SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F/A

Amendment No. 1

(Mark One)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (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 DECEMBER 31, 2004

OR

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

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: 1-10375

ALUMINA LIMITED

Australian Business Number 85 004 820 419

(Exact name of Registrant as specified in its charter)

COMMONWEALTH OF AUSTRALIA

(Jurisdiction of incorporation or organisation)

Level 12, IBM Centre, 60 City Road, Southbank, Victoria 3006, Australia

(Address of principal executive offices)

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
Ordinary Shares (1)	New York Stock Exchange
American Depositary Shares (2)	New York Stock Exchange

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

None

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

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.

Shares outstanding :
Fully Paid Ordinary Shares.	1,163,111,048

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ¨ Item 18 x

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 x No

(1) Not for trading but only in connection with the listing of the American Depositary Shares.

(2) Evidenced by American Depositary Receipts, each American Depositary Share representing four fully paid Ordinary Shares.

EXPLANATORY NOTE

This Amendment No. 1 on Form 20-F/A is being filed to solely to amend Item 18 of the Form 20-F of Alumina Limited (the “Company”) for the fiscal year ended December 31, 2004, which was filed on June 29, 2005 (the “Prior Report”). Except as specifically indicated herein, no other information included in the Prior Report on Form 20-F is amended by this Form 20-F/A.

In the Prior Report under Item 18, reference was made to the financial statements of AWAC in Schedule A on pages F-75 to F-98. The AWAC financial statements were not included in the Prior Report.

This amendment is intended to provide those AWAC Statements.

Forward Looking Statements

This Form 20-F/A contains certain forward-looking statements, including statements regarding (i) certain plans, strategies and objectives of management; (ii) scheduled closure of certain operations or facilities; (iii) anticipated production or construction commencement dates; (iv) expected costs or production output; (v) the anticipated productive lives of projects and mines; and (vi) estimates of expected dividends to be received from AWAC. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of Alumina, which may cause actual results to differ materially from those expressed in the statements contained in this Form 20-F/A.

For example, the amount of any future dividends received from the AWAC joint venture will be dependent in part on the future revenues from AWAC’s operations, described in this Form 20-F/A, which in turn are based in part on the market price of the products and metals produced, which may vary significantly from current levels. Such variations, if materially adverse, may impact the timing or feasibility of the development of a particular project or the expansion of certain facilities. Other factors that may affect actual construction or production commencement dates, costs or production output and anticipated lives of operations or facilities of AWAC include the ability of AWAC to profitably produce and transport its products or metals to applicable markets, the impact of foreign currency exchange rates on the market prices of the products or metals produced and activities of governmental authorities in certain countries where such facilities are being operated, including increases in taxes, changes in environmental and other regulations, and political uncertainty. Alumina can give no assurances that the actual production or commencement dates, cost or production output, revenue, or anticipated lives of the facilities discussed herein will not differ materially from the statements contained in this Form 20-F/A.

ALUMINA LIMITED

2004 FORM 20-F

FINANCIAL STATEMENTS

I TEM 18. FINANCIAL STATEMENTS

Financial Statements and Financial Statement Schedules

The attached financial statements and financial statement schedules, pages F1-F98, with a full index on page F3, together with the Reports of Independent Accountants thereon, are filed as part of this Annual Report and are incorporated herein by reference.

Alumina Limited Report of Independent Accountants	F-2
Consolidated Balance Sheets	F-5
Consolidated Statements of Income, Comprehensive Income & Members’ Equity	F-4
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-10 – F-74
Schedule A – AWAC
Combined Balance Sheets	F-75
Combined Statements of Income, Comprehensive Income & Members’ Equity	F-76
Combined Statements of Cash Flows	F-77
Notes to Combined Financial Statements	F-78-F-98

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ALUMINA LIMITED

2004 FORM 20-F

FINANCIAL STATEMENTS

ITEM 19. EXHIBITS

Exhibit 1 – Constitution of Alumina

Exhibit 4 – Material contracts 4.1 The Alcoa World Alumina and Chemicals (“AWAC”) Joint Venture Agreements (incorporated by reference to Exhibit 4 to Alumina Limited’s (formerly known as WMC Limited) Annual Report on Form 20-F for the fiscal year ended December 31, 2001, as filed with the Commission on April 4, 2002.). These Agreements comprise:

	4.1.1	Heads of Agreement, dated July 6, 1994 between Aluminum Company of America and Western Mining Corporation Holdings Limited.
	4.1.2	Charter of the Strategic Council, dated December 21, 1994 between Aluminum Company of America and Western Mining Corporation Holdings Limited.
	4.1.3	Formation Agreement, dated December 21, 1994 among Aluminum Company of America, Alcoa International Holdings Corporation, ASC Alumina Inc., Western Mining Corporation Holdings Limited, Westminer International Holdings Limited and WMC Alumina (USA) Inc.
	4.1.4	Amended and Restated Limited Liability Company Agreement of Alcoa Alumina & Chemicals, L.L.C., dated December 31, 1994 among Aluminum Company of America, ASC Alumina Inc., Westminer International Holdings Limited and WMC Alumina (USA) Inc.
	4.1.5	Loan Agreement, dated January 3, 1995 between Alcoa Alumina & Chemicals, L.L.C. and WMC Alumina (USA) Inc.
	4.1.6	Administrative and Services Agreement, dated January 1, 1995 between Alcoa Alumina & Chemicals, L.L.C. and Aluminum Company of America.
	4.1.7	AAC-ACOA Employee Services Agreement dated January 1, 1995 between Alcoa Alumina & Chemicals, L.L.C. and Aluminum Company of America.
	4.1.8	WMC-ACOA Employee Services Agreement dated January 1, 1995 between Aluminum Company of America and Western Mining Holdings Limited.
	4.1.9	Master Hedging Agreement dated December 31, 1994 among Aluminum Company of America, Alcoa of Australia Limited, Alcoa Alumina & Chemicals L.L.C., Suriname Aluminum Company L.L.C. and Alcoa Minerals of Jamaica.
	4.1.10	Assignment Agreement dated February 1, 1995 among Aluminum Company of America and Alcoa Alumina & Chemicals, L.L.C. regarding the Bauxite Contract with Compagnie des Bauxites de Guinée.
	4.1.11	Abalco Shareholders Agreement, dated March 29, 1995 among Alcoa Alumina & Chemicals, L.L.C., Alcoa Brazil Holdings Company and Westminer International (UK) Limited.
4.2	Demerger Deed between Alumina Limited and WMC Resources Limited dated March 5, 2003.
4.3	Transitional Services Agreement between Alumina Limited and WMC Resources Limited dated 18 December 2002.
4.4	Management Contracts
	12.3	CHIEF FINANCIAL OFFICER 302 CERTIFICATION
	12.4	CHIEF EXECUTIVE OFFICER 302 CERTIFICATION
	13.3	CHIEF EXECUTIVE OFFICER 906 CERTIFICATION
	13.4	CHIEF FINANCIAL OFFICER 906 CERTIFICATION

- 89 -

ALUMINA LIMITED

2004 FORM 20-F

FINANCIAL STATEMENTS

Exhibit 8 – Significant Subsidiaries

Alumina Limited’s significant subsidiaries are as follows:

• Alumina International Holdings Pty Ltd – Incorporated in Australia this company holds all entities in the Alumina Group’s AWAC joint venture (except for Alcoa of Australia Ltd, see below) through its indirect 40% interest in each of Alcoa World Alumina LLC, Alcoa Caribbean Holdings LLC, Alumina Espanola SA, Alcoa Chemie Nederland BV, Alcoa Chemie GMBH and Abalco SA. It is wholly owned by Alumina.

• Alcoa of Australia Ltd – Incorporated in Australia, and 40% owned by Alumina, this company is a significant entity in the Alumina Group’s AWAC joint venture, with integrated bauxite mining, alumina refining and aluminium smelting facilities in Australia.

- 90 -

ALUMINA LIMITED

2004 FORM 20-F

FINANCIAL STATEMENTS

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorised.

ALUMINA LIMITED
(Signed)
Name:	Ken Dean
Title:	Chief Financial Officer

Date: December 19, 2005

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ALUMINA LIMITED

(Australian Business Number 85 004 820 419)

AND CONTROLLED ENTITIES

U.S. FINANCIAL REPORT

AS OF AND FOR THE YEAR ENDED

31 DECEMBER 2004

Prepared in accordance

with Australian generally accepted

accounting principles (Australian GAAP)

except where noted

Amounts are stated in Australian dollars (A$) except where noted

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

Alumina Limited

We have audited the accompanying consolidated statements of financial position of Alumina Limited and its controlled entities, (“the Group”), as of 31 December 2004 and 2003, and the related consolidated statements of financial performance, statements of cash flows and consolidated statements of changes in shareholders’ equity for each of the three years in the period ended 31 December 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alumina Limited and its controlled entities at 31 December 2004 and 2003, and the results of their operations and their cash flows for the three years in the period ended 31 December 2004 in conformity with accounting principles generally accepted in Australia.

Accounting principles generally accepted in Australia vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of consolidated net income for each of the three years in the period ended 31 December 2004 and the determination of consolidated shareholders’ equity at 31 December 2004 and 2003 to the extent summarized in Note 34 to the consolidated financial statements.

PricewaterhouseCoopers	Melbourne, Australia
Chartered Accountants	May 26, 2005

F - 2

ALUMINA LIMITED AND CONTROLLED ENTITIES

Consolidated Financial Statements as of and for the year ended 31 December 2004

CONTENTS PAGE

CONSOLIDATED STATEMENTS OF FINANCIAL PERFORMANCE		4
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION		5
CONSOLIDATED STATEMENTS OF CASH FLOWS		7
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY		9
1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	10
2.	REVENUES	20
3.	DISCLOSURES ABOUT ITEMS INCLUDED IN OPERATING INCOME/(LOSS) BEFORE INCOME TAX	21
4.	EXCEPTIONAL ITEMS	22
5.	INCOME TAX	23
6.	EARNINGS PER SHARE	26
7.	FINANCIAL REPORTING BY SEGMENT	27
8.	DIVIDENDS DECLARED AND PAID	31
9.	CURRENT ASSETS – CASH ASSETS	31
10.	CURRENT ASSETS – RECEIVABLES	32
11.	CURRENT ASSETS – OTHER	32
12.	INVESTMENTS IN ASSOCIATES	32
13.	NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT	36
14.	NON-CURRENT ASSETS – DEFERRED TAX ASSETS	36
15.	CURRENT LIABILITIES – PAYABLES	36
16.	CURRENT LIABILITIES – INTEREST BEARING LIABILITIES	37
17.	CURRENT LIABILITIES – CURRENT TAX	38
18.	CURRENT LIABILITIES – PROVISIONS	38
19.	NON-CURRENT LIABILITIES – PROVISIONS	38
20.	CONTRIBUTED EQUITY	38
21.	MINORITY INTERESTS	42
22.	NOTES TO THE STATEMENTS OF CASH FLOWS	43
23.	FINANCING FACILITIES	44
24.	FINANCIAL INSTRUMENTS	45
25.	PARTICULARS RELATING TO ENTITIES CONSOLIDATED IN THE ECONOMIC ENTITY	47
26.	CONTINGENT LIABILITIES	49
27.	COMMITMENTS FOR EXPENDITURE	49
28.	SUPERANNUATION BENEFITS	49
29.	RELATED PARTY TRANSACTIONS	51
30.	DIRECTOR AND EXECUTIVE DISCLOSURES	52
31.	EMPLOYEE BENEFITS	58
32.	REMUNERATION OF AUDITORS	59
33.	DISCONTINUED OPERATIONS	60
34.	RECONCILIATION TO US GAAP	62
35.	RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS	73
36.	EVENTS SUBSEQUENT TO BALANCE DATE	73
37.	(Schedule II)	74

F - 3

ALUMINA LIMITED AND CONTROLLED ENTITIES

CONSOLIDATED STATEMENTS OF FINANCIAL PERFORMANCE

	Notes	Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m		Year to 31 Dec 2002 A$m
Continuing Operations:
General and administrative		(8.4	)	(12.6	)	(6.3	)
Other expenses		—		—		(1.3	)
Other income	2	56.8		4.8		1.3
Profit/(loss) before interest and income tax		48.4		(7.8	)	(6.3	)
Interest expense		(8.1	)	(8.7	)	(0.6	)
Profit/(loss) before income taxes		40.3		(16.5	)	(6.9	)
Income tax (expense)/credit	5(a)	(5.1	)	9.3		0.3
Net profit/(loss) from continuing operations		35.2		(7.2	)	(6.6	)
Equity in net of tax earnings of associates	12(b)	286.9		244.1		216.3
Net profit from continuing operations		322.1		236.9		209.7
Discontinued Operations:
Net sales revenue	2	—		—		2,220.9
Net expenses		—		—		(2,332.9	)
Income tax credit		—		—		26.9
Profit on disposal of gold operations (tax exempt at 2002)	4	—		—		25.1
Profit on sale of right to Gold Royalty	4	—		—		15.4
Profit on disposal of Long/Victor mines at Kambalda (net of tax expense of $2.6 million)	4	—		—		9.4
Net loss from discontinued operations		—		—		(35.2	)
Combined Operations:
Net sales revenue		—		—		2,220.9
Cost of goods sold		—		—		(1,650.9	)
Selling and distribution		—		—		(143.7	)
General and administrative		(8.4	)	(12.6	)	(333.8	)
Exploration and evaluation		—		—		(34.3	)
Other expenses		—		—		(94.1	)
Profit on sale of investments in Specialty Chemicals Business		46.8		—		—
Other expenses – exceptional items		—		—		(178.5	)
Other income		10.0		4.8		57.9
Other income – exceptional items		—		—		230.7
Share of net profits of associates		286.9		244.1		216.3
Profit before interest and income tax		335.3		236.3		290.5
Interest expense	3(b)	(8.1	)	(8.7	)	(140.6	)
Profit before income taxes		327.2		227.6		149.9
Income tax (expense)/credit	5(a)	(5.1	)	9.3		24.6
Net profit attributable to holding company shareholders		322.1		236.9		174.5
- Foreign currency adjustments		2.2		28.4		6.0
- Equity share of foreign currency adjustments		—		—		29.4
		2.2		28.4		35.4
Total changes in equity other than those resulting from transactions with owners as owners		324.3		265.3		209.9
Net earnings per share attributable to holding company shareholders (A$ per share)	6
- Australian GAAP (basic)		0.28		0.21		0.16
- Australian GAAP (diluted)		0.28		0.21		0.16

The accompanying notes form part of these consolidated financial statements.

F - 4

ALUMINA LIMITED AND CONTROLLED ENTITIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

	Notes	As at 31 December
		2004 A$m	2003 A$m
CURRENT ASSETS
Cash assets	9	117.9	165.3
Receivables	10	0.8	4.0
Deferred tax assets		—	4.1
Other	11	0.6	0.3
Total current assets		119.3	173.7
NON-CURRENT ASSETS
Investments in associates	12	1,721.7	1,625.0
Property, plant and equipment	13	0.3	0.4
Total non-current assets		1,722.0	1,625.4
TOTAL ASSETS		1,841.3	1,799.1
CURRENT LIABILITIES
Payables	15	2.4	3.2
Interest bearing liabilities	16	397.9	467.0
Current tax liabilities	17	—	2.5
Provisions	18	0.1	0.1
Other		10.7	2.3
Total current liabilities		411.1	475.1
NON-CURRENT LIABILITIES
Provisions	19	0.2	0.2
Total non-current liabilities		0.2	0.2
TOTAL LIABILITIES		411.3	475.3
Minority shareholders’ interest in subsidiaries	21	—	—
NET ASSETS		1,430.0	1,323.8

The accompanying notes form part of these consolidated financial statements.

F - 5

ALUMINA LIMITED AND CONTROLLED ENTITIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

	Notes		As at 31 December
			2004 A$m	2003 A$m
EQUITY
Share capital:
- Authorized: 2,000,000,000 shares
- Issued:
1,163,111,048 (31 Dec 2003: 1,159,557,148) fully paid ordinary shares of no par value	20		404.1	384.8
Asset revaluation reserve:
- parent and subsidiaries			34.3	34.3
Capital reserve			16.5	16.5
Retained earnings:
- parent and subsidiaries			358.5	400.3
- equity accounted associates	12	(c)	534.2	407.7
Accumulated other comprehensive income			82.4	80.2
TOTAL EQUITY			1,430.0	1,323.8
Contingent liabilities	26
Commitment for expenditure	27

The accompanying notes form part of these consolidated financial statements.

F - 6

ALUMINA LIMITED AND CONTROLLED ENTITIE S

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Notes		Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m		Year to 31 Dec 2002 A$m
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers			—		—		2,193.5
Payments to suppliers and employees			(13.2	)	(7.3	)	(1,832.0	)
Interest and other items of a similar nature received			8.6		2.2		27.6
Borrowing costs			(7.8	)	(8.3	)	(150.0	)
Proceeds from guarantee			—		2.4		—
Proceeds from interest rate swap close out			—		—		71.2
Dividends received from associates			160.4		284.2		281.0
Income taxes refunded/(paid)			0.5		(4.7	)	(3.2	)
Proceeds from insurance claims			—		—		35.0
Payments for:
-exploration (grassroots)			—		—		(17.1	)
-exploration (additional, supporting existing operations)			—		—		(3.4	)
Net cash provided by operating activities	22	(a)	148.5		268.5		602.6
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment			—		(0.3	)	(412.3	)
Proceeds from sale of Speciality Chemicals Business			109.0		—		—
Proceeds from share of premium reduction in associates			2.0		—		—
Payments for investment in associates			(41.1	)	—		—
Proceeds from sale of Central Norseman Gold Corporation			—		—		25.7
Proceeds from sale of non-current assets			—		—		67.6
Proceeds from insurance claims			—		—		15.7
(Payments for)/proceeds from gold hedge close out			—		—		(34.4	)
Proceeds from/(payments for) short term investments			—		—		2.6
Payments for research and development			—		—		(0.4	)
Payments for evaluation expenditure			—		—		(4.4	)
Payment for purchase of Halco and MRN shares			—		—		(72.9	)
Cash reserves retained by WMC Resources Ltd upon demerger			—		—		(65.2	)
Other			3.5		—		—
Net cash provided/(used in) by investing activities			73.4		(0.3	)	(478.0	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issues of shares			19.3		56.2		38.5
Proceeds from borrowings			10.1		79.2		1,816.6
Repayments of borrowings			(64.7	)	—		(1,966.1	)
Dividends paid			(233.1	)	(259.6	)	(199.7	)
Net cash used in financing activities			(268.4	)	(124.2	)	(310.7	)
Net (decrease)/increase in cash held			(46.5	)	144.0		(186.1	)
Cash at the beginning of the financial year			165.3		23.2		214.2
Effects of exchange rate changes on foreign currency cash balances			(0.9	)	(1.9	)	(4.9	)
Cash at the end of the financial year	(a	)	117.9		165.3		23.2

The accompanying notes form part of these consolidated financial statements.

F - 7

ALUMINA LIMITED AND CONTROLLED ENTITIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	Notes	Year to 31 Dec 2004 A$m	Year to 31 Dec 2003 A$m	Year to 31 Dec 2002 A$m
(a)    Reconciliation of Cash
For the purposes of the consolidated statements of cash flows, cash represents cash on hand, at the bank and on short-term deposit (maturity of 3 months or less) less bank overdrafts:
Cash assets - US GAAP cash and cash equivalents	9	117.9	165.3	23.2
Bank overdrafts		—	—	—
Australian GAAP cash and cash equivalents		117.9	165.3	23.2

The above statements differ from US GAAP in that under US GAAP bank overdrafts are not considered to be part of the net cash equivalents and so changes in bank overdrafts (net) would be included in cash flows from financing activities. In addition, payments for research and development would be included in cash flows from operating activities instead of investing activities. Refer to Note 34.

F - 8

ALUMINA LIMITED AND CONTROLLED ENTITIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

	Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m		Year to 31 Dec 2002 A$m
Issued shares fully paid
Beginning of period	384.8		220.2		3,190.9
Shares issued:
- Employee share scheme :
- Converted from partly paid	—		—		2.2
- Conversion of options	19.3		56.2		36.3
- Shares issued to acquire Corridor Sands	—		—		123.8
- Shares issued to acquire QBE’s 0.75% share of Alcoa of Australia	—		108.4		—
Less: return of capital to effect the demerger	—		—		(3,133.0	)
End of period	404.1		384.8		220.2
Asset revaluation reserve
Beginning and end of period	34.3		34.3		34.3
Capital reserve
Beginning and end of period	16.5		16.5		16.5
Retained earnings
Beginning of period	808.0		729.4		1,451.7
Net income	322.1		236.9		174.5
Transfer from reserves	—		—		33.3
Dividends provided for or paid:
2004 interim 10 cents per fully paid share	(116.1	)	—		—
2003 final 10 cents per fully franked share	(116.1	)	—		—
2003 interim 10 cents per fully paid share	—		(112.9	)	—
2002 final 13 cents per fully franked share	—		(146.7	)	—
2002 interim 5 cents fully franked per share	—		—		(55.6	)
Special dividend distributed to effect the demerger	—		—		(823.0	)
Transfer from reserve following revaluation of non-current assets in Alcoa of Australia	—		101.3		—
Transfer from reserves following sale of Specialty Chemical assets	(4.3	)	—		—
Other	(0.9	)	—		—
Distribution on demerger of WMC Resources Ltd	—		—		(51.5	)
End of period	892.7		808.0		729.4
Accumulated other comprehensive income
Foreign currency translation adjustment
Beginning of period	80.2		51.8		79.1
Transfer to retaining earnings	4.3		—		(33.3	)
Difference on translation of self sustaining foreign entities	(17.5	)	(118.6	)	(26.0	)
Revaluation of naturally hedged net monetary liabilities	15.4		147.0		44.4
Income taxes allocated to translation adjustments	—		—		(12.4	)
End of period	82.4		80.2		51.8
Equity accounted reserves
Beginning of period	—		101.3		71.9
Transfer to retained profits	—		(101.3	)	—
Equity share of translation adjustment	—		—		29.4
End of period	—		—		101.3
Total shareholders’ equity	1,430.0		1,323.8		1,153.5

The accompanying notes form part of these consolidated financial statements.

F - 9

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) BACKGROUND AND BASIS OF ACCOUNTING

Basis of Accounting

The accompanying consolidated financial statements have been prepared in accordance with Australian Accounting Standards and other mandatory professional reporting requirements. These standards and reporting requirements form part of generally accepted accounting principles in Australia (Australian GAAP). Where these principles differ from those generally accepted in the United States of America (US GAAP), reference is made by footnote. A reconciliation of the major differences between these principles and those applicable under US GAAP is included as Note 34.

The financial report is prepared in accordance with the historical cost convention. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year.

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

On 11 December 2002 WMC Limited, the former parent entity of WMC Resources, consummated the separation of WMC Limited together with its interest in Alcoa’s World Alumina and Chemicals business (AWAC), from WMC Limited’s mineral businesses which now comprise WMC Resources (the “demerger”).

Prior to effecting the demerger, through a series of transactions internal to the WMC Limited Group, WMC Resources acquired WMC Limited’s shares in the legal entities which held the copper/uranium and fertilizer businesses, WMC Finance Limited, WMC Finance (USA) Limited as well as WMC Limited’s exploration and development interests other than those relating to AWAC. Under Australian GAAP, all of these acquisitions were accounted for at fair value in return for shares in WMC Resources. Under US GAAP, the internal transactions were accounted for at book value. To consummate the demerger, WMC Limited effected a capital reduction and dividend to its shareholders in an amount equivalent to the value of WMC Resources after the internal transfers were completed. The entitlement of WMC Limited’s shareholders to the capital reduction and dividend was ultimately satisfied in the demerger through the distribution to WMC Limited’s shareholders of shares in WMC Resources on a one-for-one basis.

As part of the demerger, a net deficit arose due to the difference between the consideration received from shareholders for their entitlement to WMC Resources shares and net book value of the assets demerged. The directors have determined that as the demerger transaction was with shareholders, the net deficit arising should be included as a movement in equity. Specifically the net deficit is shown as a movement in retained profits in the consolidated Statements of changes in Shareholders’ Equity.

Advisory costs incurred throughout the demerger process were expensed as incurred. These amounts have been separately identified in Note 4 to the financial statements.

Further information relating to the discontinued operations for the period to the date of disposal is set out in Note 33.

(b) PRINCIPLES OF CONSOLIDATION

The consolidated financial report is prepared for the economic entity, being Alumina Limited (parent entity) and the entities it controls. Australian GAAP defines entity widely including any legal, administrative or fiduciary arrangement. All material entities in the group are companies. The economic entity consisting of Alumina Limited and its controlled entities is referred to in the financial report as ‘the group’. In preparing the financial statements, the effects of all transactions between entities within the group are eliminated in full, including unrealised profits and losses on transactions with associates accounted for on an equity basis.

F - 10

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) PRINCIPLES OF CONSOLIDATION (continued)

Where control of an entity is obtained during a financial year, its results are included in the consolidated statements of income from the date on which control commences. Where control of an entity ceases during a financial year, its results are included for that part of the year during which control existed. This financial report includes the results of WMC Resources Ltd and the entities acquired by WMC Resources Ltd as part of the demerger up to 30 November 2002.

Interest in companies which the group does not control or exercise significant influence over are included in the accounts as investments, initially recorded at cost. Dividends receivable are taken into profits of the investing entity on the date of declaration.

Associates are those entities over which the consolidated entity exercises significant influence, but not control. Investments in associates are accounted for in the consolidated financial statements using the equity method. Under this method, the consolidated entity’s share of the post-acquisition profits or losses of associates is recognised in the consolidated statement of financial performance, and its share of post-acquisition movements in reserves is recognised in consolidated reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment.

The group’s share of the retained profits of associated entities is not available for payment of dividends to shareholders of Alumina Limited, except to the extent that those profits are later received as dividends from the associated entities concerned, and such dividends do not represent a recoupment of the cost or revalued amount of the investments concerned.

Accounting policies adopted by associated entities are generally consistent with those of the group but, where necessary, the results of associated entities are restated in order to comply with the accounting policies of the group. Any remaining differences would not materially affect the amounts reflected in the consolidated results of the group.

Alumina Limited does not use the cost method to account for any entities for which there is a greater than 20% ownership.

(c) FOREIGN CURRENCY TRANSLATION

Transactions

Foreign currency transactions are initially translated into Australian currency at the rate of exchange at the date of the transaction. The subsequent payment or receipt of funds relating to that transaction is translated at the rate applicable on the date of payment or receipt. Any such amounts outstanding at balance date are translated at the rate of exchange prevailing on the balance date. Resulting exchange differences that are related directly to property, plant and equipment under construction or development net of the effects of a hedge of the monetary item are recorded as part of the cost of property, plant and equipment, while all other exchange differences are brought to account in determining the profit or loss.

Controlled foreign entities

The accounts of self-sustaining controlled foreign entities that report other than in Australian dollars are translated into Australian currency using rates of exchange current at balance date for assets and liabilities, and actual or an average of rates ruling during the reporting period for revenues and expenses. Equity is translated at historical rates. All exchange gains and losses arising on these translations are taken to the foreign currency translation reserve as part of other comprehensive income.

Upon disposal of a self sustaining controlled foreign entity the balance of the foreign currency translation reserve relating to the operation is transferred to retained profits.

F - 11

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

1. SUMMARY OF ACCOUNTING POLICIES (continued)

(c) FOREIGN CURRENCY TRANSLATION (continued)

Controlled foreign entities (continued)

The exchange gains and losses arising on those foreign currency borrowings (net of gains and losses on any related specific hedge contracts) which are designated as hedges of investments in self-sustaining controlled foreign entities are offset in the foreign currency translation reserve against the exchange gains and losses arising on the translation of the net assets of those entities. These circumstances represent an effective natural hedge.

For integrated foreign controlled entities, monetary assets and liabilities are translated into Australian currency at rates of exchange current at balance date, while non-monetary items and revenue and expense items are translated at exchange rates current when the transactions occurred. Exchange differences arising on translation are brought to account in determining the profit or loss.

(d) INCOME TAX

The provision for income taxes in Alumina Limited’s consolidated financial statements has been determined on a separate-return basis. The liability method of tax-effect accounting is used, whereby the income tax expense for the year is matched with the accounting profit after allowance for permanent differences. The income tax effect of significant permanent differences on the tax expense for the year is set out in Note 5. Income tax set aside on cumulative timing differences is brought to account as either a provision for deferred income tax or an asset described as a deferred tax asset at the rate of income tax applicable to the period in which the liability will become payable or the benefit will be received.

The deferred tax asset relating to tax losses is not carried forward as an asset unless the benefit can be regarded as being virtually certain of realization. The deferred tax asset relating to timing differences is not carried forward as an asset unless its realization is assured beyond any reasonable doubt.

(e) RECEIVABLES

All trade debtors are recognized as the amounts receivable upon settlement. Collectability of trade debtors is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off. A provision is raised when some doubt exists about collection.

(f) RECOVERABLE AMOUNT OF NON-CURRENT ASSETS

The recoverable amount of an asset is the net amount expected to be recovered through the cash inflows and outflows arising from its continued use and subsequent disposal.

Recoverable amounts of non-current assets are assessed based on undiscounted future net cash flows expected to be generated from the assets. Where net cash inflows are derived from a group of assets working together, recoverable amount is determined on the basis of the relevant group of assets. The values of assets are reviewed on an ongoing basis, and where the carrying amount exceeds recoverable amount, the carrying amounts of non-current assets are revalued downwards to the lower of their recoverable amount or market value. The decrement in the carrying amount is recognized as an expense in the statement of financial performance in the reporting period in which the write down occurs.

(g) ACQUISITION OF ASSETS

The purchase method of accounting is used for all acquisitions of assets regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus incidental costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their market price as at the acquisition date, unless the notional price at which they could be placed in the market is a better indicator of fair value.

F - 12

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

1. SUMMARY OF ACCOUNTING POLICIES (continued)

(h) INTANGIBLE ASSETS AND EXPENDITURE CARRIED FORWARD

Goodwill

Where an entity or operation is acquired, the identifiable net assets acquired are measured at fair value. The excess of the fair value of the cost of acquisition over the fair value of the identifiable net assets acquired, including any liability for restructuring costs, is brought to account as goodwill and amortised on a straight line basis over 20 years.

(i) DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT

The cost of each item of property, plant and equipment is written off over its expected useful life to the group, in the establishment of which due regard is given to the life of the related area of interest. None of the lives exceed thirty years. Freehold land is not depreciated.

Assets which are depreciated or amortised on a basis other than over the life of the related area of interest typically have the following economic lives:

Office furniture	8 years
Computers and other office equipment	4 years

(j) LEASED NON-CURRENT ASSETS

The group has operating lease agreements under which the lessor effectively retains substantially all risks and benefits. Operating lease payments are charged to the statement of financial performance in the periods in which they are incurred, as this represents the pattern of benefits derived from the leased assets.

The cost of improvements to or on leasehold properties is amortized over the unexpired period of the lease or five years, whichever is the shorter.

(k) CURRENT ASSETS AND CURRENT LIABILITIES

For the purposes of balance sheet classification, assets and liabilities are categorised as “current” if they are expected to be realized in cash, sold or consumed, or liquidated, as the case may be, within the groups’ normal operating cycle, which does not exceed one year for any activity.

(l) TRADE AND OTHER CREDITORS

These amounts represent liabilities for goods and services provided to the group prior to the end of the financial year and which are unpaid. These amounts are unsecured and are usually paid within thirty days of recognition.

(m) BORROWING COSTS

Borrowing costs are recognized as expenses in the period in which they are incurred. Borrowing costs relate to interest on short term borrowings and certain exchange differences arising from foreign currency borrowings.

F - 13

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

1. SUMMARY OF ACCOUNTING POLICIES (continued)

(n) EMPLOYEE ENTITLEMENTS

(i) Salaries and annual leave

Liabilities for salaries and annual leave are recognized in current provisions (i.e. expected to be settled in 12 months), and are measured as the amount unpaid at the reporting date at expected pay rates in respect of employee’s services up to that date, including related on-costs.

(ii) Long service leave

Long service leave is an additional form of compensated leave to which Australian employees become entitled after a qualifying period of generally ten years of continuous service. It accrues at the rate of 1.3 weeks’ leave per year of service.

A liability for long service leave is recognized in non-current provisions (i.e. not expected to be settled within 12 months), and is measured as the nominal value based on expected pay rates in respect of services provided by employees up to the reporting date, including related on-costs.

(iii) Employee Shares, Options, Bonus and Stock Appreciation Plans

Liabilities for employee benefits in the form of employee share, bonus plan and stock appreciation plans are recognized in other creditors at the earlier of when they fall due or where there is no realistic alternative but to settle the liability and at least one of the following conditions are met:

• There are formal terms in the plan for determining the amount of the benefit

• The amount to be paid are determined before the completion of the financial report, or

• Past practices gives clear evidence of the amount of the obligation

Liabilities for employee share plans are expected to be settled within twelve months and are measured at the amounts expected to be paid when they are settled.

(iv) Superannuation

Since 27 July 2001, all employer contributions and ongoing management of employees’ superannuation entitlements have been managed by the WMC Superannuation Plan, an independently managed sub-plan of the Plum Superannuation Fund. Since the demerger Alumina employees have become members of a sub-plan of the WMC Superannuation Plan, created specifically for Alumina. The plan is an accumulation category plan which offers a minimum company contribution (subject to certain cashing out options and legislation) of 9 per cent of basis salary to each member’s account. Members also have the option to make voluntary contributions to their account. Employer contributions to these funds are recognised as an operating cost.

Plan membership is compulsory for all Australian resident employees and Australian expatriates, and provides lump sum benefits on retirement, permanent disability, death, resignation and retrenchment.

(o) PROVISIONS

Provisions are recognized where there is a legal, equitable or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation.

Workers Compensation

Provision is made for amounts payable in relation to outstanding workers compensation claims when it is probable that an outflow of economic benefits will be required to settle the obligation. Amounts provided are reviewed regularly by actuaries or insurers in light of the claims outstanding.

F - 14

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

1. SUMMARY OF ACCOUNTING POLICIES (continued)

(p) INTEREST-BEARING LIABILITIES

Loans are carried at their principal amounts which represent the present value of future cash flows associated with servicing the debt. Interest is accrued over the period it becomes due and is recorded as part of other creditors.

(q) DIVIDENDS

Provision is made for the amount of any dividend declared, determined or publicly recommended by the directors on or before the end of the year but not distributed at balance date.

(r) DERIVATIVE FINANCIAL INSTRUMENTS

The group has used derivative financial instruments to hedge natural exposures to commodity prices, exchange rates and interest rates. The instruments used include spot, forward, swap and option contracts.

(s) EARNINGS PER SHARE

(i) Basic earnings per share

Basic earnings per share is determined by dividing net profit after income tax attributable to members of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(t) ROUNDING OF AMOUNTS

The company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments Commission, relating to the ‘rounding off’ of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest hundred thousand dollars, or as otherwise indicated.

(u) REVENUE RECOGNITION

Sales revenue is measured at the fair value of the consideration received, and is recognized when each of the following conditions are met:

(i) persuasive evidence of an arrangement exists, which is usually in the form of a contractual arrangement.

(ii) title in the product has transferred to the buyer, which in most cases occurs when the product passes ships rail, at the port of loading.

F - 15

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

1. SUMMARY OF ACCOUNTING POLICIES (continued)

(iii) the seller’s price to the buyer is fixed or determinable. In the case of certain products sold by the company, including nickel concentrate, nickel matte and copper cathode, revenue is recognized on a provisional basis at the time of title transfer, based on prevailing market prices and contained metal, and is subject to final adjustment at the end of periods ranging from 30 to 90 days in most cases, for movements in market prices to the end of those periods. Revenue initially recognized is equal to the contained quantity of metal, measured at the forward price. At each subsequent period end date prior to final settlement, revenue is remeasured based on the prevailing forward price. Refer to Note 2 for details of amounts of revenue recognized subject to final settlement. Revenue is considered determinable at the recognition point, due to the existence of an actively traded and widely quoted market on the London Metal Exchange for the relevant metals. Market prices are the only aspect of recognized revenue subject to material change at the time of recognition. Final sales prices are determined based on contained metal and the market price at the relevant quotation point stipulated in each contract, which is generally on or around the end of the settlement period.

(iv) collectability is reasonably assured.

(v) EXPLORATION AND EVALUATION EXPENDITURE

Acquired exploration properties are carried as an asset.

The expenditure carried forward when recovery is expected represents an accumulation of direct net exploration and evaluation costs incurred by or on behalf of the group and applicable indirect costs, in relation to separate areas of interest for which rights of tenure are current.

If the acquired exploration property is developed, the acquisition cost will be amortized over the mine life. The carrying value of the acquisition payment will be subject to an ongoing impairment test.

If a decision is made not to develop an acquired exploration property, an immediate write-off of the carrying value would occur. If the full acquisition cost is recoverable (value of the project, including acquisition cost is greater than zero), then the acquisition cost will be amortized over the life of the mine. If the value is less than zero, then the shortfall will be written off against the carrying value and the balance amortized over the life of the mine.

The above treatment is consistent with US GAAP.

(w) ASSET RETIREMENT OBLIGATIONS

Alumina has changed its accounting policy by adopting FAS No. 143 “Accounting for Asset Retirement Obligations” (effective 1 January 2003).

The Company policy requires an asset retirement obligation and a matching asset to be brought to account (calculated at a discounted present value) at the initial point the liability is incurred, generally when the mine is first commenced. The cost of the obligation is to be amortized over the life of a long-lived asset. Increases in the obligation as a result of the reduction of time are to be treated as interest.

The cumulative impact on the statement of financial performance on adoption of SFAS 143 by Alumina Limited for both US GAAP and Australian GAAP was a once off income in Alumina’s equity share of investment in associates of A$11.1 million (US$7.3 million). Net income for the year of 2002 would not have been materially different if this standard had been adopted effective January 1, 2002.

F - 16

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

1. SUMMARY OF ACCOUNTING POLICIES (continued)

(x) INTERNATIONAL FINANCIAL REPORTING STANDARDS

The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS (AIFRS), and the Urgent Issues Group has issued interpretations corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. The adoption of AIFRS will be first reflected in the consolidated entity’s financial statements for the half-year ending 30 June 2005 and the year ending 31 December 2005.

Entities complying with AIFRS for the first time will be required to restate their comparative financial statements to amounts reflecting the application of AIFRS to that comparative period. Most adjustments required on transition to AIFRS will be made, retrospectively, against opening retained earnings as at 1 January 2004.

Assessment and Planning Phase

Alumina’s AIFRS project is focused on three key areas:

1 Equity accounting for its 40% ownership of Alcoa of Australia. Alcoa of Australia will transition to AIFRS at the same time as Alumina Limited.

2 Equity accounting for its 40% ownership of the remaining AWAC entities, excluding Alcoa of Australia. Financial information supplied to Alumina from AWAC is currently prepared using US Generally Accepted Accounting Principles (USGAAP), with adjustments provided for the GAAP differences to allow Alumina to produce Australian GAAP reports.

3 Consolidated accounting for Alumina and its controlled entities.

Alumina’s project is being managed by the Chief Financial Officer. The project to date has involved reviewing AIFRS for their impact on Alumina and monitoring Alcoa of Australia’s progress via Alumina’s Directorships on the Alcoa of Australia Board and interaction between the appropriate staff in Alcoa of Australia and Alumina Limited. In addition, Alumina is monitoring the IFRS project of the remaining AWAC entities through regular review of their progress and analysis papers prepared.

The progress of Alumina’s own project is necessarily reliant on AWAC’s project, as the majority of key impacts for Alumina will arise from its equity accounting of AWAC. Alcoa of Australia will transition to AIFRS concurrently with Alumina and will provide details of the changes from current Australian Accounting Standards to AIFRS as well as the key differences between AIFRS and US GAAP. Alcoa of Australia’s AIFRS project is well advanced, and the information obtained from the project is currently being used to identify and quantify other AWAC entities’ key GAAP differences.

Based on a review of AIFRS, a number of key differences in accounting policies are expected to arise from adopting the new standards. In some cases choices of accounting policies are available, including elective exemptions under Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. Some of these choices are still being analysed to determine the most appropriate accounting policy for the consolidated entity. The impact of the standards is in the process of being quantified but this process has not yet been completed.

To date we have identified the following key differences in accounting policies that are expected to arise from adopting AIFRS

Income Tax AASB 112 •      Under AASB 112 Income Taxes, deferred tax balances are determined using the “balance sheet method” replacing the “income statement method” currently used. The new method recognizes deferred tax balances when there is a difference between the carrying value of an asset or liability and its tax base. Under the income statement method, items are only tax-effected if they are included in the determination of pre-tax accounting result and/or taxable income/ (loss). •      Alumina and AWAC have commenced individual projects to quantify the likely impacts. This process has yet to be completed.

F - 17

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

1. SUMMARY OF ACCOUNTING POLICIES (continued)

Intangible Assets – Goodwill AASB 3	•      Under AASB 3 Business Combinations, amortization of goodwill will be prohibited, and will be replaced by impairment testing which will be performed at least annually. •      This will result in a change to the current accounting policy. Previously goodwill was amortized on a straight line basis over 20 years. Goodwill amortized in the year was $16.2 million.
Asset Impairment AASB 136	•      AIFRS requires asset impairment testing based on a different method for aggregation of assets than the current standard AASB 1010. This could potentially lead to different impairment test outcomes. Under AIFRS aggregation is based on “cash generating units” which is deemed to be the smallest identifiable group of assets that generates independent cash inflows. The current standard uses “class of non-current assets”, which aggregates non-current assets with a similar nature or function. •      AIFRS also requires calculation of the present value of the future cash flows associated with the assets to determine recoverable amount. •      The potential impact is increased volatility of earnings through the statement of financial performance if the impairment test is not met.
Employee Benefits AASB 119	•      Under current Australian Standards, Alumina does not account for any excess or shortfall of the Superannuation Fund assets over accrued membership benefits. •      AWAC has defined benefit pension/superannuation plans. •      AASB 119 as originally proposed, required any excess or shortfall of the Superannuation Fund over accrued membership benefits to be taken to the statement of financial performance. In December 2004, revisions to AASB 119 added two alternatives in accounting for defined benefit plans. These include the “corridor approach” which is similar to US GAAP, and an alternative which would result in actuarial gains and losses being taken directly to retained earnings with no adjustment to reported profit. Alumina is assessing these changes to determine which alternative is most appropriate for the company.
Rehabilitation and Closedown costs AASB 137	•      Under AASB 137 “Provisions, Contingent Liabilities and Contingent Assets”, full provision for rehabilitation and closedown costs are required to be disclosed for the cost of treating current disturbance. It is not anticipated that the new standard will have any material impact on the disclosures in Alumina’s financial statements, as it is consistent with Alumina’s current accounting policy. •      AWAC has assessed and documented, in detail, its obligations and provisions. •      No significant impact is anticipated from this standard.
Functional Currency AASB 121	•      Under AASB 121, “The Effects of Changes in Foreign Exchange Rates” an entity must determine its functional currency for measurement of all amounts within financial statements and also choose the currency in which it will present its financial statements. •      The standard also states that functional currency should reflect the underlying transactions, events and conditions that are relevant to the entity. •      Alumina, through its investment in AWAC and its financing activities, has significant exposure to exchange rate fluctuations. As such, management has undertaken a comprehensive review of the functional and presentation currency options available under AASB 121. •      In the event that Alumina’s functional and presentation currency is changed, it will apply the translation procedures applicable to the new functional and presentation currency, prospectively from the date of the change. •      The impact of these changes, should a change in functional currency and presentation currency be deemed appropriate, is yet to be quantified.

F - 18

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

1. SUMMARY OF ACCOUNTING POLICIES (continued)

Financial Instruments AASB 132 AASB 139 •      Under AASB 132 Financial Instruments: Disclosure and Presentation, the current classification of financial instruments issued by the entity is not anticipated to change. •      Alumina has a hedging relationship between its US dollar denominated investments in AWAC and its US dollar denominated debt. Alumina has adopted hedge accounting principles as governed by AASB 139. All relevant hedging documentation has been put in place. •      AIFRS recognizes fair value hedge accounting when effectiveness tests are met. Ineffective portions will be recorded in the period incurred through the statement of financial performance. •      AWAC commenced a detailed review under the standard, including an analysis of the structure of key contracts and the valuation of embedded derivatives. Initial tests indicate the presence of embedded derivatives, however the impacts have not been quantified. •      There will be an initial impact on retained earnings and subsequently a potential increase in volatility of reported results if effectiveness tests are not met.

The above should not be regarded as a complete list of changes in accounting policies that will result from the transition to AIFRS as not all standards have been analyzed as yet, and decisions have not yet been made where choices of accounting policies are available. For these reasons it is not yet possible to quantify the impact of the transition to AIFRS on the consolidated entity’s financial position and reported results.

Implementation Phase

The implementation phase will involve both implementation of the required changes to accounting and business procedures and processes, and training of operational staff to be able to enact them.

Alumina set up a project team to commence detailed work with the Alcoa of Australia project team from August 2004, to understand and obtain the key variances between AIFRS to US GAAP, and to work with Alcoa USA to obtain adjustments from US GAAP to AIFRS for the remainder of AWAC. It is anticipated that the project will be completed by 29 June, 2005. Any changes to accounting policies will require Audit Committee approval.

On April 13, 2005 the U.S. Securities and Exchange Commission (“SEC” or “Commission”) announced that it adopted its final rule to amend Form 20-F to provide a one-time accommodation to eligible foreign private issuers in their first year of reporting under International Financial Reporting Standards (“IFRS”) to file two years rather than three years of statements of income, changes in shareholders’ equity and cash flows prepared in accordance with IFRS. This will apply to the Form 20-F of Alumina Limited for the year ending December 31, 2005.

F - 19

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

2. REVENUES

	Notes		Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m	Year to 31 Dec 2002 A$m
Sales revenue from core operating activities:
Sale of goods from discontinued operations1	2	(a)	—		—	2,220.9
Other income:
Interest received/receivable – continuing operations	3	(b)	8.9		2.4	1.3
Profit on sale of investments in Speciality Chemical assets			46.8		—	—
Foreign exchange gains (net)			1.1		—	—
Guarantee fee received			—		2.4	—
Other income from continuing operations			56.8		4.8	1.3
Other income from discontinued operations			—		—	186.3
Profit on sale of non-current assets – discontinued operations			—		—	44.0
Total other income			56.8		4.8	231.6
SUBTOTAL NET REVENUES			56.8		4.8	2,452.5
Proceeds from sale of non-current assets			109.0		—	101.0
Less profit on disposal of non-current assets			(46.8	)	—	(44.0	)
OPERATING REVENUE			119.0		4.8	2,509.5
(a)      Net sales revenue includes:
Currency hedging losses			—		—	(108.3	)
Commodity hedging losses			—		—	(5.2	)
			—		—	(113.5	)

¹ Amount included in revenue which was based on provisional pricing as described in accounting policy Note 1(u) was A$63.4 million.

F - 20

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

Australian GAAP requires specific disclosure of certain items included in the calculation of income. This note does not include all costs.

3. DISCLOSURES ABOUT ITEMS INCLUDED IN OPERATING INCOME/(LOSS) BEFORE INCOME TAX

		Notes		Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m		Year to 31 Dec 2002 A$m
	Operating Income/(loss) before income tax includes the following specific expenses:
	Amortization and depreciation	3	(a)	16.3		17.8		489.9
	Borrowing costs	3	(b)	8.1		8.7		140.6
	Other charges against assets:
	- bad debts written off/provided for			—		—		0.3
	- write down of inventories to net realizable value			—		—		2.1
	Stock written off			—		—		31.9
	Exploration expenditure written off:
	- grassroots			—		—		17.1
	- supporting existing operations			—		—		3.4
	- evaluation			—		—		13.8
	Government royalties on sales or production			—		—		47.2
	Provision for:
	- employee entitlements*			—		0.1		8.9
	- rehabilitation			—		—		14.2
	- diminution in value of investments			—		—		(0.8	)
	- obsolescence of stores			—		—		5.4
	Research and development written off			—		—		0.3
	Foreign exchange loss			—		—		20.2
	Operating lease rentals			0.1		0.1		7.3
	Demerger costs			—		—		46.0
(a)	Amortization and depreciation
	Amortization:
	-government facilities			—		—		1.5
	-mine properties and mine development			—		—		128.9
	-goodwill/intangibles			—		—		13.4
	-research and development			—		—		0.5
	Depreciation:
	-plant and equipment			0.1		0.1		304.3
	-land and buildings			—		—		23.6
				0.1		0.1		472.2
	-equity goodwill			16.2		17.7		17.7
	Total amortization and depreciation charged to profit			16.3		17.8		489.9
(b)	Borrowing costs
	Interest and finance charges paid/payable			8.1		8.7		143.7
	Deferred to qualifying assets			—		—		(3.1	)
	Interest charged to income			8.1		8.7		140.6
	Interest received/receivable
	- continuing operations			(8.9	)	(2.4	)	(1.3	)
	- discontinued operations			—		—		(96.9	)
	Interest credited to income			(8.9	)	(2.4	)	(98.2	)
	Net (credit)/charge to income			(0.8	)	6.3		42.4

* Due to rounding, employee entitlements for 2004 are shown as nil.

F - 21

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

4. EXCEPTIONAL ITEMS

	Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m	Year to 31 Dec 2002 A$m
Gains/(Charges)
Profit on sale of investments in Specialty Chemicals Assets	46.8		—	—
Share of equity loss on sale of Specialty Chemical Assets	(28.0	)
Demerger cost – advisors fees and other costs	—		—	(46.0	)
Profit on disposal of Central Norseman Gold Corporation Limited	—		—	25.1
Profit on disposal of the right to gold royalty received from the sale of St Ives and Agnew operations	—		—	15.4
Profit on disposal of the Long/Victor mines at Kambalda	—		—	12.0
Insurance proceeds (material damage and business interruption) received in relation to the fire at the Olympic Dam solvent extraction plant	—		—	62.3
Costs associated with lost production due to the fire at Olympic Dam solvent extraction plant	—		—	(92.5	)
Proceeds received from early termination of interest rate swaps	—		—	75.9
Exceptional items before income tax	18.8		—	52.2
Income tax (expenses)/credits on:
Profit on sale of investments in Specialty Chemicals Business	(4.0	)	—	—
Demerger cost – advisors fees and other costs	—		—	13.8
Profit on disposal of the Long/Victor mines at Kambalda	—		—	(2.6	)
Insurance proceeds (material damage and business interruption) received in relation to the fire at the Olympic Dam solvent extraction plant	—		—	(18.7	)
Costs associated with lost production due to the fire at Olympic Dam solvent extraction plant	—		—	27.8
Proceeds received from early termination of interest rate swaps	—		—	(22.8	)
Income tax expense on above exceptional items:
-continuing operations	(4.0	)	—	—
-discontinued operations	—		—	(2.5	)
Gain on exceptional items after tax	14.8		—	49.7

The exceptional items for 2002 relate to discontinued operations.

F - 22

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

5. INCOME TAX

		Notes		Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m		Year to 31 Dec 2002 A$m
(a)	Pre-tax operating (loss)/income
	Income/(loss) from continuing operations			40.3		(16.5	)	(6.9	)
	Loss from discontinued operations			—		—		(100.0	)
	Gain on disposal of discontinued operations			—		—		40.5
	Pre-tax operating income/(loss)			40.3		(16.5	)	(66.4	)
	Prima facie tax (expense)/credit for the period at the rate of 30%			(12.1)		5.0		19.9
	The following tax effect on these items caused the total charge for income tax to vary from the above:
	Research and development			—		—		2.2
	Non-assessable capital gains			14.1		—		—
	Non-taxable capital gains			—		—		12.1
	Depreciation and amortization			—		—		0.7
	Non-deductible expenses			(2.4	)	(3.0	)	(2.3	)
	Current year tax losses not available			—		—		(9.7	)
	Future income tax benefits movements			—		—		(0.5	)
	Variance between Australian and foreign tax rates			—		—		(0.5	)
	Withholding tax			(1.1	)	(1.4	)	1.8
	Attributable income tax on Speciality Chemical asset sale			(4.0	)	—		—
	Exempt income			—		—		0.9
	Income tax credit for the period			(5.5	)	0.6		24.6
	Adjustment for over provision in prior years			—		4.1		—
	Tax losses from prior years brought to account			0.4		4.6		—
	Total income tax (expense)/credit			(5.1)		9.3		24.6
	Income tax credit comprises:
	Continuing Operations:
	- Normal			(5.1	)	9.3		0.3
	Discontinued Operations:
	- Normal			—		—		26.8
	- Exceptional – gains and losses	4		—		—		(2.5	)
		5	(c)	(5.1	)	9.3		24.6

F - 23

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

5. INCOME TAX (continued)

(b) Future income tax benefits

The income tax provision is calculated under a policy of tax-effect accounting. Under this policy, the future benefits of tax losses and timing differences are brought to account where:

(i) virtual certainty exists as to the ability of group companies to recoup such losses; or

(ii) a provision for deferred income tax exists in the group company to which the tax losses relate but only to the extent that deferred income tax has already been provided in respect of timing differences which will reverse within the period during which the tax losses will remain available as a deduction from assessable income; or

(iii) the reversal of all other timing differences comprising the balance of the account is assured beyond any reasonable doubt.

Realization of future benefits attributable to tax losses and timing differences will only arise in the event that:

• the company, or where applicable another Group company, derives future assessable income within the prescribed time limit of a nature and of an amount sufficient to enable the benefit from the deductions from the losses to be realized;

• the Group companies continue to comply with the conditions for deductibility imposed by the law; and

• no changes in tax legislation adversely affect the Group companies in realizing the benefit from the deductions for the losses.

		Notes		Year to 31 Dec 2004 A$		Year to 31 Dec 2003 A$	Year to 31 Dec 2002 A$
(c)	Income tax (expense)/credit is comprised of:
	Current:
	Australian			(4.4	)	0.6	(3.8	)
	United States Federal			—		—	2.6
	Other			(1.1	)	—	(1.1	)
				(5.5	)	0.6	(2.3	)
	Deferred income tax:
	Australian			—		—	(26.8	)
	United States Federal			—		—	0.1
		5	(d)	—		—	(26.7	)
	Future income tax benefit:
	Australian			—		—	56.1
	United States Federal			—		—	—
				—		—	56.1
	Tax (expense)/credit attributable to operating profit/(loss)			(5.5	)	0.6	27.1
	Prior period adjustment			0.4		8.7	—
	Income tax credit on exceptional items	4		—		—	(2.5	)
	Total income tax (expense)/credit	5	(a)	(5.1	)	9.3	24.6

F - 24

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

5. INCOME TAX (continued)

	Year to 31 Dec 2004 A$m	Year to 31 Dec 2003 A$m	Year to 31 Dec 2002 A$m
(d)      The significant timing differences included in deferred income tax were:
Accelerated depreciation	—	—	(13.1	)
Stores	—	—	3.6
Stock adjustment to market value	—	—	(6.5	)
Amounts set aside to provision accounts	—	—	0.4
Tax losses	—	—	(12.6	)
Prepayments	—	—	0.2
Financial instruments accruals	—	—	11.9
Foreign exchange	—	—	(14.5	)
Other	—	—	3.9
	—	—	(26.7	)

(e) Operating tax losses carried forward expire as summarized below:

	Year of Expiry	A$m
Australia	Indefinitely	7.1
United States of America	2007	1.4
	2008	6.1
	2009	7.9
	2010	21.0
	2019	9.1
	2020	1.6
	2021	53.3
	2022	36.7
	2023	54.8
	2024	49.9
		241.8
Other countries	Indefinitely	0.2
Total operating income tax losses		249.1

Capital losses and timing differences relate mainly to losses which have not yet been realized or where they are realized and can be carried forward indefinitely.

F - 25

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

6. EARNINGS PER SHARE

	Year to 31 Dec 2004	Year to 31 Dec 2003	Year to 31 Dec 2002
	Cents per share
Basic earnings per share calculated on Group equity accounted profit after income tax and minority interests(1)	27.7	20.9	15.7
Diluted earnings per share calculated on Group equity accounted profit after income tax and minority interests	27.7	20.9	15.5
Basic earnings per share calculated on net income in accordance with US GAAP (note 34)(2)
-continuing operations	28.6	20.9	22.0
-discontinued operations	—	—	8.8
-transitional adjustment on adoption of new policy for asset retirement obligations (FAS143)	—	1.0	—
-transitional adjustment on adoption of new policy for amortization Of mine development and post-production waste removal costs	—	—	(3.5	)
-cumulative effect gain write off of negative goodwill	—	—	0.3
Basic earnings per share	28.6	21.9	27.6
Diluted earnings per share calculated on net income in accordance with US GAAP (note 34):
-continuing operations	28.5	20.8	21.7
-discontinued operations	—	—	8.8
-transitional adjustment on adoption of new policy for asset
retirement obligations (FAS143)	—	1.0	—
-transitional adjustment on adoption of new policy for amortization
of mine development and post-production waste removal costs	—	—	(3.5	)
-cumulative effect gain write off of negative goodwill	—	—	0.3
Diluted earnings per share	28.5	21.8	27.3

	Weighted average number of ordinary shares outstanding during the year used in the calculation of basic earnings per share	Potential ordinary shares from the conversion of partly paid shares and options	Weighted average number of ordinary shares outstanding during the year including potential ordinary shares used in the calculation of diluted earnings per share
Year to 31 Dec, 2004	1,161,164,129	897,367	1,162,061,496
Year to 31 Dec, 2003	1,132,189,594	2,276,335	1,134,465,929
Year to 31 Dec, 2002	1,112,878,659	11,556,839	1,124,435,498

	Year to 31 Dec 2004	Year to 31 Dec 2003	Year to 31 Dec 2002
	Cents per share
Australian GAAP
(1)    Earnings per share from continuing operations	27.7	20.9	18.8
Earnings per share from discontinued operations	—	—	(3.1	)
	27.7	20.9	15.7
US GAAP
(2)    Earnings per share from continuing operations	28.6	20.9	22.3
Earnings per share from discontinued operations	—	—	5.3
	28.6	20.9	27.6

F - 26

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

6. EARNINGS PER SHARE (continued)

(a) Information concerning classification of securities

The partly paid shares carry the right to participate in dividends in proportion to the amount paid relative to the total issue price (for partly paid shares issued in 1987, relative to the nominal value), and to that extent they have been recognized as equivalents of ordinary shares in the determination of basic earnings per share. At balance date there were nil, (December 2003: nil; December 2002: nil) partly paid shares, callable at the option of the holders and which at balance date were considered dilutive for the purpose of the calculation of diluted earnings per share. At balance date there were 4,505,700 (December 2003: 8,872,657; December 2002: 10,966,720) options which were considered potentially dilutive and therefore, were used in the calculation of diluted earnings per share.

(b) Comparative information

The basic earnings per share as presented and diluted earnings per share for the current and previous periods have been adjusted for the conversion of partly paid shares. The adjustment is in accordance with the Australian Accounting Standard AASB 1027 “Earnings Per Share”.

(c) Conversion, call, subscription or issue after 31 December 2004

There have been no material conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before completion of these financial statements.

	Year to 31 Dec 2004 A$m	Year to 31 Dec 2003 A$m	Year to 31 Dec 2002 A$m
(d)    Reconciliation of earnings used in the calculation of earnings per share
Net Income	322.1	236.9	174.5
Nominal interest from the conversion of partly paid shares and options	—	—	2.2
Potential diluted earnings	322.1	236.9	176.7
US GAAP earnings before cumulative effect of accounting change (Note 34)	331.7	237.1	342.5
Transitional adjustment on adoption of new policy for asset retirement obligations (FAS143)	—	11.1	—
Prior years cumulative effect of change in accounting for start-up activities	—	—	(39.5	)
Cumulative effect gain write off of negative goodwill	—	—	3.7
Net US GAAP earnings	331.7	248.2	306.7

7. FINANCIAL REPORTING BY SEGMENT

(a) Business segments

Years ended 31 December 2004 and 31 December 2003

As a result of the demerger, Alumina Limited’s primary assets are its 40% interest in the series of operating entities forming AWAC. The company operates in the Alumina/aluminium business through its equity interests in AWAC.

F - 27

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

7. FINANCIAL REPORTING BY SEGMENT (continued)

(a) Business segments (continued)

	Year ended 31 December 2002
	A$m
	Copper/ uranium		Alumina/ aluminium		Nickel	Fertilizers		Consolidated
Consolidated Revenue
Segment revenues1, 5	682.9		—		1,206.39	401.9		2,291.1
Unallocated revenue2								107.4
Less insurance proceeds								(67.2	)
Less proceeds from sale of non-current assets								(101.0	)
Less other sundry revenue								(9.4	)
Operating revenues								2,220.9
Result
Segment result	(19.6	)4	(6.3	)	198.94	(50.1	)	122.9
Share of net profit or loss/result of equity accounted investments	—		216.3		—	—		216.3
Unallocated profit3								45.4
Unallocated corporate expenses:
New business7								(32.0	)
Regional exploration6								(26.1	)
Corporate8								(109.1	)
Finance and other costs								(25.1	)
Net borrowing costs								(42.4	)
Profit from ordinary activities before income tax but after outside equity interest								149.9
Income tax benefit								24.6
Net profit								174.5
Depreciation and amortization	212.8		17.7		195.9	56.5		482.9
Unallocated								7.0
Consolidated depreciation and amortization								489.9
Other non-cash expenses	13.1		—		37.6	9.3		60.0
Assets
Segment assets	—		26.4		—	—		26.4
Equity accounted investments	—		1,668.7		—	—		1,668.7
Consolidated total assets								1,695.1
Liabilities
Segment liabilities	—		541.6		—	—		541.6
Consolidated total liabilities								541.6
Acquisitions of non-current assets	189.3		—		174.7	43.0		407.0
Unallocated								9.7
Total acquisitions of non-current assets								416.7

F - 28

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

7. FINANCIAL REPORTING BY SEGMENT (continued)

Description of each business segment
Alumina/aluminium	Share of net profit or loss/result of equity accounted investment in Alcoa World Alumina and Chemicals (AWAC), and alumina business unit costs.
Copper/uranium	Exploration, development, mining and refining of copper, uranium, silver and gold in South Australia.
Nickel	Exploration, development, mining, smelting and refining of nickel in Western Australia.
Fertilizers	Production of fertilizer products in Phosphate Hill, Queensland and distribution of fertilizer products via Hi-Fert.

(b) Geographical segments

	Year ended 31 December 2004
	A$m
	Australia	North America	Europe	Asia	Other	Total
Consolidated
Segment revenue by location of customer	—	—	—	—	—	—
Unallocated revenue						—
Consolidated revenue						—
Segment assets by location of assets	1,126.2	213.3	100.6	—	401.2	1,841.3
Consolidated total assets						1,841.3
Acquisitions of non-current assets	—	—	—	—	51.1	51.1
Total acquisitions of non-current assets						51.1

	Year ended 31 December 2003
	A$m
	Australia	North America	Europe	Asia	Other	Total
Consolidated
Segment revenue by location of customer	—	—	—	—	—	—
Unallocated revenue						—
Consolidated revenue						—
Segment assets by location of assets	821.7	365.2	162.6	—	449.6	1,799.1
Consolidated total assets						1,799.1
Acquisitions of non-current assets	0.3	—	—	—	—	0.3
Total acquisitions of non-current assets						0.3

F - 29

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

7. FINANCIAL REPORTING BY SEGMENT (continued)

(b) Geographical segments (continued)

	Year ended 31 December 2002
	A$m
	Australia	North America	Europe	Asia	Other	Total
Consolidated
Segment revenue by location of customer	482.3	239.6	664.0	301.7	—	1,687.6
Unallocated revenue						533.3
Consolidated revenue						2,220.9
Segment assets by location of assets	595.2	440.5	186.4	—	473.0	1,695.1
Consolidated total assets						1,695.1
Acquisitions of non-current assets	407.3	0.1	—	—	—	407.4
Unallocated						9.3
Total acquisitions of non-current assets						416.7

¹ Segment revenues include intermediate product sales.

² Unallocated revenue includes $33.5m from sale of CNGC and $45.0m from sale of the right to a gold royalty (refer to note 4).

³ Unallocated profit includes $25.1m from sale of CNGC and $15.4m from sale of the right to a gold royalty (refer to note 4).

⁴ Segment result for Copper/uranium and Nickel differs from note 33 due to unallocated interest.

⁵ Segment revenues for each business unit includes currency and commodity hedging allocated as follows:

	A$m 2002
Copper/uranium	(41.6	)
Nickel	(58.3	)
Fertilizer	(12.3	)
	(112.2	)

⁶ Unallocated regional exploration expenditure

Alumina allocated its expenditure on the search for and evaluation of new or additional mineral reserves over three headings; additional exploration, regional exploration and project exploration. Additional exploration is expenditure which, if successful, will define new reserves at existing operations. These reserves will usually require new facilities for extraction, although they will probably utilise existing management and infrastructure. Exploration charges for additional exploration expenditure are allocated to the appropriate business segment although such exploration is not necessarily directly related to segment production. Regional, project and evaluation exploration which cover expenditures in new areas up to the point where a decision is made either to develop to the production stage or to abandon exploration in the area, are the responsibility of other management and are disclosed in those segments. Expenditure which extends reserves at existing operations, which would probably be extracted with existing facilities, continues to be included with mine development expenditure.

⁷ New Business included identification, evaluation and implementation of new opportunities.

⁸ Corporate includes unallocated corporate overheads.

⁹ Includes US$ 137.0 million (A$267.1 million) from a significant customer in 2002.

F - 30

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

8. DIVIDENDS DECLARED AND PAID

	Year to 31 Dec 2004 A$m	Year to 31 Dec 2003 A$m	Year to 31 Dec 2002 A$m
Interim dividend No. 50 of 10 cents fully franked at 30% per fully paid share declared 29 July 2004 and paid 6 September 2004 (2003: 10 cents fully franked at 30% per fully paid share declared 24 July 2003 and paid 10 September 2003)	116.1	112.9	55.6
Final dividend No. 49 of 10 cents fully franked at 30% per fully paid share, paid on 30 March 2004 (2003: 13 cents fully franked at 30% per fully paid on 8 April 2003)	116.1	146.7	144.1
Special unfranked dividend of 73 cents distributed to effect the demerger	—	—	823.0
	232.2	259.6	1,022.7
(a)    Dividends not recognized at year end
In addition to the above dividends, since year end the Directors recommended the payment of a final dividend No. 51 of 10 cents franked to 7.5 cents at 30% per fully paid share, declared 2 February 2005 and paid on 31 March 2005. The aggregate amount of the dividend paid out of retained profits at 31 December 2004, but not recognized as a liability at year end (refer note 1(q)) is $116.3 million.
(b)    Franking account
Balance of franking account adjusted for franking credits which will arise from the payment of income tax provided for in these financial statements:
Class ‘C’ (30%) franking credits available for subsequent financial years, based on a tax rate of 30% (2003: 30%)	1.9	38.3	37.1
The fully franked dividends received from Alcoa of Australia Limited (“AofA”) in the financial year were	148.0	266.9	261.8
The shortfall between the balance of the franking account credits and the franking credits required for final dividend 51 is obtained from the fully franked dividend from “AofA” paid in 2005.
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: (a)    franking credits that will arise from the payment of the current tax liability; (b)    franking debits that will arise from the payment of dividends recognized as a liability at the reporting date; (c)    franking credits that will arise from the receipt of dividends recognized as receivables at the reporting date; and (d)    franking credits that may be prevented from being distributed in subsequent financial years.

9. CURRENT ASSETS – CASH ASSETS

		As at 31 December
	Notes	2004 A$m	2003 A$m
Cash at bank and on hand		17.7	41.7
Money market deposits (maturity of three months or less)		100.2	123.6
		117.9	165.3

F - 31

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

10. CURRENT ASSETS – RECEIVABLES

		As at 31 December
	Notes	2004 A$m	2003 A$m
Interest Receivable		0.5	0.3
Australian Taxation Office – tax refund*		—	3.6
Other debtors		0.3	0.1
		0.8	4.0
*  Receivable from Australian Taxation Office relates to overpayment of taxes in prior periods. The refund is due to a retrospective change in legislation occurring with the passing of Australian taxation laws amendment bill No 5 (2003) in December 2003.
11.    CURRENT ASSETS – OTHER
Employee share plan shares		0.6	—
Other		—	0.3
		0.6	0.3

1 2. INVESTMENTS IN ASSOCIATES

			Year to 31 Dec 2004		Year to 31 Dec 2003		Year to 31 Dec 2002
	Notes		A$m		A$m		A$m
(a)    Securities not quoted on a prescribed stock exchange
(i)     Securities in entities forming Alcoa World Alumina and Chemicals (AWAC) with Alcoa Inc.
Securities at cost:
- balance brought forward			1,217.3		1,220.9		1,192.5
- increase in Juruti bauxite reserves in Brazil*			51.1		—		—
- increase in investment in Halco and MRN			—		—		72.9
- foreign currency revaluation			(18.7	)	(112.0	)	(44.5	)
- decrease in investment following sale of Chemical assets			(62.2	)	—		—
- increase in investment in Alcoa of Australia**			—		108.4		—
Equity accounted cost of AWAC			1,187.5		1,217.3		1,220.9
Equity in retained profits of AWAC	12	(c)	534.2		407.7		346.5
Equity in reserves of AWAC	12	(d)	—		—		101.3
Equity accounted carrying value of AWAC			1,721.7		1,625.0		1,668.7

* Alumina acquired a 40% interest in the Juruti bauxite deposit in Brazl at a cost of US$40 million. The Juruti bauxite deposit is being considered for development to supply bauxite to the potential expansion of the Alumar refinery, and for potential supply to other AWAC and third-party operations. A final investment decision on this project is expected in late 2005.

** On acquisition, Alumina deemed the carrying amounts of the identifiable assets and liabilities of AofA ($18.2 million for ¾% interest share, at the purchase date) to be appropriate. The excess of the fair value over the book value of the underlying assets (A$90.2 million) was assigned to the bauxite mineral rights and allocated pro rata between reserves and resources. The allocation to reserves will be depreciated over the life of the reserves (currently 7.4 years) and the amount allocated to resources will be transferred to reserves as conversion occurs and the reserves depreciated as they are consumed in production.

F - 32

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

12. INVESTMENTS IN ASSOCIATES (continued)

	Notes	Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m		Year to 31 Dec 2002 A$m
(b)      Equity accounted share of profits and dividends
Equity share of profits before tax and goodwill		486.7		383.5		370.6
Equity goodwill amortization		(16.2	)	(17.7	)	(17.7	)
		470.5		365.8		352.9
Equity share of tax		(155.6	)	(121.7	)	(136.6	)
Equity accounted share of profit after tax		314.9		244.1		216.3
Loss on sale of Speciality Chemical assets held by AWAC subsidiaries (net of tax)		(28.0	)	—		—
Dividends received/receivable by Alumina from continuing operations		(160.4	)	(284.2	)	(281.0	)
Excess/(shortfall) of equity profits over dividends received/receivable		126.5		(40.1	)	(64.7	)
(c)      Share of retained profits
Excess/(shortfall) of AWAC equity accounted profit over dividends received/receivable		126.5		(40.1	)	(64.7	)
Transfer from reserves		—		101.3		—
Balance brought forward		407.7		346.5		411.2
Total equity share in retained profits carried forward		534.2		407.7		346.5
* excludes amortization of equity carrying value realized in forming AWAC
(d)      Equity accounted share of reserves of associated entities
AWAC
Opening balance		—		101.3		71.9
Transfer to retained profits		—		(101.3	)	—
Movement during the year		—		—		29.4
Total equity share of reserves		—		—		101.3

F - 33

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

12. INVESTMENTS IN ASSOCIATES (continued)

(e) Accounting policies

(i) The audited consolidated financial statements of the entities forming AWAC are prepared in accordance with US Generally Accepted Accounting Principles (US GAAP). Except for Alcoa of Australia Ltd (“AofA”), the reported profit after tax of AWAC is based on these US GAAP financial statements. Financial statements in US dollars have been translated to Australian dollars using average exchange rates for the period for profit and loss items, and closing rates for balance sheet items. Adjustments are made for accounting policies not allowed under Australian Generally Accepted Accounting Principles (Aust GAAP). The principal adjustments are to the valuation of inventories from last-in-first-out basis to a basis equivalent to weighted average cost, to treat the cost of stock options issued under the Alcoa employee long term incentive plan as a charge against profit and to reverse any excesses or shortfalls of the superannuation fund assets over accrued membership benefits taken to the statement of financial performance.

(ii) Included in the equity accounted carrying amount at which the equity investment in AWAC is recorded, are amounts for goodwill, including profits realized in forming AWAC, of A$136.5 million (Dec 2003: A$175.0 million, Dec 2002: A$192.7 million) which are being amortized over periods out to 2014. During the year A$22.4 million of goodwill was disposed of following the sale of the Speciality Chemical assets.

(f) On an equity accounted basis, the investment is recorded at net cost, and a share of profit is recognized after deduction of equity goodwill amortization.

(g) Additional information on associated entities

Name	Principal activities	Percentage equity
		2004	2003	2002
(i) Entities forming AWAC
Alcoa of Australia Ltd	Fully integrated aluminium production	40.00	40.00	39.25
Alcoa World Alumina LLC	Production of alumina & alumina based chemicals	40.00	40.00	40.00
Alcoa Chemie Nederland BV*	Production of alumina based chemicals	—	40.00	40.00
Alcoa Chemie GmbH*	Production of alumina based chemicals	—	40.00	40.00
Abalco S.A.	Production of bauxite and alumina	40.00	40.00	40.00
Alcoa Caribbean Alumina Holdings LLC	Holding company	40.00	40.00	40.00
Alumina Espanola S.A.	Production of alumina & alumina based chemicals	40.00	40.00	40.00
Omnia Minerios Ltda.	Hold bauxite exploration rights	40.00	—	—
Matapu Sociedade de Mineracao Ltda.	Hold bauxite exploration rights	40.00	—	—
Mineracao Sao Jorge Ltda.	Hold bauxite exploration rights	40.00	—	—
(ii) Other associates
Agnew Pastoral Company Pty. Ltd	Manage pastoral leases	40.00	40.00	40.00
Weebo Pastoral Company Pty. Ltd	Manage pastoral leases	40.00	40.00	40.00

* Both Alcoa Chemie Nederland BV and Alcoa Chemie GmbH were sold in December 2003, but only brought to account in 2004.

AWAC has a governing strategic council of five members of which Alumina appoints two, including the deputy chairman.

F - 34

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

	2004 A$m	2003 A$m	2002 A$m
(h)    Expenditure commitments and contingent liabilities
- other expenditure commitments contracted for, including long term commitments for gas and electricity	2,279.2	1,930.9	3,027.4

Unascertainable unsecured contingent liabilities

Various lawsuits and claims and proceedings have been, or may be, instituted or asserted against entities within AWAC, including those pertaining to environmental, product liability, and safety and health matters. While the amounts claimed may be substantial, the ultimate liability cannot be determined now because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on currently available facts, management believes that the disposition of matters that are pending or asserted will not have a materially adverse effect on AWAC’s financial position.

Alcoa of Australia Ltd (“AofA”) is party to a number of natural gas and electricity contracts that expire between 2005 and 2025. Under these take or pay contracts, AofA is obligated to pay for a minimum of natural gas or electricity even if these commodities are not required for operations.

Pursuant to the terms of the AWAC Formation Agreement, Alcoa and Alumina have agreed to remain liable for Extraordinary Liabilities (as defined in the agreement) as well as for certain other pre-formation liabilities, such as existing environmental conditions, to the extent of their pre-formation ownership of the company or asset with which the liability is associated.

(i) Alumina’s share of aggregate incorporated joint ventures:

Exchange rates used to convert summarized financial data in Australian dollars:

	AUD:USD
Balance sheet items	0.7819
Income statement items	0.7366

	Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m		Year to 31 Dec 2002 A$m
Current assets	616.9		499.4		600.2
Non-current assets	1,678.3		1,811.7		1,758.6
Current liabilities	(448.1	)	(379.2	)	(429.8	)
Non-current liabilities	(407.1	)	(478.3	)	(449.0	)
Minority interest	—		(3.6	)	(4.0	)
Net assets	1,440.0		1,450.0		1,476.0
Mineral rights and bauxite assets	145.2		—		—
Goodwill	136.5		175.0		192.7
Carrying value	1,721.7		1,625.0		1,668.7
Revenues	2,080.9		2,041.7		2,093.2
Expenses	(1,594.2	)	(1,658.2	)	(1,722.6	)
Profit before income tax	486.7		383.5		370.6
Loss on sale of Specialty Chemicals Business	(28.0	)	—		—
Income tax expense	(155.6	)	(121.7	)	(136.6	)
Profit after income tax	*303.1		*261.8		*234.0

* excludes amortization of goodwill

This summarized financial information is prepared on a basis consistent with that described in Note 12(f).

F - 35

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

13. NON-CURRENT ASSETS - PROPERTY, PLANT AND EQUIPMENT

			As at 31 December
	Notes		2004 A$m		2003 A$m
Plant and equipment	13	(a)	0.3		0.4
(a)    Plant and equipment
Cost			0.4		0.4
Provisions for depreciation and write-off			(0.1	)	—
			0.3		0.4
(b)    Reconciliations
Reconciliation of the carrying amount at the beginning and end of the current financial year is set out below

	Plant and equipment A$m
Carrying amount at 1 January 2004	0.4
Additions	—
Depreciation/amortization expense	(0.1	)
Carrying amount at 31 December 2004	0.3

14. NON-CURRENT ASSETS - DEFERRED TAX ASSETS

Future income tax benefit	—		—
Future income tax benefit - US GAAP
Future income tax benefit before valuation allowance:
- Income tax losses	74.6		65.3
- Income tax timing differences	(25.4	)	(29.8	)
- Capital losses	321.3		321.2
	370.5		356.7
Valuation allowance:
(Australian GAAP, Income tax benefits not brought to account)
- Income tax losses	(74.6	)	(65.3	)
- Income tax timing differences	25.4		29.8
- Capital losses	(321.3	)	(321.2	)
	(370.5	)	(356.7	)
Future income tax benefit after valuation allowance:
(Australian GAAP, future income tax benefits)
- Income tax losses	—		—
- Income tax timing differences	—		—
15.    CURRENT LIABILITIES – PAYABLES
Trade creditors	1.5		2.6
Other creditors	0.9		0.6
	2.4		3.2

F - 36

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

16. CURRENT LIABILITIES – INTEREST BEARING LIABILITIES

	Notes		As at 31 December
			2004 A$m	2003 A$m
Borrowings	16	(a)	397.9	467.0
			397.9	467.0
(a)    Description
Bank loans at floating interest rates applicable in the United States of America (Weighted average rate of 1.7% (2003:1.4%) and are repayable in one year or less.			397.9	467.0
(b)    Currencies
The above borrowings are due in the following currency:
US dollars			311.0	351.0
A$ equivalent of above currency			397.9	467.0
(c)    Exchange rates
Exchange rates as at balance date used in translations:
A$1 = US$			0.7819	0.7516
(d)    Analysis of repayments
Current liabilities:
In one year or less			397.9	467.0
(e)    Current liabilities - borrowings and overdrafts

Category of aggregate short term borrowings	Balance at end of year A$m	Weighted average interest rate on balance date borrowing %	Maximum amount outstanding during period(i) A$m	Average amount outstanding during period(ii) A$m	Weighted average interest rate during period(iii) %
Year ended 31 December 2004
Other loans	397.9	2.0	467.4	421.9	1.7
	397.9
Year ended 31 December 2003
Other loans	467.0	1.4	542.3	517.0	1.5
	467.0

(i) Based on bank statement balances.

(ii) Based on average monthly balances.

(iii) Based on weighted average monthly interest rates.

(iv) There are no significant unused committed lines of credit for short-term financing.

F - 37

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

17. CURRENT LIABILITIES – CURRENT TAX

		As at 31 December
	Notes	2004 A$m	2003 A$m
Current income tax		—	2.5
18.     CURRENT LIABILITIES – PROVISIONS
Employee entitlements		0.1	0.1
19.     NON-CURRENT LIABILITIES – PROVISIONS
Employee entitlements		0.2	0.2

(i) The aggregate of provisions for employee entitlements as shown in Notes 18 and 19 are $0.3 million (2003: $0.3 million).

20. CONTRIBUTED EQUITY

Share capital issued and fully paid
Balance brought forward	384.8	220.2
Shares issued	19.3	56.2
Shares issued to acquire QBE’s 0.75% share of Alcoa of Australia	—	108.4
Total issued capital	404.1	384.8

	Number of fully paid shares		Number of partly paid shares
	2004	2003	2004	2003
Movements in issued shares
Opening number of shares	1,159,557,148	1,128,112,347	—	—
Issued under Employee Share Scheme	3,553,900	13,071,920	—	—
Allotment for purchase of 0.75% of Alcoa of Australia	—	18,372,881	—	—
Closing number of shares	1,163,111,048	1,159,557,148	—	—

F - 38

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

20. CONTRIBUTED EQUITY (continued)

(a) 18,372,881 fully paid shares were allotted at $5.90 per share to facilitate Alumina Limited’s acquisition of QBE Limited’s 0.75% interest in Alcoa of Australia in December 2003-refer note 22(e).

(b) Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

(c) The Dividend Reinvestment Plan remains suspended.

(d) Stock based compensation plans

The establishment of the WMC Employee Share Scheme was approved by shareholders at the Annual General Meeting held on 12 December 1987. Under the Scheme a number of share plans have operated. Fully paid shares, partly paid shares and share options have been granted to employees since establishment of the Scheme. From commencement of the WMC Employee Share Scheme to 31 December 2002, 10,354,645 fully paid shares, 21,008,700 partly paid shares and 63,611,300 options for fully paid shares had been issued under the Share Scheme, of which 21,008,700 partly paid shares and 43,531,947 options had been converted to fully paid ordinary shares and released from the Scheme. The fully paid shares of 10,354,645 have been issued to employees and are not considered as part of the current stock compensation calculation. A total of 15,573,653 options have lapsed.

(i) Employee option plan

All permanent employees (including executive directors) of Alumina Limited and its subsidiaries who were employed by the company or a subsidiary were eligible to participate in the WMC Employee Share Scheme and be offered options for fully paid shares. Existing options allotted to Alumina employees remain exercisable until such time as their exercise periods expire. There is no ongoing option plan available to Alumina Limited directors or employees. Under the scheme, no issues have been made during the current year.

The major provisions of the option plans provide that the employee may request that the options be converted after one year from the date of allotment. Options are exercisable at their issue price. Restrictions exist for certain employees on the number of options which can be exercised in any year. If the request to convert the options to shares has not been made, the Company must make the call at the completion of five years from the date of issue or termination of employment. Certain designated officers are not permitted to exercise options or buy and sell shares in the period between the end of the company’s half or full financial year and the release of the respective result.

F - 39

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

20. CONTRIBUTED EQUITY (continued)

(ii) Stock Appreciation Plan

In various years since approval of the Employee Share Scheme in 1987, the company established Stock Appreciation Plans (SAPs) for the benefit of employees in countries outside Australia. The purpose of the SAPs was to provide such employees, who due to securities law constraints were not eligible to participate under the Options Plans, with benefits similar to those conferred by the Option Plans.

Under the terms of the Alumina Limited Stock Appreciation Plan (SAP), employees were invited to apply for the grant by Alumina Limited. The employees were not required to pay any amount for the grant, but each Alumina Limited SAP has a notional allotment exercise price, equal to the weighted average sale price of Alumina Limited shares on the ASX on the trading day that the invitation to apply for the Alumina Limited SAP was made to the employee. Subject to certain exceptions, the Alumina Limited SAP were not able to be redeemed until after a period of 12 months from the date of allotment and lapse on the fifth anniversary of the date of allotment. Upon redemption of an Alumina Limited SAP before its expiry by the holder, the holder is entitled to a payment equal to the difference between the closing price of Alumina Limited share on the ASX on the trading day immediately before redemption, and the notional allotment price (assuming the former is higher).

Prior to the name change to Alumina Limited and demerger of WMC Resources, employees of WMC Limited (Alumina) participated in the stock-based compensation plans of WMC Limited, which included stock options and stock appreciation rights granted in WMC Limited common stock.

Additionally, prior to the demerger, WMC Limited had granted WMC Limited Stock Appreciation Rights to WMC Resources employees. After the demerger as noted below, the SAP rights were split in to Alumina Limited and WMC Resources Ltd SAPs.

(iii) Partly Paid Share Plan

The partial paid shares were granted to a select few employees which makes the plan a compensatory plan under US GAAP. This results in stock compensation expense to the company when the market price is greater than the exercise price on date of grant. As a result of non interest bearing notes granted to the employees to purchase the partially paid shares, the shares were considered variable grants. Variable grants require the shares to be marked to market and compensation expense to be recognized for the difference between the fair value and the exercise price at each balance sheet date. All partly paid shares were converted to fully paid during 2002, prior to demerger.

(iv) Impact of demerger on plans

As a result of the demerger, each WMC Limited employee option become an Alumina Limited option and entitled the holder to subscribe for one Alumina Limited share. The exercise prices of the options were amended so that an Alumina Limited employee option has an exercise price less than the exercise price of the corresponding WMC Limited option prior to the demerger. The exercise price of an Alumina Limited option was determined by reference to the exercise price of the corresponding WMC Limited option prior to the demerger and a factor of 0.537. The exercise price of the 11,773,500 options issued on 30 November 2001 and 7 May 2002 was amended as a result of the demerger from $9.35 to $5.02. The Stock Appreciation Plan was treated in the same manner as the Share Scheme as detailed above.

(v) Alumina Employee Share Plan

In 2003, the Company established an employee long term incentive plan which involves the on market purchase of the company’s shares which can vest to employees provided certain performance tests are achieved. The criteria are the Company’s share performance against a comparator group of 50 Australian-listed entities and a comparator group of 30 international entities listed on stock exchanges inside and Outside Australia. The maximum number of shares which could be awarded under the plan annually are purchased through a fully consolidated trust. The shares vest in December, provided the performance criteria are achieved. The compensation charge is recorded in the period when the shares vest with the employee as the liability is determined on that date. If all of the performance criteria are not achieved then the shares are treated as treasury shares in shareholder equity. There were no shares vested in 2004. In 2003, all performance criteria were achieved and 91,300 shares representing 0.008% of shares on issue were vested in the period.

F - 40

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

20. CONTRIBUTED EQUITY (continued)

As at 31 December 2004, the market price per ordinary share was $5.94 and 4,505,700 options remained exercisable as follows:

Year of issue	Granted in 2004	Exercised in 2004	Exercisable/ Outstanding as at 31 December 2004	Exercise Price		Expiry Date
1999	—	1,495,600	—	$	4.52	20 December 2004
2000	—	777,100	1,209,300	$	4.04	18 December 2005
2001	—	1,281,200	3,296,400	$	5.02	30 November 2006
Total	—	3,553,900	4,505,700

For the year ended 31 December 2004, there were the following SAP movements:

Year of issue	Granted in 2004	Converted in 2004	Exercisable/ Outstanding as at 31 December 2004	Allotment price		Expiry Date
1999	—	10,000	—	$	4.52	20 December 2004
2000	—	42,900	15,400	$	4.04	18 December 2005
2001	—	83,700	113,900	$	5.02	30 November 2006
2002	—	250,000	400,000	$	5.02	30 November 2006
Total	—	386,600	529,300

Summary of Alumina Common Stock Options and Stock Appreciation Plan

The following table is a summary of Alumina stock option transactions:

	Options in Thousands 2004		Weighted- Average Exercise Price 2004		Options in Thousands 2003		Weighted- Average Exercise Price 2003
Outstanding at January 1
Options	8,060		$	4.69	21,549		$	4.52
SAPs	917		$	4.95	1,684		$	4.70
Movements during the year:
Options
- Granted	—			—	—			—
- Exercised	(3,554	)	$	4.60	(13,072	)	$	4.41
- Canceled or forfeited	—			—	(417	)	$	4.43
SAPs
- Granted	—			—	—			—
- Exercised	(387	)	$	4.90	(767	)	$	4.40
- Canceled or forfeited	(1	)	$	4.52	—			—
Outstanding at December 31
Options	4,506		$	4.76	8,060		$	4.69
SAPs	529		$	4.99	917		$	4.95

F - 41

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

20. CONTRIBUTED EQUITY (continued)

The following table summarizes information about the Alumina stock options and SAPs outstanding at December 31, 2004:

	Options / SAPs Outstanding				Options / SAPs Exercisable
Range of Exercise Prices	Number Outstanding at Dec. 31, 2004 (thousands)	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable at Dec. 31, 2004 (thousands)	Weighted- Average Exercise Price
$4.04	1,225	0.9	$	4.04	1,225	$	4.04
$5.02	3,410	1.9	$	5.02	3,410	$	5.02
$5.02	400	1.9	$	5.02	400	$	5.02
	5,035	1.7	$	4.53	5,035	$	4.53

21. MINORITY INTERESTS

	Notes		Year to 31 Dec 2004 A$m	Year to 31 Dec 2003 A$m	Year to 31 Dec 2002 A$m
Outside equity interest in controlled entities comprises:
Share capital			—	—	—
Reserves			—	—	—
Retained profits	21	(a)	—	—	—
			—	—	—
(a)    Retained profits reconciliation
Outside equity interests in operating (profit)/loss after income tax			—	—	(0.7	)
Retained profits brought forward			—	—	5.7
Total available for appropriation			—	—	5.0
Transfer to profits attributable to members of Alumina Limited on disposal			—	—	(5.0	)
Retained profits at the end of the financial year			—	—	—

F - 42

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

22. NOTES TO THE STATEMENTS OF CASH FLOWS

	Notes	Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m		Year to 31 Dec 2002 A$m
(a)      Reconciliation of operating profit after income tax to net cash provided by operating activities
Operating profit after income tax and earnings of associates		322.1		236.9		173.8
(Excess)/shortfall of equity accounted profits over dividends received (gross of goodwill amortization)		(142.8	)	22.3		47.0
Depreciation and amortization	3	16.3		17.7		489.9
Profit on sale of Speciality Chemical assets		(46.8	)	—		—
Research and development written off		—		—		0.3
Profit on disposal of non-current assets		—		—		(43.1	)
Provision for diminution in investments and loans		—		—		(0.8	)
Unrealized exchange (gains)		(1.1	)	(4.8	)	(4.1	)
Write down in value of inventory	3	—		—		2.1
Sub total		147.7		272.1		665.1
Change in assets and liabilities adjusted for effects of purchase and disposal of controlled entities during the financial year:
(Increase)/decrease in:
-inventories		—		—		(84.4	)
-receivables		0.3		(1.7	)	(300.5	)
-deferred tax assets		4.1		(4.1	)	53.0
-other assets		(0.3	)	0.6		401.6
(Decrease)/increase in:
-payables		(0.8	)	0.7		(88.1	)
-current tax liabilities		(2.5	)	0.8		24.2
-deferred tax liabilities		—		(2.2	)	(86.1	)
-provisions		—		—		12.2
-other liabilities		—		2.3		5.6
Net cash provided by operating activities		148.5		268.5		602.6

(b) Acquisition of controlled entities

On 30 December 2004, a 100% interest in a new subsidiary, Butia Participaçoes SA was acquired.

(c) Disposal of controlled entities

During the year the Company did not dispose of any material controlled entities.

(d) Financing facilities

Refer to Note 23.

(e) Non cash financing and investing activities

There were no non-cash financing and investing activities in 2004. In 2003 consideration of 18,372,881 shares in Alumina Limited was issued to acquire 0.75% of Alcoa of Australia.

F - 43

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

23. FINANCING FACILITIES

			As at 31 December
	Notes		2004 A$m	2003 A$m
The total facilities available at balance date were as follows:
Short term loan facilities	23	(b)	700.0	700.0
			700.0	700.0
Used at balance date:
Short term loan facilities	23	(b)	397.9	467.0
			397.9	467.0
Available at balance date:
Short term loan facilities	23	(b)	302.1	233.0
			302.1	233.0

(a) The loan facilities are denominated in currencies as follows:-

Short term loan facilities
Denominated in Australian dollars	50.0	50.0
Denominated in United States dollars	650.0	650.0

(b) The short term bank loan facilities are available for general corporate purposes. All facilities are 364 day facilities. The short term facilities will be refinanced during the course of 2005.

F - 44

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

24. FINANCIAL INSTRUMENTS

A. Interest rate risk

The group is exposed to interest rate risk on its outstanding interest bearing liabilities and investments.

(a) Interest rate risk exposure

The consolidated entity’s exposure to interest rate risk and the effective weighted interest rate for classes of financial assets and liabilities is set out below:

As at 31 December 2004

	Note			Fixed interest maturing in:
$ million		Floating interest		1 year or less	Over 1 to 5 years	More than 5 years	Non-interest bearing		Total
Financial Assets
Cash assets	9	117.9		—	—	—	—		117.9
Receivables	10	—		—	—	—	0.8		0.8
		117.9		—	—	—	0.8		118.7
Weighted average interest rate		5.3	%
Financial Liabilities
Payables	15	—		—	—	—	2.4		2.4
Bank loans	16	397.9		—	—	—	—		397.9
		397.9		—	—	—	2.4		400.3
Weighted average interest rate		1.7	%
Net financial (liabilities)		(280.0	)	—	—	—	(1.6	)	(281.6	)

As at 31 December 2003

				Fixed interest maturing in:
$ million	Note	Floating interest		1 year or less	Over 1 to 5 years	More than 5 years	Non-interest bearing	Total
Financial Assets
Cash assets	9	165.3		—	—	—	—	165.3
Receivables	10	—		—	—	—	4.0	4.0
		165.3		—	—	—	4.0	169.3
Weighted average interest rate		5.4	%
Financial Liabilities
Payables	15	—		—	—	—	3.2	3.2
Bank loans	16	467.0		—	—	—	—	467.0
		467.0		—	—	—	3.2	470.2
Weighted average interest rate		1.4	%
Net financial (liabilities)		(301.7	)	—	—	—	0.8	(300.9	)

F - 45

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

24. FINANCIAL INSTRUMENTS (continued)

B. Carrying amounts and estimated fair values of financial instruments

The carrying amounts and estimated fair values of the company’s financial instruments, referred to in Note 24A above were as follows:

	Notes	Consolidated
		Carrying amount	Fair value	Carrying amount	Fair Value
		A$m		A$m
		2004	2004	2003	2003
Recognized in the statement of financial position
Financial assets
Cash assets	9	117.9	117.9	165.3	165.3
Current receivables	10	0.8	0.8	4.0	4.0
Financial liabilities
Current payables	15	2.4	2.4	3.2	3.2
Short term interest bearing liabilities	16	397.9	397.9	467.0	467.0

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate a value:

Cash assets and current other financial assets

The carrying amount approximates fair value because of the short maturity of these instruments.

Debtors and creditors

Other current debtors and creditors mainly represent financial obligations incurred in exchange for goods and services provided and received by the group in the normal course of its operations, net of provisions for doubtful debts. Due to the short term nature of these financial obligations, their carrying values are estimated to equal their fair values.

F - 46

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

25. PARTICULARS RELATING TO ENTITIES CONSOLIDATED IN THE ECONOMIC ENTITY

Entities consolidated	Notes	Place of incorporation
NAME
Alumina Limited		VIC, Australia
All controlled entities are wholly owned, unless otherwise indicated
Controlled entities
Albion Downs Pty. Ltd.	C,F	WA, Australia
Alumina Holdings (USA) Inc.	A,D	Delaware, USA
Alumina International Holdings Pty. Ltd.	B,E	VIC, Australia
Alumina (U.S.A.) Inc.	A,D	Delaware, USA
Westminer (Investments) B.V.	A,D	Netherlands
Westminer Acquisition (U.K.) Limited	D	UK
Butia Participacoes SA	A,D,G	Brazil
Westminer International (U.K.) Limited	D	UK

These controlled entities:

A) have not prepared audited accounts as they are non-operating or audited accounts are not required in their country of incorporation;

B) has been granted relief from the necessity to prepare accounts pursuant to Australian Securities and Investment Commission (“ASIC”) Class Order 98/1418. This company, which is also referred to in the Directors’ Declaration is, with Alumina Limited, a member of a “Closed Group” as defined in the Class Order and are parties to a deed of cross guarantee which has been lodged with and approved by ASIC. Under the deed of cross guarantee, each of these companies guarantees the debts of the other companies party to the deed of cross guarantee. The consolidated assets and liabilities of these companies, and their consolidated net profits after tax for the year then ended (after eliminating inter-company investments and other inter-company transactions), are set out in the table below;

C) this is a small proprietary company, and is not required to prepare a financial report;

D) has been translated as a self-sustaining entity;

E) this company, while a small proprietary company, is included on the deed of cross guarantee;

F) this company is deemed to be a controlled entity because of an option held by Alumina Limited to purchase all of the shares in the Company;

G) On 30 December 2004, Alumina Limited, through a controlled subsidiary, acquired 100% interest in Butia Participaçoes SA, a Brazilian entity for a nominal amount. The company had no net assets and made no contribution to the Group result.

F - 47

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

25. PARTICULARS RELATING TO ENTITIES CONSOLIDATED IN THE ECONOMIC ENTITY (continued)

Deed of cross guarantee

Entities which are party to a Deed of Cross Guarantee, entered into in accordance with ASIC Class Order 98/1418 are indicated above in this note. A consolidated statement of financial position is set out below:

	Closed group
	Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m
Consolidated statements of financial position of closed group
Current Assets
Cash assets	107.7		153.6
Receivables	51.3		18.1
Deferred tax asset	—		8.7
Total current assets	159.0		180.4
Non-Current Assets
Investments in associates/subsidiaries	1,101.7		1,101.7
Property, plant and equipment	0.3		0.4
Total non-current assets	1,102.0		1,102.1
Total assets	1,261.0		1,282.5
Current Liabilities
Payables	2.3		2.8
Interest-bearing liabilities	397.9		467.0
Current income tax liabilities	—		9.2
Provisions	0.1		0.1
Other	2.1		2.2
Total current liabilities	402.4		481.3
Non-Current Liabilities
Payables	119.3		22.2
Provisions	0.2		0.2
Total non-current liabilities	119.5		22.4
Total liabilities	521.9		503.7
Net assets	739.1		778.8
Equity
Contributed equity	404.1		384.8
Reserves	240.2		240.2
Retained profits	94.8		153.8
Total equity	739.1		778.8
Set out below is a consolidated statement of financial performance for the closed group:
Revenue from ordinary activities	204.2		451.9
General and administrative	(7.5	)	(11.3	)
Other expenses from ordinary activities	(10.1	)	(449.0	)
Borrowing costs	(10.6	)	(9.0	)
Profit/(loss) from ordinary activities before income tax	176.0		(17.4	)
Income tax expense	(1.9	)	4.1
Net profit/(loss)	174.1		(13.3	)
Total revenues, expenses and valuation adjustments attributable to members of the parent entity and recognised directly in equity	—		—
Total changes in equity other than from those resulting from transactions with owners as owners	174.1		(13.3	)
Set out below is a summary of movements in consolidated retained profits of the closed group:
Retained profits at the beginning of the financial year	153.8		426.7
Net profit/(loss)	174.1		(13.3	)
Dividend provided for or paid	(233.1	)	(259.6	)
Retained profits at the end of the financial year	94.8		153.8

F - 48

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

26. CONTINGENT LIABILITIES

(a) Unascertainable unsecured contingent liabilities/asset

Alumina Limited provided a guarantee in 1998 for foreign exchange transactions and in 2000 for gold derivative transactions undertaken by its wholly owned subsidiary at that time, WMC Finance Limited (“WMCF”). WMCF was sold to WMC Resources Ltd as part of the demerger and is no longer a subsidiary of Alumina Limited. On 4 December 2003, WMC Resources announced that it had closed–out its currency hedge book for the period 2005 to 2008, eliminating that portion of Alumina’s contingent liability. On 21 December 2004, WMC Resources novated the gold hedging positions to a third party. The guarantee provided by Alumina Limited is no longer applicable.

(b) Contingencies and Litigation

There were no contingent liabilities of Alumina Group companies arising from guarantees related to obligations of group companies at December 31, 2004 (2003: nil).

27. COMMITMENTS FOR EXPENDITURE

	As at 31 December
	2004 A$m	2003 A$m
Lease commitments contracted for operating leases other than mineral and exploration leases
The company leases office facilities. The office lease on expiry is expected to be renewed or replaced by another lease. The following is the rental expense and the future minimum rental commitments
Lease commitments payable at balance date
Within one year	0.1	0.1
Later than one year but not later than 5 years	0.2	—
	0.3	0.1

28. SUPERANNUATION BENEFITS

Since 27 July 2001, all employer contributions and ongoing management of employees’ superannuation entitlements have been managed by the WMC Superannuation Plan, an independently managed sub-plan of the Plum Superannuation Fund. Since the demerger, Alumina employees have become members of a sub-plan of the WMC Superannuation Plan, created specifically for Alumina.

The plan is an accumulation category plan which offers a minimum company contribution (subject to certain cashing out options and legislation) of 9 per cent of basis salary to each member’s account. Members also have the option to make voluntary contributions to their account. Employer contributions to these funds are recognized as an operating cost.

Plan membership is compulsory for all Australian resident employees and Australian expatriates, and provides lump sum benefits on retirement, permanent disability, death, resignation and retrenchment.

F - 49

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

28. SUPERANNUATION BENEFITS (continued)

WESTMINER SUPERANNUATION FUND

		Year to 31 Dec 2004 A$m	Year to 31 Dec 2003 A$m	Year to 31 Dec 2002 A$m
(a)	Change in benefit obligation
	Benefit obligation at end of prior year	—	—	222.4
	Benefit obligation restated at beginning of year	—	—	204.3
	Service cost	—	—	32.3
	Interest cost	—	—	11.8
	Actuarial (gains) losses	—	—	(19.4	)
	Members transferring from other funds	—	—	8.3
	Benefits and expenses paid	—	—	(57.6	)
	Plan participants contributions	—	—	4.3
	Transferred to WMC Resources Ltd on demerger	—	—	(184.0	)
	Benefit obligation at end of period	—	—	—
(b)	Change in plan assets
	Fair value of plan assets at end of prior year	—	—	204.0
	Fair value of plan assets restated at beginning of year	—	—	197.5
	Actual return on plan assets	—	—	(16.0	)
	Transfers in from other funds	—	—	8.3
	Employer contributions	—	—	22.4
	Plan participants’ contributions	—	—	4.3
	Benefits and expenses paid	—	—	(57.6	)
	Transferred to WMC Resources Ltd on demerger	—	—	(158.9	)
	Fair value of plan assets at end of period	—	—	—
(c)	Reconciliation of funded status
	Funded status	—	—	(25.1	)
	Unrecognized net gain	—	—	(18.5	)
	Transferred to WMC Resources Ltd on demerger	—	—	43.6
	Accrued pension cost	—	—	—
(d)	Components of net periodic benefit costs
	Service cost	—	—	32.3
	Interest cost	—	—	11.8
	Expected return on plan assets	—	—	(14.2	)
	Amortization of prior service cost	—	—	0.1
	Amortization of gain	—	—	(1.3	)
	Amortization of unrecognized net transition asset	—	—	(1.6	)
	FAS 88 adjustment	—	—	(5.3	)
	Net periodic benefit costs	—	—	21.8
(e)	Weighted average assumptions
	Discount rate (%)	—	—	6.0
	Expected long-term return on plan assets (%)	—	—	7.0
	Rate of compensation increase (%)	—	—	3.5
(f)	Alumina are sponsors of defined contribution pension plans. Expenses relating to those plans were	0.2	0.1	0.3

F - 50

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

29. RELATED PARTY TRANSACTIONS

Related parties of the group fall under the following categories:

Wholly-owned group

The wholly-owned group consists of Alumina Limited and its wholly owned controlled entities as disclosed in note 26. Transactions between Alumina Limited and other entities in the wholly-owned group during the years ended 31 December 2004 and 2003 consisted of:

• loan advanced/repaid to/by Alumina Limited

• interest paid/received on the above loans (refer notes 2 and 3)

• the payment of dividends to Alumina Limited

• payment of administrative/general expenses on behalf of Alumina Limited

The above transactions were made on normal commercial terms and conditions and at market rates.

Directors and Specified Executives

Disclosures relating to directors and specified executives are set out in Note 30.

Other Related Parties

There are no related party transactions.

Ownership Interests in Related Parties

Interests held in the following classes of related parties are set out in the following notes:

(a) controlled entities – Note 25; and

(b) associates – Note 12

F - 51

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

30. DIRECTOR AND EXECUTIVE DISCLOSURES

Directors

The following persons were directors of Alumina Limited during the financial year:

Chairman – non-executive

D M Morley

Executive directors

J Marlay, Chief Executive Officer

R D J Davies, Chief Financial Officer

Non-executive directors

P A F Hay

R J McNeilly

M R Rayner

Executives

In addition to executive directors, the following person was the executive with the greatest authority for the strategic direction and management of the consolidated entity (“specified executives”) during the financial year:

Name	Position	Employer
S C Foster	General Counsel and Company Secretary	Alumina Limited

There are no other persons employed by the Group, other than the two executive directors listed above, who meet the definition of an executive under AASB 1046.

Remuneration of directors and executives

Principles used to determine the nature and amount of remuneration

Alumina Limited makes a clear link between performance and remuneration. In doing so we are able to ensure that remuneration is aligned with shareholder interests. It also helps us to ensure that superior employee performance is recognized and rewarded.

The process aligns business objectives with specific and measurable individual objectives and targets. Performance by individual employees against these objectives is assessed half yearly and yearly. The Board Compensation Committee also obtains independently assessed remuneration information for comparative purposes. Salary reviews and short-term incentives (STIs) are determined by assessing performance against objectives and peer group Total Shareholder Returns (TSR) performance. Long-term incentives (LTIs) are assessed against the Company’s TSR compared with that of peer group companies.

Individual performance

This element of remuneration is based on the employee’s relative performance against the goals and individual objectives that have been set for them for the year under review.

Company performance

A percentage component of total cash remuneration is based on the performance of the company measured against peer group companies TSR.

Market position

The Directors believe that Alumina Limited’s remuneration levels need to be competitive with those of other comparable Australian organisations so that the company can attract and retain quality people. The Board Compensation Committee appoints an external compensation adviser to advise on appropriate salary and benefits, and reviews these on an annual basis.

The Board agreed not to increase executive and staff remuneration for 2004 based on the CEO’s review of an independent expert analysis of executive and employee remuneration.

Non-executive directors

Total remuneration for non-executive directors is determined by resolution of shareholders. The maximum aggregate remuneration approved for non-executive directors is currently $950,000.

F - 52

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

30. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

Alumina Limited’s non-executive directors receive a fee for being a director. No additional fees are paid to directors for participating on Board Committees. Non-executive directors’ fees are reviewed annually and are determined by the Board of Directors based on comparative advice received from independent advisers and taking into account the directors’ responsibilities and time spent on company business. Non-executive director fees are not performance linked.

It was determined not to grant fee increases during 2004. Net remuneration for non-executive directors in 2004 was $255,462.

Retirement benefits

Non-executive directors receive a superannuation guarantee contribution required by government regulation which is currently 9 per cent of their fees, and do not receive any other retirement benefits.

Executive pay

The executive pay and reward framework has two components:

• fixed remuneration; and

• variable incentive payments.

The combination of these comprises the executive’s total remuneration.

Base pay

• fixed remuneration (FAR) – this is referred to as ‘fixed annual reward’ (FAR) and is the component of total remuneration specified in an employee’s contract of employment and subsequent periodic salary reviews. It is inclusive of superannuation contributions (both company contributions and salary sacrifice contributions).

• variable (incentive) payments - contracts for executive and professional employees include a component of remuneration linked to short-term incentives (STIs) and long-term incentives (LTIs). Policies defining STIs and LTIs are established by the Board Compensation Committee and reviewed on an annual basis.

Short-term incentives

Short-term incentives offered by Alumina Limited link achievement to reward by encouraging executives and staff to meet or exceed measurable tasks and objectives in their work. These tasks and objectives ultimately support Alumina Limited’s objectives and therefore shareholder interests. Performance is measured against a scorecard of key tasks and responsibilities and agreed objectives and targets. Individual performance against the measures is assessed. Objectives are reviewed and revised if necessary, and new objectives are established annually. The STI also has a component linked to company TSR as measured against peer group TSR. The reward attributed to the TSR performance fluctuates according to the relative performance of the Company and an entitlement is triggered if the Company TSR result registers in the second quartile of the peer group.

Short-term incentives are calculated as a percentage of an employee’s fixed remuneration. The Compensation Committee determines the maximum percentage that is potentially available to executives and approves, after reviewing assessments, whether short-term incentives should be paid. STI percentages payable in 2004 were up to 45% of FAR for executives, of which 20% related to performance against individual objectives and 25% measured against company TSR performance.

During 2004, STIs paid to executives averaged 16% of FAR. No payment was attributed to short-term relative TSR performance with Company relative performance registering in the lowest quartile against peer group performance.

Long-term incentives

Alumina Limited employees have the opportunity to participate in the Alumina Employee Share Plan (ESP). The ESP is designed to link employee rewards with the strategic long-term goals and performance of Alumina Limited, consistent with the generation of shareholder returns.

The ESP involves the on market purchase of the company’s shares which can vest to employees provided certain performance tests are achieved. The initial grant of three tranches of shares approved by the Board in 2003 covered a three year period with the tranche vesting dates at Years 1, 2 and 3. Eligibility for vesting of these shares is tested each year commencing on 3 December 2003 for Year 1. Shares for Year 1 were acquired in early 2003. The LTI award for executives was set at 30 per cent for the initial 3 year grant and 55 per cent for subsequent grants. Beyond the initial grant, future grants will have a three year performance period with performance tests at the end of this period. The criteria are the company’s Total Shareholder Return (TSR) performance against a comparator group of 50 Australian-listed entities and a comparator group of 30 international entities listed on stock exchanges inside and outside Australia. If all of the performance criteria are not achieved then the shares which do not vest are treated as treasury shares in shareholder equity.

F - 53

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

30. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

Overview of performance condition

The performance test to be used to determine the number of shares that vest compares Alumina Limited’s total shareholder return (TSR) performance (calculated by an independent consultant engaged by the board for these purposes), with the TSR performance of each of the entities in a comparator group of entities.

Comparator groups

Two tests are applied and each accounts for 50% of the possible grant of shares under the ESP.

Test 1 relates to performance of Alumina Limited against a comparator group of 50 Australian-listed entities (i.e. 50 entities/securities excluding Alumina Limited and Property Trusts) (Test 1 - ASX Comparator Group).

Test 2 relates to performance against a comparator group of 30 international entities listed on stock exchanges outside Australia (i.e. 30 entities excluding Alumina Limited) (Test 2 - International Comparator Group).

The methodology behind tests 1 and 2 is identical, apart from the difference in the comparator groups. The performance tests are defined as follows:

The TSR for each entity in the comparator group and for Alumina Limited is calculated according to a standard methodology decided upon and applied by an independent consultant engaged by the board for these purposes over the defined time period(s). The entities (or securities, as appropriate) in the comparator group are then ranked by TSR performance.

Details of remuneration

Details of the remuneration of each director of Alumina Limited and specified executive of the consolidated entity, including their personally-related entities, are set out in the following tables.

Directors of Alumina Limited

2004	Primary			Post-employment		Equity
Name	Cash salary and fees $	Cash bonus $	Non-monetary benefits $	Super- annuation $	Retirement benefits $	SAP/ Share Rights $		Total $
D M Morley	191,250	—	21,250	19,125	—	(254,113	)	(22,488	)*
P A F Hay	—	—	85,000	7,650	—	—		92,650
R J McNeilly	63,750	—	21,250	7,650	—	—		92,650
M R Rayner	76,500	—	8,500	7,650	—	—		92,650
J Marlay	688,707	126,000	—	11,293	—	115,297		941,297
R D J Davies	348,707	54,000	—	11,293	—	59,206		473,206
	1,368,914	180,000	136,000	64,661	—	(79,610	)	1,669,965

Total remuneration of directors of Alumina Limited for the year ended 31 December 2003 is set out below. Information for individual directors is not shown as this is the first financial report prepared since the issue of AASB 1046 Director and Executive Disclosures by Disclosing Entities.

* Mr Morley, a previous employee of WMC Limited, held 250,000 stock appreciation rights at an allocation price of $5.02 per right which were due to lapse in October 2004. Mr Morley redeemed his rights for a total redemption value of $133,150. The average redemption value was $0.51 per right. In 2003 the cost of the SAP rights for Mr Morley was accrued and reported based on the Alumina Limited closing share price at 31 December 2003 of $6.57. The difference between the accrued amount reported in 2003 and the actual redemption value was $254,113.

F - 54

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

30. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

2003	Primary			Post-employment		Equity
Name	Cash salary and fees $	Cash bonus $	Non-monetary benefits $	Super- annuation $	Retirement benefits $	SAP/ Share Rights $	Total $
Total	1,484,460	551,200	49,854	63,595	—	671,755	2,820,864

Specified executives of the consolidated entity

2004	Primary			Post-employment		Equity
Name	Cash salary and fees $	Cash bonus $	Non-monetary benefits $	Super- annuation $	Retirement benefits $	Share Rights $	Total $
S C Foster	248,707	36,400	—	11,293	—	42,928	339,328
	248,707	36,400	—	11,293	—	42,928	339,328

Total remuneration of specified executives for the year ended 31 December 2003 is set out below. Information for individual specified executives is not shown as this is the first financial report prepared since the issue of AASB 1046 Director and Executive Disclosures by Disclosing Entities.

2003	Primary			Post-employment		Equity
Name	Cash salary and fees $	Cash bonus $	Non-monetary benefits $	Super- annuation $	Retirement benefits $	Share Rights $	Total $
Total	238,480	135,200	4,277	10,760	—	69,646	458,363

Service agreements

Remuneration and other terms of employment for the Chief Executive Officer, Chief Financial Officer and the Group Counsel and Company Secretary are formalised in service agreements. Each of these agreements provide for the provision of performance-related cash bonuses, other benefits including car parking. Other major provisions of the agreements relating to remuneration are set out below.

J Marlay, Chief Executive Officer

• Term of agreement – commenced 19 August 2002 to 19 August 2005.

• Base salary, inclusive of superannuation, for the year ended 31 December 2004 of $700,000, to be reviewed annually by the remuneration committee.

• If employment with the Company is terminated prior to 19 August 2005 for reasons other than for cause, a termination payment of the balance of the base salary component of the remaining contract term, or in accordance with the Alumina redundancy policy, whichever is greater, will be paid in full.

R D J Davies, Chief Financial Officer

• Term of agreement – commenced 1 December 2002.

• Base salary, inclusive of superannuation, for the year ending 31 December 2004 of $360,000, to be reviewed annually by the Remuneration Committee.

• If employment is terminated, benefits will be available in accordance with Alumina Limited’s redundancy policy. Contract can be terminated by either party by providing 3 months notice.

F - 55

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

30. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

S C Foster, Group Counsel and Company Secretary

• Term of agreement- commenced 6 November 2002.

• Base salary, inclusive of superannuation, for the year ended 31 December 2004 of $260,000.

• If employment is terminated, benefits will be available in accordance with Alumina Limited’s redundancy policy. Contract can be terminated by either party by providing 3 months notice.

Share-based compensation - options

Alumina Limited does not have any ongoing option plans available to non-executive directors, directors, executive and senior managers or staff. Some former WMC Limited employees who are continuing employment in or are otherwise engaged by Alumina Limited, including the Chairman Mr Morley, held options in Alumina Limited that were granted prior to the demerger of WMC Limited in December 2002. During the course of 2004, Mr Morley exercised all of his remaining options.

Stock appreciation plan

Prior to the demerger of WMC Limited, stock appreciation plans (SAPs) were established primarily for, but not restricted to, employees in countries outside Australia. The purpose of the SAPs was to provide such employees, who due to securities law constraints were not eligible to participate under the option plans, with benefits similar to those conferred by the option plans.

Employees were not required to pay any amount for the grant of the SAP Rights. Each has a notional allotment price, which is equal to the weighted average sale price of WMC Limited’s shares on the ASX on the trading day that the invitation to apply for the relevant SAP Right was made to the relevant employee (as adjusted as part of the demerger). Upon redemption of a SAP Right before its expiry by the holder, the holder is entitled to a payment equal to the difference between the closing price of WMC Limited (or, post-demerger Alumina Limited) shares on the ASX on the trading day immediately before redemption, and the allotment price (assuming the former amount is higher). Compensation cost is measured as the amount by which the quoted market value of the shares covered by the grant exceeds the allotment price.

Shareholdings

The numbers of shares in the company held during the financial year by each director of Alumina Limited and the specified executive of the consolidated entity, including their personally-related entities, are set out below.

Name	Balance at the start of the year	Received during the year on the exercise of shares	Other changes during the year	Balance at the end of the year
Directors of Alumina Limited Ordinary shares
D M Morley	314,028	100,000	3,304	417,332
P A F Hay	2,200	—	13,230	15,430
R J McNeilly	20,000	—	3,304	23,304
M R Rayner	20,000	—	6,467	26,467
J Marlay	84,500	—	—	84,500
R D J Davies	90,762	—	—	90,762
	531,490	100,000	26,305	657,795

Name	No held at 1 Jan 2004	No granted during the year as remuneration	No exercised during the year	No lapsed during the year	No held at 31 Dec 2004
D M Morley	270,000	—	270,000	—	—

Specified executives of the consolidated entity

Ordinary shares

S C Foster	26,500	—	—	26,500
	26,500	—	—	26,500

F - 56

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

30. DIRECTOR AND EXECUTIVE DISCLOSURES (continued)

Options and performance share rights holdings

The number of options and share performance rights over ordinary shares in the company held during the financial year by each director of Alumina Limited and the specified executive of the consolidated entity, including their personally related entities, is set out below:

Name	Type of equity-based instrument	Number of share rights or options held at 1 January 2004 (1)	Number granted during the year as remuneration (2)	Number vested during the year	Number lapsed during the year (3)	Number held at 31 December 2004	Vested and exercisable at the end of the year
J Marlay	Share Option	—	—	—	—	—	—
	Performance rights (LTI)	166,500	70,800	—	23,350	213,950	—
R D J Davies	Share Option	50,000	—	—	—	50,000	50,000
	Performance rights (LTI)	85,500	36,500	—	12,000	110,000	—
S C Foster	Share Option	—	—	—	—	—	—
	Performance rights (LTI)	62,000	26,300	—	8,700	79,600	—

(1) The number of share performance rights granted for 2004 (tested in December 2004), 2005 (tested in December 2005) and 2006 (tested in December 2006) but not yet vested. Share performance rights are only issued once vesting criteria are met.

(2) Share performance rights granted in 2004 for the 3 year performance test period concluding in December 2007.

(3) 2004 Share performance right conditions were not met and under the Employee Share Plan rules 50% of the entitlement lapsed with the remaining 50% to be re-tested in June 2005.

Loans to directors and executives

No loans were made to directors or specified executives of Alumina Limited, including their personally-related entities in 2004 and 2003.

Other transactions with directors and specified executives

Directors of Alumina Limited

A director Mr P A F Hay, is the Chief Executive Officer of Freehills. Freehills has provided legal services to Alumina Limited and a number of Alumina Limited controlled entities for several years on normal commercial terms and conditions. The total of those services for 2004 amounts to $3,279 (2003: $106,149).

Mr J Meck and Ms A E Seneshen are shareholders in a US based law firm Welborn Sullivan Meck & Tooley, P.C and are directors of a number of Alumina Limited’s controlled entities. Welborn Sullivan Meck & Tooley, P.C has provided legal services for several years on normal commercial terms and conditions. The total of those services for 2004 amounts to $8,674 (2003: $14,031).

Aggregate amounts of each of the above types of other transactions with directors of Alumina Limited:

	2004 $	2003 $
Amounts recognized as expense
Legal fees	11,953	120,180

F - 57

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

31. EMPLOYEE BENEFITS

		As at 31 December
	Notes	2004 A$m	2003 A$m
Employee Benefits and related on-costs liabilities
Current - provision for annual leave	18	0.1	0.1
Non current - provision for long service leave	20	0.2	0.2
Aggregate employee benefit and related on-costs liabilities		0.3	0.3
Employee Numbers
Number of employees at end of financial year		8	8

Employee Share Scheme

A scheme under which employees may be invited to participate in issue of shares. The Board’s intention is to make offers to every employee, but this is subject to annual determination by the Board in respect of each individual for each grant. The CEO of the Company may recommend variation in participation.

A person is only eligible to apply for participation in the Plan and to acquire shares under the Plan if they are an employee, and have satisfied the criteria that the Board decides for participation in the Plan.

The timing of the offer will broadly be from 1 January each year, subject to minor variations for administration and convenience. Generally, each offer has a three year performance period, with performance tested at the end of this period. 50% of the shares not vested at the three year performance test can be re-tested six months after the end of the three year performance period. The performance testing is carried out by an independent party and is based on the Relative TSR of Alumina Limited, compared to two specific comparator groups.

An invitation is not transferable and, unless the Board determines otherwise, an employee may only apply for shares in his or her name and not in the name of, or on behalf of, another person or entity.

On termination of employment of any individual, there will need to be a finalization of their participation in the Plan. Vested shares should be released with unvested shares, generally lapsing.

	As at 31 December
	2004 Number	2003 Number
Shares issued under the Plan to participating employees on 11 February 2003	—	91,300

F - 58

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

32. REMUNERATION OF AUDITORS

	A$ thousands
	Year to 31 Dec 2004	Year to 31 Dec 2003
(a)    Remuneration for audit or review of the parent entity or any entity in the consolidated entity:
Auditors of parent entity – PricewaterhouseCoopers
Audit Fees for annual audit	252	269
Additional 2002 costs incurred in 2003	—	147
Additional 2003 costs incurred in 2004	2	—
	254	416
(b)    Remuneration for other assurance services:
Annual report on US Form 20-F	112	93
Additional 2002 costs incurred in 2003	—	100
Advice on accounting standards	30	—
Other	5	—
	147	193
(c)    Remuneration for taxation services:
Australian tax services	—	—
Overseas tax services	174	205
	174	205
Total	575	814

It is the consolidated entity’s policy only to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’ expertise and experience with the consolidated entity are important or where PricewaterhouseCoopers is awarded assignments on a competitive basis.

F - 59

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

33. DISCONTINUED OPERATIONS

(a) Gold business unit

In the first quarter of 2001, the company decided to focus on its core portfolio of large low cost businesses of nickel, alumina, copper/uranium and fertilizer businesses. As a result, the company began a strategic evaluation of its options for the gold business. The plan was finalized on 19 September 2001 when a final decision was made to sell the gold business unit in its entirety, including St Ives and Agnew Gold operations, the 50.48% stake in Central Norseman Gold Corporation Limited and the 56% interest in the Meliadine West Joint Venture (“Meliadine”).

The Group disposed of its gold operations in 2001 except for its 50.48% controlling interest in Central Norseman Gold Corporation Limited (‘CNGC’) and Meliadine. The sale of CNGC was completed in January 2002 (refer to Note 4). The group’s interest in Meliadine was sold to WMC Resources Ltd as part of the demerger (refer to Note 34(b)).

The company’s rights to a royalty from the sale of the St Ives and Agnew Gold operations, was sold in June 2002 (refer to Note 4).

(b) Minerals business

Following approval by the shareholders at the Scheme Meeting held on 29 November 2002, Alumina Limited demerged its interest in the Alcoa World Alumina and Chemicals Venture (“AWAC”) from its other interests on 2 December 2002. As a result of the demerger, Alumina Limited continues to hold its interest in AWAC (and changed its name to Alumina Limited). WMC Resources Ltd, which prior to the demerger was a wholly owned subsidiary of Alumina Limited, holds the nickel, copper/uranium and fertilizer businesses and exploration and development interests previously held within the Alumina Limited Group. Alumina Limited distributed to its shareholders all of its interest in WMC Resources Ltd through a scheme of arrangement and capital reduction and dividend.

Prior to effecting the demerger, through a series of transactions internal to the WMC Limited Group, WMC Resources Ltd acquired Alumina Limited’s shares in the legal entities which held the copper/uranium and fertilizer businesses, WMC Finance Limited, WMC Finance (USA) Limited as well as Alumina Limited’s exploration and development interests (including Meliadine) other than those relating to AWAC. These acquisitions were made at fair value in return for shares in WMC Resources Ltd. To consummate the demerger, Alumina Limited effected a capital reduction and dividend to its shareholders in an amount equivalent to the value of WMC Resources Ltd after the internal transfers were completed. The entitlement of Alumina Limited’s shareholders to the capital reduction and dividend was ultimately satisfied in the demerger through the distribution to Alumina Limited’s shareholders of shares in WMC Resources Ltd on a one-for-one basis.

F - 60

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

33. DISCONTINUED OPERATIONS (continued)

(b) Minerals business (continued)

Financial information relating to the discontinuing operations for the period to the date of disposal is set out below.

	Year ended 31 December 2002 A$m
	Copper/ uranium		Nickel		Fertilizer		Finance		Exploration		Other		Total
Financial performance information for the 11 months ended 30 November 2002
Revenues	682.9		1,206.3		401.9		90.0		0.3		126.8		2,508.2
Expenses	(699.4	)	(1,007.2	)	(452.0	)	(72.8	)	(26.4	)	(309.9	)	(2,567.7	)
Profit/(loss) from ordinary activities before income tax	(16.5	)	199.1		(50.1	)	17.2		(26.1	)	(183.1	)	(59.5	)
Income tax benefit/(expense)	7.9		(58.3	)	16.4		8.0		3.7		46.6		24.3
Net profit/(loss)	(8.6	)	140.8		(33.7	)	25.2		(22.4	)	(136.5	)	(35.2	)
Carrying amount of assets and liabilities as at 30 November 2002
Total assets	2,819.1		1,744.0		1,127.8		1,727.1		236.2		351.2		8,005.4
Total liabilities	454.3		365.5		80.8		3,420.9		5.2		(328.8	)	3,997.9
Cash flow information for the 11 months ended 30 November 2002
Net cash flow attributable to:
Operating activities													330.0
Investing activities													(405.1	)
Financing activities													(87.4	)
Total													(162.5	)

F - 61

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

34. RECONCILIATION TO US GAAP

The accounting policies and accounting standards under which the consolidated financial statements of the Group are prepared are in accordance with Australian GAAP. The major differences between Australian GAAP and US GAAP are summarized and reconciled below.

A. GAAP differences relating to businesses spun-off as part of WMC Resources Ltd

The following differences between Australian and US GAAP relate to the nickel, copper-uranium and fertilizer businesses, WMC Finance Limited, WMC Finance (USA) Limited as well as WMC Limited’s exploration and development interests other than those relating to Alcoa World Alumina and Chemicals (AWAC). As these entities have now been spun-off from Alumina Limited as part of the demerger, the following US GAAP adjustments have been reflected for the period during which the businesses were owned by Alumina Limited.

(a) Research and development

Expenditure incurred on research and development may be capitalized and deferred in Australia to the extent that such expenditure is expected to be recoverable. Under US GAAP, all such expenditure is expensed as incurred. In addition, payments for research and development are included in cash flows from operating activities for US GAAP, while for Australian GAAP, they are investing activities.

(b) Pension funds

The applicable Australian accounting standard relates only to disclosure. The accepted practice is to account for Company contributions on a cash rather than an accruals basis. The Company does not account for excesses or shortfalls of the Superannuation Fund assets over accrued membership benefits. As this is contrary to US GAAP, the Group has adopted the recognition provisions of FAS 87 “Employers Accounting for Pensions”, for US GAAP reconciliation purposes. Note 28 should be referred to for an explanation of the effect on the financial statements, including disclosures in accordance with FAS 132 “Employers Disclosures about Pensions and Other Post retirement Benefits”. WMC Limited did not sponsor post retirement defined-benefits other than pensions. There are no defined benefit superannuation plans relating to Alumina Limited, as these funds were transferred to WMC Resources Ltd. This liability formed part of the net assets of WMC Resources Ltd spun off as part of the demerger. There is no shortfall in superannuation funds for Alumina Limited to recognize a liability for on an ongoing basis.

(c) Exploration and evaluation expenditure

Expenditure incurred on the exploration and evaluation of minerals properties may be capitalized and deferred in Australia provided that such expenditure meets the criteria disclosed in Note 1(v). Under US GAAP geological and geophysical costs and costs of carrying and retaining undeveloped properties are charged to expense as incurred. Consequently any such costs incurred and capitalized in Australia as exploration and evaluation are expensed as incurred under US GAAP.

In 2001 capitalized exploration and expenditures included $27.1 million for the acquisition of a prospective nickel property resulting from the acquisition of Yakabindie Nickel Pty. Limited. Under both Australian GAAP and US GAAP the cost of purchasing unproven property is capitalized when incurred, and either transferred to proved properties when proven or written off as impaired. Accordingly, this expenditure has not been included as a reconciling item. In 2002, prior to demerger, a $123.8 million first tranche payment for the acquisition of the Corridor Sands titanium dioxide project has been capitalized, and was subsequently sold as part of the demerger. Accordingly, this expenditure has not been included as a reconciling item.

(d) Start up costs

Under Statement of Position 98-5, “Reporting on the Costs of start-up activities”, the costs of start-up activities including organizational costs, are required to be expensed as incurred. Under Australian GAAP start up costs are capitalized and deferred as part of the mineral extraction or processing facilities being developed or constructed. These deferred costs are then amortized from the start of production over the life of the facilities concerned.

(e) Option payment capitalized

An option payment for the right to participate in the Corridor Sands bankable feasibility study and earn an interest in any resultant development has been deferred and amortized over the period during which the study is undertaken. Under US GAAP the payment has been expensed when incurred.

F - 62

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

34. RECONCILIATION TO US GAAP (continued)

(f) The right to Royalties received from the sale of gold operations not recognized

The right to royalties received in consideration for the gold mines sold during 2001 has been recognized at fair value under Australian GAAP and included in the determination of the gain on disposal. Under US GAAP, since the royalty received had not been realized at 31 December 2001, WMC retained an amount of the carrying value of the mines on the balance sheet at 31 December 2001 in the proportion that the value of the right to the royalties bears to the total value of the consideration received. The increase in net income for US GAAP represents the difference in carrying value when the royalty was sold during the year ended 31 December 2002.

(g) Fair value accounting for derivatives

Following the demerger, Alumina Limited no longer holds any derivative instruments. The disclosures below relate to the first 11 months of 2002 prior to demerger, and to prior years.

Adoption of FAS 133

The Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by Statement of Financial Accounting Standards No. 137, “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB Statement No. 133”, an amendment of FASB Statement No. 133, and Statement of Financial Accounting Standards No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, an amendment of FASB Statement No. 133 (referred to hereafter as “FAS 133”), on 1 January 2001. In accordance with the transition provisions of FAS 133, the Company recorded the following net-of-tax cumulative effect adjustments in earnings as of 1 January 2001:

	A$m
Related to previously designated fair value hedging relationships:
Fair value of hedging instruments	36.0
Offsetting changes in fair value of hedged items	(36.0	)
Total adjustment net of tax	—

Accounting for Derivatives and Hedging Activities

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value, cash flow, or foreign-currency hedges to (1) specific assets and liabilities on the balance sheet or (2) specific firm commitments or forecasted transactions. The Company also formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively, as discussed below.

The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) it is probable that the forecasted transaction will not occur; (3) a hedged firm commitment no longer meets the definition of a firm commitment; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate.

F - 63

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

34. RECONCILIATION TO US GAAP (continued)

(g) Fair value accounting for derivatives (continued)

Fair-Value Hedges

The Company uses interest rate swaps to convert a portion of its non pre payable fixed-rate debt into variable-rate debt. Under the interest rate swap contracts, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts, which is calculated based on an agreed-upon notional amount.

Cash Flow Hedges

The Company’s sales are denominated in the United States dollars. The Company enters into foreign-exchange options and forward-exchange contracts as hedges of anticipated sales denominated in foreign currencies. The Company enters into these contracts to protect itself against the risk that the eventual dollar-net-cash inflows resulting from direct-foreign-export sales will be adversely affected by changes in exchange rates.

For US GAAP, for the year ended December 31, 2002 the company recognized a net gain of $0.2 million up to the date of demerger, representing the change in time value on certain of the company’s forward contracts that had been excluded from the assessment of hedge effectiveness. A further net loss of $6.2 million was recorded for the ineffective portion of certain options designated as cash flow hedges.

The revaluation of foreign currency debt which is not treated as a hedge for accounting purposes under US GAAP resulted in a net gain after tax of $87.5 million.

The total of the adjustments referred to in the preceding two paragraphs on a pre-tax basis was $146.5 million.

Subsequent gains and losses on cash flow hedges are taken to other comprehensive income and are reclassified to profit and loss in the same period the hedged transaction is recognized. Gains and losses on fair value hedges continue to be taken to profit and loss in subsequent periods, as offsetting gains and losses on hedged liabilities. In both cases, these gains and losses are not recognized under Australian GAAP until the hedged transaction is recognized.

FAS 133 requires that any component of the gain or loss which is deemed to be ineffective be taken to the Income Statement immediately. For Australian GAAP any ineffectiveness is recognized over the term of the derivative.

(h) Accounting change – Depreciation and Amortization

Effective January 1, 2002 the company changed its methodology for the determination of amortization of mine development assets (including post production waste removal costs) under US GAAP. Prior to January 1, 2002 the company amortized mining development on a composite basis. Total historical capitalized costs and estimated future development costs relating to its developed and undeveloped reserves were depreciated using the units-of-production method based on total developed and undeveloped proven and probable reserves.

After considering the inherent uncertainties and subjectivity relating to the long time frame over which these estimated costs would be incurred, management decided to revise its amortization methodology prospectively. Effective January 1, 2002 depreciation for mine development assets (including post-production waste removal costs) excludes consideration of future development costs. Refer to Note 34(j) for details of the new policy for amortization of mine development and Note 34(j) for amortization of post-production waste removal costs. The cumulative effect recorded on January 1, 2002 of changing to the new accounting policy was A$39.5 million (post-tax).

F - 64

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

34. RECONCILIATION TO US GAAP (continued)

(i) Amortization of mine development and deferred post-production waste removal costs

For US GAAP purposes, amortization of the deferred costs of mine development is calculated on a units-of-production basis over the proven and probable reserves which relate to the particular category of development, either “life of mine plan” or “fully developed area”. No future development costs are taken into account in calculating the amortization charge. The life of mine waste-to-metal stripping ratio used for this purpose in 2002 was 691 for Mt Keith, and 570 for Harmony. Stripping expenditure, which for Australian GAAP purposes is shown as an investing cash flow, is considered an operating cash flow for US GAAP.

Life of mine plan development comprises capital expenditures that will be utilized in the extraction of all the proven and probable ore reserves in the current detailed mine plan. These expenditures are predominantly incurred up-front and in advance of any ore extraction or during major expansions. The types of development included in this category are ore haulage shafts, initial decline, ore passes and chutes and underground ore crusher cavities and are intended to be used for the extraction of all ore within the current mine plan. These costs are amortized on a units-of-production basis over the total proven and probable reserves in the current mine plan.

Fully developed area development comprises capital expenditure to provide access to various areas within the mine to allow the extraction of ore to commence. The types of development included within this category are: access and perimeter drives, ventilation drives and rises, and progressive declining subsequent to initial contact with the ore body. These costs are amortized on a units-of-production basis over the proven and probable reserves that can be currently accessed without future capital development costs being incurred.

(j) Post–production waste removal costs

Under Australian GAAP, expenditure incurred on post-production waste removal (stripping) is accumulated and deferred on the balance sheet as part of Mine properties and mine development. For US GAAP, these deferred production costs are classified in the balance sheet as other non-current assets. Amortization of post-production waste removal costs is included in cost of goods sold in the income statement. The US GAAP movements and closing balances of post-production waste removal costs are as follows:

	2002 A$m
Opening balance	161.5
Cumulative effect adjustment	(38.1	)
Costs capitalized	98.3
Amortization charge	(73.3	)
Disposed of at demerger	(148.4	)
Closing balance	—

For US GAAP, the amortization of deferred post-production waste removal costs is determined by applying a life-of-mine waste-to-metal stripping ratio. The stripping ratio is calculated by comparing the recoverable metal included in the proven and probable reserves to be extracted over the life of the mine to the total volume of waste to be extracted over the same period. This ratio is then applied to the production of metal for the period to determine the amortization charge. The full amount of post-production waste removal costs incurred will not be expensed until the end of the mine life. Based on the current mine plans, the deferred stripping asset would be expected to be extinguished during 2018 for Mount Keith and 2004 for the Harmony Mine at Leinster.

The accounting for stripping costs smoothes the cost of waste-rock removal over the life of the mine rather than expensing the actual waste removal cost incurred in each period. As evidenced by the table above, the deferred stripping accounting resulted in a decrease to production costs as compared to actual costs incurred for each period presented.

There is mixed accounting practice in this area and that some mining companies expense waste removal costs as incurred, which policy, if followed, may result in the reporting of greater volatility in period to period results of operations.

Stripping expenditure, which for Australian GAAP purposes is shown as an investing cash flow, is considered an operating cash flow for US GAAP.

As waste removal activities are an integral part of the mining operation, the deferred stripping asset is grouped with the other assets at the mine site or other level which represents the lowest level of separately identifiable cash flows in order to assess recoverable amount.

F - 65

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

34. RECONCILIATION TO US GAAP (continued)

B. GAAP differences relating to demerger transactions

Prior to effecting the demerger, through a series of transactions internal to the WMC Limited Group, WMC Resources Ltd acquired WMC Limited’s shares in the legal entities that held its copper-uranium and fertilizer businesses, WMC Finance Limited, WMC Finance (USA) Limited as well as WMC Limited’s exploration and development interests other than those relating to Alcoa World Alumina and Chemicals (AWAC). Under Australian GAAP, these acquisitions were made at the fair value of the net assets acquired, in return for shares in WMC Resources Ltd. Under US GAAP, these acquisitions are accounted for in accordance with “Financial Accounting Standard No 141 “Business Combinations”, as transfers of net assets and exchanges of shares between entities under common control, which requires that all such transactions are recorded at the historic carrying amounts.

Consequently, the carrying value of WMC Resources Ltd immediately prior to demerger differs from US GAAP due to the different basis of accounting as well as the other US GAAP differences. Under Australian GAAP, the loss on the spin-off of WMC Resources from Alumina Limited was taken directly to equity. Under US GAAP, this is taken through equity as a dividend distribution from WMC Resources Ltd on demerger.

C. Other GAAP differences relating to the continuing Alumina Limited business

(k) Associates

The major associated companies accounted for using the equity method of accounting are those entities forming Alcoa World Alumina and Chemicals (AWAC) which prepares its financial statements in U.S. dollars in accordance with US GAAP. However, one of those entities is an Australian based company which Alumina accounts for using as a basis its Australian domestic financial statements. The net income and shareholders’ equity concerned have been adjusted to conform to US GAAP.

Effective 1 January 2002, Alumina adopted APB 18, “The Equity Method of Accounting for Investments in Common Stock” for existing goodwill assets. This resulted in a cumulative adjustment.

The principal differences between Australian GAAP and US GAAP that affect Alumina’s net income for associates, as well as its shareholders equity, either directly or through its share of associates on a continuing basis relate to the treatment of the following items:

• inventory valuation;

• compensation expense of employee share plans;

• fair value of accounting for derivatives;

• goodwill amortisation;

• pension liabilities.

Under Australian GAAP, in 2003, the Company adopted AASB 1028 “Accounting for Employee Entitlements”. AASB 1028 requires the Company to recognize a liability in the current period for the expected benefits to be paid to employees in the future. In the case of Alumina’s Investment in AWAC (equity method), certain employee’s within AWAC have stock options of another entity. In accordance with the management agreement between Alumina and the other entity, any stock options of the other entity that are exercised while the employee is employed by AWAC are treated as a management fee to AWAC for the difference between market price and exercise price. Alumina has recorded its share of the current liability associated with these options. The recognition of this liability creates an expense and a reduction of the investment in AWAC in the current period for Alumina. At each balance sheet date Alumina recognizes the current liability for the difference between the exercise price and current market price of the options. Under US GAAP, no liability is recognized prior to exercising of the options and the management charge for these options is recorded only when the employee exercises the option and a management charge is passed down to AWAC from the other entity.

(l) Compensation expense of employee share plans

Under US GAAP, the Share Plan disclosed under Note 20 which until April 1995 offered partly paid shares to Senior Officers is considered to be a compensatory plan. As such, compensation expense is required to be charged to income based on the difference between the issue price of the shares and the market price at the date of measurement. This calculation excludes the value of share options which under APB25 are non compensatory, except prospectively from I July 2000 if the status of the employees concerned or the terms of the award change.

F - 66

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

34. RECONCILIATION TO US GAAP (continued)

(m) Cash flow

Under US GAAP bank overdrafts are not considered to be part of the net cash equivalents and so changes in bank overdrafts (net) are included in cash flows from financing activities. Other differences in the US GAAP statement of cashflows relate to those items capitalized under A GAAP that would be expensed under US GAAP and would be included in the US GAAP cashflow from operating activities.

(n) Income tax

Under Australian GAAP, deferred taxes are provided for using the liability method on a similar basis to FAS 109, therefore there has been no adjustment to the method by which income taxes have been calculated. Under US GAAP, the recognition and carry forward of future income tax benefits differs from Australian GAAP in the following areas:

• Tax assets and liabilities relating to temporary (timing) differences are all classed as non-current under Australian GAAP. Under US GAAP the future income tax benefits and liabilities would be required to be allocated in the balance sheet between current and non-current items. This allocation would not have a significant effect. Refer also to Note 5.

• Tax assets relating to tax losses are not brought to account under Australian GAAP unless their ultimate realization is virtually certain. Under US GAAP, tax assets relating to tax losses are all brought to account and a valuation allowance raised against the asset if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

(o) Stock Options

Alumina Limited accounts for the Option Scheme as a non-compensatory plan for purposes of US GAAP in accordance with Accounting Principles Board Opinion No. 25, under which no compensation expense has been recognized for share options because the exercise price equals the market price on the date of the grant.

The SAP scheme is accounted for as a variable plan in accordance with APB 25, under which a compensation charge is recognized for the difference between exercise price and market value at each balance sheet date.

Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Group had accounted for its employee stock options under the fair value method of SFAS 123. No options were granted in 2004 and 2003, the weighted average fair value of options granted during the year ended December 2002 was A$ 4.33 per option. The fair value for these options was estimated as at the date of the grants using a Black-Scholes Option Valuation model with the weighted average assumptions as set out below. For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense on a straight line basis over the options’ vesting period.

	Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m		Year to 31 Dec 2002 A$m
The Group’s pro forma information is as follows :
Net Income
As reported US GAAP	331.7		248.2		306.7
Pro forma	331.7		248.2		305.3
Basic earnings per share
As reported US GAAP	0.29		0.22		0.28
Pro forma	0.29		0.22		0.28
Earnings per share on a diluted basis
As reported US GAAP	0.28		0.22		0.27
Pro forma	0.28		0.22		0.27
Assumptions :
Risk free interest rates	5.45	%	4.75	%	4.66	%
Dividend yield	3.37	%	4.06	%	4.00	%
Volatility	29.78	%	29.78	%	29.78	%
Expected life in years	1.69		2.37		3.16

F - 67

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

34. RECONCILIATION TO US GAAP (continued)

(p) Goodwill

Included in the Australian GAAP equity accounted carrying amount at which the equity investment in AWAC is recorded, are amounts for goodwill of A$136.5 million (2003: A$175.0 million) which are being amortized over periods out to 2014. Effective 1 January 2002, Alumina adopted APB 18, “The Equity Method of Accounting for Investments in Common Stock” for existing goodwill assets. This standard eliminates the amortization of goodwill and intangible assets with indefinite useful lives and requires annual testing for impairment. This standard requires the assignment of assets acquired and liabilities assumed, including goodwill, to reporting units for purposes of goodwill impairment testing.

	Year to 31 Dec 2004	Year to 31 Dec 2003	Year to 31 Dec 2002
The Group’s pro forma information is as follows :
Net Income in accordance with US GAAP before cumulative effect of change in accounting principle	331.7	237.1	303.0
Cumulative effect of adopting new policy for asset retirement obligations FAS143	—	11.1	—
Cumulative effect gain write off of negative goodwill	—	—	3.7
Adjusted net income	331.7	248.2	306.7
Basic earnings per share:
Net income	0.29	0.21	0.28
Cumulative effect of adopting new policy for asset retirement obligations FAS143	—	0.01	—
Adjusted basic earnings per share	0.29	0.22	0.28
Dilutive Earnings per share:
Net income	0.28	0.21	0.27
Cumulative effect of adopting new policy for asset retirement obligations FAS143	—	0.01	—
Adjusted diluted earnings per share	0.28	0.22	0.27

(q) Sale of Specialty Chemical Assets

Under Australian GAAP, A$21.8 million of goodwill in relation to these assets was previously amortized through the income statement. Under US GAAP, goodwill is not amortized. On disposal this resulted in a greater net asset figure being disposed of in relation to the Chemical assets resulting in a lower profit being recognized under US GAAP.

Under Australian GAAP, A$4.3 million was transferred to retained earnings from the foreign currency translation reserve. Under US GAAP, this treatment is not allowed and the cumulative translation reserve is required to be recycled through the income statement. On disposal this resulted in a greater net asset figure resulting in a lower profit being recognized under US GAAP.

F - 68

ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

34. RECONCILIATION TO US GAAP (continued)

INCOME AND COMPREHENSIVE INCOME STATEMENT – US GAAP RECONCILIATION

	Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m		Year to 31 Dec 2002 A$m
Net income attributable to members of the holding company as reported under Australian GAAP	322.1		236.9		174.5
Adjustments required to conform with US GAAP:
A      GAAP differences relating to businesses spun-off as part of WMC Resources Ltd
- Research and development costs expensed immediately under US GAAP but deferred and subsequently expensed under Australian GAAP (a)	—		—		0.1
- Pension funds (b)	—		—		0.5
- Exploration expenditure capitalized (c)	—		—		5.4
- Start up costs – amortization written back (d)	—		—		6.5
- Option payment capitalized – amortization written back (e)	—		—		11.4
- Royalty received from the sale of gold operations (f)	—		—		13.6
- Fair value of accounting for derivatives (g)	—		—		146.5
-Amortization of mine development and post-production waste removal cost (i),(j)	—		—		(4.2	)
C      Other reconciling items relating to the continuing Alumina Limited business
- Equity in US GAAP adjustments of associates (net of tax) (k)	19.5		(18.2	)	17.0
- Compensation credit/(expense) of employee share plan (l)	—		—		(0.1	)
- Amortization of goodwill written back (p)	16.2		17.7		17.7
- Impact of adopting new policy for asset retirement obligations FAS143	—		(11.1	)	—
- Impact of adopting new policy for Associate’s employee stock options*	—		11.8		—
- Sale of Specialty Chemical Assets (q)	(26.1	)	—		—
- Income tax effect of above adjustments (excluding tax of associates)	—		—		(46.4	)
Total adjustments	9.6		0.2		168.0
Net income in accordance with US GAAP before cumulative effect of change in accounting principle	331.7		237.1		342.5
Cumulative effect on adoption of new policy for amortization of mine development and post-production waste removal costs (post-tax)-discontinued operations (h)	—		—		(39.5	)
Cumulative effect gain write off of negative goodwill-continuing operations (k)	—		—		3.7
Cumulative effect of adopting new policy for asset retirement obligations FAS143**	—		11.1		—
Net income in accordance with US GAAP	331.7		248.2		306.7
This is represented by :
Net income from continuing operations	331.7		237.1		244.3
Net income from discontinued operations	—		—		98.2
Cumulative effect of change in accounting policies	—		11.1		(35.8	)

* Alumina has taken account of stock options in the equity accounting of its investment in AWAC. The accounting policy is described in Note 1(n)(iii) with USGAAP discussion in Note 34 (k).

** Alumina has taken account of FAS143 in the equity accounting of its investment in AWAC. The accounting policy is described in Note 1(w).

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Notes to the Consolidated Financial Statements

34. RECONCILIATION TO US GAAP (continued)

INCOME AND COMPREHENSIVE INCOME STATEMENT – US GAAP RECONCILIATION (continued)

	Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m	Year to 31 Dec 2002 A$m
Comprehensive Income
Net income in accordance with US GAAP as reported	331.7		248.2	306.7
Other comprehensive income as reported	—		—	35.4
FAS 133 adjustment for current year	—		—	190.7
FX Translation	2.2		13.7	—
Equity share of other comprehensive income of associates	(16.8	)	36.7	69.0
Comprehensive income in accordance with US GAAP	317.1		298.6	601.8

Accumulated other comprehensive income reconciliation

2004	Opening Balance		2004 movement		Closing balance
Equity Accounting	(0.8	)	(16.8	)	(17.6	)
FX translation	65.5		2.2		67.7
	64.7		(14.6	)	50.1
2003	Opening Balance		2003 movement		Closing balance
Equity Accounting	(37.5	)	36.7		(0.8	)
FX translation	51.8		13.7		65.5
	14.3		50.4		64.7

2002	Opening Balance		2002 movement	Transfer to Retained earnings on demerger		Closing Balance
FAS 133	(828.3	)	190.7	637.6		—
Equity Accounting	(106.5	)	69.0	—		(37.5	)
FX translation	79.1		6.0	(33.3	)	51.8
Other	(35.4	)	35.4	—		—
	(891.1	)	301.1	604.3		14.3

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Notes to the Consolidated Financial Statements

34. RECONCILIATION TO US GAAP (continued)

	As at 31 December
	2004 A$m		2003 A$m
SHAREHOLDERS’ EQUITY – US GAAP RECONCILIATION
Shareholders’ equity as reported	1,430.0		1,323.8
C        Other reconciling items relating to the continuing Alumina Limited business
Adjustments required to conform with US GAAP:
- Equity in earnings and reserves of associates (net of tax) (k)	49.5		46.8
- Amortization of goodwill written back (p)	29.8		35.4
Alumina Limited shareholders’ equity according to US GAAP	1,509.3		1,406.0
ROLL FORWARD ANALYSIS OF SHAREHOLDERS EQUITY UNDER US GAAP:
Opening Alumina Limited shareholders’ equity according to US GAAP	1,406.0		1,202.4
Net income in accordance with US GAAP	331.7		248.2
Other comprehensive income	(14.6	)	50.4
Dividends	(233.1	)	(259.6	)
Options exercised and then converted	19.3		56.2
Shares issued to acquire QBE’s 0.75% share of Alcoa of Australia	—		108.4
Closing Alumina Limited shareholders’ equity according to US GAAP	1,509.3		1,406.0

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ALUMINA LIMITED AND CONTROLLED ENTITIES

Notes to the Consolidated Financial Statements

34. RECONCILIATION TO US GAAP (continued)

	Year to 31 Dec 2004 A$m		Year to 31 Dec 2003 A$m		Year to 31 Dec 2002 A$m
STATEMENT OF CASH FLOWS - US GAAP RECONCILIATION(m)
Cash flows from operating activities as reported - AGAAP	148.5		268.5		602.6
Deferred stripping expenditure reclassified from investing	—		—		(92.7	)
Net cash provided by operating activities - US GAAP	148.5		268.5		509.9
Cash flows from investing activities as reported - AGAAP	73.4		(0.3	)	(478.0	)
Reclassification of deferred stripping expenditure	—		—		92.7
Net cash provided/(used in) investing activities - US GAAP	73.4		(0.3	)	(385.3	)
Cash flows from financing activities as reported - AGAAP	(268.4	)	(124.2	)	(310.7	)
Changes in bank overdrafts (net)	—		—		(0.2	)
Net cash used in financing activities – US GAAP	(268.4	)	(124.2	)	(310.9	)
Net (decrease)/increase in cash and cash equivalents	(46.5	)	144.0		(186.3	)
Cash and cash equivalents at the beginning of the year	165.3		23.2		214.4
Effects of exchange rate changes on opening foreign currency cash balances and on cash flows during the period	(0.9	)	(1.9	)	(4.9	)
Cash and cash equivalents at the end of the financial year	117.9		165.3		23.2

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Notes to the Consolidated Financial Statements

35. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

The Financial Accounting Standards Board has issued certain Statements of Financial Accounting Standards which are not effective with respect to the fiscal years presented in the consolidated financial statements.

On December 15, 2004, the Financial Accounting Standards Board released its final revised standard entitled FASB Statement No. 123R, Share-Based Payment (FAS 123R). This standard requires that companies measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. The effective date is the first interim reporting period beginning after June 15, 2005. Alumina Limited will be required to recognize an expense for all share based remuneration, including performance rights, and amortize those expenses over the relevant vesting periods. Alumina Limited is currently assessing the impact of applying this standard.

On November 24, 2004, the Financial Accounting Standards Board issued Statement No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (FAS 151). The standard adopts the IASB view related to inventories that abnormal amounts of idle capacity and spoilage costs should be excluded from the cost of inventory and expensed when incurred. Additionally, the Board made the decision to clarify the meaning of the term ‘normal capacity’. The provisions of FAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15, 2005. This standard has no impact on Alumina Limited.

In December 2004, the FASB issued FAS No. 153, Exchanges of Nonmonetary Assets- An amendment of APB No. 29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement shall be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.

36. EVENTS SUBSEQUENT TO BALANCE DATE

On 4 January 2005, Alumina Limited paid the second tranche, amounting to US$6.6 million, in relation to the 40% interest in the Juruti bauxite deposit acquisition.

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Notes to the Consolidated Financial Statements

37. (Schedule II)

ALUMINA LIMITED

VALUATION AND QUALIFYING ACCOUNTS

(A$m)

Description	Balance at beginning of year	Additions charged to costs and Expenses		Transferred to WMC Resources on demerger		Deductions	Balance at end of year
	Year ended 31 December, 2004
Future income tax benefit valuation allowance	356.7	13.8	(a)	—		—	370.5
Provision for doubtful debts	—	—		—		—	—
Provision for obsolescence and loss	—	—		—		—	—
Provision for diminution in value of investment	—	—		—		—	—
	356.7	13.8		—		—	370.5
	Year ended 31 December, 2003
Future income tax benefit valuation allowance	340.7	16.0	(a)	—		—	356.7
Provision for doubtful debts	—	—		—		—	—
Provision for obsolescence and loss	—	—		—		—	—
Provision for diminution in value of investment	—	—		—		—	—
	340.7	16.0		—		—	356.7
	Year ended 31 December, 2002
Future income tax benefit valuation allowance	262.2	78.5	(a)	—		—	340.7
Provision for doubtful debts	7.4	—		(7.4	)	—	—
Provision for obsolescence and loss	13.7	—		(13.7	)	—	—
Provision for diminution in value of investment	4.5	—		(4.5	)	—	—
	287.8	78.5		(25.6	)	—	340.7

^(a) Charged/(Credited) to income tax expense.

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Alcoa World Alumina and Chemicals

Combined Balance Sheets

December 31, 2004 and 2003

(in millions)

	2004		2003
Assets
Current assets
Cash and cash equivalents (A and M)	$	226.5	$	98.3
Receivables from customers, less allowances of $ 0.1 in 2004 and 2003 (I)		457.4		325.9
Inventories (A and E)		365.5		323.1
Prepaid expenses and other current assets		121.2		111.9
Total current assets		1,170.6		859.2
Properties, plants and equipment (A and F)		2,509.8		2,322.5
Investments (A, B and O)		165.8		138.3
Other noncurrent assets and deferred charges (A and G)		526.1		466.1
Assets held for sale (C)		—		237.0
Total assets	$	4,372.3	$	4,023.1
Liabilities
Current liabilities
Short-term borrowings (A, H, I and M)	$	106.2	$	115.4
Accounts payable, trade (A, H and I)		443.1		352.2
Accrued compensation and retirement costs		106.6		112.6
Taxes, including taxes on income (L)		131.4		43.7
Deferred income taxes (L)		87.6		97.8
Other current liabilities		59.7		45.5
Total current liabilities		934.6		767.2
Long-term debt (A and M)		12.2		7.2
Accrued postretirement benefits (K)		64.4		63.4
Deferred alumina sales revenue (A)		174.1		187.4
Other noncurrent liabilities and deferred charges		144.4		159.8
Deferred income taxes (L)		222.6		256.1
Liabilities of operations held for sale (C)		—		40.7
Total liabilities		1,552.3		1,481.8
Minority interests		—		7.8
Contingencies and commitments (O)
Members’ equity (Q)
Enterprise capital		2.820.0		2,533.5
Total liabilities and members’ equity	$	4,372.3	$	4,023.1

The accompanying notes are an integral part of the combined financial statements.

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Combined Statements of Income, Comprehensive Income and Members’ Equity

Years Ended December 31, 2004 and 2003

(in millions)

	2004			2003
Revenues (A)
Sales	$	2,435.6		$	2,424.8
Sales to related parties (I)		1,396.4			895.8
		3,832.0			3,320.6
Costs and expenses
Cost of goods sold		2,673.7			2,422.6
Selling, general administrative, and other expenses		64.9			71.0
Research and development expenses		14.7			14.7
Provision for depreciation, depletion and amortization (A)		185.7			170.7
Restructuring and other charges (C and R)		38.8			—
Interest expense		2.3			2.1
Other (income) expense (S)		(34.3	)		14.8
		2,945.8			2,695.9
Earnings
Income from continuing operations before taxes on income		886.2			624.7
Provision for taxes on income (L)		297.5			194.2
Income from continuing operations before minority interest		588.7			430.5
Less: Minority interests’ share		.2			.4
Income before cumulative effect of accounting change		588.5			430.1
Cumulative effect of accounting change (A and D)		—			15.7
Net income	$	588.5		$	445.8
Other comprehensive income (loss):
Change in minimum pension liability, net of tax	$	(24.2	)	$	11.7
Unrealized foreign translation adjustments		89.2			439.1
Unrecognized gains and losses on derivatives, net of tax
Net change from periodic revaluations		17.3			78.4
Net amount reclassified to income		(24.0	)		(45.8	)
Net recognized income (loss) on derivatives		(6.7	)		32.6
Other comprehensive income		58.3			483.4
Comprehensive income	$	646.8		$	929.2
Members’ equity (Q)
Balance at the beginning of the year	$	2,533.5		$	2,085.8
Net income		588.5			445.8
Capital contribution (B and N)		22.3			—
Dividends paid and return of capital to members (I)		(321.3	)		(481.5	)
Combined investment in divested entities distributed to members (C and N)		(61.3	)		—
Other comprehensive income (Q)		58.3			483.4
Balance at the end of the year	$	2,820.0		$	2,533.5

The accompanying notes are an integral part of the combined financial statements.

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Alcoa World Alumina and Chemicals

Combined Statements of Cash Flows

Years Ended December 31, 2004 and 2003

(in millions)

	2004			2003
Cash from operations
Net income	$	588.5		$	445.8
Adjustments to reconcile net income to cash from operations
Depreciation, depletion and amortization		185.7			170.7
Change in deferred income taxes		6.8			4.5
Equity income, net of dividends		(.9	)		(2.0	)
Noncash restructuring and other charges (B, C and R)		38.8			—
Noncash contributions (B and N)		11.0			—
Minority interests		.2			.4
Losses from investing activities		—			2.4
Cumulative effect of accounting change		—			(15.7	)
Changes in assets and liabilities
(Increase) in receivables		(127.3	)		(3.2	)
(Increase) reduction in inventories		(36.2	)		12.3
(Increase) in prepaid expenses and other current assets		(11.5	)		(48.1	)
Increase (reduction) in accounts payable and accrued expenses (A and H)		103.9			(.7	)
Increase in taxes, including taxes on income		92.7			18.6
Net change in noncurrent assets and liabilities		(163.3	)		(2.2	)
Net change in net assets held for sale (C)		(27.6	)		3.2
Cash provided from operations		660.8			586.0
Cash from financing activities
Net changes to short-term borrowing (A, H and I)		(21.2	)		71.0
Capital contribution (B and N)		33.3			—
Dividends paid and return of capital to members (B, C and I)		(321.3	)		(481.5	)
Additions to long-term debt		221.0			482.3
Payments on long-term debt		(220.0	)		(501.6	)
Cash used for financing activities		(308.2	)		(429.8	)
Cash from investing activities
Capital expenditures		(332.2	)		(170.2	)
Net changes in short-term investments excluding cash equivalents		3.0			(2.9	)
Additions to investments (B and O)		(22.9	)		—
Sale of investment and capital assets held for sale (C)		120.4			—
Proceeds from long-term notes receivables		—			5.0
Cash used for investing activities		(231.7	)		(168.1	)
Effect of exchange rate changes on cash		7.3			13.8
Net change in cash and cash equivalents		128.2			1.9
Cash and cash equivalents
Beginning of year		98.3			96.4
End of year	$	226.5		$	98.3

The accompanying notes are an integral part of the combined financial statements.

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Combining Statement of Income

Year Ended December 31, 2004

A. Summary of Significant Accounting Policies

Basis of Presentation

The combined financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and require management to make certain estimates and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates upon subsequent resolution of some matters.

Principles of Combination

The combined financial statements of Alcoa World Alumina and Chemicals (“AWAC”) have been prepared pursuant to a Formation Agreement dated December 21, 1994 between Alcoa Inc. (“Alcoa”) and WMC Limited of Melbourne, Australia (“WMC”), as amended. Investments in other entities are accounted for principally on the equity basis.

Effective December 11, 2002, WMC shareholders voted to create two entities, WMC Resources Ltd and Alumina Limited. Resulting in existing WMC Shareholders receiving shares in a new listed entity ‘WMC Resources Ltd’, which holds the non-AWAC businesses. Alumina Limited’s (formerly “WMC”) only significant asset is the 40% interest in AWAC.

The amounts presented within AWAC are stated at historical cost. All transactions between entities included in the combined financial statements have been eliminated.

Effective December 31, 2003, AWAC adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 46R (“FIN46R”), Consolidation of Variable Interest Entities - an Interpretation of ARB 51. FIN46R addresses consolidation and disclosure by business enterprises of variable interest entities. This standard has no impact on AWAC’s financial statements.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments purchased with an original maturity of three months or less.

Inventory Valuation

Inventories are carried at the lower of cost or market, with cost for a substantial portion of U.S. inventories determined under the last-in, first-out (“LIFO”) method. The cost of other inventories is principally determined under the average cost method. See Note E for additional detail.

Properties, Plants and Equipment

Properties, plants and equipment are recorded at cost. Depreciation is recorded principally on the straight-line method at rates based on the estimated useful lives of the assets, averaging 33 years for structures, and between 5 and 25 years for machinery and equipment. Gains or losses from the sale of assets are included in other income. Repairs and maintenance are charged to expense as incurred. Interest related to construction of qualifying assets is capitalized as part of construction costs. Depletion is taken over the periods the estimated mineral reserves are extracted. See Note F for additional detail.

The accompanying notes are an integral part of the combined financial statements.

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Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

Goodwill and Other Intangibles

AWAC adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002. Under this standard, goodwill and intangibles with indefinite useful lives are no longer amortized. Intangible assets with finite useful lives are amortized generally on a straight-line basis over the periods benefited, with a weighted average useful life of 10 years. The carrying values of goodwill and other intangible assets with indefinite useful lives are tested at least annually for impairment. If the carrying value of goodwill or an intangible asset exceeds its fair values, an impairment loss is recognized. The evaluation of impairment involves comparing the current fair value of the business to the recorded value (including goodwill). AWAC uses a discounted cash flow model (“DCF model”) to determine the current fair value of the business. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market share, sales volume and prices, costs to produce, and working capital changes. Management considers historical experience and all available information at the time the fair values of its businesses are estimated. However, actual fair values that could be realized in an actual transaction may differ from those used to evaluate impairment of goodwill. See Note G for additional information.

Accounts Payable Arrangements

AWAC participates in computerized payable settlement arrangements with certain vendors and third-party intermediaries. The arrangements provide that, at the vendor’s request, the third-party intermediary advances the amount of the scheduled payment to the vendor, less an appropriate discount, before the scheduled payment date. AWAC makes payment to the third-party intermediary on the date stipulated in accordance with the commercial terms negotiated with its vendors. The amounts outstanding under these arrangements that will be paid through the third-party intermediaries have been classified as short-term borrowings in the combined balance sheet at December 31, 2004 and as cash provided from financing activities in the 2004 statement of combined cash flows. See Note H for additional information.

Long-Term Debt

Long-term debt consists of mortgages that mature over time and amounts owed to the Government of Jamaica related to its 50% ownership in Jamalco.

Revenue Recognition

AWAC recognizes revenue when title, ownership, and risk of loss pass to the customer, in accordance with the provision of the U.S. Securities and Exchange Commissions’ Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition in Financial Statements.

Deferred Alumina Sales Revenue

AWAC periodically enters into long-term supply contracts with alumina and aluminum customers and receives advance payments for product to be delivered in future periods. These advance payments are recorded as deferred revenue and revenue is recognized as shipments are made and title, ownership, and risk of loss pass to the customer during the term of the contracts. A prepayment of $240.0 related to the agreement is being amortized over the life of the contract based on the tonnage shipped.

The accompanying notes are an integral part of the combined financial statements.

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Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

Environmental Expenditures

Expenditures for current operations are expensed or capitalized, as appropriate. Expenditures relating to existing conditions caused by past operations, and which do not contribute to future revenues, are expensed. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. The liability may include elements of costs such as site investigations, consultant fees, feasibility studies, outside contractor expenses and monitoring expenses. Estimates are generally not discounted or reduced by potential claims for recovery. Claims for recovery are recognized as agreements are reached with third parties. The estimates also include costs related to other potentially responsible parties to the extent AWAC has reason to believe such parties will not fully pay their proportional share. The liability is periodically reviewed and adjusted to reflect current remediation progress, prospective estimates of required activity, and other factors that may be relevant, including changes in technology or regulations. See Note P for additional information.

Foreign Currency

The local currency is the functional currency for AWAC’s operations outside the U.S., except in Brazil, Jamaica and Suriname, which use the U.S. dollar. The determination of the functional currency in these countries is made based on the appropriate economic and management indicators.

Derivatives and Hedging

AWAC accounts for derivatives in accordance with SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, as amended. The fair values of all outstanding derivative instruments are recorded on the balance sheet in other current and noncurrent assets and liabilities on the combined balance sheet.

Derivatives are held as part of a formally documented risk management program. AWAC’s hedging activities are subject to the management direction and control of the Alcoa Strategic Risk Management Committee (“SRMC”). SRMC is composed of the Alcoa chief executive officer, the Alcoa chief financial officer and other Alcoa officers and employees that the Alcoa chief executive officer selects. SRMC reports to the Alcoa Board of Directors on the scope of its derivative activities. All derivatives are straightforward and are held for purposes other than trading. They are used primarily to mitigate uncertainty and volatility, and cover underlying exposures. AWAC measures hedge effectiveness by formally assessing, at least quarterly, the historical and probable future high correlation of changes in the fair value or expected future cash flows of the hedged item. When applicable, the ineffective portions are recorded in other income or expense in the current period. If the hedging relationship ceases to be highly effective or it becomes probable that an expected transaction will no longer occur, gains or losses on the derivative are recorded in other income or expense.

Changes in the fair value of derivatives are recorded in current earnings along with the change in the fair value of the underlying hedged item if the derivative is designated as a fair value hedge or in other comprehensive income if the derivative is designated as a cash flow hedge. If no hedging relationship is designated, the derivative is marked to market through earnings.

Cash flows from financial instruments are recognized in the statement of cash flows in a manner consistent with the underlying transactions. See Note M for additional information.

The accompanying notes are an integral part of the combined financial statements.

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Combining Statement of Income

Year Ended December 31, 2004

Exploration Costs

Exploration costs, classified on the combined balance sheet as other noncurrent assets and deferred charges, are generally deferred and amortized over the period during which the resources are extracted on an units-of-production basis. Applicable exploration costs are charged to expense in the year any program is abandoned. See Note G for additional details.

Income Taxes

AWAC consists of a variety of different tax-paying legal entities. Income taxes are accrued and recorded on the financial statements of entities within AWAC except for entities that are limited liability companies (“LLC”). LLC income is taxable to the members that hold the LLC interest (for U.S. federal and most state income tax purposes). Therefore, current and deferred U.S. and most state tax assets and liabilities of the LLC’s are recorded in the financial statements of the members and, thus, are not reflected in AWAC’s financial statements. See Note L for additional details.

Stock-Based Compensation

AWAC accounts for stock-based compensation in accordance with the provisions of Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees and related interpretations using the intrinsic value method which resulted in no compensation costs for options granted. If compensation cost had been recognized for options granted in 2004 and 2003 under the provisions of SFAS No. 123 and No. 148, AWAC’s net income would not have been materially different. See Note I for additional details.

Recently Issued and Adopted Accounting Standards

SFAS No. 123 (revised 2004), Share-Based Payment, was issued in December 2004. This standard requires that companies measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. The effective date is the first interim reporting period beginning after June 15, 2005. AWAC is currently evaluating pricing models and the transition provisions of this standard and will begin expensing stock options in the third quarter of 2005.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs - an Amendment to ARB No. 43 Chapter 4. This standard provides clarification that abnormal amounts of idle facility expense, freight, handling costs and spoilage should be recognized as current period charges. Additionally, this standard requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this standard are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. This standard does not have a material impact to AWAC’s financial statements.

Reclassification

Certain amounts in the previously issued financial statements were reclassified to conform to the 2004 presentations.

The accompanying notes are an integral part of the combined financial statements.

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Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

B. Nature of Operations

In December 1994 and January 1995, Alcoa and Alumina Limited entered into a multi-step transaction to restructure and combine the ownership of their respective worldwide bauxite, alumina and alumina-based chemicals businesses and investments into a group of companies known collectively as AWAC. AWAC is owned 60% by Alcoa and 40% by Alumina Limited.

Primarily all bauxite mined by AWAC entities is refined into alumina by AWAC through a chemical process. The alumina is then further processed into alumina-based chemicals (see Note C) or is sold to customers to be smelted into primary aluminum. Approximately 54% and 48% of AWAC’s respective 2004 and 2003 alumina production was sold to Alcoa. In addition, Alcoa of Australia (“AofA”), the largest entity within AWAC, operates integrated aluminum facilities in Australia including mining, refining and smelting operations. Approximately 77% and 76% of AofA’s 2004 and 2003 revenues of $2,194.3 and $1,889.2 respectively, were derived from alumina, and the balance was derived principally from primary aluminum.

AWAC consists of the following entities within the noted worldwide markets:

1. Two LLC’s, which hold all of Alcoa’s and Alumina Limited’s bauxite, alumina and industrial chemicals operations in Guinea, India, Japan, China and the U.S.; all of Alcoa’s interest in the bauxite and alumina operations in Jamaica and the majority of Alcoa’s bauxite and alumina shipping operations. In February 2004, the industrial chemicals operations in India, Japan, China, and the U.S. were sold. See Note C for additional information.

2. Alcoa’s and Alumina Limited’s interest in AofA, including its aluminum smelting operations and Alumina Espanola S.A., an alumina-based chemicals business located in Spain.

3. All of Alcoa’s and Alumina Limited’s interest in Alcoa Chemie GmbH and Alcoa Chemie Nederland, which represent Alcoa’s and Alumina Limited’s alumina-based chemicals businesses located in Germany and the Netherlands. These facilities were sold by Alcoa and Alumina Limited in February 2004. See Note C for additional information.

4. Abalco, S.A. (“Abalco”), an entity formed in Brazil to hold 35% of Alcoa Aluminio’s (“Aluminio”) interest in the Alumar alumina refinery (“Alumar”) and 35% of Aluminio’s interest in Mineracao Rio do Norte S.A. (“MRN”), a bauxite mine that supplies bauxite to the Alumar refinery. The 35% interest is the estimated capacity necessary to fulfill Aluminio’s export alumina sales.

5. Effective December 30, 2004, Alcoa sold 40% of its interest in the Juruti bauxite project in Brazil to Alumina Limited. In exchange, Alumina Limited contributed to AWAC $33.3 in cash, $2.2 in net assets and $6.7 in assumed debt. The $33.3 was subsequently distributed to Alcoa. Alcoa contributed to AWAC $3.3 in net assets and $9.3 in debt. In January 2005, Alcoa and Alumina Limited together contributed cash of $16.5 which was used to repay the outstanding debt. AWAC’s interest in the Juruti bauxite project is held by the following entities, Omnia Minerios, Mineracao Sao Jorge Ltda, and Matapu Sociedade De Mineracao Ltda, which have been included in these financial statements, as of the effective date of this transaction. See Note H for additional details.

The accompanying notes are an integral part of the combined financial statements.

F - 82

Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

6. On June 28, 2004, AWAC increased its ownership stake in Halco Mining, Inc. (“Halco”) from 43% to 45%. AWAC paid $5.9 for the additional 2% interest in Halco which is accounted for as an equity investment in the combined balance sheet.

The following summarizes the concentrations of sales and net assets by major geographic region.

	2004		2003
Sales
Australia	$	2,050.6	$	1,743.6
U.S.		1,452.1		1,159.8
Other		329.3		417.2
Total sales	$	3,832.0	$	3,320.6
Net assets
Australia	$	2,012.4	$	1,691.3
U.S.		505.3		542.6
Other		302.3		307.4
Total net assets	$	2,820.0	$	2,541.3

C. Assets Held for Sale

As of December 31, 2003, AWAC’s assets held for sale and liabilities of operations held for sale on the combined balance sheet consisted entirely of the assets and liabilities of Alcoa Specialty Chemicals (ASC).

In February 2004, ASC was sold to two private equity firms led by Rhone Capital LLC for an enterprise value of $342.0, which included the assumption of debt and other unfunded obligations. As of the date of the transaction, the shares of Alcoa Chemie Nederland (ACN), and Alcoa Chemie GmbH (ACG) were owned by Alcoa Automotive GmbH (Automotive), Alcoa Europe Holding, BV (AEH) and an affiliate of Alumina Limited, Westminer International Holdings Limited (Westminer). The proceeds and the gain on the sale of ACN and ACG have not been reflected in the AWAC financial statements because Automotive, AEH and Westminer are not components of AWAC as defined in the Formation Agreement. The net assets of these entities were reflected as contributions to Automotive, AEH and Westminer who then sold their respective interests directly to Rhone Capital LLC. However, AWAC received cash of $120.4 and recognized a pre-tax loss of approximately $35.8 on the sale of the components of ASC that it owned directly. The loss is included in restructuring and other charges in the combined statement of income, comprehensive income and members’ equity. The reduction in net assets associated with the contribution of ACN and ACG has been reflected as a distribution of members’ equity of $61.3.

The accompanying notes are an integral part of the combined financial statements.

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Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

The major classes of assets and liabilities of operations held for sale in the combined balance sheet are as follows at December 31, 2003:

Assets
Receivables	$	45.8
Inventories		37.0
Properties, plants and equipment, net		127.2
Other assets		27.0
Total assets held for sale	$	237.0
Liabilities
Accounts payable and accrued expenses	$	17.6
Other liabilities		23.1
Total liabilities of operations held for sale	$	40.7

There were no assets or liabilities held for sale at December 31, 2004.

D. Asset Retirement Obligations

Effective January 1, 2003, AWAC adopted SFAS No. 143, Accounting for Asset Retirement Obligations. Under this new standard, AWAC recognized a reduction in liabilities, at fair value, of approximately $12.5 at January 1, 2003, for asset retirement obligations (“ARO’s”), consisting primarily of costs associated with spent pot lining disposal, bauxite residue disposal, mine reclamation and landfills based on a discounted cash flow model. These costs reflect the legal obligations associated with the normal operation of AWAC’s bauxite mining, alumina refining, and aluminum smelting facilities. AWAC had previously recorded liabilities for these costs on an undiscounted basis. Additionally, AWAC capitalized certain asset retirement costs by increasing the carrying amount of related long-lived assets, primarily machinery and equipment, and recorded associated accumulated depreciation from the time the original assets were placed into service. At January 1, 2003, AWAC increased the net properties, plants and equipment by $10.4, reduced liabilities by $12.5 as noted above and, recognized net deferred tax liabilities of $7.2. The cumulative effect adjustment recognized upon adoption of this standard was a gain of $15.7.

The accompanying notes are an integral part of the combined financial statements.

F - 84

Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

The changes in the carrying amount of ARO’s for the years ended December 31, 2004 and 2003 follow:

	2004			2003
Balance at beginning of year	$	51.7		$	56.6
Accretion expense		4.5			4.9
Liabilities incurred		12.2			.3
Payments		(6.0	)		(5.5	)
Translation and other		1.7			(4.6	)
Balance at end of year	$	64.1		$	51.7

In addition to the ARO’ s discussed above, AWAC may have other obligations in the event of a permanent plant shutdown. However, these plant assets have indeterminate lives and, therefore, the associated ARO’s are not reasonably estimable and liabilities cannot be established.

E. Inventories

	2004		2003
Finished goods	$	23.2	$	4.1
Work-in-process		20.5		20.0
Bauxite and alumina *		138.7		118.8
Purchased raw materials		83.3		86.8
Operating supplies		99.8		93.4
	$	365.5	$	323.1

* Consists of 29% and 45% in the raw material state, 41% and 32% in work-in-process and 30% and 23% in finished goods at December 31, 2004 and 2003, respectively.

Approximately 18% of total inventories at December 31, 2004, were valued on a LIFO basis. If valued on an average cost basis, total inventories would have been $42.7 and $35.2 higher at the end of 2004 and 2003, respectively.

F. Properties, Plants and Equipment

	2004		2003
Land and land rights, including mines	$	106.0	$	111.2
Structures		1,653.4		1,519.5
Machinery and equipment		3,752.4		3,537.5
		5,511.8		5,168.2
Less: Accumulated depreciation and depletion		3,265.4		3,048.4
		2,246.4		2,119.8
Construction work in progress		263.4		202.7
	$	2,509.8	$	2,322.5

The accompanying notes are an integral part of the combined financial statements.

F - 85

Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

G. Other Noncurrent Assets and Deferred Charges

	2004		2003
Deferred mine development	$	98.7	$	88.3
Deferred income taxes		95.8		101.7
Prepaid pension benefit		70.4		62.0
Deferred charges and other		223.0		184.9
Goodwill		36.3		28.6
Intangibles		1.9		.6
	$	526.1	$	466.1

H. Short-Term Borrowings

In May 2001, Alcoa entered into a loan agreement with AAC LLC whereby AAC LLC may borrow funds from Alcoa in various installments or “draw downs.” Each individual “draw down” has its own maturity not to exceed 60 days, and bears interest at the rate for deposits in U.S. dollars as determined by the British Bankers Association on the day of the borrowing. Outstanding amounts for this agreement were $58.5 and $103.3 at December 31, 2004 and 2003, respectively.

Other amounts due to Alcoa, classified as short-term borrowings, totaled $25.7 and $2.4 as of December 31, 2004 and 2003, respectively. A portion of the 2004 balance was contributed to AWAC by Alcoa and Alumina Limited in the amount of $ 12.0. These amounts were repaid during January 2005. See Notes B and I for additional information.

AWAC participates in computerized payable settlement arrangements with certain vendors and third-party intermediaries. As of December 31, 2004, short-term borrowings included $21.3 of amounts that will be paid through the third-party intermediaries. There were insignificant amounts outstanding under this arrangement at December 31, 2003. The arrangements provide that, at the vendor’s request, the third-party intermediary advances the amount of the scheduled payment to the vendor, less an appropriate discount, before the scheduled payment date. AWAC makes payment to the third-party intermediary on the date stipulated in accordance with the commercial terms negotiated with its vendors. Imputed interest on the borrowings in 2004 was insignificant for reclassification to interest expense. See Note A for additional information.

I. Related Party Transactions

AWAC is controlled by its majority owner, Alcoa. AWAC receives related party sales revenues for alumina and chemical products sold to:

	2004		2003
Alcoa	$	1,358.8	$	804.5
Other		37.6		91.3
	$	1,396.4	$	895.8

The terms for all transactions and agreements between related parties and AWAC are established by negotiation between the parties.

The accompanying notes are an integral part of the combined financial statements.

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Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

Certain entities within AWAC have entered into contractual agreements with Alcoa for employee services (principally related to employees of the U.S. operations), an administrative services agreement, a commodity and foreign exchange hedging agreement and an alumina sales agreement. Total costs incurred by AWAC for these agreements were approximately $78.2 in 2004 and $98.3 in 2003. AWAC also has a long-term bauxite purchase agreement with a partially-owned entity. Total purchases under this agreement were approximately $108.1 and $92.5 during 2004 and 2003 respectively.

Receivables from Alcoa, included in receivables from customers, totaled $198.5 and $105.1 as of December 31, 2004 and 2003, respectively, while trade accounts payable to Alcoa totaled $38.1 and $42.9 at December 31, 2004 and 2003, respectively. Short-term borrowings include $84.2 and $105.7 as of December 31, 2004 and 2003, respectively, that were due to Alcoa. See Note H for additional information.

In 2004 and 2003, AWAC was charged and paid $6.0 and $5.2, respectively for stock option exercises under Alcoa’s Long Term Stock Incentive Plan. These amounts were reflected as a dividend paid to partners, net of a tax benefit of $2.0 in 2004 and $1.8 in 2003.

J. Lease Expense

Certain equipment, including process control hardware and software, as well as warehousing, office space and noncancelable lease obligations are under operating lease agreements. Total expense for all leases was $26.9 in 2004 and $29.0 in 2003. Under long-term leases, minimum annual rentals are $42.3 in 2005, $43.1 in 2006, $38.5 in 2007, $36.3 in 2008, $34.4 in 2009 and a total of $63.9 for 2010 and thereafter.

K. Pension Plans and Other Postretirement Benefits

Entities within AWAC maintain pension plans covering certain non-U.S. employees. Pension benefits generally depend upon length of service, job grade or remuneration and certain other benefits. Substantially all benefits are paid through pension trusts that are sufficiently funded to ensure that all plans have adequate funds to pay benefits to retirees as they become due.

Entities within AWAC maintain health care and life insurance benefit plans covering certain non-U.S. retired employees. Generally, the medical plans are unfunded and pay a percentage of medical expenses reduced by other coverages. Life benefits are generally provided by insurance contracts. The entities retain the right, subject to existing agreements, to change or eliminate these benefits.

The accompanying notes are an integral part of the combined financial statements.

F - 87

Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

The table below reflects the status of AWAC’s pension and postretirement benefit plans.

	Pension Benefits						Postretirement Benefits
	2004			2003			2004			2003
Change in benefit obligation
Benefit obligation at beginning of year	$	628.6		$	497.1		$	34.6		$	34.5
Service cost		27.7			26.3			.5			.2
Interest cost		31.5			29.6			2.1			1.7
Amendments		1.3			—			—			—
Actuarial (gains) losses		57.0			(4.8	)		1.9			(.8	)
Divestitures		(10.3	)		—			—			—
Benefits paid, net of participants’ contributions		(39.9	)		(34.7	)		(1.1	)		(1.0	)
Other transfers, net		(22.0	)		—			—			—
Exchange rate		5.6			115.1			—			—
Benefit obligation at end of year	$	679.5		$	628.6		$	38.0		$	34.6
Change in plan assets
Fair value of plan assets at beginning of year	$	637.3		$	491.3		$	—		$	—
Actual return on plan assets		66.1			45.4			—			—
Divestitures		(1.3	)		—			—			—
Employer contributions		38.3			35.7			—			—
Participants’ contributions		12.2			15.0			—			—
Benefits paid		(52.1	)		(48.7	)		—			—
Administrative expenses		(1.6	)		(.7	)		—			—
Other transfers, net		(22.0	)		—			—			—
Exchange rate		1.6			99.3			—			—
Fair value of plan assets at end of year	$	678.5		$	637.3		$	—		$	—
Funded status	$	(1.0	)	$	8.7		$	(38.0	)	$	(34.6	)
Unrecognized net actuarial (gain) loss		102.1			17.8			(29.8	)		(32.4	)
Unrecognized net prior service cost		13.3			12.9			—			—
Net amount recognized	$	114.4		$	39.4		$	(67.8	)	$	(67.0	)
Amount recognized in the balance sheet consists of
Prepaid benefit	$	70.4		$	62.0		$	—		$	—
Accrued benefit liability (1)		(26.7	)		(64.8	)		(67.8	)		(67.0	)
Intangible asset		3.3			9.5			—			—
Accumulated other comprehensive loss		67.4			32.7			—			—
Net amount recognized	$	114.4		$	39.4		$	(67.8	)	$	(67.0	)

The accumulated benefit obligations for all defined benefit pension plans were $630.0 and $597.2 at December 31, 2004 and 2003, respectively.

⁽¹⁾ Amount includes both current and long-term portions of the liability.

The accompanying notes are an integral part of the combined financial statements.

F - 88

Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

The aggregate benefit obligation and fair value of plan assets for the pension plan with benefit obligations in excess of plan assets were $484.1 and $417.0, respectively, as of December 31, 2004 and $442.4 and $390.0, respectively, as of December 31, 2003. The aggregate pension accumulated benefit obligation and fair value of plan assets with accumulated benefit obligations in excess of plan assets were $445.0 and $417.0, respectively, as of December 31, 2004 and $416.9 and $390.0, respectively, at December 31, 2003.

	Pension Benefits						Postretirement Benefits
	2004			2003			2004			2003
Components of net periodic benefit costs
Service cost	$	27.7		$	26.3		$	.5		$	.2
Interest cost		31.5			29.6			2.1			1.7
Expected return on plan assets		(48.3	)		(45.7	)		—			—
Amortization of prior service cost		1.9			1.7			—			—
Recognized actuarial gains		2.1			1.2			(.9	)		(2.5	)
Net periodic benefit costs (income)	$	14.9		$	13.1		$	1.7		$	(.6	)

Assumptions

Weighted average assumptions used to determine benefit obligations at December 31:

	Pension Benefits				Postretirement Benefits
	2004		2003		2004		2003
Weighted average assumptions
Discount rate, at year end	4.79	%	5.33	%	5.98	%	6.25	%
Rate of compensation increase	4.14	%	3.95	%	—		—

Weighted average assumptions used to determine the net cost for years ended December 31:

	Pension Benefits				Postretirement Benefits
	2004		2003		2004		2003
Weighted average assumptions
Discount rate, at year end	5.33	%	5.59	%	6.17	%	6.75	%
Expected long-term return on plan assets	7.77	%	8.43	%	—		—
Rate of compensation increase	3.95	%	4.69	%	—		—

The expected return on plan assets is based on historical performance as well as expected future rate of return on plan assets considering the current investment portfolio mix and the long-term investment strategy.

The accompanying notes are an integral part of the combined financial statements.

F - 89

Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

Assumed health care cost trend rates at December 31:

	2004		2003
Health care cost trend rate assumed for next year	8.0	%	9.0	%
Rate that the cost trend rate gradually declines to	5.0	%	5.0	%
Year that the rate reaches the rate it is assumed to remain	2009		2009

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage point change in assumed health care cost trend rates would have the following effects:

	1% Point Increase		1% Point Decrease
Effect on total of service and interest cost components	$	0.4	$	(0.3	)
Effect on postretirement benefit obligations		5.0		(3.5	)

Plan Assets

AWAC pension plans investment policy, weighted-average asset allocations at December 31, 2004 and 2003, and target allocations for 2004, by asset category are as follows:

	Plan Assets at
	Policy Range		December 31,				Target 2005
			2004		2003
Asset Category
Equity securities	35-60	%	60	%	59	%	59	%
Debt securities	30-55	%	31	%	27	%	29	%
Real estate	5-15	%	6	%	7	%	7	%
Other	0-15	%	3	%	7	%	5	%
			100	%	100	%	100	%

The basic goal underlying pension plan investment policy is to ensure that the assets of the plan, along with expected plan sponsor contributions, will be invested in a prudent manner to meet the obligations of the plan as those obligations come due. Investment practices must comply with applicable laws and regulations.

Numerous asset classes with differing expected rates of return, return volatility and correlations are utilized to reduce risk by providing diversification. Debt securities comprise a significant portion of the portfolio due to their plan-liability-matching characteristics and to address the plan’s cash flow requirements. Additionally, diversification of investments within each asset class is utilized to further reduce the impact of losses in simple investments. The use of derivative instruments is permitted where appropriate and necessary for achieving overall investment policy objectives.

The accompanying notes are an integral part of the combined financial statements.

F - 90

Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

Cash Flows

AWAC expects to contribute $24.4 to its pension plans in 2005.

AWAC sponsors a number of defined contribution pension plans. Expenses were $15.2 in 2004 and $10.3 in 2003.

Benefit payments expected to be paid to plan participants are as follows:

Year Ended December 31	Pension Benefits		Post- Retirement Benefits
2005	$	56.2	$	1.5
2006		57.6		1.5
2007		59.9		1.6
2008		63.0		1.7
2009		66.9		1.7
2010 through 2014		382.5		9.5
	$	686.1	$	17.5

L. Income Taxes

The combined financial statements of AWAC contain taxes for a variety of different tax-paying legal entities. Income taxes are accrued and recorded on the financial statements for all entities in AWAC except where the organizational structure involves an LLC. LLC income is taxable to the corporate members who hold the LLC interests (for U.S. federal and most state income tax purposes).

The components of income before taxes on income were:

	2004			2003
U.S.	$	(57.0	)	$	(81.3	)
Foreign		943.2			706.0
	$	886.2		$	624.7

The accompanying notes are an integral part of the combined financial statements.

F - 91

Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

The provision for taxes on income consisted of:

	2004		2003
Current
U.S. federal	$	10.4	$	2.7
Foreign		280.3		187.0
		290.7		189.7
Deferred
U.S. federal		.3		1.1
Foreign		6.5		3.4
		6.8		4.5
	$	297.5	$	194.2

Reconciliation of the U.S. federal statutory rate to the effective rate follows.

	2004		2003
U.S. federal statutory rate	35.0	%	35.0	%
Loss not taxed to AWAC	3.5		4.5
Taxes on foreign income	(4.9	)	(8.4	)
Effective tax rate	33.6	%	31.1	%

The components of net deferred tax assets and liabilities at December 31 follow.

	2004				2003
	Deferred Tax Assets		Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
Depreciation	$	—	$	184.3	$	—		$	237.2
Employee benefits		9.9		—		31.4			—
Loss provisions		19.5		—		18.3			—
Deferred income/expense		17.6		75.8		17.7			74.9
Tax loss carryforward		6.6		—		20.2			—
Derivatives and hedging		—		—		—			19.4
Other		1.8		13.0		2.2			9.2
		55.4		273.1		89.8			340.7
Valuation allowance		—		—		(.2	)		—
	$	55.4	$	273.1	$	89.6		$	340.7

Of the total loss carry forward benefits, $6.6 expires over the next 20 years. The $6.6 loss carryforward relates to Discovery Alumina, an entity that was sold in February 2004 as part of the sale of the specialty chemicals business. The carryforward loss was retained by AWAC and not included in the sale. See Note C for additional information.

The accompanying notes are an integral part of the combined financial statements.

F - 92

Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

M. Derivatives and Other Financial Instruments

The carrying values and fair values of AWAC’s financial instruments at December 31 follow.

	2004				2003
	Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and cash equivalents	$	226.5	$	226.5	$	98.3	$	98.3
Notes receivable		—		—		8.6		8.6
Short-term debt		106.2		106.2		115.4		115.4
Long-term debt		12.2		12.2		7.2		7.2

The methods used to estimate the fair value of certain financial instruments follow.

Cash and Cash Equivalents, Notes Receivable, and Short-Term Debt

The carrying amount approximates fair value because of the short maturity of the instruments. The short-term debt weighted average interest rate is 1.05% in 2004 and 1.23% in 2003.

Noncurrent Receivables

The fair value of noncurrent receivables is based on anticipated cash flows and approximates carrying value.

Long-Term Debt

The fair value is based on interest rates that are currently available to Alcoa for issuance of debt with similar terms and remaining maturities.

Cash Flow Hedges

AWAC uses derivative for purposes other than trading. Fair value gains of outstanding derivative contracts at December 31 were:

	2004		2003
Other commodities, principally natural gas	$	14.6	$	32.7

Commodities

AWAC may elect to sell forward a portion of its anticipated alumina production. In addition, AWAC anticipates the continued requirement to purchase other commodities such as natural gas, fuel oil and electricity for its operations. AWAC enters into futures and options contracts to reduce volatility in the price of these commodities.

For these cash flow hedge transactions, the fair values of the derivatives are recorded on the balance sheet. The effective portion of the changes in the fair values of these derivatives are recorded in other comprehensive income and are reclassified to sales or cost of goods sold in the period in which earnings are impacted by the hedged items or in the period that the transaction no longer qualifies as a cash flow hedge. There were no material transactions that ceased to qualify as a cash flow hedge in 2004 or 2003. These contracts cover periods commensurate with known or expected exposures, generally within three years. Assuming market rates remain constant with the rates at December 31,

The accompanying notes are an integral part of the combined financial statements.

F - 93

Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

2004, $14.0 of the $14.6 gain included in other comprehensive income is expected to be recognized in earnings over the next twelve months. See Note Q for additional details regarding accumulated other comprehensive income.

AWAC is exposed to credit loss in the event of nonperformance by counterparties on the above instruments, but does not anticipate nonperformance by any of the parties. Futures and options contracts are with creditworthy counterparties and are further supported by cash, treasury bills or irrevocable letters of credit issued by carefully chosen banks. In addition, various master netting arrangements are in place with counterparties to facilitate settlement of gains and losses on these contracts.

For further information on AWAC’s hedging and derivative activities, see Note A.

N. Cash Flow Information

Cash payments for interest and taxes follow.

	2004		2003
Interest	$	1.2	$	1.4
Income taxes		143.0		86.2
	$	144.2	$	87.6

Noncash Items

Net assets sold as part of the ACN and ACG sale totaled $61.3 at February 29, 2004, the effective date of the sale. The net deficit contributed from Alcoa and Alumina Limited as part of the sale of Alcoa’s interest in the Juruti bauxite project totaled $(11.0) at December 31, 2004. See Notes B and C for additional information.

O. Commitments and Contingencies

AofA is party to a number of natural gas, steam, caustic soda, and electricity contracts that expire between 2005 and 2025. Commitments related to these contracts totaled $483.1 in 2005, $382.9 in 2006, $289.0 in 2007, $277.4 in 2008, $276.7 in 2009 and $2,754.4 thereafter. AofA is obligated to make minimum payments related to these contracts totaling $134.6 in 2005, $103.5 in 2006, $115.4 in 2007, $124.3 in 2008, $125.2 in 2009 and $802.1 thereafter. Expenditures under these take-or-pay contracts totaled $356.4 and $266.5 for the years ended December 31, 2004 and 2003, respectively.

Various lawsuits and claims and proceedings have been or may be instituted or asserted against entities within AWAC, including those pertaining to environmental, product liability, and safety and health matters. While the amounts claimed may be substantial, the ultimate liability cannot be determined now because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on currently available facts, management believes that the disposition of matters that are pending or asserted will not have a materially adverse effect on AWAC’s financial position.

The accompanying notes are an integral part of the combined financial statements.

F - 94

Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

Pursuant to the terms of the Formation Agreement, Alcoa and Alumina Limited have agreed to remain liable for Extraordinary Liabilities (as defined in the agreement) as well as for certain other pre-formation liabilities, such as existing environmental conditions, to the extent of their pre-formation ownership of the company or asset with which the liability is associated.

In October 2004, AWAC agreed to acquire a 20% interest in a consortium formed to acquire the Dampier to Banbury Natural Gas Pipeline (“DBNGP”) in exchange for an initial cash investment of $17.0, which is classified as an equity investment. AWAC has committed to an additional $72.0 in investment to be paid as the pipeline expands through 2008. The investment in DBNGP was made in order to secure a competitively priced long-term supply of power to AWAC’s refineries in Western Australia. In addition to its equity ownership, AWAC has an agreement to purchase natural gas from the DBGNP until after 2016. AWAC’s maximum exposure to loss on the investment and related contract is approximately $412.0.

In November 2004, AWA LLC, Alcan, Inc and the Government of the Republic of Guinea signed a protocol for developing jointly a 1.5 million mtpy alumina refinery in Guinea, West Africa. This protocol sets out the items and framework for the alumina refinery project that will be negotiated as part of the memorandum of understanding (MOU) signed by AWA LLC and Alcan in May 2004. A detailed feasibility study for the refinery is expected to be completed by mid-2005, with construction to begin shortly thereafter. The refinery, which would be operated by AWAC, would be expected to have an initial 1.5 million mtpy capacity, with expansion capability. Production could be expected by 2008.

In December 2004, AWAC and the Government of Jamaica signed an agreement in principle to expand the Jamalco alumina refinery in Clarendon, Jamaica by more than 1.5 million metric tons per year (“mtpy”). In May 2005, AWAC announced plans to immediately expand the Jamalco alumina refinery by 150,000 mtpy as the first phase of the overall 1.5 million mtpy capacity expansion. The first phase will cost approximately $77, with the commitment of another $25 to finalize detailed engineering on the full project. Full production from the first phase is expected by the end of 2006. A final investment decision on the larger expansion project, is expected in the third quarter of 2005. As part of that project, AWAC ownership in the refinery will move from 50 percent to at least 70 percent. The government of Jamaica will continue to own the remaining percentage. Upon approval, it is expected that the expansion project will be completed by the end of 2007.

In connection with the sale of ASC, AWAC entered into an agreement to supply ASC with approximately 488,000 tons of alumina feedstock annually at a fixed price for 20 years. After three years and through the tenth year of the contract, the agreement provides for adjustments in pricing to the extent certain of AWAC’s costs fluctuate outside of agreed upon thresholds.

In January 2003, AWAC and BHP Billiton signed a MOU with the Government of Suriname providing for (i) continuation and expansion of mining and refining activities in eastern Suriname and (ii) various exploration and other activities over the next two years relating to the feasibility of bauxite alumina investments in western Suriname. Under the MOU, AWAC and BHP Billiton have exclusive rights in western Suriname and have committed to spend up to $8.5 over 21-25 months to explore this opportunity, shared 55% (AWAC) and 45% (BHP Billiton). The MOU provides that AWAC and BHP Billiton will negotiate an investment agreement with the Government of Suriname within 18 months.

The accompanying notes are an integral part of the combined financial statements.

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Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

In 2003, AWAC broke ground on its capacity expansion at its Paranam alumina refinery in Suriname by 250,000 mtpy, an increase of approximately 13% that will bring its total capacity to approximately 2.2 million mtpy. The expansion was completed in February 2005, five months ahead of schedule. AWAC and BHP Billiton have also signed an agreement extending the terms of their existing joint venture agreement on bauxite mining and alumina refining in eastern Suriname to 2025.

During 2001, AWAC entered into a ten-year agreement with a vendor to provide process control hardware and software at a ten-year cost of approximately $146.0. At December 31, 2004, amounts remaining to be paid on this agreement was approximately $128.3.

P. Environmental Matters

AWAC continues to participate in environmental assessments and cleanups at a number of locations, including operating facilities. A liability is recorded for environmental remediation costs or damages when a cleanup program becomes probable and the costs or damages can be reasonably estimated. See Note A for additional information. As assessments and cleanups proceed, the liability is adjusted based on progress in determining the extent of remedial actions and related costs and damages. The liability can change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements and technological changes. AWAC’s remediation reserve balance at the end of 2004 and 2003 was $24.4 and $26.7 respectively, and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated. Of the $24.4 reserve at December 31, 2004, $22.0 million is classified as current on the combined balance sheet.

Q. Members’ Equity

AWAC’s capital represents the excess of AWAC’s assets over liabilities and minority interest. The components of capital consist of common stock, participants’ equity, additional capital, accumulated other comprehensive loss and retained earnings.

The components of accumulated other comprehensive loss included in members’ equity were as follows:

	2004			2003
Additional minimum pension liability, net of tax	$	(47.2	)	$	(23.0	)
Cumulative foreign currency translation adjustment		(7.4	)		(96.6	)
Unrealized gains on derivatives, net of tax		14.6			21.3
	$	(40.0	)	$	(98.3	)

The accompanying notes are an integral part of the combined financial statements.

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Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

R. Restructuring and Other Charges

Restructuring and other charges were comprised of the following at December 31, 2004:

Restructuring charges	$	3.0
Loss on sale of specialty chemicals business		35.8
	$	38.8

During 2004, AWAC recorded expense of $38.8 for restructuring and other charges. The expense recognized was comprised of the following components: a loss of $35.8 on the sale of the ASC business and charges of $3.0 related to additional layoff reserves associated with the early retirement of approximately 19 hourly and salary employees at Alumina Espanola S.A. See Note C for additional information on the sale of the ASC business.

Activity and reserve balances related to employee termination and severance costs are as follows:

	Employee Termination and Severance Costs
2003
Reserve balance at January 1, 2003	$	7.4
Cash payments		(1.6	)
Noncash adjustment		(.2	)
Reserve balance at December 31, 2003	$	5.6
2004
Cash payments	$	(7.8	)
Restructuring charges		3.0
Ongoing early retirement and other		4.9
Reserve balance at December 31, 2004	$	5.7

AofA has an ongoing redundancy program for early retirement offered to qualified individuals. During 2004, 54 employees accepted the early retirement offer with charges totaling $4.3, the majority of which was paid during 2004. Additionally, Alumina Espanola S.A. terminated 13 employees with charges totaling $0.6, to be paid during 2004 and 2005. These charges were recorded in cost of goods sold on the combined statement of income, comprehensive income and members’ equity.

The accompanying notes are an integral part of the combined financial statements.

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Alcoa World Alumina and Chemicals

Combining Statement of Income

Year Ended December 31, 2004

S. Other (Income) Expense

During 2004, AWAC entered into an agreement to terminate its Alusaf Toll Conversion Agreement in exchange for a cash payment of $35.5. The payment has been recognized in other (income) expense on the combined statements of income, comprehensive income and members’ equity. AWAC does not have any further performance or other obligations under this agreement.

The remaining $1.2 net expense was comprised of interest income, equity income of unconsolidated subsidiaries, exchange differences and various other expenses.

The accompanying notes are an integral part of the combined financial statements.

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