assets located in close proximity to growing Asian markets.

 

Ÿ   Success in operating long-life, cost-competitive mines and businesses.

 

Ÿ   World-class growth opportunities including brownfield expansions at our existing coal operations in Australia and greenfield uranium exploration opportunities in the Athabasca Basin in Canada.

 

Ÿ   Strong product stewardship strategy including investment in technologies to reduce emissions from our products.

 

Key production locations    Key sales destinations

Ÿ   Australia

  

Ÿ   Japan

Ÿ   Namibia

  

Ÿ   South Korea

Ÿ   Mozambique

  

Ÿ   Europe

Full operating review on page 28.

 

 

Iron Ore product group

We are the second-largest producer supplying the global seaborne iron ore trade. After a decade of rapid expansion in Australia, and more recent growth in Canada, we are well positioned to benefit from the continuing strong demand in China and other Asian markets. We are driving performance through effective project management and value-adding operational efficiencies.

Iron ore production (2012 vs 2011)

+4%

Products

Iron ore

Iron is the key ingredient in the production of steel, one of the most fundamental and durable products for modern-day living, with uses from railways to paperclips. Our iron ore mines are located in Australia and Canada.

Key strengths

Ÿ   Proximity of the expanded Pilbara operations in Australia to the world’s largest and fastest growing markets.

 

Ÿ   Success in increasing operational efficiency and controlling costs.

 

Ÿ   Vast potential of brownfield developments near existing infrastructure.

 

Ÿ   Proven success in implementing large-scale and complex, value-generating major projects on time and budget without significant impact on operational efficiency.

 

Key production locations    Key sales destinations

Ÿ   Australia

  

Ÿ   China

Ÿ   Canada

  

Ÿ   Japan

  

Ÿ   South Korea

Full operating review on page 30.

 

LOGO

 

 

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Chief executive’s statement

 

I am proud to be leading your company and am committed to building a stronger business focused on pursuing greater value for you, our shareholders.

My more than 20 years’ experience with Rio Tinto, including as a member of the board for the past four years, has shown me that we have great assets, outstanding people and the right strategy. We will now have a single-minded focus on how we deliver this strategy in every market in which we operate, everywhere around the world.

I place the highest importance on upholding our values and ensuring safety is paramount in everything we do.

In 2012, while we did experience safety improvements, there were two fatalities at our managed operations and, earlier this year, a fatality at our La Granja project in Peru. I will never let up in my constant efforts to improve safety, to reinforce our strong safety culture, and to ensure that every employee and contractor plays their part in making our workplaces safer.

Highlights of 2012

The pattern of market uncertainty and volatility we have seen since the global financial crisis continued in 2012. Yet despite this, our underlying financial results were solid, indicating the fundamental strength of our businesses.

This was mainly driven by a strong operational performance from some of our businesses. Our iron ore business delivered record production and shipments, and our copper business showed a second half recovery in copper volumes.

We also experienced production increases in bauxite, alumina, thermal coal and titanium dioxide feedstock.

The mining sector has experienced unacceptable levels of cost increases over the past five years. During 2012 all of our management teams were focused on improving productivity to ensure our assets are at the lower end of the total cost curve.

We are continuing to see the benefits of cost savings from our aluminium transformation programme and through the review of support and service costs across the business – but clearly much more remains to be done.

We are taking a more aggressive approach to assets in our portfolio that no longer fit our strategy. We achieved further cash proceeds from our divestment programme in 2012, with the sale of several non-core businesses including Lynemouth Power Station, the North American and Chinese portions of the Alcan Cable business, our Specialty Alumina division, and we secured a binding agreement to sell our interest in Palabora. We also made good progress on exploring options for our Pacific Aluminium and Diamonds businesses. This focus will continue in 2013.

Growth programme

Our total capital expenditure for 2012 was US$17.4 billion, reflecting investment in the high value growth of our business, in particular our world-leading iron ore operations in the Pilbara and the greenfield copper-gold project, Oyu Tolgoi, in Mongolia.

We also continued to invest in a number of other growth projects throughout 2012, such as our iron ore project in Guinea, our aluminium smelting project in Kitimat, and a project to extend the life of the Group’s Kennecott Utah Copper mine.

2012 was our peak capital expenditure year and, given our commitment to greater capital discipline, we are reviewing all capital commitments in 2013.

Delivering our strategy

Under my watch, our strategy will not change – but how we deliver it will. We will consistently execute our strategy in all of our markets with a focus in three key areas in 2013:

 

1. Strengthen capital allocation and discipline.

Prioritise our capital expenditure on the highest quality projects and improve the way we manage capital. In addition, we are taking a more aggressive portfolio approach to divest assets that no longer fit our strategy.

 

2. Reduce costs and improve performance at our existing operations.

Our immediate priority is to improve performance at our existing businesses by unlocking productivity improvements, aggressively reducing operating and support costs, controlling sustaining capital spend and leveraging our expertise across all stages of our operations. We are targeting cumulative cash cost savings of over US$5 billion over the next two years, which will see an annual run rate improvement of US$3 billion by the end of 2014.

 

3. Deliver our approved growth projects.

During 2013, we continue to focus on delivering our two significant growth projects – our Iron Ore business in Australia and our Oyu Tolgoi copper-gold project in Mongolia – in a risk-managed, value-enhancing manner. See page 6 for more detail on what you can expect from us in 2013. In my drive to increase accountability, I have made some changes to my executive team. I welcome two new members – Jean-Sébastien Jacques and Chris Lynch – and congratulate Andrew Harding on his move to head our iron ore business. I have also announced some further streamlining of my executive team, reducing my direct reports from 11 to nine.

Ongoing commitment

We expect market uncertainty and price volatility to persist in 2013, but there are positive signs emerging. In China specifically, momentum is growing under its new leadership, and we expect to see Chinese GDP growth above eight per cent in 2013.

China will remain important to us, but I also expect to see strong demand growth from India, Indonesia and other South East Asian countries as they also urbanise and industrialise. It is this outlook that gives us confidence to invest in high-value growth projects, and underpins our expectation of strong future cash generation.

The company has a renewed and strong leadership team, supported by outstanding people. I would like to thank our 71,000 employees around the world for their dedication and resilience. In many parts of our operations we faced some testing times and there will be more to come.

I remain fully confident in the long-term prospects of the business. We have the right strategy to deliver sustainable growth over the long term to meet the world’s resourcing needs. In the short term, I am certain of what needs to be done and we are taking decisive steps with a clear plan to build a stronger, more accountable business.

Finally, I would like to thank you, our shareholders, for your continued support. I am committed to making a real difference – building on Rio Tinto’s strong foundations to put us firmly on the path of delivering greater shareholder value.

 

LOGO

 

Sam Walsh

Chief executive

6 March 2013

 

 

4    Rio Tinto 2012 Annual report


Table of Contents

Strategic context

 

Global economy

The global economy continues to deal with the aftermath of the global financial crisis (GFC) and associated volatility. European policymakers held successive summits during 2012 to tackle tensions from excessive sovereign debt levels in the eurozone, and debate the balance between austerity and growth policies.

In the US, employment remained below 2008 levels, forcing the Federal Reserve to launch a third round of quantitative easing to further stimulate a recovery.

In contrast, the Chinese government maintained policies to control inflation and other effects from the 2009 stimulus and excess liquidity. This led to a sharper slowdown than expected during the third quarter of 2012 in China, contributing to fears that the global economy was heading for a new recession.

Political leadership transition in China added to the perception of uncertainty in 2012, forcing markets towards greater risk aversion. This was felt strongly in commodity markets, with prices for some metals and minerals experiencing large fluctuations during the year. On average, prices for most commodities were ten to 20 per cent lower than in 2011, although they remained at high levels in the longer historical context. Cost escalations, project delays and other supply constraints continued, in many cases, to offset a weaker and more uncertain demand growth environment.

Towards the end of 2012, several encouraging developments started to emerge. In Europe, action from the European Central Bank, combined with the release of bailout funds for Greece, reduced the likelihood of a Greek departure from the eurozone in 2013. It also provided European governments with more time to work towards further integration and greater resilience.

Economic activity started to pick-up again in China in the final quarter of 2012, alleviating fears of a hard-landing. Although liquidity controls in China are expected to remain in place, we would expect positive momentum to be carried into 2013, with Chinese GDP growth for the year moving back to just above eight per cent.

There remain many risks that could derail a stabilisation and improvement in global activity, including continued tensions in the Middle East. We expect volatility to remain a feature of our markets in 2013.

Our belief in the underlying and longer-term trend of rising prosperity in Asia remains unchanged. This will ultimately contribute to support and sustain an elevated level of global economic growth over the next couple of decades. While recognising that the commodity-intensive growth in China is maturing, the industrialisation and urbanisation forces associated with the economic development of emerging countries will continue to support demand for commodities.

Commodity markets

Commodity markets started 2012 relatively positively, with prices for most metals and minerals making a continued recovery from the declines experienced in the second half of 2011. However, prices largely peaked during the first quarter of 2012, sliding downwards throughout the rest of the year, with a sharp correction in the third quarter in the iron ore market. The price trends and volatility reflected the OECD macro-uncertainties described above and concerns from the market that China’s slowdown was signalling the end of investment-led, steel-intensive growth.

China is entering an important and necessary transition phase to rebalance its economy towards consumption-led growth. The near-term reform agenda remains unclear and is likely to generate volatility and uncertainty. Reforms and a rebalancing of the economy will ultimately be a positive development for the sustainability of growth in China. Overall, we expect a falling level of demand intensity for early development phase commodities, but absolute demand growth should remain strong over the next two decades and new opportunities will arise for late-cycle

commodities such as titanium dioxide and other industrial minerals. Our view remains that China’s steel demand will peak at around one billion tonnes per annum towards 2030. Over this timeframe, India and countries in South East Asia are expected to become increasingly important sources of demand for commodities, including steel.

Increasing capital intensity for mining projects was a persistent trend in 2012. This was a reflection of continued real labour cost escalation, declining resource grades and increased mining projects complexity. Through 2012 the mining industry also continued to face increased stakeholder pressures, highlighting the importance of proactive stakeholder engagement and good track records in sustainable development. Nevertheless, rising threats of resource nationalism, greater rent extraction by governments, or simply increased uncertainty, have implications for the economics and feasibility of projects across the industry.

Combined with significant price volatility and stronger calls from investors for near-term returns over long-dated options, these supply challenges are resulting in further investment delays and deferrals. Iron ore and copper projects are being particularly impacted.

Largely due to the supply-side challenges, copper prices remained at levels equivalent to pre-GFC prices throughout 2012. This is in sharp contrast with the aluminium market, where capacity and production in China continue to match the rapid pace of demand. Even so, physical market premia for aluminium reached new records in 2012. The availability of profitable financing deals continued to lock in access to surplus metal. Thermal coal was another market with less favourable supply and demand dynamics in 2012. Prices came under constant pressure throughout the first half of the year. Finally, following continued strong upward momentum at the start of 2012, rutile and zircon prices faced heavy downward pressures during the second half of the year from reduced Chinese buying.

Lower prices and continued cost escalations have put increasing pressure on margins across the mining industry. This is particularly true in Australia where the dollar has remained resilient to falling commodity prices. The country has attracted money-flows from investors reallocating funds away from Europe. The industry in general is starting to respond to the squeeze on margins through a renewed focus on productivity.

Outlook

As the world economy returns to the trend rate of growth, rising incomes and increased prosperity in developing countries – with associated industrialisation and urbanisation – will continue to drive demand for commodities. Looking to the future, our view remains that there will be high average demand growth in our markets while cost escalations and stakeholder pressures remain key challenges to grow future supply.

 

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Group strategy and business model

 

 

 

Pursuing greater value for shareholders

 

 

 

 

The global economic outlook remains uncertain and volatile. This requires us to have a clear and consistent strategy designed to support a single commitment: the pursuit of greater value for our shareholders. To achieve this we are building an even stronger, more focused, and more accountable organisation.

  Objective   Strategy
  Maximising total shareholder return by sustainably finding, developing, mining and processing natural resources.   Investing in and operating large, long-term, expandable, low-cost mines and businesses, driven by the quality of each opportunity in the most attractive industry sectors.
   
   
   

 

Shared value

Pursuing greater value for our shareholders means delivering superior returns for the people who own and invest in our company. We will do this while maintaining a focus on safety and by staying true to our core values, wherever we operate.

 

Delivering superior shareholder value brings with it the opportunity to share our success with many of our other stakeholders. For host governments and communities, it means ensuring widespread and lasting economic benefits. For our customers, it means delivering what they need to be successful. And for our employees, it means creating opportunities to learn and grow in a world-class business.

 

A consistent strategy

As we continue to face short-term uncertainty and pricing volatility in many of our markets, our strategy remains the right one: to invest in and operate large, long-term, expandable, low-cost mines and businesses. This strategy has served us well over many years and we have full confidence that it will continue to do so in the future.

 

The opportunities we pursue are driven by quality and will be in the most attractive industry sectors. We are convinced of the benefits of owning a diversified asset portfolio, provided this is achieved in a way that maximises value for our shareholders. We look for high-quality assets in the right industry sectors that provide superior returns throughout the economic cycle – with options for growth when the time is right. And we will realise value by divesting businesses that are no longer in line with our strategy.

 

We will apply a disciplined and rigorous investment process to ensure that capital is invested only in assets that, after prudent assessment, offer attractive returns, well above our cost of capital. Our approach balances investment to grow the value of the business and returns to shareholders, while aiming to maintain a strong balance sheet.

 

Our strategy is underpinned by our leading capabilities across the value chain and we intend to deepen our expertise and leadership in these areas.

 

Industry-leading capabilities

We have been in business for 140 years. During this time, we have built a deep understanding and expertise in industry-leading capabilities such as sustainable development, technology and innovation, exploration, marketing and operational excellence. We believe these capabilities will support us in our renewed focus on delivering greater value for our shareholders.

 

We have world-class businesses, such as our industry-leading iron ore operations in Australia, and we are developers and owners of what will be a top-five copper and gold mine in the Gobi desert of Mongolia.

 

We have pioneered several world-leading mining and processing technologies. We are the owner of the world’s largest fleet of driverless trucks, which are operated from a control centre some 1,500km away. We are using our expertise in technology and innovation to drive safety and productivity improvements across all of our businesses.

 

 

Business model

We create and preserve value through investing in and operating large-scale, long-term, low-cost mines and businesses. The nature of our business means that the life of an orebody may span many decades. Throughout the life of a business, from initial exploration to final closure and restoration, we commit to the highest standards of sustainable development

 

LOGO

 

6    Rio Tinto 2012 Annual report


Table of Contents

We also have long experience of building and maintaining relationships wherever we operate. The success of our business is underpinned by doing things the right way and by staying true to our values. Our outstanding people live these values day in and day out wherever we operate around the world.

Even so, we know there is more we can do and we will be reinforcing discipline and accountability throughout the organisation. Simply put, our leaders and employees will have clear targets and be held accountable for their individual performance, which will be rewarded with career growth and development opportunities. Our people must run the business as owners, not managers.

In parallel, we will also strengthen our management and approval systems – bringing greater rigour to investment decisions, and implementing effective checks and balances with clearer lines of sight to critical business issues.

What you can expect from us this year

Consistent execution of our strategy in every market, in all of our businesses, is how we will deliver value this year. In 2013, we will reduce costs, deliver our approved growth projects, reshape the portfolio, and build a more accountable business.

This year, our efforts will be focused in three key areas:

 

  1. Reinforcing capital allocation and discipline.

 

  2. Reducing costs and improving performance at our existing operations.

 

  3. Delivering our approved growth projects.

Reinforcing capital allocation and discipline

We will prioritise our capital expenditure on the highest-quality projects and improve the way we manage capital. In addition, we are taking a more aggressive portfolio approach to assets that no longer fit our strategy. We will:

 

  Ÿ   Simplify and strengthen our process for allocating capital.

 

  Ÿ   Review capital expenditure plans across all of our businesses, as we do every year.

 

  Ÿ   Streamline our portfolio through divestments – targeting significant cash proceeds in 2013.
Ÿ   Invest only in new projects that provide attractive returns, well above cost of capital, and which compare favourably to other uses of capital.

Reducing costs and improving performance in our businesses

Our immediate priority is to improve performance at our existing businesses by unlocking productivity improvements, aggressively reducing operating and support costs, controlling sustaining capital spend and leveraging our expertise across all stages of our operations. We will:

 

Ÿ   Improve our safety performance in 2013.

 

Ÿ   Deliver our cumulative US$5 billion cash cost-reduction target by the end of 2014.

 

Ÿ   Reduce exploration and evaluation spending by US$750 million (pre-tax) in 2013 compared with 2012.

 

Ÿ   Achieve targeted reductions of US$1 billion in our sustaining capital expenditure compared with 2012.

Delivering approved growth projects

During 2013, we are committed to delivering our two significant growth projects: in our Iron Ore business in Australia and in our copper-gold project in Mongolia – in a risk-managed, value-enhancing manner. We will draw upon our leadership capability in stakeholder engagement to help us build enduring relationships with our host governments and communities.

 

Ÿ   Pilbara 290 first production accelerated to the third quarter of 2013.

 

Ÿ   Oyu Tolgoi scheduled for first production in 2013. Discussions with the Government of Mongolia regarding the continuing implementation of the Investment Agreement are ongoing.

Achievement of our strategy is measured by a mixture of financial and non-financial performance indicators, some of which we link to executive remuneration. See page 8.

 

 

 

 

Explore and evaluate

Our experienced, in-house exploration team has a proven track record of discovering large, long-life orebodies. The team creates further value from its identification of opportunities for the brownfield expansion of our existing assets. Our orebody knowledge allows us to innovate value-enhancing approaches to developing, operating and expanding our resources and positioning our products in the market.

Develop

We develop orebodies with long-term value delivery in mind. We allocate investment only to assets that, after prudent assessment, offer attractive returns that are well above our cost of capital. During this phase, we plan the optimal configuration for developing the orebody and for getting our products to market. We work closely with our customers to create demand in the market for the grade of product that enables us to maximise the value of the orebody over its lifecycle. Once the value of the resource is confirmed, and internal and external approvals are received, the project moves into implementation and construction.

Mine and process

We create value by safely and efficiently operating assets that fit with our Group strategy. Our global presence and management structure allow us to implement standard operating and maintenance practices across the Group. This reduces our use of consumables, increases the life of our equipment

and optimises the extraction of ore. In turn, we enjoy higher production, reduced costs and value maximisation. We use world-class technologies during mining and processing to increase our efficiency and productivity, and to produce material that is tailored to our customers’ needs.

Market and deliver

The majority of our customers are industrial companies that further process our products to supply numerous industries – construction and infrastructure, automotive, industrial machinery and equipment, energy and consumer goods markets. We invest in long-term partnerships and innovate and improve our products and services to maximise product value to customers. We are constantly adding to our significant knowledge of our markets and value chain, allowing us to improve our investment decision-making process. In many cases, we are responsible for delivering product to our customers. We do this in a variety of ways, but always efficiently, reliably and cost-effectively.

Close down and rehabilitate

We integrate closure planning throughout an asset’s lifecycle, from the earliest stages of project development. When a resource reaches the end of its life, we are committed to high standards of close-down and reclamation. This helps us to maintain a positive reputation for sustainable development and ensures we meet the expectations of our current and future stakeholders.

 

 

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Key performance indicators

 

Our key performance indicators (KPIs) give us a means by which to measure our financial and sustainable development performance. Their relevance to our strategy, and our performance against these measures in 2012, are explained below.

 

 

Indicator   All injury frequency rate (AIFR)   Underlying earnings(a)(b)   Operating cash flow(a)
   

Per 200,000 hours worked

LOGO

 

US$ millions

LOGO

 

US$ millions

LOGO  Dividends from equity accounted units

LOGO  Cash flow from consolidated operations

LOGO

 

Relevance to strategy   Safety is one of our core priorities. We have a relentless focus on pursuing zero harm, reinforcing our strong safety culture, and improving safety leadership. The AIFR is a leading indicator of management performance.   This is the key financial performance indicator used across the Group. It gives insight to cost management, production growth and performance efficiency. We are focused on aggressively reducing our costs and increasing productivity to improve earnings and deliver greater value for shareholders.   Operating cash flow is a complementary measure to underlying earnings. It also provides insight to how we are managing costs and increasing efficiency and productivity across the business.
   

LOGO

 

 

LOGO

 

 

LOGO

 

Performance   Our AIFR has improved 29 per cent over the last five years. We have maintained our AIFR of 0.67 for 2012.   Underlying earnings have fallen by US$6,246 million compared with 2011. This reflects lower average market prices for the Group’s commodities during the year, an overall fall in volumes sold, and industry-wide cost inflation pressures.   Operating cash flows of US$16,450 million, which include US$522 million of dividends from equity accounted units, are 40 per cent lower than in 2011, primarily as the result of lower prices.
Definition   AIFR is calculated based on the number of injuries per 200,000 hours worked. This includes medical treatment cases, restricted work-day and lost-day injuries for employees and contractors.   Items excluded from net earnings to arrive at underlying earnings are explained in note 2 of the 2012 financial statements.   Operating cash flow represents the cash generated by the Group’s consolidated operations, before payment of interest, taxes, capital expenditure and cash flows relating to financing activities. From 2011, product group operating cash flows on pages 22 to 30 have been adjusted to exclude funding of defined benefit pension deficits; comparative figures have been modified accordingly.
More information   page 14   page 219   page 141

Notes

(a) The accounting information in these charts is drawn up in accordance with IFRS.
(b) Underlying earnings is the key financial performance indicator which management uses internally to assess performance. It is presented here as a measure of earnings to provide greater understanding of the underlying business performance of the Group’s operations. Items excluded from net earnings to arrive at underlying earnings are explained in note 2 to the 2012
  financial statements. Both net earnings and underlying earnings deal with amounts attributable to the owners of Rio Tinto. However, IFRS requires that the profit for the year reported in the income statement should also include earnings attributable to non-controlling interests in subsidiaries.
(c) Amounts include 100 per cent of subsidiaries’ capital expenditures.
 

 

8    Rio Tinto 2012 Annual report


Table of Contents

KPI trend data

The Group’s performance against each KPI is covered in more detail in later sections of this Annual report. Explanations of the actions taken by management to maintain and improve performance against each KPI support the data.

Some KPIs are used as a measure in the long-term incentive arrangements for remuneration of executives. These are identified with this symbol: LOGO

 

See the Remuneration report on page 92

 

 

Total shareholder return (TSR)

%

LOGO

 

 

Net debt(a)

US$ millions

 

Capital expenditure(a)(c)

US$ millions

 

Greenhouse gas (GHG) emissions intensity

Indexed relative to 2008

Our strategy is to maximise total shareholder return. This KPI measures performance in terms of shareholder wealth generation. We also monitor our relative TSR performance against peers.   Net debt is a measure of how we are managing our balance sheet and capital structure. We constantly evaluate and balance the alternative uses for our cash between disciplined investment, strengthening our balance sheet, and returning cash to investors.   We are prioritising investment in the highest returning projects in the most attractive sectors. We are committed to a disciplined and rigorous investment process – investing capital only in assets that, after prudent assessment, offer attractive returns that are well above our cost of capital.   Our GHG performance is important in upholding and extending our licence to operate. We are focusing on reducing the energy intensity of our operations as well as the carbon intensity of our energy, including through the development and implementation of innovative technologies.

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Rio Tinto’s TSR performance over the five-year period from 2008 to 2012 was driven by increasing volatility in world stock markets and commodity prices. Total dividends paid during 2012 were 163.5 US cents per share, an increase of 40 per cent over 2011. Investor sentiment improved in the fourth quarter of 2012 with the share price ending 2012 closer to its highs for the year. This resulted in a positive TSR of 14.7 per cent for 2012.   Net debt increased from US$8,451 million at 31 December 2011 to US$19,261 million at 31 December 2012 as operating cash inflows were offset by outflows relating to capital expenditure, acquisitions, an increase in the dividend payment, and the share buy-back programme.   Capital expenditure of US$17,418 million has risen by US$5,120 million compared with 2011. This is due mainly to continued expansion and construction across the Group, including Pilbara Iron Ore mines, Oyu Tolgoi mine and concentrator, Kitimat aluminium smelter, Kestrel coking coal underground mine, and the Argyle underground diamond mine.   We have reduced our total GHG emissions intensity by 5.1 per cent between 2008 and 2012. This is largely a result of the Ningxia aluminium smelter divestment in 2009 and the closure of the Lynemouth smelter in 2012.
TSR combines share price appreciation and dividends paid to show the total return to the shareholder.   Net debt is calculated as: the net borrowings after adjusting for amounts due to equity accounted units originally funded by Rio Tinto, cash and cash equivalents, other liquid resources and derivatives related to net debt. This is further explained in note 25 “Consolidated net debt” of the 2012 financial statements.   Capital expenditure comprises the net cash outflow on purchases less disposals of property, plant and equipment, capitalised evaluation costs and purchases less disposals of other intangible assets.   Our GHG emissions intensity measure is the change in total GHG emissions per unit of commodity production relative to a base year. Total GHG emissions are direct emissions plus emissions from imports of electricity and steam minus electricity and steam exports and net carbon credits purchased from, or sold to, recognised sources.
page 112   page 181   page 221   page 14

 

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Risk factors

 

 

Principal risks and uncertainties

Rio Tinto’s business units and functions assess the potential economic and non-economic consequences of their respective risks using the framework defined by the Group’s Risk policy and standard. Principal risks and uncertainties are identified when the Risk Management Committee, business unit or function determines that the potential consequences are material at a Group level or where the risk is connected and may trigger a succession of events that, in aggregate, become material to the Group. Once identified, each principal risk or uncertainty is reviewed by the relevant internal experts and by the Risk Management Committee.

The following describes all known principal risks and uncertainties that could materially affect Rio Tinto. There may be additional risks unknown to Rio Tinto and other risks, currently believed to be immaterial, which could turn out to be material. The risk factors outlined below omit the management detail on how each is managed and mitigated.

For further information about our approach to risk management, please see page 80. Risks may materialise individually, simultaneously or in combination and could significantly affect the Group’s:

 

Ÿ   short, medium and long-term business and prospects;

 

Ÿ   earnings, cash flow and financial position;

 

Ÿ   overall financial results and product demand;

 

Ÿ   current asset values;

 

Ÿ   future asset values and growth potential;

 

Ÿ   safety record and the long, medium and short-term health of its employees;

 

Ÿ   environmental effects; or

 

Ÿ   Group or business unit reputation.

The principal risks and uncertainties should be considered in connection with any forward-looking statements in this document and the cautionary statement on the inside front cover.

 

 

External risks

 

Factor    Nature
Commodity prices and global demand for the Group’s products are expected to remain uncertain.    Commodity prices and demand are volatile and strongly influenced by world economic conditions. The Group’s normal policy is to sell its products at prevailing market prices and not to enter into price hedging arrangements. Recent volatility in commodity prices and demand may continue, which could adversely affect the Group’s earnings, cash flow and reserves.
Past strong demand for the Group’s products in China could be affected by future developments in that country.    The Group is heavily reliant on the Chinese market and if China experiences an economic downturn, or if Chinese customers source products from elsewhere, this could adversely affect demand and pricing for the Group’s products. Furthermore, the basis on which the Group prices iron ore in Asia is evolving and to the extent this results in prices or pricing mechanisms that are less favourable to the Group, its earnings and cash flow could be adversely affected.
Rio Tinto is exposed to fluctuations in exchange rates.    The great majority of the Group’s sales are denominated in US dollars, which is also the currency used for holding surplus cash, financing operations, and presenting external and internal results. Although many costs are incurred in US dollars, a significant portion is influenced by the local currencies of the countries where the Group operates, principally the Australian dollar and Canadian dollar. The Group’s normal policy is to avoid hedging of foreign exchange rates and so the Group may be adversely affected by appreciation in the value of other currencies against the US dollar, or to prolonged periods of exchange rate volatility. These fluctuations may negatively impact the Group’s profitability.
Political, legal and commercial changes in the places where the Group operates.   

The Group has operations in jurisdictions where governments and communities are seeking a greater share of mineral wealth. In some jurisdictions commercial instability can arise from a culture of bribery and corruption. Some operations are conducted under specific agreements with respective governments and associated acts of relevant legislative bodies. In several countries, land title and rights to land and resources (including Indigenous title) may be unclear. Political and administrative change, policy reform, and changes in law or government regulation can result in expropriation, or nationalisation of the Group’s rights or assets.

 

In its operations and development projects, Rio Tinto is exposed to:

 

Ÿ   renegotiation, unilateral variation or nullification of existing agreements, leases and permits;

 

Ÿ   changes in government ownership of operations;

 

Ÿ   significant restoration and environmental clean-up costs;

 

Ÿ   currency and foreign investment restrictions;

 

Ÿ   changes in taxation rates, regimes or international tax agreements;

 

Ÿ   limitations to power, water, energy and infrastructure access; and

 

Ÿ   general increases in regulation, including compliance costs.

 

Political instability and uncertainty or government changes to terms applicable to the Group’s operations may result in increased costs for the Group, may curtail or negatively impact existing operations and prevent the Group from making future investments.

Community disputes in the countries and territories in which the Group operates.    Some of the Group’s current and potential operations are located in or near communities that may regard these operations as being detrimental to them. Community expectations are typically complex with the potential for multiple inconsistent stakeholder views that may be difficult to resolve. Stakeholder opinion and community acceptance can be subject to many influences, for example, related industries, operations of other groups, or local, regional or national events in other places where we operate. These disputes can disrupt our operations and may increase our costs, thereby potentially impacting our revenue and profitability. In the extreme, our operations may be a focus for civil unrest or criminal activity, which can impact our operational and financial performance, as well as our reputation.

 

 

 

 

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Factor    Nature
Increased regulation of greenhouse gas emissions could adversely affect the Group’s cost of operations.    Rio Tinto’s operations are energy-intensive and depend on fossil fuels. Worldwide, there is increasing regulation of greenhouse gas emissions, tighter emission reduction targets and progressive introduction of carbon pricing mechanisms. These are likely to raise significantly worldwide energy, production and transport costs over the medium to long terms, which will increase the Group’s cost base and, potentially, negatively impact the Group’s profitability.
Regulations, standards and stakeholder expectations regarding health, safety, environment and community evolve over time and unforeseen changes could have an adverse effect on the Group’s business and reputation.    The resources sector is subject to extensive health, safety and environmental laws, regulations and standards alongside community and stakeholder expectations. Evolving regulation, standards and stakeholder expectations could result in increased costs, litigation or, in extreme cases, threaten the viability of an operation.
Strategic risks     
The Group’s exploration and development of new projects might be unsuccessful, expenditures may not be fully recovered and depleted ore reserves may not be replaced.    Rio Tinto identifies new orebodies and mining properties through its exploration programme, and develops or expands other operations as a means of generating shareholder value. Exploration is not always successful and there is a high degree of competition to develop world-class orebodies. The Group may also not be able to source or maintain adequate project financing, or may be unable to find willing and suitable joint venture partners to share the cost of developing large projects.
Rio Tinto may fail to make or successfully integrate acquisitions, or to complete divestment agreements.    Business combinations entail a number of risks including the cost of effectively integrating acquisitions to realise synergies, significant write-offs or restructuring charges, and unanticipated costs and liabilities. The Group may also be liable for the past acts, omissions or liabilities it has acquired that are unforeseen or greater than anticipated. The Group may also retain unforeseen liabilities for divested entities if the buyer fails to honour all commitments or the Group agrees to retain certain liabilities.
Financial risks     
The Group’s reported results could be adversely affected by the impairment of assets and goodwill.    The Group may be required to record impairment charges as a result of adverse developments in the recoverable values of its assets (including goodwill). Significant assumptions in the determination of recoverable value include, but are not limited to: pricing of the Group’s commodities and products, reserves and mineralised material, infrastructure availability, discount and exchange rates, operating cost projections, and timing of expenditure on major projects. In addition, the occurrence of unexpected events or events beyond the Group’s control that adversely impact its business may have an impact on the assumptions underlying the recoverable value of its assets. The foregoing items are not exhaustive and impairments may be caused by factors currently unknown to the Group. To the extent that the recoverable value of an asset is impaired, such impairment may negatively impact the Group’s profitability during the relevant period.
The Group’s liquidity and cash flow expectations may not be realised, inhibiting planned expenditure.    The Group’s ability to fund planned expenditure such as capital growth, mergers and acquisitions, innovation and other obligations may falter if its cash position proves inadequate. Our ability to weather a major economic shock – for example, in the eurozone – could be compromised by insufficient cash reserves, a reduction in the value of existing reserves, or restricted access to these and other sources of cash, including the international capital markets.
General cost inflation in the resources sector is affecting both operations and projects, resulting in significant pressure on capital and operating costs.    Input costs in the resources sector have risen at a disproportionate rate, adversely affecting the economics of current operations and increasing the cost of our capital expansion projects. Many of these input costs are linked to commodity prices and in the case of capital expansion projects the time lag between incurring project costs and receiving revenue can result in additional exposure to commodity markets. Failure to contain costs may have an adverse impact on our operating margins and the viability of our capital expansion projects.
Operational risks     
Estimates of ore reserves are based on uncertain assumptions that, if changed, could result in the need to restate ore reserves.    There are numerous uncertainties inherent in estimating ore reserves, including subjective judgments and determinations that are based on available geological, technical, contract and economic information. Previously valid assumptions may change significantly with new information, which may result in changes to the economic viability of some reserves and the need for them to be restated.
Labour disputes could lead to lost production and/or increased costs.    Some of the Group’s employees, including employees in non-managed operations, are represented by labour unions under various collective labour agreements. The Group may not be able satisfactorily to renegotiate agreements when they expire and may face difficult negotiations or higher wage demands. In addition, labour agreements may not prevent a strike or work stoppage.

 

 

 

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Risk factors continued

Operational risks continued

 

Factor    Nature
Some of the Group’s technologies are unproven and failures could adversely impact costs and/or productivity.    The Group has invested in and implemented new technologies in both information systems and operational initiatives, some of which are unproven and their eventual viability cannot be assessed with certainty. The actual benefits of these technologies may differ materially from expectations.
The Group may be exposed to major failures in the supply chain for specialist equipment and materials.    Rio Tinto operates within a complex supply chain depending on suppliers of materials, services, equipment, and infrastructure, and on providers of logistics. Supply chain failures, or significantly increased costs within the supply chain, for whatever reason, could have an adverse effect on the Group’s business.
Joint ventures, strategic partnerships or non-managed operations may not be successful and may not comply with the Group’s standards.    The Group participates in several joint venture and partnership arrangements, and it may enter into others, all of which necessarily involve risk. Whether or not the Group holds majority interests or maintains operational control in its joint ventures, its partners may:
  

•   have economic or business interests or goals that are inconsistent with, or opposed to, those of the Group;

  

•   exercise veto rights to block actions that the Group believes are in its or the joint venture’s best interests; or

  

•   be unable or unwilling to fulfil their obligations under the joint venture or other agreements, such as contributing capital to expansion or maintenance projects.

     Where these joint ventures are controlled and managed by others, the Group may provide expertise and advice but has limited control over compliance with its standards and objectives, such that partners may take action contrary to the Group’s interests or policies with respect to its investment.
The Group’s operations are vulnerable to a range of interruptions, not all of which are covered fully by insurance.   

1. Natural disasters and events

Mining, smelting, refining and infrastructure installations are vulnerable to natural events including earthquakes, drought, flood, fire, storm and the possible effects of climate change.

   2. Sustained operational difficulties
   Operating difficulties are many and various, ranging from unexpected geological variations that could result in significant ground or containment failure to breakdown of key capital equipment.
   Reliable roads, rail networks, ports, power generation and transmission, and water supplies are required to access and conduct our operations.
   Limitations, or interruptions in transport infrastructure, including as a result of third parties gaining access to our integrated facilities, could impede its ability to deliver products.
   3. Information technology and cyber security
   The Group relies heavily on information technology and process control systems to support our business. In common with most large, global companies, the Group has experienced cyber attacks and is faced with ongoing threats to the confidentiality, integrity and availability of such systems. Whilst no material losses related to cyber security breaches have been discovered, given the increasing sophistication and evolving nature of this threat, we cannot rule out the possibility of them occurring in the future. An extended failure of critical system components, caused by accidental, or malicious actions, including those resulting from a cyber security attack, could result in a significant environmental incident, commercial loss or interruption to operations.
   4. Major operational failure
   The Group’s operations involve chemicals and other substances stored under high temperature and pressure, with the potential for fire, explosion or other loss of control of the process, leading to a release of hazardous materials. This could occur by accident or a breach of operating standards, and could result in a significant incident.
     The Group’s insurance does not cover every potential loss associated with its operations and adequate coverage at reasonable rates is not always obtainable. In addition, insurance provision may not fully cover its liability or the consequences of any business interruption. Any occurrence not fully covered by insurance could have an adverse effect on the Group’s business.
The Group depends on the continued services of key personnel.    The Group’s ability to maintain its competitive position is dependent on the services of a wide range of highly skilled and experienced personnel available in the locations where they are needed. Failure to recruit and retain key staff, and the inability to deploy staff worldwide, where they are most needed, could affect the Group’s business. Similar constraints may be felt by the Group’s key consultants, contractors and suppliers, thereby impacting the Group’s expansion plans.
The Group’s costs of close-down, reclamation, and rehabilitation could be higher than expected.    Close-down and reclamation works to return operating sites to the community can be extensive and costly. Estimated costs are provided for, and updated annually, over the life of each operation but the provisions might prove to be inadequate due to changes in legislation, standards and the emergence of new reclamation techniques. In addition, the expected timing of expenditure could change significantly due to changes in the business environment that might vary the life of an operation.
 

 

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Performance

 

Contents

Sustainable development      14   
Product groups*   

Aluminium

     22   

Copper

     24   

Diamonds & Minerals

     26   

Energy

     28   

Iron Ore

     30   
Business Support & Operations      32   

Exploration

     32   
Technology & Innovation      33   
Financial review      34   
Five year review      42   
Acquisitions and divestments      43   
Capital projects      44   

 

* Detailed financial information on the product groups can be found within the Financial review on pages 34 to 41.

    

 

 

 

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Sustainable development

 

Performance data

Our sustainable development performance data are reported for calendar years and, unless stated otherwise, represent 100 per cent of the parameters at each managed operation, even though Rio Tinto may have only partial ownership.

Data reported in previous years may be modified if verification processes detect material errors, or if changes are required to ensure comparability over time.

Wherever possible, data for operations acquired prior to 1 October of the reporting period are included. Divested operations are included in data collection processes up until the transfer of management control.

We report in line with the GRI G3 guidelines at Application level A+ and have implemented the International Council on Mining and Metals’ (ICMM) sustainable development framework (www.icmm.com).

Safety

We are committed to achieving our goal of zero harm. This is supported by our management system which provides the framework for incorporating hazard identification, risk assessment and risk management into all aspects of the operations. Safe operations that protect our people are a priority and we work systematically to mitigate risks that are critical to operating safely.

Regrettably, two people lost their lives due to safety incidents while working at Rio Tinto managed operations in 2012. The events were a rail incident at Rio Tinto Alcan Roberval-Saguenay in Canada and an incident during maintenance work on a crusher at Palabora in South Africa. We provided support and counselling to the families and colleagues affected by these events. We conducted in-depth investigations of the causes of these incidents and ensured that the conclusions were communicated across the Group. We are determined to learn from all incidents to prevent similar events from recurring in the future.

We measure progress toward our goal of zero harm through the all injury frequency rate (AIFR), which includes data for employees and contractors. At the end of 2012, our AIFR was 0.67. Over the last five years we have reduced our AIFR by 29 per cent.

The Group-wide safety risk management programme focuses equally on personal and process safety, and material safety hazards. The identification of higher-consequence, lower-probability safety risks are managed through targeted process safety management and the use of a Semi Quantitative Risk Assessment (SQRATM) process. Risk reduction resulting from the SQRATM process, along with critical risk controls, is used as a Group-wide leading indicator for safety performance.

We focus on building a sustainable safety culture at our operations, based around strong leadership and workforce engagement. We recognise that a slightly different approach is needed at projects where activity and thus risk levels change rapidly. We have benchmarked our approach externally, and we are piloting new methodologies that focus particularly on improving contractor alignment to our approach, and the quality of frontline leadership.

Rio Tinto has required disclosures relating to mine safety violations or other regulatory matters in accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act that are included in Exhibit 99.1 to this filing.

Greenhouse gas emissions

Rio Tinto recognises the reality and scale of the challenges posed by increasing demand for reliable and secure forms of energy, coupled with the need for urgent action to reduce global emissions of greenhouse gases (GHGs). We believe global energy and climate challenges are best met by companies, governments and society working together on a global solution. Until that is in place we recognise that it will be important for individual jurisdictions to take action.

As a capital-intensive business, changing our emissions profile and the transition to low-carbon assets and products is a long-term challenge. We are seeking a substantial decarbonisation of the business by 2050. Following the creation of Pacific Aluminium, the majority of the energy used in Rio Tinto Alcan’s smelters is from low-carbon sources.

We have reduced our total greenhouse gas emissions intensity by 5.1 per cent between 2008 and 2012. Our total GHG emissions were 41 million tonnes of carbon dioxide equivalent (CO2-e) in 2012, 2.2 million tonnes lower than in 2011.

The majority of Rio Tinto’s GHG emissions are generated as a result of energy use (electricity, fuel and anodes and reductants) during mining, milling and smelting activities at our sites.

We recognise that there are also significant GHG emissions associated with the transportation, processing and use of our products. In 2012, the three most significant sources of indirect emissions associated with our products were:

 

Ÿ   Approximately 5.4 million tonnes of CO2-e associated with third-party transport of our products and raw materials.

 

Ÿ   An estimated 141 million tonnes of CO2-e associated with customers using our coal in electricity generation and steel production.

 

Ÿ   Approximately 374 million tonnes of CO2-e associated with customers using our iron ore to produce steel (these emissions are not in addition to the coal-use emissions above, as some customers use both our iron ore and our coal to produce steel).

We face costs associated with greenhouse gas emissions in Europe, Australia, New Zealand, various US states and Canadian provinces. As a result, over two thirds of emissions from our operations are covered by market-based carbon regulation.

 

 

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Aluminium

 

Financial performance

                                         
      2012
US$ million
     2011
US$ million
 
Revenue      10,105         12,159   
Operating cash flow      522         1,216   
Underlying earnings      3         442   
Capital expenditure      2,550         1,957   
Net operating assets      19,606         26,204   

Figures above exclude aluminium assets identified for divestment or closure and that are now managed by the Business Support & Operations group.

Strategy and strategic priorities

The aluminium industry is likely to continue facing challenging market conditions for some years, as a structural shift has occurred, driven by the decoupling of the supply chain for bauxite, alumina and aluminium and the continued growth of the Chinese smelting industry. Against this backdrop, Rio Tinto Alcan is focused on a transformation strategy to improve the performance of the product group. This strategy has delivered improvements, but much more needs to be done in this market environment of depressed prices. Further action will be required to reduce costs, improve the productivity of the assets, and the returns that are generated on capital invested.

Rio Tinto Alcan is committed to achieving further significant performance improvements by delivering over US$1.6 billion of EBITDA improvement by the end of 2015 – from both strategic investments and business improvement initiatives. This will incorporate the Aluminium group’s contribution to Rio Tinto’s sustainable cost reduction targets by 2014. The annual run rate from sustainable business improvement initiatives is now exceeding US$460 million, with US$250 million delivered in 2012, as planned. Key elements of this ongoing second phase of Rio Tinto Alcan’s transformation include:

 

Ÿ   Widespread business improvement initiatives, including accelerated cost reduction and productivity enhancement efforts designed to provide a leaner and more efficient structure.

 

Ÿ   Stringent focus on high-return production creep and modernisation projects.

 

Ÿ   Optimisation of the product mix.

 

Ÿ   Disciplined portfolio management, including the divestment of assets no longer aligned with the product group’s core strategy.

 

Ÿ   Maximising the benefit of industry-leading positions in bauxite and energy.

 

Ÿ   Modernising and expanding long-life Tier 1 assets.

 

Ÿ   Strictly limiting growth in line with market conditions.

Safety

In 2012, the Aluminium product group’s all injury frequency rate deteriorated to 0.72, from 0.58 in 2011. Regrettably, in January there was one fatality, which resulted from an incident on the Roberval-Saguenay railway in Quebec, Canada. The product group’s ongoing priority is to implement the Zero Harm by Choice programme, as well as to continue deploying Rio Tinto HSE performance standards and risk management practices, to reach Rio Tinto Alcan’s ultimate goal of zero incidents. Process safety management has made significant progress, with reporting, investigation and analysis of significant potential incidents and completion of corrective actions as a main focus.

The Grande-Baie aluminium smelter in Quebec jointly won the 2012 Chief Executive Safety Award. Three Aluminium sites were recognised in other categories:

 

Ÿ   Most Improved Site: Yarwun, Queensland, Australia

 

Ÿ   Best Project: Shipshaw, Quebec, Canada

 

Ÿ   Small Business: Anglesey, Wales, UK

Greenhouse gas emissions

Rio Tinto Alcan accounted for 20 per cent of Rio Tinto’s total greenhouse gas emissions (GHG) in 2012, compared to 19 per cent in 2011. At year end, total GHG intensity was 24 per cent lower than 2008 baseline performance. The realised reductions made a significant contribution to the Rio Tinto Group’s overall total GHG intensity improvements. This sizeable reduction in emissions over the past several years is mainly related to the divestment or closure of non-core assets, as well as ongoing operational improvements that have combined to give Rio Tinto Alcan the lowest carbon footprint in the aluminium industry. Taking into account recent portfolio changes, 96 per cent of Rio Tinto Alcan’s power supply is carbon-free and falls into the lowest-cost quartile for energy. Aluminium produced using hydroelectricity – which currently represents some 83 per cent of the Aluminium product group’s power supply – has the lowest footprint with respect to primary energy consumption and climate change in lifecycle analysis studies.

Rio Tinto Alcan works closely with stakeholders to address sustainability concerns and help identify ways to foster greater transparency and sustainability throughout the aluminium industry.

During 2012, the Aluminium product group played a lead role as a co-founder of the Aluminium Stewardship Initiative (ASI), along with the International Union for Conservation of Nature and several other founding members. The mission of ASI is to define and deliver the first comprehensive global standard for the responsible production, use and re-use of aluminium. Rio Tinto Alcan also agreed to participate in Empreinte Carbone Québec, a pilot project launched by Quebec’s Ministry of Economic Development, Innovation and Export to develop a method for calculating carbon footprint.

Review of operations

Rio Tinto Alcan’s underlying earnings of US$3 million were US$439 million lower than in 2011, primarily from a significant deterioration in market conditions and the impact of the lock-out at the Alma smelter in Quebec. The combined impact of movements in prices and exchange rates, inflation and increasing prices for coke, pitch and caustic reduced underlying earnings by US$569 million year-on-year and lowered EBITDA margins by 11 per cent. This market impact was partially offset by controllable cash cost improvement initiatives which had a net positive impact of nearly four per cent on margins. The absence of the abnormal weather events that occurred in 2011 was outweighed by the impact of reduced operations from the lock-out at Alma.

Further deterioration in aluminium market conditions in 2012, together with strong currencies in certain regions and higher raw material costs, has had a negative impact on current market values in the aluminium industry. The annual impairment review for Rio Tinto Alcan and other aluminium businesses (including Pacific Aluminium)(a) resulted in a post-tax impairment charge of US$11.0 billion, which includes goodwill impairment of US$6.0 billion.

The average aluminium market price in 2012 was US$2,018 per tonne, a decrease of 16 per cent from 2011. Rio Tinto Alcan’s average realised price for primary metal products in 2012 was US$2,383 per tonne, 12 per cent lower than US$2,715 in 2011.

Gross sales revenue for Rio Tinto Alcan decreased by 17 per cent compared with 2011. This was due to the combined effects of lower market prices across the product range and reduced production at Alma, offset by the Yarwun refinery expansion in Queensland, Australia.

Aluminium production decreased by nine per cent to 2.2 million tonnes in 2012. This was partly due to the lock-out at Alma – resolved through the signing of a new labour agreement. Two thirds of the smelter’s capacity was curtailed throughout the first half of the year. Alma was progressively returned to full production by January 2013. The new organisational design implemented after the negotiated labour agreement will enable productivity improvements and lower total operating costs. This new organisational design is now being deployed in other facilities and will contribute to further cost reductions in 2013.

 

(a) In 2011, Pacific Aluminium and certain of the Aluminium operations were transferred to the Business Support & Operations group.

 

 

 

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Rio Tinto Alcan’s bauxite production was 31.4 million tonnes in 2012, 11 per cent higher than in 2011. Record production levels were achieved at Weipa in Queensland, Australia, as well as in Guinea. The increase in output was driven by production creep initiatives to supply requirements from the expanded Yarwun refinery, and increased third-party demand.

Alumina production increased 19 per cent to 7.0 million tonnes during 2012, as expanded refining capacity at Yarwun came on line. First bauxite was injected into the expanded Yarwun plant in July 2012. By September, the expanded refinery was operating at 90 per cent of its nameplate capacity of 3.4 million tonnes per annum. The ramp-up is on schedule to reach full capacity by the third quarter of 2013. Yarwun is moving the product group’s alumina production into the second quartile of the industry cost curve.

Development projects

Rio Tinto Alcan’s development pipeline is focused on developing its long-life Tier 1 assets, while strictly limiting growth in line with market conditions. Project characteristics include a low carbon footprint, low operating costs and attractive forecast returns on capital.

Feasibility and environmental impact studies are currently being completed for the South of Embley project. This would extend the life of the Weipa bauxite mine in Queensland, Australia by approximately 40 years, depending on production rates. The expansion would facilitate staged increases in production of up to 36 million dry product tonnes a year, from the current level of 23 million tonnes. It would enable the continuity of supply to Rio Tinto Alcan’s two Gladstone alumina refineries and capitalise on the rapidly-growing third-party market for seaborne bauxite.

Two major smelting projects under way in Canada are designed to leverage Rio Tinto Alcan’s clean, self-generated hydroelectricity and generate advantages from the latest AP™ smelting technology. In Quebec, the construction of the AP60 smelter is complete and is now in the commissioning phase. This 60,000 tonne plant is the first commercial-scale implementation of Rio Tinto Alcan’s newest smelting technology platform. Operating at an unprecedented 600 kiloamperes, the energy-efficient AP60 is designed to deliver a US$60 to US$90 per tonne full economic cost advantage over the existing benchmark. First metal at the AP60 smelter is expected in the first half 2013. Subsequent phases will be delayed until the aluminium market shows clear signs of recovery.

The Kitimat Modernisation Project in British Columbia will increase the smelter’s current production capacity by more than 49 per cent, to approximately 420,000 tonnes per year. The modernised aluminium smelter will be powered by self-generated hydroelectricity and use advanced AP40 technology to cut GHG emissions intensity by more than 50 per cent. Once completed at the end of 2014, Kitimat will be one of the lowest-cost smelters in the world, strategically located to supply key emerging markets in the Pacific Rim.

The modernisation of the ISAL aluminium smelter in Iceland is expected to increase production from 190,000 tonnes to 230,000 tonnes and includes a leading-edge casting facility to produce value-added billet. The new casting facility produced its first billet in the second quarter of 2012.

Outlook

Macroeconomic sentiment remains uncertain and continues to impact the group’s product prices – particularly for aluminium.

With a number of regional economies expected to improve, total primary demand for aluminium is forecast to increase by nearly six per cent in 2013. However, inventories are still high and warehousing transactions, driven by forward pricing estimates and low interest rates, remain attractive. Medium-term supply growth is currently forecast to match or exceed demand growth, resulting in a global market surplus for the industry in the near term.

Smelter grade alumina demand is underpinned by aluminium production, so alumina demand over the long term is directly tied to aluminium demand estimates.

Of Rio Tinto Alcan’s three core commodities, bauxite presents the best opportunities for attractive returns in the near term, given strong Chinese demand and supply uncertainty. The current focus of the traded bauxite market is on China’s sharply increased demand for imported product. Although shipments from a traditional key supplier in Indonesia have been recovering in the wake of bauxite export restrictions introduced in May 2012, the fundamentals for traded bauxite continue to look strong going forward.

On balance, while higher regional market premiums have helped partially offset prevailing low aluminium prices, the short-term outlook for aluminium markets remains challenging, with lingering economic uncertainty and continuing price volatility. This underscores the importance of the ongoing drive to transform Rio Tinto Alcan into a leaner, highly-efficient aluminium producer capable of generating solid returns throughout the economic cycle.

The longer-term outlook for aluminium remains robust and Rio Tinto Alcan believes strong returns will be available in the future for the well-positioned, low-cost operator.

Rio Tinto Alcan anticipates strong future demand in key sectors like transportation, infrastructure and consumer goods, spurred by the continued move to urbanisation and the growth of megacities, particularly in China and other emerging Asia-Pacific economies. A measure of the enormous potential is that per capita consumption of aluminium is currently just one kilogram in India and five kilograms in Brazil, well below the average of more than 20 kilograms per capita in industrialised countries.

Mature markets will also require significantly increased volumes of aluminium. A good example is the automotive industry, currently among the top-performing sectors in the economies of both the US and Germany.

The global demand picture outlined above would translate into a need for around 40 million tonnes of modernised aluminium production (net of inventory reductions) between now and 2025, along with 75 million additional tonnes of alumina and, very importantly, around 230 million additional tonnes of bauxite. Despite this positive outlook for demand, it is ultimately supply growth that will determine whether, or when, the aluminium industry returns to a more balanced market in the long term.

 

 

 

 

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Copper

 

Financial performance

      2012
US$ million
     2011
US$ million
 
Revenue      6,661         7,634   
Operating cash flow      492         3,136   
Underlying earnings      1,092         1,932   
Capital expenditure      4,347         3,784   
Net operating assets      12,682         12,094   

Strategy and strategic priorities

The Copper product group’s strategy is to maximise shareholder returns by delivering superior margins and growth from high-quality assets. This strategy will be realised by:

 

Ÿ   Continuing progress toward zero harm and risk mitigation across the business.

 

Ÿ   Prioritising investment and retaining development optionality on high-quality assets.

 

Ÿ   Optimising current assets through operational performance and disciplined cost management.

 

Ÿ   Delivering a notable reduction in overhead costs and maintaining strong EBITDA margins.

 

Ÿ   Developing a strong pipeline of value-generating greenfield projects.

 

Ÿ   Using technological innovations such as processing and rapid underground development to deliver operational efficiency and reduce costs.

 

Ÿ   Collaborating with local governments and communities to contribute to sustainable development.

 

Ÿ   Developing leadership and managing talent to deliver our business strategy.

Safety

In 2012, the Copper product group’s all injury frequency rate was 0.50, compared to 0.56 in 2011. The Copper product group regrettably suffered a fatality at its Palabora operation in South Africa and two industrial fatalities occurred at the non-managed Grasberg mine in Indonesia.

The Copper product group is committed to managing the risks inherent in its business and providing a workplace where there is a culture of zero harm. To that end, the group is developing enhanced programmes and procedures to manage process safety, underground safety and contractor management activities. In addition, the group is embedding the need for all leaders and employees to focus on personal safety and work collaboratively toward the goal of zero harm.

Greenhouse gas emissions

The Copper product group’s 2012 greenhouse gas (GHG) emissions were 10.66 tonnes of carbon dioxide equivalent per tonne of copper cathode produced, compared with 8.15 tonnes in 2011. The decline in efficiency resulted from the smelter shutdown at Kennecott Utah Copper and decreased production at Palabora. The Copper product group represented 6.8 per cent of Rio Tinto’s total emissions.

Review of operations

The Copper product group portfolio is made up of large, long-life, low-cost operations that present meaningful opportunities to grow and improve productivity. In 2012, the group produced 549 thousand tonnes of mined copper (Rio Tinto share), making Rio Tinto the world’s sixth largest supplier. The product group also produced 294 thousand ounces of mined gold, 3,657 thousand ounces of mined silver and 9.4 thousand tonnes of molybdenum as by-products of its copper operations.

Kennecott Utah Copper (Rio Tinto: 100 per cent)

Kennecott Utah Copper, adjacent to Salt Lake City, produces about 17 per cent of US copper supply. In 2012, Kennecott produced 163 thousand tonnes of refined copper, 279 thousand ounces of refined gold, and 9.4 thousand tonnes of molybdenum. Refined metal production was higher

during the second half of the year due to improved mine production and processing of inventories built up during a maintenance shutdown of the smelter in the second quarter, which was planned to coincide with the period of lower grades.

Escondida (Rio Tinto: 30 per cent)

Operated by BHP Billiton, Escondida is the world’s largest copper mine. Located in Chile’s Atacama Desert, it represents five per cent of global production and 16 per cent of all copper production from Chile. In 2012, Escondida produced 1,047 thousand tonnes of copper (100 per cent basis). Production was higher than 2011 due to higher grades and an increase in ore delivered to the concentrator owing to improved material handling.

Grasberg (a joint venture that gives Rio Tinto a 40 per cent share of production above specified levels until the end of 2021 and 40 per cent of all production after 2021)

Grasberg is owned and operated by PT Freeport Indonesia, a subsidiary of US-based Freeport-McMoRan Copper & Gold Inc. Located in the province of Papua in Indonesia, it is one of the world’s largest copper mines. Production in 2012 did not reach the specified level, so Rio Tinto did not receive a share of production for the year.

Northparkes (Rio Tinto: 80 per cent)

Located in New South Wales, Australia, Northparkes is a joint venture with the Sumitomo Group. Northparkes produced 53.8 thousand tonnes of copper and 72 thousand ounces of gold in 2012 (100 per cent basis). The mine is the site of an innovative tunnel boring trial that has the potential to increase the rate of tunnel development underground. The site is also home to a state-of-the-art underground training facility.

Palabora (Rio Tinto: 57.7 per cent)

Palabora Mining Company is a South African company listed on the Johannesburg Stock Exchange. The mine produced 40.9 thousand tonnes of refined copper in 2012 (100 per cent basis). In December 2012, Rio Tinto announced an agreement to sell its interest in Palabora for consideration totalling US$373 million. While South Africa remains an important and prospective region for Rio Tinto, and Palabora is a good business, it is no longer a natural fit within Rio Tinto’s portfolio.

Development projects

Extending mine life

The Copper product group is pursuing several promising projects to extend the life of existing operations in its portfolio.

In June 2012, Rio Tinto approved a US$660 million investment to extend the life of Kennecott Utah Copper’s Bingham Canyon mine from 2018 to 2029. The project, known as Cornerstone, involves pushing back the south wall of Bingham Canyon to gain access to 515 million tonnes of 0.79 per cent copper equivalent ore. Work continues on evaluating projects to expand and upgrade the power plant to natural gas and expand the tailings impoundment.

At Escondida in northern Chile, the Ore Access and Laguna Seca Debottlenecking projects were completed in the second half of 2012, with significant production improvements already realised, in particular with the material handling process.

Escondida’s Organic Growth project costing US$3.8 billion (Rio Tinto share: US$1.2 billion) was 26 per cent complete at year end. This project involves constructing a new, 152,000 tonnes per day concentrator to replace the Los Colorados concentrator and allow access to high-grade ore located under the existing facilities. The additional Oxide Leach Area project will cost US$721 million (Rio Tinto share: US$216 million) and involves the construction of a new dynamic leach pad that will maintain current levels of oxide leaching after the existing heap leach has been fully exhausted. Construction of the project is expected to be completed in 2014.

In Indonesia, the Grasberg mine is continuing its transition from primarily an open pit to a fully underground operation. The Grasberg underground

 

 

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block cave project will come on line in 2017, when the current open pit mine will be depleted, and is expected to ramp up to full capacity by 2022, reaching 160,000 tonnes of ore produced per day. In addition, Grasberg has begun construction on the Deep Mill Level Zone block cave mine, which will produce an additional 80,000 tonnes of ore per day at full capacity, expected in 2021. Together, these two projects will supply ore to the mill at 240,000 tonnes per day by 2022.

Technological innovations

Technology continues to be a primary lever to improve productivity and cost performance by increasing recoveries, enabling the processing of low-grade material, as well as optimising underground and capital development.

In 2014, Kennecott will commission its Moly Autoclave Process (MAP), which will process lower grade molybdenum concentrate more efficiently than conventional roasters and will improve recovery rates by eight per cent.

Kennecott has also completed construction and commissioning of a pilot ore sorting facility. The new technology, Copper NuWaveTM, has the potential to upgrade marginal ore and waste material by rejecting barren material from the mill pebble recycle stream.

Northparkes began commissioning of a new tunnel boring technology in October 2012. This technology is one pathway to reduce up-front capital costs and decrease construction time for underground operations. Initial tests have demonstrated a 40 per cent increase in the speed at which tunnelling occurs. Additionally, in August 2012, the Rio Tinto Block Cave Knowledge Centre officially opened at the Northparkes mine, providing employees from across the Group with the highest standard of technical and safety training for underground block caving operations.

Greenfield projects

Rio Tinto is focused on developing greenfield projects that can deliver the highest potential returns. The Group approaches each project with world-class environmental standards, and with a goal of creating sustainable economic benefits for all stakeholders.

Oyu Tolgoi (Rio Tinto: 51 per cent interest in Turquoise Hill Resources)

In a span of 34 months, the Oyu Tolgoi copper and gold mine in Mongolia has gone from the planning stage to near completion as a world-class operation and is the flagship of the Copper product group’s growth portfolio. At the end of 2012, the project was 99 per cent complete for the open pit, and the group has signed a binding agreement with a Chinese power company for the supply of electricity.

Commercial production of copper concentrate is expected in 2013, and Oyu Tolgoi is set to be a top five copper producer once fully developed. Over its life, it will deliver an average annual production of 425,000 tonnes of copper and 460,000 ounces of gold, and will have net unit cash costs in the first quartile of the industry cost curve.

Oyu Tolgoi contains a 1.5 billion tonne reserve and substantial additional copper mineralisation. The deposit provides opportunities for further expansions that could see production continuing for more than 50 years. In addition, Oyu Tolgoi is in a highly prospective region with further exploration potential.

La Granja (Rio Tinto: 100 per cent)

The La Granja project in northern Peru has the potential to be one of the Group’s highest value opportunities. La Granja could be the largest undeveloped greenfield copper project in Latin America, and has the potential to be a very large, long-life operation.

In 2012, Rio Tinto launched a prefeasibility study to mine copper from an open pit, with low technical risk, and using a leaching process to maximise recovery of copper. To date, 168,000 metres of drilling has been completed and further drilling will be ongoing during 2013.

The current plan is to develop the project using a staged, three-phase approach, in which the group will develop an initial leach operation, expand the operation and then construct a concentrator on site. Employing this phased approach will defer significant capital investment until after production begins, with operating cash flows supporting further expansions. Rio Tinto’s knowledge of La Granja’s orebody – and of the broader region – continues to evolve. Developing La Granja will provide access to an attractive orebody and will allow the Group to establish a positive presence in a part of the world with significant mineral potential.

Eagle (Rio Tinto: 100 per cent)

Located in Michigan, US, the Eagle copper/nickel mine is scheduled to begin operation in 2014. The mine will produce an average of 16 thousand tonnes and 13 thousand tonnes per year of nickel and copper metal respectively over seven years. Eagle Mine is also located in a highly prospective region where Rio Tinto currently holds significant tenements.

Resolution Copper (Rio Tinto: 55 per cent)

The Resolution Copper project, located in Arizona, US, is ranked among the top ten undeveloped copper assets in the world, and is expected to be a major underground block cave operation.

Resolution Copper has mining tenements covering the identified orebody. However, to realise the full potential of the project, Resolution Copper requires access to public land where mining is currently prohibited. Resolution Copper continues to seek legislative approval in the US Congress to acquire full legal title to all needed land including the adjacent public land. In exchange for that title, the project would give the public more than 2,400 hectares of high-quality Arizona conservation lands. Permitting of the project will start in 2013 with submission of the General Plan of Operations (GPoO) to the United States Forest Service, a Federal Government agency. Submission of the GPoO will initiate the process of assessing the project’s environmental impacts and applying appropriate mitigation. This will be done through the generation of an Environmental Impact Statement (EIS), written by the Federal Government, per the National Environmental Policy Act (NEPA). In parallel, work continues on the prefeasibility study, with a timeline that has been extended to allow for a more complete evaluation of mining and processing options and to determine the optimal path forward.

Outlook

Rio Tinto is confident in the fundamentals of the industry and the long-term future of the copper market. While the Group expects continued volatility in the short term, the copper market’s robust long-term fundamentals remain intact.

With roughly 60 per cent of copper used as an electrical conductor, the electrification and urbanisation of emerging markets, primarily China, followed by India and South East Asia, will drive copper demand growth through the next several decades. While new mine supply is due to come on line in 2013 as a result of higher prices in the past few years, Rio Tinto has exceptional copper assets and is well positioned to make the most of these market conditions.

The Copper product group is keenly focused on managing costs across its business, and maximising the technological innovations that can lower the cost of developing new mines and improving the productivity of existing operations.

Through a strategic approach of carefully prioritising work and organising key projects into phases, the Copper product group will continue to be flexible and focused on making investments that create the most value.

 

 

 

 

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Table of Contents

Diamonds & Minerals

 

Financial performance

                                 
      2012
US$ million
     2011
US$ million
 
Revenue      4,056         3,654   
Operating cash flow      238         4   
Underlying earnings/(loss)      119         (162
Underlying earnings excluding Simandou      381         251   
Capital expenditure      1,785         1,392   
Net operating assets      8,049         5,407   

Following changes to Rio Tinto’s management announced in July 2012, the Simandou iron ore project is now reported within Diamonds & Minerals to reflect management responsibility. Prior year comparatives have been restated.

Strategy and strategic priorities

Demand growth for diamonds and industrial minerals typically follows peak requirements for commodities such as iron ore and copper. The Diamonds & Minerals product group intends to capitalise on this trend by strengthening its portfolio and securing opportunities for valuable growth. The product group strategy is to:

 

Ÿ   Improve its existing businesses’ operational and commercial performance.

 

Ÿ   Build value by executing growth projects within its existing asset base.

 

Ÿ   Grow its portfolio through value accretive exploration and acquisitions in existing and complementary sectors.

Safety

The product group continues to focus on fostering a culture of accountability and awareness among employees and improving contractor safety. The product group’s all injury frequency rate (AIFR) increased slightly to 0.57 in 2012 from 0.55 in 2011.

The product group faces some unique challenges in health and safety. The workforce spans multiple nationalities, ethnicities, languages and cultures in developing countries. In response, management is employing innovative strategies and visible safety leadership to educate the workforce. The product group is committed to eliminating risks of fatalities and permanent injuries, particularly in the large development projects under way. At Diavik, where the transition to underground mining was recently completed, the mine rescue team came third at the 8th International Mine Rescue Competition held in Donetsk, Ukraine, a significant achievement at the highest possible skill level.

Greenhouse gas emissions

Overall greenhouse gas (GHG) emission intensity improved across the product group due to higher production levels and the implementation of more efficient equipment and technology. GHG emissions per tonne of product were marginally higher at Rio Tinto Minerals in 2012 as a result of lower production, and intensity decreased by 8.4 per cent across Rio Tinto Iron & Titanium’s operations, reflecting efficiencies associated with higher production levels and new technology. GHG emission intensities improved across all Rio Tinto Diamonds operations. In 2012 Diavik commissioned its wind farm which will reduce diesel consumption by approximately ten per cent and lower greenhouse gas emissions by approximately six per cent. The Diavik wind farm is the largest wind diesel hybrid system in the world and the first wind generation facility for Rio Tinto.

Review of operations

Diamonds & Minerals’ underlying earnings of US$119 million include evaluation costs in respect of Simandou of US$262 million. Excluding Simandou expenditure, underlying earnings of US$381 million were 52 per cent higher than in 2011. The group benefited from higher prices for titanium dioxide feedstocks and borates. The acquisition of BHP Billiton’s interests in Richards Bay Minerals also contributed to the increase in earnings. This was offset by lower prices for diamonds and higher depreciation at Diavik following an impairment reversal in 2011.

Rio Tinto Minerals (RTM)

RTM (100 per cent interest) supplies over 30 per cent of the world’s refined borates from its world-class deposit in Boron, California. RTM also has borates refineries and shipping facilities in China, France, Malaysia, the Netherlands, Spain and the US.

Borates production of 463,000 tonnes boric oxide equivalent was eight per cent lower than in 2011, reflecting current global economic market conditions. The sale of Borax Argentina which historically contributed around four per cent of RTM’s borates production completed in August 2012. Despite a weakening in demand during the year, RTM achieved a one per cent improvement in refined borates revenues. Earnings of US$140 million were six per cent higher than 2011, excluding the contribution from talc in the prior period.

Rio Tinto Iron & Titanium (RTIT)

RTIT is the largest producer of titanium dioxide feedstocks. RTIT mines ilmenite at its wholly-owned Rio Tinto Fer et Titane (RTFT) operation in Quebec; its managed operation Richards Bay Minerals (RBM) in South Africa (74 per cent interest); and its QIT Madagascar Minerals (QMM) operation (80 per cent interest). RTIT produces high-quality titanium dioxide feedstocks at its world-class metallurgical complexes as well as co-products including high purity iron, steel, metallic powders, zircon and rutile.

In September 2012, Rio Tinto doubled its holding in Richards Bay Minerals to 74 per cent following the acquisition of BHP Billiton’s entire interests. The purchase price paid by Rio Tinto on completion was US$1.7 billion. The acquisition was triggered in February 2012 by BHP Billiton exercising a put option agreed with Rio Tinto as part of RBM’s restructuring in 2009. The price was determined through a previously-agreed expert valuation process.

In 2012, titanium dioxide feedstock production increased by 11 per cent year-on-year to 1.6 million tonnes. This reflects higher production at RTFT which completed a furnace rebuild in 2011 and an increase in attributable volumes at RBM resulting from Rio Tinto doubling its stake in September. Production was negatively impacted by the furnace rebuild at RBM that commenced in May 2012.

RTIT increased its revenues by 41 per cent due to higher prices for titanium dioxide feedstocks and the RBM transaction. RTIT continued to replace its multi-year sales contracts with alternative pricing mechanisms, increasing the exposure to current market prices. The impact of improved pricing more than offset increased input costs resulting in a 163 per cent increase in year-on-year earnings to US$397 million, including the higher contribution from RBM.

Rio Tinto Diamonds (RTD)

RTD is a leading producer of rough diamonds with a product portfolio that provides a presence in all major markets. Rio Tinto’s diamond assets currently comprise the Argyle Diamond Mine in Australia (Rio Tinto: 100 per cent), the Diavik Diamond Mine in Canada (60 per cent), Murowa Diamonds in Zimbabwe (78 per cent) and the Bunder diamond project in India (100 per cent). RTD sells its share of production through its centralised marketing office in Belgium and has a niche cutting and polishing factory in Australia, where it cuts and polishes the high-end pink diamonds from the Argyle mine, and sells them to an international customer base.

 

 

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In March 2012, Rio Tinto announced a strategic review of its diamond business that includes exploring a range of options for the potential divestment of its diamonds interests.

RTD produced 13.1 million carats in 2012, a 12 per cent increase from 2011 that reflected increased grades, higher ore throughput and the absence of adverse weather interruptions which impacted 2011. Revenue in 2012 was two per cent higher than in 2011, as the effect of higher volumes was largely offset by lower prices. RTD reported a loss of US$43 million in 2012, compared to earnings of US$10 million in 2011, reflecting lower prices and higher depreciation.

A post-tax impairment of US$460 million was recognised relating to the Argyle diamond mine. An impairment review of Argyle was triggered by the announcement of the Diamonds strategic review as well as changes to the forecast ramp-up date for the underground mine. This is not included in underlying earnings.

Construction of the Argyle underground mine is proceeding and production is scheduled to commence in the first half of 2013, with ramp up to full operation to be completed by 2015, extending the life of mine until at least 2020. Production from Diavik’s underground mine commenced in early 2010 in parallel with open pit operations. The transition to a fully underground operation was completed in 2012 and will sustain Diavik production well past 2020.

Dampier Salt (DSL)

Dampier Salt Limited, the world’s largest salt exporter, produces industrial salt by solar evaporation of sea water at Dampier and Port Hedland, and from underground brine at Lake MacLeod, all in Western Australia. Salt is sold principally to the base chemical industry markets in Asia. During the year, DSL moved within the Diamonds & Minerals organisational structure. Salt production of 6.8 million tonnes (Rio Tinto share) increased three per cent year-on-year.

Development projects

In 2011, Diamonds & Minerals re-entered the potash business through an exploration joint venture with North Atlantic Potash Inc. a subsidiary of JSC Acron. Acron is a world leader in fertiliser production and holds multiple potash exploration permits in Saskatchewan, Canada, home to about half the world’s potash reserves. Drilling results indicate encouraging potash grade and thickness. Higher nutritional standards, population growth and limited arable land make potash a critical factor in maintaining global food security, and a natural complement to RTM’s existing borate fertiliser business.

Large diameter drilling was conducted and resource assessment and planning also progressed at the group’s Jadar lithium-borate deposit in Serbia. If developed, the deposit has the potential to supply more than 20 per cent of global lithium demand. Lithium carbonate’s fastest-growing application is in batteries that provide clean power to industrial systems and electric and hybrid cars.

Good progress was made on RTIT’s TIO4 project aimed at expanding its mining and smelting capabilities in Canada and Africa. However, in January 2013, against a backdrop of weaker market conditions for its products and the need to manage and reduce its costs, RTIT has reviewed the economic viability of the project and suspended prefeasibility studies in Canada and Madagascar. The Zulti South mine expansion at RBM and exploration programme in Mozambique continue.

Following the announcement in 2011 of TiO2050 – a proposed investment of C$800 million over five years to enhance mining and processing operations – RTFT commenced investment in 2012 to upgrade its water filtration system at its steel plant, acquire a new crusher at its mining operation and begin a furnace rebuild.

The Bunder diamond project is currently more than halfway through its prefeasibility studies, which began in July 2010. These studies have confirmed the economic potential of the orebody and work is well under way to define the best development option. In January 2012, Rio Tinto

received a Letter of Intent from the Government of Madhya Pradesh to issue the mining lease for Bunder, following approval in principle from the Government of India.

During 2012, the Simandou iron ore project in Guinea also moved within Diamonds & Minerals, as it remains the responsibility of the group’s new chief executive, Alan Davies, appointed in September. Simandou is a key pillar in Rio Tinto’s long-term growth strategy, involving one of the largest known undeveloped iron ore resources in the world. The concession will enable the development of the largest mine and infrastructure project ever undertaken in Africa. This will include the progressive development of a 95 million tonne per annum mine, a 650-kilometre trans-Guinean railway and a new deep-water port.

The project is adopting a “stage gate” approval process allowing for studies to be finalised in parallel with early works, and for investment to be made in line with Government of Guinea approvals and financing processes.

The year saw significant progress, with Rio Tinto and Chinalco’s listed subsidiary, Chalco, completing the formation of the Simandou Joint Venture for the development and operation of the project. In June, the project committed a further investment of US$1 billion (Rio Tinto share: US$501 million) for detailed design studies, and early works and long-lead items, primarily for developing the rail and port infrastructure.

Rio Tinto, with the support of Soguipami, the State Mining Company, submitted the Social and Environmental Impact Assessment to the Government of Guinea for review and approval. The Republic of Guinea also issued a presidential decree declaring the Simandou infrastructure a “Project of National Interest” (PIN) in October 2012, protecting the area of land needed to develop the rail and port infrastructure from any acquisition or development by third parties.

Outlook

Diamonds & Minerals businesses serve a range of different industries, but are linked through their track record of creating and defining new and profitable markets for their products. Demand softened in these markets in 2012 in response to broader economic trends, and the outlook for 2013 remains uncertain. However, the medium- to long-term outlook continues to be positive across all products as urbanisation and rising standards of living drive higher levels of demand.

In the borates marketplace, RTM will seek to capture profitable growth in emerging economies and maintain its position in its established markets. Planned supply chain improvements will facilitate speed and flexibility in shifting supply to promising sectors and regions. RTM will focus on increasing refined borates capacity to meet higher than GDP demand growth while achieving world-class safety performance and improving its cost position.

Demand for titanium dioxide feedstock is expected to continue to grow in the medium- to long-term, in line with improving global economic conditions, urbanisation and demand growth in emerging markets. In response to current weak demand and in order to reduce operating costs, RTIT is taking action at a number of its operations. RBM will place its zircon and rutile processing operations on care and maintenance, while maintaining production at the core ilmenite mining and smelting operations. RTFT is taking its upgraded slag (UGS) production facility temporarily offline.

The medium- to long-term fundamentals for the diamond industry are positive and expected to support sustainable future price growth. The global mineral reserve base is steadily declining, compounded by limited exploration investment and success, and expected reductions in supply over the medium to longer-term. Demand in India and China is expected to continue to grow, and to represent nearly 50 per cent of global diamond consumption by 2020. Demand in mature markets is expected to grow in line with GDP.

 

 

 

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Table of Contents

Energy

 

Financial performance

                                         
      2012
US$ million
     2011
US$ million
 
Revenue      5,783         7,003   
Operating cash flow      724         2,019   
Underlying earnings      283         1,074   
Capital expenditure      1,819         1,327   
Net operating assets      6,996         8,164   

Strategy and strategic priorities

The Energy product group has a mix of assets in its portfolio and remains focused on safely supplying the world’s growing energy needs through the sustainable development and operation of large-scale, long-life, low-cost mines.

In light of market conditions for coal and uranium, the high-cost operating environment in eastern Australia and infrastructure constraints in Mozambique, the Energy group is undertaking a review of the optimal growth profile for all its business units.

The Energy product group is focused on:

 

Ÿ   Remaining flexible to respond to the impacts of external factors such as global economic volatility and commodity price fluctuations.

 

Ÿ   Increasing productivity and operational performance in all business units, as well as reducing costs, to increase profitability in the near-term, while positioning the group to meet forecast long-term demand for coal and uranium.

 

Ÿ   Maintaining strong relations with customers in expanding energy export markets, particularly in Asia.

Safety

The Energy product group aims to achieve the goal of zero harm by fostering a culture where employees and contractors have the knowledge, skills and desire to work safely at all times. In 2012, this commitment was demonstrated with Mount Thorley Warkworth named joint winner of the Rio Tinto Chief Executive Safety Award. Mount Thorley Warkworth was recognised for the passion of its senior leaders to build a safe and highly engaged workforce – including seamless inclusion of contractors within the site’s safety culture – and the rigour with which Rio Tinto’s safety systems and standards are applied. In 2012, Energy’s all injury frequency rate was 0.66 compared with 0.80 in 2011, which was reflective of lower injury rates across all its business units. In addition, core fatality prevention processes – including thorough investigation of significant potential incidents and active management of critical operational risks – were further entrenched in the way the group works.

Greenhouse gas emissions

To date, Rio Tinto has spent more than US$100 million on research and development into technologies that will reduce emissions from coal-fired industries. This investment is necessary because all forecasts point to coal continuing to play a significant role in the global energy mix, but in an increasingly carbon-constrained environment. In 2012, the Energy group launched a three-year, A$6 million sponsorship of The Otway Project in Victoria, Australia’s first industrial-scale demonstration of geological carbon dioxide storage and research. Combined with work at the University of Melbourne, the Energy group is helping to create a world-class hub for research into this important technology. In 2012, Energy’s Australian coal operations implemented a new industry methodology at its New South Wales mines to more accurately estimate fugitive emissions from coal extraction, instead of using the default emission factor. In 2012, greenhouse gas emissions for the Energy group remained steady at approximately 4.3 million tonnes of carbon dioxide equivalent.

Review of operations

After a period of robust earnings following the global financial crisis, the performance of the Energy product group declined in 2012 due to lower prices for coal and uranium, a strong Australian dollar and escalating input costs.

All Energy businesses reacted swiftly to this challenging economic environment by implementing plans to address declining productivity and the sharp rise in operational costs. An impairment charge of US$2.86 billion post-tax was also recognised relating to Energy’s coal business in Mozambique (refer to next page for explanation).

Rio Tinto Coal Australia (Rio Tinto: 100 per cent)

Rio Tinto Coal Australia (RTCA) manages the group’s Australian coal interests. These include the Blair Athol (Rio Tinto: 71.2 per cent), Clermont (Rio Tinto: 50.1 per cent), Hail Creek (Rio Tinto: 82 per cent) and Kestrel (Rio Tinto: 80 per cent) coal mines in Queensland. RTCA also manages the Energy product group’s coal mines in New South Wales, which are Hunter Valley Operations (Rio Tinto: 80 per cent), Bengalla (Rio Tinto: 32 per cent), Mount Thorley (Rio Tinto: 64 per cent) and Warkworth (Rio Tinto: 44.5 per cent).

Coal & Allied is 80 per cent owned by the Rio Tinto Group and 20 per cent owned by Mitsubishi Development. Coal & Allied also has a 36.5 per cent interest in Port Waratah Coal Services which operates the Kooragang and Carrington coal port terminals.

Australian coal production increased by eight per cent in 2012 compared to 2011 due to the completion of brownfield expansions in the Hunter Valley and the continued ramp-up of the Clermont Mine in Queensland. This was achieved despite the impacts of wet weather in eastern Australia in the first half of 2012, and carry-over effects from a shortage of explosives in New South Wales in the fourth quarter of 2011. Net earnings of US$402 million represent a 68 per cent decrease from 2011, due largely to lower prices for all coal types, the continuing strength of the Australian dollar, and higher input costs.

Coal production is forecast to increase again in 2013 through the realisation of benefits from the business-wide debottlenecking and asset management programme, the ongoing ramp-up of the Clermont Mine and first coal from the Kestrel Mine Extension. The production increase through these activities is forecast to more than offset the impact of closure of the Blair Athol Mine in central Queensland which produced its last coal in November 2012. Over nearly three decades, Blair Athol Mine produced close to 250 million tonnes of thermal coal, and at its peak was Australia’s largest exporter of thermal coal. Its infrastructure facilities are now being used by the nearby RTCA-managed Clermont Mine, which opened in 2010.

In response to increased community concern regarding impacts from mining in the Hunter Valley, RTCA has made significant improvements to both operational and rehabilitation practices. Key initiatives include purchasing noise-attenuated heavy mobile equipment and retrofitting existing fleet, and the use of real-time monitoring to modify operations in response to environmental conditions.

Energy Resources of Australia (Rio Tinto: 68.39 per cent)

Energy Resources of Australia (ERA) is a publicly listed company. Since 1981, ERA has mined ore and produced uranium oxide at its Ranger open pit mine, 260km east of Darwin in the Northern Territory.

ERA also holds title to the adjacent Jabiluka mineral lease, which is under a long-term care and maintenance agreement. Ranger and Jabiluka are surrounded by, but remain separate from, the World Heritage listed Kakadu National Park. ERA’s operations are subject to stringent environmental requirements and governmental oversight.

 

 

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Ranger mine finished open-cut mining in December 2012 after 31 years. Uranium production will continue by processing previously stockpiled lower grade material while studies proceed to assess the feasibility of underground operations at Ranger.

In January 2013, a suite of agreements covering the Ranger Project Area were executed by ERA, the Mirarr Traditional Owners, the Northern Land Council and the Commonwealth Government.

Key features of the agreements include the Mirarr Traditional Owners receiving an increased share of the financial benefits from the Ranger mine, the creation of a regional Sustainability Trust which will deliver social initiatives in the local region, and an agreed approach to increasing opportunities for local Aboriginal participation in business development, training and employment.

The finalisation of these agreements is a significant achievement and reflects a strengthening in the relationship between ERA and the Gundjeihmi Aboriginal Corporation representing the Mirarr Traditional Owners.

Rio Tinto Coal Mozambique (Rio Tinto: 100 per cent)

Rio Tinto Coal Mozambique (RTCM) manages the Zambeze Project (100 per cent); Tete East Project (100 per cent); Benga Mine (65 per cent); and the Zululand Anthracite Colliery (74 per cent).

RTCM holds mining and exploration licences in the Moatize Basin in the Tete province of Mozambique. The Benga Mine was officially opened in May 2012 with first coal exported in June 2012. An impairment charge of US$2.86 billion post-tax was recognised relating to Energy’s coal business in Mozambique. The development of infrastructure in Mozambique to support the undeveloped coal asset is more challenging than initially anticipated which, combined with a downward revision to estimates of recoverable coking coal volumes, has led to a reassessment of the overall scale and ramp up schedule of RTCM and consequently to the assessment of its fair value less costs to sell (FVLCS).

Benga Mine commercial production in 2012 was 460 thousand tonnes. Near-term sales volumes will reflect the availability of rail and port capacity.

Rössing Uranium (Rio Tinto: 68.58 per cent)

Rössing Mine is located near Arandis in Namibia’s Erongo Region. Improving costs and efficiencies continued to be a focus at Rössing in 2012. Benefits from the business improvement strategies that were initiated in 2011 are now being realised and this work will continue in 2013. Rössing is evaluating options to expand operations and extend the mine life beyond 2023.

Rio Tinto acquired its interest in Namibia-based Rössing Uranium Limited (Rössing) in 1970. The Iranian Foreign Investments Company (IFIC) acquired its original minority shareholding in Rössing in 1975. IFIC’s interest predates the establishment of the Islamic Republic of Iran and the U.S. economic sanctions targeting Iran’s nuclear, energy and ballistic missile programs. IFIC acquired and continues to own a minority shareholding in Rössing in accordance with Namibian law.

Rössing is neither a business partnership nor joint venture between Rio Tinto and IFIC. Rössing is a Namibian limited liability company with a large number of shareholders, including Rio Tinto with 68.7 per cent, IFIC with 15.3 per cent, the Industrial Development Corporation of South Africa with 10 per cent, local individual shareholders with a combined interest of 3 per cent and the Government of the Republic of Namibia with 3 per cent but with an additional 51 per cent vote at a general meeting of Rössing on matters of national interest.

As a shareholder in Rössing, Rio Tinto has no power or authority to divest IFIC’s holding in Rössing. However, Rössing and the Namibian Government have taken several recent steps to limit IFIC’s future involvement in Rössing.

On 1 October 2010, Namibia reported to the United Nations, pursuant to Article 31 of the United Nations Security Council Resolution 1929 (UN SCR 1929), that it had reached an agreement with the Islamic Republic of Iran that IFIC will not participate in any future investments nor will it acquire any further shares in Rössing. It was also agreed that the Government of Iran will not acquire interests in any commercial activity in Namibia involving uranium mining, production, or use of nuclear materials and technology, as required under UN SCR1929, until such time as the United Nations Security Council determines that the objectives of the Resolution have been met.

The Rössing board also took steps in 2012 to terminate IFIC’s involvement in the governance of Rössing. As a shareholder in Rössing, IFIC was entitled under Namibian law to attend general meetings of Rössing. IFIC was previously represented on the board of Rössing by two directors. While this level of board representation did not provide IFIC with the ability to influence the conduct of Rössing’s business on its own, the Rössing board nonetheless determined that, in light of international economic sanctions, it would be in the best interest of Rössing to terminate IFIC’s involvement in board activity. Therefore, on 4 June 2012, at the annual general meeting of Rössing, the shareholders of the company, including Rio Tinto, voted not to re-elect the two IFIC board members. This ended IFIC’s participation in Rössing board activities. IFIC accordingly is not represented on the Rössing board, nor does it have the right to attend board meetings or receive any board information

Dividends:

While IFIC is entitled to its pro rata share of any dividend that the majority of the board may declare for all shareholders in Rössing, IFIC has not received such monies since early 2008. Simply by maintaining its own shareholding in Rössing, Rio Tinto is not engaging in any activity intended or designed to confer any direct or indirect financial support for IFIC. Further, the Rössing board determined no dividends will be paid for the year 2012.

Uranium off-take and technology:

Rössing is the world’s third largest uranium mine. It sells approximately 40 percent of its uranium to U.S. power companies and most of the remainder to Canada and other key U.S. trading partners in Europe and Asia. As a minority shareholder, IFIC has no uranium product off-take rights. Neither IFIC nor other Government of Iran entities have any supply contracts in place with Rössing and receive no uranium from Rössing. IFIC also does not have access to any technology through its investment in Rössing or rights to such technology.

While Rio Tinto does not view itself as actively transacting or entering into business dealings with an instrumentality of the Government of Iran, this information has been provided to ensure transparency regarding the passive, minority shareholding in Rössing currently held by the IFIC. Rio Tinto has disclosed the IFIC shareholding matter to the United States Government and has periodically updated the U.S. Department of State as to the same.

Development projects

Rio Tinto completed the acquisition of Hathor Exploration, a junior Canadian uranium exploration company with assets in the Athabasca Basin region of Saskatchewan, in January 2012. The new entity was renamed Rio Tinto Canada Uranium (RTCU).

Its assets give the Energy product group access to a significant high-grade uranium deposit and further highly prospective exploration tenements in an area of Canada that currently supplies approximately 20 per cent of global uranium. RTCU’s Roughrider Project is located in an area that hosts all of Canada’s producing uranium mines.

Rio Tinto has commenced an environmental baseline programme for the Roughrider Project and engagement with local communities and stakeholders is also well under way. Rio Tinto is continuing to work with the governments of Saskatchewan and Canada to promote the growth of the uranium mining industry.

In Queensland, RTCA’s Kestrel Mine Extension project is well advanced and scheduled to start production in mid-2013. The project will incrementally increase production by one million tonnes per annum, extend the life of the current mine to 2032 and reduce unit operating costs.

In Mozambique, work to refresh the development strategy is being expedited in light of the non-cash impairments announced in January 2013. The Energy product group continues to engage with the Government of Mozambique on a range of transport infrastructure options, the success of which remains the key to unlocking the full value of coal tenements in the Moatize Basin.

At ERA, the Ranger 3 Deeps orebody contains an estimated 34,000 tonnes of uranium oxide making it one of the most significant recent uranium discoveries anywhere in the world. Construction of a A$120 million exploration decline started in May 2012 with exploration drilling expected to commence in Q2 2013.

Following a successful exploration programme, Rössing Uranium is considering mining the Z20 orebody. In order to access the orebody, an infrastructure corridor would need to be established linking Z20 to the existing Rössing mine.

Outlook

With European and American economies continuing to experience low-growth conditions, subdued prices for coal and uranium are expected to continue in the short to medium term. Notwithstanding the near-term outlook, long-term demand for coal and uranium is expected to remain strong.

Under even the most ambitious climate change policy scenarios, Rio Tinto expects demand for energy to increase significantly with future global growth dominated by Asia. The International Energy Agency’s most recent scenario shows China alone representing 43 per cent of global energy growth over the period 2010 to 2020. In the same scenario in the period 2010 to 2035, Asia accounts for 67 per cent of global growth, with India and other countries accelerating as China’s growth profile starts to flatten.

Many countries seek a diversified energy mix to safeguard energy security, while looking to minimise costs and manage the various environmental impacts of energy use including carbon emissions. This challenging three-way balance means that coal will continue to be an important baseload fuel for decades to come and nuclear power will provide additional energy security with low emissions. Similarly, global steel demand is expected to grow at two per cent per annum to 2050, underpinning the demand for high-quality metallurgical coal.

 

 

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Table of Contents

Iron Ore

 

Financial performance

 

                                         
      2012
US$ million
     2011
US$ million
 
Revenue      24,279         29,475   
Operating cash flow      15,827         21,778   
Underlying earnings      9,242         13,267   
Capital expenditure      7,149         4,004   
Net operating assets      21,068         12,531   

Strategy and strategic priorities

The Iron Ore product group’s strategy is to:

 

Ÿ   Create and protect shareholder value by maximising the return from existing assets and building value through appropriate project developments.

 

Ÿ   Implement value-generating major expansion programmes while maintaining production at nameplate capacity.

 

Ÿ   Maintain close control of capital and operating costs to protect margins, achieving savings through more efficient processes and reducing support and services costs.

 

Ÿ   Continue to develop, and benefit from, technology and innovation to deliver supply chain efficiencies, reduce or maintain costs, and maximise underlying profit.

 

Ÿ   Capitalise on its position as the leading iron ore supplier close to the world’s largest, fastest-growing markets.

 

Ÿ   Maximise shareholder returns by applying a “value-in-use” focus to its portfolio marketing strategy across its suite of products.

Safety

Following the three fatalities that regrettably occurred in 2011, a comprehensive examination of Iron Ore’s approach to safety was launched. This resulted in key safety improvement initiatives that were implemented in 2012. Integral to improved performance will be the strong commitment to safety improvement at all levels of the organisation and a focus on critical risk management, safety leadership, employee development, hazard awareness and safety systems simplification.

Critical risk monitoring programmes continue to be enhanced, and include increasing leadership capability and accountability. Initiatives designed to comprehensively reduce Iron Ore’s overall risk profile included the phased introduction of a safer 5-star ANCAP

(Australasian New Car Assessment Program) rated light vehicle fleet and the implementation of the Nine Lifesaving Commitments hazard awareness programme.

Iron Ore maintained a major focus on health issues, particularly emerging issues impacting on the mental health of its workforce. This included embedding a mental health strategy with a focus on depression.

In 2012, the Iron Ore group’s all injury frequency rate was 0.74, compared with 0.65 in 2011. Several significant potential incidents were also recorded in 2012. These shortcomings highlighted the need to embed better safety programmes and improvement initiatives throughout 2013.

Greenhouse gas emissions

A number of measures were implemented during the year to ensure that Rio Tinto’s iron ore business applied best practice to its environmental performance. From a regulatory perspective, several programmes produced greenhouse gas (GHG) improvements. All federal government requirements for the National Greenhouse and Energy Reporting System and Energy Efficiency Opportunities Act were met. Pilbara operations also produced savings of 479 TJoules (1.4 per cent of the total energy footprint for the iron ore business). The Iron Ore group’s total greenhouse gas emission intensity has improved 4.1 per cent from 2008.

Review of operations

Iron Ore achieved its stated production target of 250 million tonnes in 2012, overcoming volatile weather and market challenges along with a fast-tracked expansion schedule to increase overall group production to 253 million tonnes. Rio Tinto’s share of production was 198.9 million tonnes, a 3.7 per cent increase over the previous year.

This evidenced a great recovery from what was a particularly difficult first quarter, when the seasonal weather conditions in the Pilbara produced three tropical cyclones. However, satisfactory operating performance was maintained, with inland mining and in-load facilities continuing to operate in a limited but functional capacity throughout the events.

The second half in particular demonstrated the integrated Pilbara system’s enhanced operational efficiency, with operational capacity re-rated at 237 million tonnes per year (Mt/a) in November with minimal capital investment. The business set, and met, the challenge of reaching a 260Mt/a run-rate towards the end of the year.

As in 2011, a volatile iron ore market produced wide and rapid swings in spot prices, across which most contract prices were based, highlighting the sales and marketing team’s sustained achievement in placing tonnes to the best effect. Relevant index prices reached higher than US$150 per tonne and as low as around US$80 per tonne, before settling in the US$120-130 range through the fourth quarter as demand recovered and stabilised. The dynamic nature of the market was highlighted with broad variations in customers’ responses to peaks and lows in demand, resulting in fragmented price referencing models across major markets.

Marketing strategy remained focused on achieving high recognition for the superior value-in-use of Rio Tinto’s iron ore products, matching them with particular markets where optimal value could be realised. Despite the volatile conditions, sales increased each quarter through the year.

Operational improvement throughout the year was directed to achieving productivity gains, particularly through minimising or eliminating bottlenecks across the Pilbara rail network. Additional sidings were constructed to reduce delays.

A US$518 million investment (Rio Tinto share US$478 million) was announced to reinstate Iron Ore’s AutoHaul™ automated train programme. Scheduled for completion in 2015, this will result in the world’s first automated long-distance heavy-haul rail network. AutoHaul™ will enable Rio Tinto to expand capacity without making a substantial investment in additional trains. The programme involves a number of safety initiatives to ensure current safety levels are not compromised.

The year’s operational efficiency gains often involved small but valuable improvements in asset deployment. For example, two additional ore cars were added to all 234-car trains, increasing annual ore throughput capacity by approximately 500,000 tonnes.

Rio Tinto’s longstanding commitment to the Mine of the Future™ programme was reflected in a number of decisions, leading towards the first fully autonomous large-scale mining operation in the Pilbara. The Operations Centre (OC) in Perth has become the nerve centre for the Pilbara business. Most management and oversight functions formerly based in the Pilbara have been brought into the OC. Construction began on Stage 3 of the OC, which will enable more roles and responsibilities to be based there in 2013.

The five original Autonomous Haulage System (AHS) driverless trucks were transferred from West Angelas mine to Yandicoogina, where they were joined by five new autonomous trucks. They now comprise the entire fleet in the Junction South East pit, hauling about 30 million tonnes of high-grade ore a year. They will be progressively joined by 150 more AHS trucks over the next three to four years, to be initially deployed at the expanded Nammuldi mine and the new Hope Downs 4 mine.

The 40-year-old Cape Lambert power station was decommissioned during 2012 and dismantling commenced. The HIsmelt® plant in Kwinana has also been decommissioned and preparation for dismantling and potential sale of some equipment has begun.

 

 

 

 

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The ongoing challenge to recruit the workforce of the future was met with a number of activities including commencement and consolidation of regional fly-in fly-out (FIFO) hubs, introduction of the national FIFO programme, recruitment of record numbers of apprentices and graduates, utilisation of five dedicated regional training facilities, and the funding of 43 mining-related scholarships to the University of Western Australia.

Negotiations for participation agreements with Traditional Owners continued, augmenting the five agreements reached in 2011. This featured a strong commitment to finalising regional standards, incorporating mutual obligations to deliver commitments on employment, financial compensation, education and training, heritage surveys and practices, environmental care and land use.

Aboriginal employment remained a key priority of the Pilbara business, and the year saw a steady improvement in workforce numbers, boosted by the significant addition of contractors associated with the expansion programme. At the end of the year, total Aboriginal employment in the Western Australian iron ore business stood at more than 1,660 workers. The commitment to fostering Aboriginal business produced outstanding achievements. In the last three years more than A$1.6 billion in Pilbara contracts has been awarded to Aboriginal joint venture and direct contracts.

A number of regulatory and administrative arrangements were also resolved including the government approval of stage two for the Wickham residential sub-division supporting the Cape Lambert expansion.

Brockman 4 phase 2 expansion was successfully commissioned, lifting mine annual capacity to 40 million tonnes, as was the Hamersley Agricultural Project, using surplus water from the Marandoo mine extension to develop a year-round crop-growing capability.

In September, the High Court of Australia overturned earlier decisions by the Federal Court not to declare the Hamersley and Robe rail lines open for third-party access. The Australian Competition Tribunal reconsidered the matter, and, in February 2013, ruled that the lines not be opened up for other users.

The Iron Ore Company of Canada (IOC, Rio Tinto share 58.7 per cent) enjoyed a solid year, recovering from a difficult first few months to produce 9.7 million tonnes of pellets and 4.4 million tonnes of concentrate for sale. Sales were 9.9 million and 4.2 million tonnes respectively. During the year a number of improvements helped achieve efficiency gains, notably in the mobile equipment and operations sectors. A number of challenges remain as a result of the Concentrate Expansion Project (CEP) first stage, still in commissioning, which impacted concentrate production. Pellet production was stable through the year.

In March, IOC successfully secured a six-year labour contract with its unions without disruption. This agreement will enable IOC to be competitive, attract the necessary skills, and reward, attract and retain the right people to generate greater value.

During the year, the Dampier Salt business moved within the Diamonds & Minerals organisational structure, and is reported on page 27.

Development projects

A number of incremental improvements to the Pilbara integrated network, largely involving debottlenecking, resulted in a re-rating of the system’s current annual capacity in November 2012 to 237 million tonnes with minimal capital investment.

The expansion of Pilbara annual capacity to the revised target of 360 million tonnes remained on track in 2012, following a two-staged investment process and a successful year of project execution. All approvals for the expansion to 290 million tonnes capacity are in place, and all rail and port approvals for the 360 million tonne stage are completed except for immediate rail links to new mine developments still in study phase.

In February, a US$3.4 billion (Rio Tinto share US$2.9 billion) investment was approved, comprising US$2.2 billion to extend the life of the Nammuldi iron ore mine by 14 years and US$1.2 billion for early works

at Cape Lambert port and rail expansions. These early works include replacing an ageing car dumper with a new dual car dumper, increasing the port’s annual capacity by 20 million tonnes by 2015, and aligning in-loading capacity with current ship-loading capacity.

This was followed in June with a US$3.5 billion investment (Rio Tinto share US$2.0 billion), providing for an additional two berths and significantly increased rail capacity to support it.

Investment of US$570 million was allocated to construct a new energy-efficient gas-fired power station at Cape Lambert, producing significantly lower carbon emissions than its decommissioned predecessor.

A further US$1.7 billion (Rio Tinto share 100 per cent) of largely sustaining capital expenditure was approved to extend the life of the Yandicoogina mine to 2021 and boost nameplate capacity from 53Mt/a to 56Mt/a. A wet processing plant will also be added in order to maintain product specification levels and provide a platform for future potential expansion.

This is the largest integrated mining project in Australian history, and is on track to complete the announced schedule:

 

1. 225Mt/a by Q1 2011 – Dampier port debottlenecking (complete)
2. 230Mt/a by end Q1 2012 – Dampier port incremental (complete, re-rated to 237Mt/a in November 2012)
3. 290Mt/a by Q3 2013 – Cape Lambert 53Mt/a increment (in implementation)
4. 360Mt/a in H1 2015 – Cape Lambert 50Mt/a increment and car dumper replacement 20Mt/a increment (infrastructure approved)

The milestone of 290Mt/a capacity was brought forward to Q3 2013, delivering greater shareholder value more quickly.

The planned installation of a wet plant at Brockman 4 was removed, saving US$1 billion in capital expenditure. Through such measures, capital intensity has been kept at the mid-US$150s per tonne, despite rising costs and currency movements.

In response to the increased demand for iron ore from traditional and new markets, IOC re-launched the CEP that will increase capacity from 18 million tonnes of iron ore concentrate per year to 23 million tonnes. The first stage of the CEP, comprising the construction of a new primary ore crusher, a 6km overland conveyor and a fourth autogenous grinding line to increase primary processing capacity, is being commissioned and will ramp up towards full production in 2013.

The second stage involves the addition of two new spiral lines to the gravity separation circuit which was being delivered to operations from late 2012. This is planned to be followed by the installation of a new magnetite grinding and processing circuit scheduled for commissioning by the end of 2013.

Further proposed expansions are being progressed through study stages.

During 2012, the Simandou iron ore project in Guinea (covered on page 27) moved within Diamonds & Minerals, as it remains the responsibility of that group’s chief executive, Alan Davies, appointed in September.

Outlook

Market softening since 2011 was a result of destocking following lower than expected Chinese steel demand, which in turn led to the final quarter rebound to levels above US$120 per tonne, moving higher into the new year. With European and American economies still suffering poor growth conditions, the market will continue to show volatility in the short to medium term.

Notwithstanding this volatility, Rio Tinto is confident of the strength of the long-term demand outlook for iron ore. Increasing global wealth is leading to billions of people moving through steel intensive phases of development. Global steel demand is expected to grow at two per cent per annum to 2050, driven by China out to 2030, with India and other South East Asian countries offsetting a potential flattening in Chinese demand growth thereafter.

 

 

 

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Table of Contents

Business Support & Operations

 

At the end of 2012*, the Business Support & Operations (BS&O) group comprised Rio Tinto’s Exploration business (see below), as well as Business Evaluation, Economics & Markets, Group Risk, Global Business Services (Information Systems & Technology, Procurement, Shared Services and Group Property), Rio Tinto Japan and Rio Tinto Singapore Holdings. From an administrative point of view, the Group Audit & Assurance function sat within BS&O, but operates independently of management under a mandate approved by the Audit and Sustainability committees. (see pages 75 and 77).

Pacific Aluminium and Other Aluminium were also part of BS&O; these comprise non-core bauxite, alumina and aluminium assets that, in 2011, Rio Tinto announced its intention to divest or close. In March 2012, the Lynemouth aluminium smelter in the UK was closed and is currently being decommissioned. In December, Lynemouth Power Station was sold to German energy company RWE. During 2012, Rio Tinto sold the Specialty Alumina business (four plants in France and Germany) to funds affiliated to H.I.G., and Alcan Cable – which has operations in North America and China – to General Cable.

In 2012, BS&O contributed 41 per cent of Rio Tinto’s total greenhouse gas (GHG) emissions, compared with 44 per cent in 2011. Pacific Aluminium accounted for 29 per cent of the Group’s total GHG emissions in 2012, and Other Aluminium accounted for 11 per cent. BS&O’s all injury frequency rate improved to 0.60 in 2012, from 0.69 in 2011.

Exploration

The Group has had a sustained commitment to exploration since 1946 and considers exploration to be one of its leading capabilities. Fundamental to the exploration strategy is a focus on Tier 1 resources: the largest, lowest-cost resources that are profitable at all parts of the commodity cycle. Established Group operations, such as Weipa, the Pilbara and Rössing, were Tier 1 greenfield discoveries by Rio Tinto where value is still being realised after more than 40 years of production.

The Exploration group conducts both greenfield and brownfield exploration programmes and also supports business development groups in evaluating merger and acquisition opportunities. Greenfield exploration aims to establish new operating business units, involving geographic or commodity diversification away from existing Group operations. Brownfield exploration is directed at sustaining or growing existing Group businesses.

This table shows Exploration’s Tier 1 discoveries since 2002:

 

Year   Discovery   Commodity   Location
2002   Resolution   Copper   US
2004   Simandou   Iron ore   Guinea
2005   La Granja   Copper   Peru
2005   Caliwingina   Iron ore   Australia
2008   Sulawesi   Nickel   Indonesia
2008   Mutamba   Titanium   Mozambique
2009   Jadar   Lithium/
borates
  Serbia
2011   Amargosa   Bauxite   Brazil

At the end of 2012, the Exploration group was active in 20 countries and assessing opportunities in several others for a range of commodities including iron ore, copper, bauxite, coking coal, nickel, potash, uranium and mineral sands. Exploration activities in China were conducted through CRTX, a newly established joint venture between Chinalco and Rio Tinto. Responsibility for diamond exploration projects in Africa, Canada and India was handed over to the Diamonds & Minerals group late in 2012.

Strategy and strategic priorities

The goal of Exploration is to create value for Rio Tinto through the discovery or acquisition of Tier 1 resources that can increase future value. To pass modern community, sustainability and investment hurdles, the exploration process can take ten to 20 years from target generation to development decisions. Exploration programmes are therefore prioritised

on a global basis so that only the most attractive opportunities are pursued. Priorities are determined in consultation with the product groups, with decisions driven not by location or choice of commodity but by the quality of each opportunity.

The Exploration group is organised geographically into regional multi-commodity teams, with head offices in London, Salt Lake City, Brisbane, Beijing and Singapore. This structure provides a global reach and a local presence that allows for effective community engagement and development of Rio Tinto’s social licence to operate.

Safety

The Exploration group’s all injury frequency rate improved from 1.52 at the end of 2011 to 1.41 at the end of 2012. Work to improve safety performance includes an ongoing safety diagnostic process to drive operational performance improvements through 2013.

Performance

An Order of Magnitude resource study programme over the Saskatchewan potash project in Canada (a joint venture with North Atlantic Potash Inc., a subsidiary of JSC Acron) neared completion. This phase of the resource study programme will be finalised during 2013, and accountability for the project will be handed over to the Diamonds & Minerals product group.

In the US an extensive drilling programme at Tamarack, Minnesota, has indicated potential for a major nickel-copper-precious metal resource. This will advance to an Order of Magnitude study in 2013.

Drilling at the Roughrider uranium project in Saskatchewan, Canada, has outlined extensions to the known mineralisation at the Far East Resource and ongoing exploration has identified new targets for follow-up.

In the brownfield environment, Exploration is close to completing Order of Magnitude studies over coking coal projects at Mt Robert, Elphinstone and Valeria in the Bowen Basin, Australia. Drilling at Goethite Bay and Carol Lake in the orbit of the Iron Ore Company of Canada identified potentially significant iron ore mineralisation with favourable metallurgical characteristics. In Namibia, a uranium mineralisation has been identified at Z20 on the Rössing mine lease and is being drilled out in greater detail.

Progress continued on the development of the VK1 airborne gravity gradiometer, with further test flying undertaken in 2012.

Gross cash expenditure on exploration and evaluation across all of Rio Tinto in 2012 was US$1,970 million, representing a US$533 million increase over 2011 gross expenditure of US$1,437 million (due to an increased share of evaluation costs at Oyu Tolgoi and ramp-up of a number of other evaluation projects). Gross expenditure was offset by US$494 million (pre-tax) proceeds from divestment of unrequired exploration assets. Of the 2012 total spend, US$234 million related to global Exploration group activity covering nine commodities across a range of greenfield and brownfield environments.

Outlook

In 2013, the Exploration group will be active in at least 20 countries exploring for a range of commodities in a variety of greenfield and brownfield environments. Maintaining a robust exploration pipeline by identifying and securing access to the best-quality opportunities will be a key enabler of long-term success and there will be particular focus on project generation in a number of key environments.

For 2013 the list of projects moving towards potential discovery includes:

 

Project   Commodity   Country   Stage
Bowen Basin   Coking coal   Australia   Order of Magnitude
Saskatchewan   Potash   Canada   Order of Magnitude
Amargosa orbit   Bauxite   Brazil   Project of Merit
Sanxai   Bauxite   Laos   Project of Merit
Tamarack   Nickel   US   Order of Magnitude

 

* As at 1 March 2013, BS&O was restructured, and its constituent businesses and functions now report into the chief financial officer, and the Organisational Resources and Legal, External & Regulatory Affairs functions.
 

 

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Technology & Innovation

 

Rio Tinto’s Technology & Innovation group (T&I) collectively seeks to maximise total shareholder value by partnering with the business to provide technical insights in operational improvements, technical assurance, project delivery, and innovation. T&I’s focus is on creating sustainable value by embedding fundamental changes in the way Rio Tinto operates.

T&I’s gross cost in 2012 was US$415 million, compared with US$343 million in 2011 and US$213 million in 2010.

The total number of employees in T&I increased from 925 at year end 2011 to 1,031 at year end 2012.

Strategy and strategic priorities

T&I’s strategy is to:

 

Ÿ   Maintain and promote a safe working environment.

 

Ÿ   Continue to embed operational improvements in business units.

 

Ÿ   Maximise the contribution of technology to the Group’s strategy of maximising shareholder value.

 

Ÿ   Deploy technology solutions that increase value.

 

Ÿ   Design and build valuable new investment projects.

 

Ÿ   Position the Group to unlock orebodies that require innovative mining solutions.

Safety

T&I is committed to the safe operation of its facilities and to employee safety. The all injury frequency rate for T&I in 2012 was 1.57 compared to 2.57 in 2011. The improvement in the rate was primarily attributed to improvements in existing safety efforts as well as the addition of the Rio Tinto Alcan Major Projects group to T&I Project Development and Implementation.

Performance

Innovation

Innovation is the research and development group within T&I. Its focus is on developing radically innovative technologies that can address the significant challenges facing the mining industry and drive increased production, efficiency and safety.

While Rio Tinto as a whole looks at continuous improvement, Innovation is focused on step-change technologies, including the Mine of the FutureTM programme. The Mine of the FutureTM programme is not a single mine site; it is an approach used across Rio Tinto to find advanced ways to find, extract, and process minerals from deep within the Earth while reducing environmental impacts and further improving safety.

The wealth of technical and project expertise within Innovation is leveraged through a network of key partnerships with organisations and institutions around the world – providing a vast and interconnected group of world-class experts to generate solutions.

The output of this work is protected by an intense focus on competitive advantage and developing tailored intellectual property protection strategies for each programme of work.

Mineral Technology Services

Mineral Technology Services (MTS) comprises a team of technology professionals based in seven offices in North America, Australia, South Africa and the UK, who partner with Rio Tinto’s business units in the delivery of large, measureable increases in earnings and value. MTS provides technical service in the areas of geology, mining, mineral processing, geotechnics, hydrometallurgy, process control and environmental management.

A key area of focus for MTS continues to be the Improving Performance Together programme launched in 2005. In 2012 the focus was aligning the work in processing, asset management and mining to provide support across the entire value chain with a focus on targeting the highest priorities for throughput, recovery and operating performance.

Mining and Asset Management Centre

The Asset Management Centre provides strategic direction on the effective selection and utilisation of the Group’s equipment for mining and processing. Working with businesses, the centre supports asset improvement initiatives through the use of global metrics and benchmarking, standards and guidelines. The work also includes developing capability through competency frameworks and formal training to support sustainable improvement and standard business processes with fit-for-purpose technical operating systems.

The focus of the Surface Mining team is to establish leading practice and develop, share and implement Group-wide solutions in core mining production processes. Other Surface Mining initiatives include payload management, load and haul efficiency improvements, increased orebody recovery, improved stockpile management, drill and blast, and off-road tyre demand reduction.

Mining Technology also includes a Strategic Production Planning (SPP) team that works with business units to develop comprehensive plans and valuations of strategic development options. Results from SPP provide a logical resource development framework for more detailed studies and investment decision-making.

Project Development & Implementation

Project Development & Implementation (PDI) is responsible for the implementation and delivery of major capital projects. PDI is made up of a centralised Project Management Office (PMO) and Project Delivery Hubs which are aligned by geographic location or commodity. The PMO is responsible for developing, promoting and supporting the implementation of the processes, standards and tools to achieve repeatable project success. The hubs are responsible for the delivery of major capital projects in partnership with product groups and business units.

PDI is delivering a significant proportion of Rio Tinto’s major projects within a newly developed Capital Projects Framework which is shaped around four key elements – project portfolio planning and reporting, project governance, practices, and people.

Technical Evaluation Group

The Technical Evaluation Group (TEG) is a team of internal professionals responsible for rigorously reviewing all major project proposals to ensure Rio Tinto’s Investment Committee is provided with independent technical assessments to support its decision-making.

Underground Technology Centre

The objective of the Underground Technology Centre is to create and develop a world-class team in technical aspects of underground mining that will provide Rio Tinto with a competitive advantage. The centre partners with the product groups on the technical aspects of design, construction and operation, including the delivery of fit-for-purpose technology.

Outlook

T&I will continue to maintain a culture that makes safety and safety improvements the highest priority. To support the business where technical expertise and external networks will have the largest benefit to Rio Tinto and its shareholders, T&I’s focus in 2013 will be on four main areas: partnering with product groups and functions on operational improvement, the safe and efficient development and implementation of projects, the pursuit of the Mine of the FutureTM programme and the development of innovative alliances and relationships, and technical assurance – all of which will create competitive advantage for the Group. T&I is reviewing the Group’s approach to due diligence and technical assurance processes.

 

 

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Table of Contents

Financial review

 

2012 financial performance compared with 2011

In order to provide additional insight into the performance of our business, Rio Tinto presents underlying earnings.

2012 underlying earnings of US$9,303 million and net loss of US$2,990 million were US$6,246 million below and US$8,816 million below the comparable measures for 2011. The principal factors explaining the movements are set out in the table below.

 

Changes from 2011 to 2012   US$m     Underlying
earnings
US$m
     Net
earnings
US$m
 
2011       15,549         5,826   
Prices     (5,315     
Exchange rates     154        
Volume increases     634        
Volume declines     (943     
General inflation and energy     (270     
Other cash costs     (304     
Exploration and evaluation costs (including disposals of undeveloped projects)     80        
Non cash/interest/tax/other     (282           

Total changes in

underlying earnings(a)

      (6,246      (6,246
Increase in impairment charges          (5,070

Movement in gains and losses on consolidation and disposal of

interests in businesses

         660  

Movement in exchange differences

and gains on derivatives

         610  
Recognition of deferred tax asset following introduction of MRRT          1,130   
Other movements                      100   
2012             9,303         (2,990

 

(a) See note 2 on page 160 of the 2012 financial statements for a reconciliation of underlying earnings to net earnings.

Prices

The effect of price movements on all major commodities in 2012 was to decrease underlying earnings by US$5,315 million compared with 2011. Average prices declined from record highs experienced in 2011 for nearly all of Rio Tinto’s major commodities, with the exception of gold which was up six per cent on 2011, and minerals (mainly borates and titanium dioxide feedstocks).

The average Platts price for 62 per cent Pilbara fines declined by 24 per cent compared with 2011. Copper prices were down ten per cent, aluminium prices averaged 16 per cent lower and molybdenum was 17 per cent lower.

Commodity prices and other drivers of sales revenue of individual product groups are discussed further in the section on pages 37 to 38.

Exchange rates

Compared with 2011, on average, the US dollar depreciated by one per cent against the Australian dollar but strengthened by one per cent against the Canadian dollar, by seven per cent against the euro and by 14 per cent against the South African Rand. The effect of all currency movements was to increase underlying earnings relative to 2011 by US$154 million.

 

Volumes

Volume increases enhanced earnings by US$634 million compared with 2011. These were achieved primarily in iron ore, where sales volumes rose three per cent due to increased capacity at the Pilbara ports, and at Escondida in line with higher ore grades. Volume declines lowered earnings by US$943 million compared with 2011, reflecting lower mill throughput and gold grades at Kennecott Utah Copper and no metal share from Grasberg.

Energy, other cash costs and exploration

Industry-wide cost pressures continued during 2012, in particular at some of the mining hotspots where Rio Tinto has significant operations, such as New South Wales, Queensland and the Pilbara region of Western Australia. Rio Tinto has a clear focus on cost control and is targeting more than US$5 billion of cumulative cash cost savings over the next two years.

Higher energy costs across the Group lowered underlying earnings by US$23 million compared with 2011. In 2012, many operations were impacted by higher fuel, diesel and power rates.

Higher other cash costs during 2012 decreased underlying earnings by US$304 million compared with 2011 due to a combination of fixed production cost inefficiencies associated with lower volumes due to grade, higher maintenance costs and, costs associated with operational readiness for the Pilbara expansion of iron ore production.

In 2012, evaluation work progressed at many of the Group’s projects including the Resolution and La Granja copper projects and the Simandou iron ore project. Development costs relating to Simandou have been capitalised from 1 April 2012. During 2012, Rio Tinto divested various exploration properties, including interests in Extract Resources and Kalahari Minerals, resulting in net gains after tax on disposal of US$342 million for the Group. The impact from movements in exploration and evaluation expenditure net of gains realised from divestments was to increase underlying earnings by US$80 million compared with 2011.

Finance costs, tax, other

The effective corporate income tax rate on underlying earnings, excluding equity accounted units, was 30 per cent, unchanged from 2011. As in 2011, the effective corporate tax on net earnings, excluding equity accounted units, is significantly impacted by the impairment of goodwill, which is non-deductible for tax purposes.

Group net finance charges were US$124 million lower than in 2011, mainly reflecting an increase in capitalised interest.

 

 

 

 

 

34    Rio Tinto 2012 Annual report


Table of Contents

2011 financial performance compared with 2010

2011 underlying earnings of US$15,549 million and net earnings of US$5,826 million were US$1,562 million above and US$8,412 million below the comparable measures for 2010. The principal factors explaining the movements are set out in the table below.

 

Changes from 2010 to 2011    US$m      Underlying
earnings
US$m
     Net
earnings
US$m
 
2010         13,987         14,238   
Prices      6,675         
Exchange rates      (998      
Volumes      (502      
General inflation      (376      
Energy      (249      
Other cash costs      (2,096      
Exploration and evaluation costs (including disposals of undeveloped projects)      (796      
Non cash/interest/tax/other      (96            
Total changes in underlying earnings(a)         1,562         1,562   
Increase in impairment charges            (8,551
Absence of gain on consolidation of Oyu Tolgoi LLC            (445
Lower profits on disposal of interests in businesses            (7
Lower loss after tax from discontinued operations            87   
Deferred tax asset write-off            (342
Movements in exchange differences and gain on derivatives            (486
Other movements                        (230
2011               15,549         5,826   

 

(a) See note 2 on page 160 of the 2012 financial statements for a reconciliation of underlying earnings to net earnings.

Prices

The effect of price movements on all major commodities in 2011 was to increase underlying earnings by US$6,675 million compared with 2010. Prices improved for nearly all of Rio Tinto’s major commodities: copper prices were up 18 per cent and gold prices were up 29 per cent. Although aluminium prices averaged ten per cent higher than 2010 they fell back sharply in the last quarter of the year. Spot iron ore prices traded 15 per cent above 2010 levels but ended the year 25 per cent below where they started, given price weakness in the fourth quarter driven by Chinese destocking.

Exchange rates

There was significant movement in the US dollar in 2011 relative to the currencies in which Rio Tinto incurs the majority of its costs. Compared with 2010, on average, the US dollar weakened by 12 per cent against the Australian dollar and by four per cent against the Canadian dollar. The effect of all currency movements was to decrease underlying earnings relative to 2010 by US$998 million.

Volumes

Lower volumes were primarily driven by lower copper and gold grades at Kennecott Utah Copper, Escondida and Grasberg. This was partly offset by higher iron ore volumes in line with the Group’s increased capacity at its Pilbara ports, despite the adverse weather conditions in the first half of the year. The net impact of volume movements was a decrease in underlying earnings of US$502 million relative to 2010.

Energy, other cash costs and exploration

Higher energy costs across the Group reduced underlying earnings by US$249 million compared with 2010. 2011 was impacted by the higher fuel, diesel and power rates affecting most operations. In 2010, Aluminium operations in the Saguenay were impacted by low snow and rainfall leading to reduced power generation and the need to purchase additional power from the provincial utility.

Higher other cash costs during 2011 decreased underlying earnings by US$2,096 million compared with 2010 due to a combination of higher input prices, fixed production cost inefficiencies associated with lower volumes due to weather events and grade, higher maintenance costs and costs associated with operational readiness.

Rising raw material and input prices decreased underlying earnings by US$514 million compared with 2010, particularly relating to coke, pitch and caustic prices in the aluminium businesses. In addition, underlying earnings were impacted by unit cost increases due to lower volumes caused by severe weather conditions (US$261 million) and lower grades (US$445 million), notably in the copper business. Additional costs of US$546 million were associated with a full year of operations at new mines and operational readiness preparations particularly in the Pilbara and Coal Australia. Other production and one-off costs lowered earnings by a further US$330 million.

In 2011, evaluation work progressed at many of the Group’s projects, including the Resolution and La Granja copper projects and the Simandou iron ore project. Two undeveloped coal properties were divested in 2010 resulting in a US$229 million gain on disposal. The impact from higher exploration and evaluation expenditure combined with lower gains realised from divestments was to lower underlying earnings by US$796 million compared with 2010.

Finance costs, tax, other

The effective corporate income tax rate on underlying earnings, excluding equity accounted units, was 30.0 per cent compared with 27.9 per cent in 2010. The effective corporate income tax rate on net earnings, excluding equity accounted units was 49.1 per cent compared with 27.3 per cent in 2010. The increase was due to the goodwill impairment charge being non-deductible for tax purposes.

Group net finance charges were US$245 million lower than in 2010, mainly reflecting an increase in capitalised interest in 2011.

Exclusions from underlying earnings 2010-2012

Earnings contributions from Group businesses and business segments are based on underlying earnings. Amounts excluded from net earnings in arriving at underlying earnings are summarised in the discussion of year-on-year results below.

 

      2012
US$m
     2011
US$m
     2010
US$m
 
Impairment charges net of reversal      (14,360      (9,290      (739
Gains and losses on consolidation and disposal of interests in businesses      827         167         619   
Loss after tax from discontinued operations      (7      (10      (97
Exchange differences and gains/         
(losses) on derivatives      553         (57      429   
Deferred tax asset write-off      (134      (342        
MRRT      1,130                   
Other exclusions      (302      (191      39   
Total excluded in arriving at underlying earnings      (12,293      (9,723      251   

 

 

 

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Financial review continued

 

2012

A pre-tax impairment charge of US$17,194 million, US$14,360 million post-tax, was recognised in 2012, of which US$12,643 million pre-tax, US$11,000 million post-tax, related to the Group’s aluminium businesses (including Pacific Aluminium). The valuation of Rio Tinto’s aluminium businesses for impairment testing is based on the Group’s assessment of fair value less costs to sell (FVLCS). During 2012, aluminium prices deteriorated further with strong Australian and Canadian currencies, high energy and raw material costs, and high volumes of London Metal Exchange (LME) inventory continuing to exert pressure on current market values in the industry. As in 2011, given the prevailing conditions in the aluminium market, FVLCS does not include the full value of the Group’s planned improvements in cash margins from its value enhancement programmes.

A post-tax impairment charge of US$2,860 million was also recognised relating to Rio Tinto Coal Mozambique (RTCM). The development of infrastructure in Mozambique to support the undeveloped coal asset is more challenging than initially anticipated which, combined with a downward revision to estimates of recoverable coking coal volumes, has led to a reassessment of the overall scale and ramp-up schedule of RTCM and consequently to the assessment of its FVLCS.

In addition, there were net post-tax impairments of US$460 million relating to the Group’s Argyle diamond mine and US$40 million in other net impairments. An impairment review of Argyle was triggered by the announcement during the year of the Diamonds strategic review as well as changes to the forecast ramp-up date for the underground mine.

Movements in gains and losses on consolidation and disposal of interests in businesses relate primarily to a gain of US$965 million arising on consolidation of Richards Bay Minerals (RBM) and a US$167 million loss on consolidation of Turquoise Hill Resources Ltd.

A deferred tax asset of US$1,043 million was recognised in the first half of 2012 following introduction of the Minerals Resource Rent Tax (MRRT) on 1 July 2012. At 31 December 2012, this amount was US$1,130 million. The legislation, which applies to companies with iron ore and coal operations in Australia, allows a deduction against future MRRT liability based on the market value of past investments in these mining assets as at 1 May 2010. Accordingly, a deferred tax asset has been recognised to reflect the deductibility for MRRT purposes of the market value of these mining assets to the extent recovery is probable.

2011

A post-tax impairment charge of US$9,290 million was recognised in 2011, of which US$8,855 million related to the Group’s aluminium businesses. Valuation of Rio Tinto’s aluminium businesses for impairment testing was based on an assessment of FVLCS derived from discounted future cash flows. The impairment was largely a result of the economic environment and related market volatility in aluminium prices in the second half of 2011 leading to declines in market values for aluminium assets.

In addition, there were net post-tax impairments of US$344 million relating to the Group’s diamond business and US$91 million in other net impairments.

Profits on the disposal of businesses in 2011 related principally to the sale of the Group’s talc business and Colowyo mine.

The deferred tax asset write-off in 2011 of US$342 million followed a change in French legislation which restricted the utilisation of tax losses.

2010

Rio Tinto consolidated Oyu Tolgoi LLC on 15 December 2010 following the signing of a new agreement with Ivanhoe Mines. The US$445 million gain arising on consolidation represented the excess of the fair value ascribed to the Group’s indirect share of the assets and liabilities of Oyu Tolgoi LLC over the historic cost of acquiring that share through its investment in Ivanhoe Mines.

The 2010 post-tax impairment charge of US$739 million related mainly to the Alcan Engineered Products businesses. The Group completed the divestment of 61 per cent of Alcan Engineered Products to Apollo Global Management, LLC and the Fonds Stratégique d’Investissement on 4 January 2011.

Profits on the disposal of businesses in 2010 relate primarily to the sale of the Group’s remaining 48 per cent interest in Cloud Peak Energy Inc.

Loss after tax from discontinued operations of US$97 million (inclusive of divestment costs) related to the completion of the disposal of Alcan Packaging global Pharmaceuticals, global Tobacco, Food Europe and Food Asia divisions to Amcor on 1 February 2010, and the Alcan Packaging Food Americas division to Bemis Company Inc. on 1 March 2010.

Net earnings and underlying earnings

Both net earnings and underlying earnings deal with amounts attributable to the owners of Rio Tinto. However, IFRS requires that the profit for the period reported in the income statement should also include earnings attributable to non-controlling interests in subsidiaries. The profit for the period is reconciled to net earnings and to underlying earnings as follows:

 

     2012 
US$m 
  2011 
US$m 
  2010 
US$m 
(Loss)/profit from continuing operations   (2,997)   6,775    15,195 
Loss after tax from discontinued operations   (7)   (10)   (97)
(Loss)/profit for the year   (3,004)   6,765    15,098 
Attributable to non-controlling interests   14    (939)   (860)
Attributable to owners of      
Rio Tinto (net (loss)/earnings)   (2,990)   5,826    14,238 
Exclusions from underlying earnings       12,293    9,723    (251)
Underlying earnings attributable to owners of Rio Tinto   9,303        15,549        13,987 
 

 

36    Rio Tinto 2012 Annual report


Table of Contents

Group financial results by product group 2012-2010

                                                  
     
 
2012
US$m
  
  
   

 

 

Restated

2011

US$m

(a) 

  

  

   

 

 

Restated

2010

US$m

(a) 

  

  

Iron Ore     9,242        13,267        10,313   
Aluminium     3        442        611   
Copper     1,092        1,932        2,530   
Energy     283        1,074        1,187   
Diamonds & Minerals     119        (162     204   
Other operations     (528     (120     237   
Inter-segment transactions     (8     40        (15
Other items     (698     (593     (554
Exploration and evaluation     (97     (102     (52
Net interest     (105     (229     (474
Group underlying earnings     9,303        15,549        13,987   

Exclusions from

underlying earnings

    (12,293     (9,723     251   
Net (loss)/earnings     (2,990     5,826        14,238   

 

(a) Following changes to Rio Tinto’s management announced in July 2012, the Simandou iron ore project and Dampier Salt operations, previously reported within Iron Ore, are now reported within Diamonds & Minerals to reflect management responsibility. Amounts in prior periods have been reclassified accordingly.

Sales revenue

Prices

 

Commodity   Source   Unit   2012
US$
  2011
US$
  2010
US$
Average prices          
Iron ore 62%   Platts/Baltic        
Fines FOB   Exchange        
  Freight Rate   dmtu(a)   1.96   2.57   2.18
Aluminium   LME(b)   Tonne   2,018   2,395   2,173
Copper   LME   Pound   3.61   4.00   3.40
Gold   LBMA   Ounce   1,669   1,571   1,222
Molybdenum   Metals Week:        
  quote for dealer oxide        
    price   Pound   14   16   16
Closing prices (quoted commodities only)      
Aluminium     Tonne   2,041   1,970   2,459
Copper     Pound   3.65   3.43   4.44
Gold     Ounce   1,675   1,575   1,410
Molybdenum       Pound   13   16   16

 

(a) Dry metric tonne unit.
(b) LME cash price.

The above table shows published prices for Rio Tinto’s commodities for the last three years where these are publicly available, and where there is a reasonable degree of correlation between the published prices and Rio Tinto’s realised prices. The prices set out in the table are the averages for each of the calendar years 2010, 2011 and 2012.

The Group’s sales revenue will not necessarily move in line with these published prices for a number of reasons which are discussed below.

The discussion of revenues below relates to the Group’s gross revenue from sales of commodities, including its share of the revenue of equity accounted units (after adjusting for sales to subsidiaries), as included in the financial information by business unit.

Iron Ore

2012 sales revenue compared with 2011

Gross sales revenue for the Iron Ore group decreased by 18 per cent in 2012 compared with 2011 reflecting lower iron ore prices partly offset by higher volumes. Sales increased quarter-on-quarter throughout 2012, resulting in record annual sales volumes despite significant volatility in the marketplace.

In 2012, the Group continued to transition its sales portfolio to pricing periods that more closely reflect the market at the time of shipment. Approximately 30 per cent of sales were priced with reference to a quarterly average index set at the prior quarter’s average lagged by one month. The remainder was sold via pricing mechanisms priced closer to the index price at the time of shipment such as current quarter average, current month average or spot index prices. Index prices are adjusted for product characteristics and iron and moisture content.

2011 sales revenue compared with 2010

Gross sales revenue for the Iron Ore group increased by 25 per cent in 2011 compared with 2010, reflecting higher prices and increased volumes. In 2011, Rio Tinto’s Pilbara ports operated at above annualised capacity rates and shipped record volumes of 225 million tonnes for the full year.

For the first three quarters of 2011, Rio Tinto priced its iron ore contracts on a quarterly basis with a four-month lag. From 1 October 2011, the Group transitioned to a more diversified sales contract portfolio. In the fourth quarter, approximately 40 per cent of sales were priced with a four-month lag. The remainder was sold on a shorter-term price basis. Index prices are adjusted for product characteristics and iron and moisture content.

Aluminium

2012 sales revenue compared with 2011

The Aluminium group’s sales revenues are from aluminium and related products such as alumina and bauxite. Gross sales revenue for Rio Tinto Alcan decreased by 17 per cent compared with 2011, due to the combined effects of lower market prices and reduced production at Alma, offset by the Yarwun refinery expansion.

The 2012 cash LME aluminium price averaged US$2,018 per tonne, a decrease of 16 per cent on 2011. The impact of lower prices on Group sales revenue is partially offset by higher market premia as a significant portion of aluminium inventories remain locked in financing deals and are therefore unavailable for physical delivery. As a result, regional premia for physical delivery of aluminium were at record levels and on average higher than in 2011.

2011 sales revenue compared with 2010

Gross sales revenue in 2011 for the group increased by seven per cent compared with 2010, driven by higher exchange-traded aluminium prices offset by the effects of adverse weather conditions in the early part of 2011, mainly in Queensland, Australia.

The 2011 average aluminium price was US$2,395 per tonne, an increase of ten per cent on 2010. In the second half, macroeconomic concerns took hold, particularly the unfolding debt crisis in Europe, thereby reducing prices to below US$2,000 per tonne towards the end of 2011.

Copper

2012 sales revenue compared with 2011

Gross sales revenue for the Copper group decreased by 13 per cent in 2012 compared with 2011. This reflected the impact of lower prices and decreased volumes following lower mill throughput and an anticipated period of lower gold grades at Kennecott Utah Copper, and no metal share from Grasberg.

This was partly offset by increasing volumes from Escondida due to higher grades and improvements to the crushing and conveying circuit, and from Northparkes in line with a recovery in ore grades.

 

 

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Financial review continued

 

The Copper group also produces gold, silver and molybdenum as significant by-products. The average copper price in 2012 declined ten per cent compared with 2011 to 361 US cents per pound, gold increased six per cent to US$1,669 per ounce and molybdenum declined 17 per cent to US$13.60 per pound.

At 31 December 2012, the Group had an estimated 249 million pounds of copper sales that were provisionally priced at 360 US cents per pound. The final price of these sales will be determined during the first half of 2013.

2011 sales revenue compared with 2010

Gross sales revenue for the Copper group decreased by two per cent in 2011 compared with 2010. This was a reflection of reduced volumes due to lower grades at Kennecott Utah Copper, Escondida and Grasberg. A work stoppage which halted operations for 15 days at Escondida and industrial action at Grasberg also impacted 2011 production levels.

The average copper price increased 18 per cent to 400 US cents per pound, gold increased 29 per cent to US$1,571 per ounce and molybdenum was flat year-on-year.

At the end of 2011, the Group had an estimated 181 million pounds of copper sales that were provisionally priced at 344 US cents per pound.

Energy

2012 sales revenue compared with 2011

Gross sales revenue in 2012 for the Energy group decreased by 17 per cent compared with 2011 as a result of lower prices.

2012 was a difficult year in coal and uranium markets as supply and demand fundamentals struggled to balance in the face of global economic uncertainty, with prices declining across most of the year. The coking coal spot price reached a low of US$140 per tonne in the third quarter of 2012 after peaking at US$366 per tonne in early 2011. Similarly, the thermal coal spot price reached a low of US$80 per tonne in the third quarter of 2012 after peaking at US$130 per tonne in early 2011. The uranium spot price reached a low of US$42 per pound in October 2012, down US$10 from the same time in 2011.

A significant proportion of Rio Tinto’s coal production is sold under long-term contracts. In Australia, the prices applying to sales under the long-term contracts are generally renegotiated annually for thermal coal; but prices are fixed at different times of the year and on a variety of bases. Coking coal prices for 2012 have been negotiated on a quarterly basis. For these reasons, average realised prices will not necessarily reflect the movements in any of the publicly-quoted prices. Moreover, there are significant product specification differences between mines. Sales volumes will vary during the year and the timing of shipments will also result in differences between average realised prices and published prices.

2011 sales revenue compared with 2010

Gross sales revenue in 2011 for the Energy group increased by 30 per cent compared with 2010 as a result of an improved global pricing environment, partially offset by lower volumes following adverse weather conditions in the first half of 2011.

After achieving near-record prices for thermal coal in January 2011, following Indonesian and Australian supply side disruptions, global markets for thermal and coking coal experienced broad price declines throughout the remainder of 2011. This decline reflected weaker global economic activity and strong supply growth. However, prices remained well supported.

Uranium declined 38 per cent year-on-year with substantially lower production at both Energy Resources of Australia and Rössing Uranium in Namibia.

Diamonds & Minerals

2012 sales revenue compared with 2011

Gross sales revenue increased by 11 per cent in 2012 compared with 2011. This reflects higher prices for titanium dioxide feedstocks and the increase in ownership of RBM, partially offset by the divestment of the talc business on 1 August 2011.

Revenues for Rio Tinto Iron & Titanium (RTIT) increased 41 per cent year-on-year due to higher prices for titanium dioxide feedstocks and the RBM transaction in September 2012. The market for both titanium dioxide and zircon started the year strongly, although demand subsequently softened in the second half. RTIT continued to replace its multi-year sales contracts with alternative pricing mechanisms in 2012, increasing the exposure to market prices.

Despite weakening demand during the year, Rio Tinto Minerals achieved a one per cent improvement in refined borates revenues. In 2011, talc revenues of US$250 million were included in Rio Tinto Minerals.

Diamonds revenue was two per cent higher than 2011, as the effect of higher volumes was largely offset by lower prices.

Diamond prices realised by Rio Tinto depend on the size and quality of diamonds in the product mix.

2011 sales revenue compared with 2010

Gross sales revenue increased by five per cent in 2011 compared with 2010. The group benefited from higher prices due to improved market conditions across all products. This was offset by lower volumes primarily in the diamond business, following the transition to underground mining at Argyle and severe weather conditions.

Revenues for RTIT increased by 19 per cent compared with 2010 due to increasing titanium dioxide feedstock, zircon and metallic co-product prices and demand growth associated with urbanisation trends.

Rio Tinto Minerals achieved a five per cent improvement in refined borate revenues in 2011 through strong prices, product mix and steady Asian demand growth.

Rough diamond prices improved strongly in the first eight months of 2011 due to restocking in the US and continued growth in Chinese and Indian consumer markets. Despite some softening towards the end of the year, global rough diamond prices improved 24 per cent year-on-year, as a result of which Rio Tinto Diamonds revenue increased by seven per cent year-on-year, notwithstanding the impact of lower production volumes.

Cash flow

2012 compared with 2011

A full consolidated cash flow statement is contained in the 2012 financial statements.

Cash flows from operations, including dividends from equity accounted units, were US$16.5 billion, 40 per cent lower than 2011, primarily as a consequence of lower prices.

Purchase of property, plant and equipment and intangible assets rose to US$17.4 billion, an increase of US$5.1 billion from 2011. This included the continued expansion of the Pilbara iron ore mines and infrastructure to 290Mt/a in Western Australia, the construction of the Oyu Tolgoi copper-gold mine and concentrator in Mongolia, the modernisation of the Kitimat aluminium smelter in British Columbia, the extension and expansion of the Kestrel coking coal mine in Queensland and the continued underground development of the Argyle diamond mine in Western Australia.

Capital expenditure in 2012 included the impact of financial accounting reclassification for a number of items at Oyu Tolgoi from operating to capital expenditure. This had no impact on the overall project cost, which remains on target at US$6.2 billion. In addition, some spend in the Pilbara was brought forward, enabling the acceleration of first production from the expansion to the third quarter of 2013, without any increase to the overall project spend.

During 2012, the Group doubled its holding in RBM to 74 per cent through the acquisition of BHP Billiton’s entire interests for US$1.7 billion.

 

 

38    Rio Tinto 2012 Annual report


Table of Contents

The Group received US$1.35 billion following completion of the agreement with Chalco to develop and operate the Simandou iron ore project in Guinea and US$0.9 billion from the Turquoise Hill Resources rights offering. These amounts have been recognised as proceeds from issue of equity to non-controlling interests in the cash flow statement.

Cash returns to shareholders totalled US$4.5 billion in 2012, comprising US$1.5 billion in share buy-backs with the completion of the Group’s US$7 billion share buy-back programme in March 2012, and dividends of US$3.0 billion.

Dividend payments were US$0.8 billion higher than in 2011, reflecting a 34 per cent increase in the 2011 total dividend.

2011 compared with 2010

Cash flows from operations, including dividends from equity accounted units, were US$27.4 billion, 16 per cent higher than 2010, primarily as a consequence of higher prices. Tax paid in 2011 increased by 51 per cent to US$6.2 billion in line with higher taxable profits.

Purchase of property, plant and equipment and intangible assets accelerated in 2011 to US$12.3 billion, an increase of US$7.7 billion from 2010. This included the continued expansion of the Pilbara iron ore mines, development of the Oyu Tolgoi copper-gold project in Mongolia, expansion of the Yarwun alumina refinery in Queensland, extension and expansion of the Kestrel coking coal mine in Queensland, and the underground development of the Argyle diamond mine in Western Australia. A US$700 million payment to the Government of Guinea following signing of the agreement for the Simandou iron ore project was recognised as capital expenditure.

In addition, the Group invested a total of US$6.4 billion (net of cash acquired) in acquiring and increasing interests in businesses. The Group completed the acquisition of a 100 per cent interest in Riversdale Mining Limited for a total of US$3.7 billion and, in 2011, paid US$0.5 billion to acquire an 88 per cent interest in Hathor Exploration Limited. Rio Tinto increased its interest in Ivanhoe Mines from 40.3 per cent to 49 per cent and participated in Ivanhoe’s rights offering for a total consideration of US$1.9 billion.

During 2011, the Group bought back 91 million Rio Tinto plc shares at a total cost of US$5.5 billion.

Dividends paid in 2011 of US$2.2 billion were 27 per cent higher than 2010 reflecting the increase in the 2010 final dividend and the subsequent 2011 interim dividend.

Statement of financial position

Net debt increased from US$8.5 billion at 31 December 2011 to US$19.3 billion at 31 December 2012 as operating cash inflows were offset by outflows relating to capital expenditure, acquisitions, the increase in the dividend and the share buy-back programme. Net debt to total capital was 25 per cent at 31 December 2012 (2011: 12 per cent) and interest cover was 13 times (2011: 27 times).

Adjusted total borrowings at 31 December 2012 were US$26.3 billion. The weighted average maturity of total borrowings was around nine years with the maximum nominal amount maturing in any one calendar year currently US$2.7 billion. At 31 December 2012, approximately two thirds of Rio Tinto’s adjusted total borrowings were at fixed interest rates. In 2012, Rio Tinto issued US$7.9 billion of fixed rate bonds in US dollars, euros and sterling, with maturities ranging from three to 30 years, a weighted average USD fixed rate equivalent coupon of approximately 3.6 per cent and a weighted average maturity of around 12 years. Cash and cash equivalents at 31 December 2012 were US$7.1 billion.

Group net debt is stated net of the impact of certain funding arrangements relating to equity accounted units (EAU) and partially-owned subsidiaries (EAU funded balances). This avoids showing borrowings twice in the net debt disclosure, where funding has been provided to an EAU by the Group and subsequently loaned by the EAU to a consolidated Group subsidiary.

Total provisions have decreased by US$2.6 billion; this is largely the result of a Group-wide review of estimated liabilities for close down, restoration and environmental remediation. The review included a re-evaluation of the methodology for estimating risk free discount rates in light of the impact of fiscal intervention and, where appropriate, probability weighting for the different remediation or closure outcomes which could realistically arise. Net pension provisions have increased by approximately US$244 million compared to 2011.

Financial instruments and risk management

The Group’s policies with regard to financial instruments and risk management are clearly defined and consistently applied. They are a fundamental part of the Group’s long-term strategy covering areas such as foreign exchange risk, interest rate risk, commodity price risk, credit risk, liquidity risk and capital management. Further details of our financial instruments and risk management are disclosed in note 31 “Financial instruments and risk management” to the 2012 financial statements.

The Group’s 2012 Annual report and financial statements show the full extent of its financial commitments, including debt. The risk factor to which the Group is subject are summarised on pages 10 to 12. The effectiveness of internal control procedures continues to be a high priority in the Rio Tinto Group. The board’s statement on internal control is set out in the Risk management section.

Dividend

The 2012 interim dividend was 72.50 US cents (2011: 54.00 US cents) and the final dividend is determined as 94.50 US cents (2011: 91.00 US cents). Dividends paid on Rio Tinto plc and Rio Tinto Limited shares are equalised on a net cash basis; that is without taking into account any associated tax credits. Dividends are determined in US dollars. Rio Tinto plc dividends are paid and declared in pounds sterling and Rio Tinto Limited dividends are declared and paid in Australian dollars, converted at exchange rates on 12 February 2013. Details relating to the dividend policy, determination and payment of dividends in sterling, Australian dollars and other currencies and on the payment of dividends to holders of American Depositary Receipts (ADRs) are included in the Shareholder information section.

Capital and liquidity risk management

The Group’s total capital is defined as equity attributable to owners of Rio Tinto plus equity attributable to non-controlling interests and net debt, as shown below:

Total capital

 

                                         
      2012
US$m
     2011
US$m
 
Equity attributable to owners of Rio Tinto      46,865         52,539   
Equity attributable to non-controlling interests      11,156         6,669   
Net debt (note 25)      19,261         8,451   
Total capital      77,282         67,659   

The board’s overriding objective when managing capital is to safeguard the business as a going concern whilst maximising returns for the Group’s shareholders. In practice, this involves regular reviews by the board and senior management. These reviews take into account the Group’s strategic priorities, economic and business conditions and opportunities that are identified to invest across all points of the commodities cycle, and the focus on its progressive dividend policy. The resulting capital structure provides the Group with a high degree of financial flexibility at a low cost of capital.

The Group’s major capital and evaluation projects are listed in the Capital projects section on page 44.

Net debt at 31 December 2012 was made up principally from adjusted total borrowings of US$26.3 billion, offset by US$7.1 billion in cash and cash equivalents. As part of the Group’s capital management programme, a share buy-back of US$7 billion was completed by 31 March 2012.

 

 

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Financial review continued

 

We expect that contractual commitments for expenditure, together with other expenditure and liquidity requirements will be met from internal cash flow and, to the extent necessary, from the existing facilities described in note 31 “Financial instruments and risk management”, part (v) to the 2012 financial statements. This note also provides further details of our liquidity and capital risk management.

Treasury management and financial instruments

Details of our Treasury management and financial instruments are contained within the introductory paragraphs of note 31 “Financial instruments and risk management”, to the 2012 financial statements.

Foreign exchange

The following sensitivities give the estimated effect on net and underlying earnings assuming that each 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. Where the functional currency of an operation is that of a country for which production of commodities is an important feature of the economy, such as the Australian dollar, there is a certain degree of natural protection against cyclical fluctuations, in that the currency tends to be weak, reducing costs in US dollar terms, when commodity prices are low, and vice versa.

Earnings sensitivities – exchange rates

 

                                         
     

Average exchange
rate for 2012

US cents

     Effect on net and
underlying earnings of
10% change in full  year
average +/- US$m
 
Australian dollar      104         892   
Canadian dollar      100         272   
Euro      129         17   
Chilean peso      US$1= 486 pesos         27   
New Zealand dollar      81         27   
South African rand      12         78   
UK sterling      158           

The exchange rate sensitivities quoted above include the effect on net operating costs of movements in exchange rates but exclude the effect of the revaluation of foreign currency financial assets and liabilities. They should therefore be used with caution.

Further details of our exposure to foreign currency fluctuations and currency derivatives, and our approach to currency hedging, are contained within note 31 “Financial risk management”, part A(b)(i), to the 2012 financial statements.

Interest rates

Details of our exposure to interest rate fluctuations are contained within note 31 “Financial risk management”, to the 2012 financial statements.

Commodity prices

The approximate effect on the Group’s underlying and net earnings of a ten per cent change from the full year average market price in 2012 for the following products would be:

Earnings sensitivities – commodity prices

 

                                                              
      Unit      Average
market price
for 2012
US$
    

Effect on underlying
and net earnings of
10% change in
full year average

+/- US$m

 
Iron ore      dmtu                 1,573   
Aluminium(a)(b)      Tonne         2,018         384   
Copper(a)      Pound         3.61         270   
Gold      Ounce         1,669         42   
Molybdenum      Pound         14         36   
Coal      Tonne                 59   

 

(a) Excludes the impact of commodity derivatives.

 

(b) Excludes any impact on the non-core aluminium assets included in Other operations.

The sensitivities give the estimated impact on net earnings of changes in prices assuming that all other variables remain constant. These should be used with caution. As noted previously, the relationship between currencies and commodity prices is a complex one and changes in exchange rates can influence commodity prices and vice versa.

Further details of our exposure to commodity price fluctuations are contained within note 31 “Financial instruments and risk management”, to the 2012 financial statements.

Credit risks

Details of our exposure to credit risks relating to receivables, financial instruments and cash deposits, are contained within note 31 “Financial instruments and risk management”, to the 2012 financial statements.

Disposals and acquisitions

Information regarding disposals and acquisitions is provided in note 38 “Purchases and sales of subsidiaries, joint ventures, associates and other interests in businesses”, to the 2012 financial statements.

Critical accounting policies and estimates

Many of the amounts included in the financial statements involve the use of judgments and/or estimates. These judgments and estimates are based on management’s best knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ from the amounts included in the financial statements.

Information about such judgments and estimates is contained in note 1 “Principal accounting policies” to the 2012 financial statements, and/or the other notes to the 2012 financial statements. The key areas are listed below.

 

Ÿ   Dual listed company reporting

 

Ÿ   Asset carrying values and the recoverability of goodwill

 

Ÿ   Asset lives

 

Ÿ   Ore reserve estimates

 

Ÿ   Close-down, restoration and clean-up obligations

 

Ÿ   Overburden removal costs

 

Ÿ   Deferred tax on fair value adjustments

 

Ÿ   Capitalisation of exploration and evaluation costs

 

Ÿ   Functional currency

 

Ÿ   Post-retirement benefits

 

Ÿ   Recoverability of potential deferred tax assets

 

Ÿ   Contingencies

 

Ÿ   Basis of consolidation

 

 

 

 

40    Rio Tinto 2012 Annual report


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Off balance sheet arrangements and contractual commitments

The table above presents information in relation to our material off balance sheet arrangements, principally contingent liabilities, commitments for capital expenditure and other expenditure, and commitments under operating leases at 31 December 2012. Information regarding the Group’s pension commitments and funding arrangements is provided in note 46 ‘Post retirement benefits’ to the 2012 financial statements. Information regarding the Group’s close-down and

restoration obligations is provided in note 27 ‘Provisions including post retirement benefits’ to the 2012 financial statements.

We expect that these contractual commitments for expenditure, together with other expenditure and liquidity requirements, will be met from internal cash flow and, to the extent necessary, from the existing facilities.

 

 

                                                                                                        
At 31 December 2012    < 1 yr
US$m
     1-3 yrs
US$m
     3-5 yrs
US$m
     > 5 yrs
US$m
     Total
US$m
 
Expenditure commitments in relation to:               
Operating leases      415         690         555         852         2,512   
Other (capital commitments)      11,487         1,399         127         38         13,051   
       11,902         2,089         682         890         15,563   
Long-term debt and other financial obligations:               
Debt      2,199         4,425         3,396         16,328         26,348   
Interest payments      1,072         1,848         1,668         6,891         11,479   
Unconditional purchase obligations      2,700         4,749         4,279         12,822         24,550   
Other      40         103         (8      (62      73   
       6,011         11,125         9,335         35,979         62,450   
Total      17,913         13,214         10,017         36,869         78,013   

 

 

 

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Five year review

 

Selected financial data

The selected consolidated financial information below has been derived from the historical audited consolidated financial statements of the Rio Tinto Group. The selected consolidated financial data should be read in conjunction with, and qualified in their entirety by reference to, the 2012 financial statements and notes thereto. The financial statements as included on pages 139 to 223 have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS) and conform to IFRS as adopted by the EU (EU IFRS).

Rio Tinto Group

Income Statement Data

For the years ending 31 December

Amounts in accordance with IFRS

  

2012

US$m

    

2011

US$m

    

2010

US$m

    

2009

US$m

    

2008

US$m

 
Consolidated sales revenue      50,967         60,537         55,171         40,262         52,861   
Group operating (loss)/profit(a)      (1,153      13,940         19,608         7,506         10,194   
(Loss)/profit for the year from continuing operations      (2,997      6,775         15,195         5,784         5,436   
Loss after tax from discontinued operations      (7      (10      (97      (449      (827
(Loss)/profit for the year      (3,004      6,765         15,098         5,335         4,609   
Basic (losses)/earnings per share(b)               
(Loss)/profit from continuing operations (US cents)      (161.3      303.5         731.0         301.7         286.8   
Loss after tax from discontinued operations (US cents)      (0.4      (0.5      (4.9      (25.5      (52.7
(Loss)/profit for the year per share (US cents)      (161.7      303.0         726.1         276.2         234.1   
Diluted (losses)/earnings per share(b)               
(Loss)/profit from continuing operations (US cents)      (161.3      301.5         726.7         300.7         285.5   
Loss after tax from discontinued operations (US cents)      (0.4      (0.5      (4.9      (25.4      (52.4
(Loss)/profit for the year per share (US cents)      (161.7      301.0         721.8         275.3         233.1   
              
Dividends per share    2012      2011      2010      2009      2008  
Dividends declared during the year(b)               
US cents               
– interim      72.5         54.0         45.0                 55.6   
– final      94.5         91.0         63.0         45.0         55.6   
UK pence               
– interim      46.4         33.1         28.2                 29.6   
– final      60.3         57.3         39.1         28.8         37.9   
Australian cents               
– interim      68.5         49.8         49.3                 63.3   
– final      91.7         84.2         61.9         51.6         83.0   
Dividends paid during the year (US cents)(b)               
– ordinary      163.5         117.0         90.0         55.6         124.3   
Weighted average number of shares – basic (millions)(b)      1,849.1         1,923.1         1,961.0         1,763.6         1,570.1   
Weighted average number of shares – diluted (millions)(b)      1,849.1         1,935.5         1,972.6         1,769.6         1,577.3   
              

Statement of financial position data

at 31 December

Amounts in accordance with IFRS

   2012
US$m
     2011
US$m
     2010
US$m
     2009
US$m
     2008
US$m
 
Total assets      117,573         119,545         112,773         97,236         89,616   
Share capital/premium      10,189         10,024         10,105         9,344         5,826   
Total equity/Net assets      58,021         59,208         64,512         45,925         22,461   
Equity attributable to owners of Rio Tinto      46,865         52,539         58,247         43,831         20,638   

Notes

 

(a) Group operating loss or profit under IFRS includes the effects of charges and reversals resulting from impairments (other than impairments of equity accounted units) and profit and loss on disposals of interests in businesses. Group operating loss or profit amounts shown above exclude equity accounted operations, finance items, tax and discontinued operations.

 

(b) The rights issues completed in July 2009 were at a discount to the then market price. Accordingly, earnings per share and dividends per share for all periods up to the date on which the shares were issued were adjusted for the bonus element of the issue. The bonus factor for Rio Tinto plc was 1.2105 and for Rio Tinto Limited was 1.2679. In accordance with IAS 33 2 “Earnings per share”, the effects of anti-dilutive potential have not been included when calculating diluted loss per share for the year ended 31 December 2012.

 

 

 

 

 

 

42    Rio Tinto 2012 Annual report


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Acquisitions and divestments

 

Acquisitions

Asset   

  Cost

US$m

     Status
Acquired in 2012            

Copper – Turquoise Hill Resources Ltd

(formerly Ivanhoe Mines Limited)

   307      Purchase of additional shares increasing the Group’s holdings to 51 per cent.
Minerals– Richards Bay Minerals    1,700      Acquisition of BHP Billiton’s entire interests in Richards Bay Minerals, doubling the Group’s holding to 74 per cent.
Acquired in 2011            
Copper – Ivanhoe Mines    1,860      Participation in the strategic rights offering, exercise of outstanding share warrants, exercise of subscription rights granted in 2010 and purchase of additional shares, in aggregate increasing the Group’s holding to 49 per cent.
Energy – Riversdale    4,168      Staged acquisition of shares in Riversdale Mining Limited; acquisition of a controlling interest of 52.6 per cent on 8 April 2011, increasing to 100 per cent by 1 August 2011, and renamed as Rio Tinto Coal Mozambique
Energy – Hathor    550      Purchase of shares in Hathor Exploration resulting in an aggregate of a 70.2 per cent controlling interest being reached on 30 November 2011, increasing to 88 per cent by 31 December 2011 and completed on 12 January 2012.
Acquired in 2010            
Copper – Ivanhoe Mines    1,590      Purchases of additional shares, maturing of convertible debt facility and exercise of Series A and B warrants increasing the Group’s holding to 40.3 per cent as at 31 December 2010. Rio Tinto consolidated Oyu Tolgoi LLC on 15 December 2010 following the signing of a new agreement with Ivanhoe Mines.

 

Divestments

    
Asset    Proceeds
US$m
     Status
Divested in 2012            
Alcan Cable    229      Sold to General Cable Corporation
Specialty Alumina businesses    Undisclosed      Sold to H.I.G.
Lynemouth Power Station    Undisclosed      Sold to RWE
Energy –  Extract Resources Ltd/ Kalahari Minerals plc    429      Equity investment sold to Taurus Mineral Limited
Divested in 2011            
Alcan Engineered Products    Undisclosed      Sold 61 per cent to investment funds affiliated with Apollo Global Management, LLC (Apollo) and the Fonds Stratégique d’Investissement (FSI)
Minerals – talc    340(a)      Sold to Imerys SA
Energy – Colowyo    Undisclosed      Sold to Western Fuels-Colorado LLC
Exploration – sundry assets    52      Sale of projects including Altai Nuurs coking coal deposit and Sari Gunay gold deposit
Divested in 2010            
Energy – Cloud Peak    573      Secondary public offering
Alcan Packaging – Beauty    Undisclosed      Sold to Sun European Partners LLP
Alcan Packaging – Medical Flexibles    66      Sold to Amcor
Alcan Packaging – Food Americas    1,200      Sold to Bemis Company Inc.
Energy – Maules Creek (Rio Tinto: 75.7%)    427      Sold to Aston Resources
Energy – Vickery (Rio Tinto: 75.7%)    28      Sold to Whitehaven Coal
Alcan Packaging – global Pharmaceuticals, global Tobacco, Food Europe and Food Asia    1,948      Sold to Amcor
Sundry asset sales    57      Sale of assets including Ghana Bauxite Company, Brockville Specialty Alumina Plant and Rawhide Mine

 

(a) Enterprise value

 

 

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Capital projects

 

Project (Rio Tinto 100% owned unless otherwise stated)   

Total approved

capital cost

(100%) US$

     Status/milestones
Completed in 2012              
Iron ore – second debottlenecking of Dampier port to expand the Pilbara capacity by 5 million tonnes to 230Mt/a. Pilbara capacity was re-rated to 237Mt/a in November 2012.      $0.3bn       The project was completed on budget and commissioning commenced on time by the end of the first quarter of 2012.
Iron ore – two-phased expansion of Iron Ore Company of Canada (IOC) (Rio Tinto 58.7%) from 18 to 22Mt/a and then to 23.3Mt/a.      $0.8bn       Phase one commissioning is now complete. Phase two is progressing with first production expected in the first quarter of 2013.
Alumina – expansion of the Yarwun refinery in Queensland, Australia from 1.4 to 3.4Mt/a.      $2.3bn       Approved in July 2007, commissioning is proceeding on schedule with first bauxite processed on 5 July 2012. The refinery is expected to reach full production capacity in the third quarter of 2013.
Aluminium – construction of a new 225MW turbine at the Shipshaw power station in Quebec, Canada.      $0.3bn       The power station was completed on time and was commissioned in October 2012.
Thermal coal – 6Mt/a expansion of Hunter Valley Operations (Rio Tinto 80%) and Mount Thorley Warkworth mine (Rio Tinto 51%) and 2 million tonne expansion at Bengalla (Rio Tinto 32%), New South Wales, Australia.      $0.5bn       The three thermal coal expansions were completed in the first half of 2012 and are currently ramping up.
Coking and thermal coal – development of the greenfield Benga mine in Mozambique (Rio Tinto 65%).      $0.6bn       First production was processed through the wash plant in February 2012 with the first shipment of premium hard coking coal in June 2012.
Ongoing and approved        
Iron Ore              
Expansion of the Pilbara mines, ports and railways from 237Mt/a to 290Mt/a. Rio Tinto’s share of total approved capex is $8.4 bn.      $9.8bn       Completion of the phase one expansion to 290Mt/a has been brought forward to the third quarter of 2013. Dredging and piling at Cape Lambert is complete.
Expansion of the Pilbara port and rail capacity to 360Mt/a. Rio Tinto’s share of total approved capex is $3.5 bn.      $5.9bn       The phase two expansion to 360Mt/a is expected to come onstream in the first half of 2015. This includes the port and rail elements which are now fully approved and an investment in autonomous trains. The key component of the project still requiring approval is further mine production capacity.
Development of Hope Downs 4 mine in the Pilbara (Rio Tinto 50%) to sustain production at 237Mt/a.      $2.1bn       Approved in August 2010, first production is expected in 2013. The new mine is anticipated to have a capacity of 15Mt/a and a capital cost of $1.6 billion (Rio Tinto share $0.8 billion). Rio Tinto is funding the $0.5 billion for the rail spur, rolling stock and power infrastructure.
Phase two of the Marandoo mine expansion in the Pilbara to sustain production at 237Mt/a.      $1.1bn       Approved in February 2011, the mine will extend Marandoo at 15Mt/a by 16 years to 2030.
Investment to extend the life of the Yandicoogina mine in the Pilbara to 2021 and expand its nameplate capacity from 52Mt/a to 56Mt/a.      $1.7bn       Approved in June 2012, the investment includes a wet processing plant to maintain product specification levels and provide a platform for future potential expansion.
Aluminium              
Modernisation of ISAL aluminium smelter in Iceland.      $0.5bn       Approved in September 2010, the project is expected to increase production from 190kt to 230kt and includes a leading-edge casting facility to produce value-added billet. The new casting facility produced its first billet in the second quarter of 2012. Project costs and completion schedules are under review.
AP60 plant (60kt per annum) in Quebec, Canada.      $1.1bn       Approved in December 2010, first hot metal is expected in the first half of 2013.
Modernisation and expansion of Kitimat smelter in British Columbia, Canada.      $3.3bn       Approved in December 2011, the modernisation will increase capacity from 280ktpa to 420ktpa. The pace of the project has been slowed in response to increasingly challenging market conditions. First production is now expected at the end of 2014.

 

44    Rio Tinto 2012 Annual report


Table of Contents
Project (Rio Tinto 100% owned unless otherwise stated)   

Total approved

capital cost

(100%) US$

     Status/milestones
Copper              
Investment in the Moly Autoclave Process (MAP) in Utah, US to enable lower-grade molybdenum concentrate to be processed more efficiently than conventional roasters and allow improved recoveries.      $0.6bn       The facility is due to come onstream by mid-2014 followed by a 12 month period to reach full capacity.
Construction of the Eagle nickel and copper mine in Michigan, US.      $0.5bn       Approved in June 2010, first production is expected in 2014. The mine will produce an average of 16kt and 13kt per year of nickel and copper metal respectively over seven years.
Development of Organic Growth Project 1 (OGP1) and the Oxide Leach Area Project (OLAP) at Escondida (Rio Tinto 30%), Chile.     
 
 
$1.4bn
(Rio Tinto
share)
  
  
  
   Approved in February 2012, OGP1 primarily relates to replacing the Los Colorados concentrator with a new 152kt per day plant, allowing access to high grade ore. Initial production is expected in the first half of 2015. OLAP maintains oxide leaching capacity.
Construction of phase one of Oyu Tolgoi copper and gold mine in Mongolia.      $6.2bn       Commissioning of the ore-processing equipment commenced in mid- November 2012 with first copper-gold concentrate produced in January 2013. Commercial production is scheduled for June 2013.
Grasberg project funding for 2012 to 2016.     
 
 
$0.9bn
(Rio Tinto
share)
  
  
  
   Investment to continue the pre-production construction of the Grasberg Block Cave, the Deep Mill Level Zone underground mines, and the associated common infrastructure. Rio Tinto’s final share of capital expenditure will in part be influenced by its share of production over the 2012 to 2016 period.
Investment over next seven years to extend mine life at Kennecott Utah Copper, US from 2018 to 2029.      $0.7bn       The project was approved in June 2012. Ore from the south wall push back will be processed through existing mill facilities. The investment will enable production at an average of 180kt of copper, 185koz of gold and 13.8kt of molybdenum a year from 2019 through 2029.
Energy              
20-year extension and expansion from 4.3Mt/a to 5.7Mt/a at Kestrel (Rio Tinto 80%), Queensland, Australia.      $2.0bn       The investment will extend the life of the mine to 2032 and is expected to come on-stream in the second quarter of 2013 with full production in 2014.
Diamonds & Minerals              
Argyle Diamond mine underground project, extending the mine life to at least 2020. (Originally approved in 2005, the project was slowed in 2009 and restarted in September 2010.)      $2.2bn       Production is expected to commence in the first half of 2013 with ramp up to full capacity by 2015.
Investment in detailed design studies, early works and long-lead items at the Simandou iron ore project in Guinea, West Africa. Rio Tinto’s share of total approved capex is $501m.      $1.0bn       Approved in June 2012, the investment is primarily for rail and port infrastructure. Timing of the ramp up and first commercial production is dependent on receiving necessary approvals from the Government of Guinea and on the Government of Guinea progressing and finalising its financing strategy.

 

 

 

LOGO

 

 

riotinto.com    45


Table of Contents

Production, reserves and operations

 

 

Contents

Metals and minerals production      47   
Ore reserves      51   
Mines and production facilities      62   

    

 

 

 

 

 

46    Rio Tinto 2012 Annual report


Table of Contents

Metals & minerals production

 

 

               

2012 Production

      

2011 Production

      

2010 Production

 
        Rio Tinto
% share(a)
       Total        Rio Tinto
share
       Total        Rio Tinto
share
       Total        Rio Tinto
share
 
ALUMINA (’000 tonnes)                                   
Rio Tinto Alcan                                   
Jonquière (Vaudreuil) (Canada)(b)        100.0           1,397           1,397           1,363           1,363           1,301           1,301   
Queensland Alumina (Australia)        80.0           3,693           2,954           3,360           2,688           3,821           3,057   
São Luis (Alumar) (Brazil)        10.0           3,409           341           3,385           339           2,507           251   
Yarwun (Australia)        100.0           2,175           2,175           1,349           1,349           1,377           1,377   
Specialty plants (Canada)(c)        100.0           101           101           108           108           123           123   
                 6,968                5,846                6,109   
Pacific Aluminium                                   
Gove (Australia)        100.0           2,742           2,742           2,549           2,549           2,473           2,473   
Other Aluminium                                   
Specialty plants (France/Germany)(d)                  331           331           552           552           507           507   
Rio Tinto total                              10,041                      8,947                      9,089   
ALUMINIUM (’000 tonnes)                                   
Rio Tinto Alcan                                   
Alma (Canada)        100.0           208           208           434           434           434           434   
Alouette (Sept-Îles) (Canada)        40.0           593           237           582           233           569           228   
Alucam (Edéa) (Cameroon)        46.7           52           24           69           32           76           35   
Arvida (Canada)        100.0           177           177           176           176           174           174   
Bécancour (Canada)        25.1           429           107           414           104           417           104   
Dunkerque (France)        100.0           256           256           235           235           260           260   
Grande-Baie (Canada)        100.0           223           223           223           223           218           218   
ISAL (Reykjavik) (Iceland)        100.0           190           190           185           185           190           190   
Kitimat (Canada)        100.0           182           182           168           168           184           184   
Laterrière (Canada)        100.0           233           233           234           234           212           212   
Lochaber (UK)        100.0           45           45           45           45           41           41   
Saint-Jean-de-Maurienne (France)        100.0           93           93           99           99           96           96   
Shawinigan (Canada)        100.0           81           81           97           97           100           100   
Sohar (Oman)        20.0           360           72           373           75           367           73   
SØRAL (Husnes) (Norway)        50.0           92           46           89           45           88           44   
                 2,174                2,386                2,395   
Pacific Aluminium                                   
Bell Bay (Australia)        100.0           185           185           181           181           177