EX-99.1 2 u08349exv99w1.htm EXHBIT 99.1 exv99w1
Table of Contents

Exhibit 99.1
(RIO TINTO LOGO)
Strategy
Delivery
Growth
A focused and
integrated strategy

Excellence in
operational delivery

Positioned for growth
2009 Annual report
 
This report is available online at www.riotinto.com


Table of Contents

(RIO TINTO)
 
A focused and integrated strategy
Excellence in operational delivery
Positioned for growth
Rio Tinto is a leading international business involved in each stage of metal and mineral production. We produce aluminium, copper, diamonds, coal, iron ore, uranium, gold and industrial minerals (borates, titanium dioxide, salt, talc, zircon). With production mainly from Australia and North America, we operate in more than 50 countries. We employ about 102,000 people whose health and safety is a key priority and an integral part of placing sustainable development at the heart of everything we do. We operate as a global organisation with one set of standards and values, sharing best practices across the Group.
  Our strategy is to invest in and operate large, long term, cost competitive mines and businesses, driven by the quality of each opportunity.
  Our assets give us a rich array of options for growth in line with demand.
  Our recapitalisation and asset divestment programmes have strengthened our balance sheet and enhanced options for growth.
  Safe working and sustainable development are at the heart of our activities, with our worldwide operations providing long term local benefits.
The Annual report and Auditor’s report comply with the Australian and UK reporting requirements.
Copies of Rio Tinto’s shareholder documents are available on the website at www.riotinto.com. They can also be obtained free of charge from the Company. Some shareholders may prefer to receive the Annual review which contains the summary financial statements although shareholders should note that it does not allow as full an understanding of the Group.
Cautionary statement about forward looking statements
 
This document contains certain forward looking statements with respect to the financial condition, results of operations and business of the Rio Tinto Group. The words “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believes”, “expects”, “may”, “should”, “will”, or similar expressions, commonly identify such forward looking statements.
Examples of forward looking statements in this Annual report include those regarding estimated ore reserves, anticipated production or construction dates, costs, outputs and productive lives of assets or similar factors. Forward looking statements involve known and unknown risks, uncertainties, assumptions and other factors set forth in this document that are beyond the Group’s control. For example, future ore reserves will be based in part on market prices that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, demand for our products, the effect of foreign currency exchange rates on market prices and operating costs, and activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty.
In light of these risks, uncertainties and assumptions, actual results could be materially different from projected future results expressed or implied by these forward looking statements which speak only as to the date of this report. Except as required by applicable regulations or by law, the Group does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward looking statements will not differ materially from actual results.


Inside this report
 
 
Overview
A description of the business, our markets, strategy, measures of performance and the outlook for 2010
 
Performance
Key performance data and operational highlights by product group and function and review of sustainable development
         
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Production and reserves
Information tables and details of our assets
         
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Governance
Introducing the boards of directors and senior management, an explanation of our approach to corporate governance and our remuneration structure
         
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Financial statements
Detailed financial information
 
Shareholder information
Information tables and details of our assets and useful information for shareowners
         
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    236  
       
       
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(MOUSE) What you can find online www.riotinto.com
         
 
 
Reference symbols within this report
       
 
 
       
Key performance indicators within this report
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Additional information available online at www.riotinto.com
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Sustainable development review at www.riotinto.com
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Additional information available on other pages in this report
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Overview
 
Performance highlights
A snapshot of the year
 

Commendable results in the face of the global downturn
  Underlying earnings of US$6.3 billion (2008: US$10.3 billion)
 
  Net earnings* of US$4.9 billion (2008: US$3.7 billion)
 
  Significant price resurgence in the second half
 
  Pilbara iron ore production joint venture to deliver substantial synergies
The balance sheet has been recapitalised
  Net debt reduced to US$18.9 billion (2008: US$38.7 billion)
 
  Major progress on divestments programme
 
  Rights issues net proceeds of US$14.8 billion
 
  Successful US$3.5 billion bond issue
Strong operational performance
  Cash flows from operations of US$13.8 billion (2008: US$20.7 billion)
 
  Controllable cash costs reduced by US$2.6 billion
 
  Rio Tinto Alcan surpassed targeted integration synergies
 
  Strong volume growth delivered in iron ore, copper and gold
 
  Capital expenditure of US$5.4 billion
Continuing focus on sustainable development
  Reduced greenhouse gas emissions intensity by 7.5%
 
  Rate of new occupational illness improved by 21%
 
  Spent US$119 million on community assistance programmes
Dividend
                                       
Dividend declared           2008     2007     2006     2005
    2009     restated     restated     restated     restated
 
US cents
    45.00       111.22       111.23       85.07       65.46
UK pence
    28.84       67.49       56.20       44.22       36.91
Australian cents
    51.56       146.22       125.72       110.69       86.26
 

The special dividend of 90.00 US cents per share (50.64 UK pence or 118.98 Australian cents per share), declared payable at the same time as the 2005 final dividend, is not included above. Prior year comparatives have been restated for the impact of the rights issues.
Notes
 
*   All references in this report to net earnings and underlying earnings relate to profit attributable to equity shareholders of Rio Tinto. Underlying earnings is defined below and is reconciled to net earnings on page 23. EBITDA is earnings before interest, taxes, depreciation and amortisation. Underlying EBITDA excludes the same items that are excluded from underlying earnings. EBITDA and underlying EBITDA are reconciled to the income statement in the “Financial information by business unit” section of the financial statements.
Notes to page 3
 
(a)   The accounting information in these charts is drawn up in accordance with EU IFRS.
 
(b)   Underlying earnings is the key financial performance indicator which management uses internally to assess performance. It is presented here as an additional measure of earnings to provide greater understanding of the underlying business performance of the Group’s operations. Items excluded from net earnings to arrive at underlying earnings are explained in note 2 to the 2009 Financial statements. Both net earnings and underlying earnings deal with amounts attributable to equity shareholders of Rio Tinto. However, EU IFRS requires that the profit for the year reported in the income statement should also include earnings attributable to outside shareholders in subsidiaries.

 
Revenue by product group 2009
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(PIE CHART)

 
 

 
Revenue by product group 2008
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Key
       
 
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  Aluminium
 
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  Copper
 
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  Diamonds & Minerals
 
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  Energy
 
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  Iron Ore
 
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  Other operations and inter segmental transactions
 
      


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Overview
 
Group overview
An extensive global presence
We have major operations in Australia and North America which account for approximately 85 per cent of the value of our assets, as well as significant businesses in South America, Europe, southern Africa and Asia.
 
  All injury frequency rate reduced to 0.82 from 0.98
 
  Set iron ore production and sales records
 
  Progressed transformation of our aluminium business
 
  Exceeded targeted controllable operating cost savings
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Aluminium
Rio Tinto Alcan is a global leader in the aluminium industry. It mines high quality bauxite, refines alumina for both primary aluminium production and specialty alumina markets, and produces primary aluminium at some of the lowest cost, most technologically advanced smelters in the industry. The group is renowned for its technology leadership as well as its advantaged renewable energy assets.
Number of employees: 22,919 (1)
Products
Bauxite, Alumina, Specialty aluminas, Aluminium
Key facts
  Integration synergies expected to exceed US$1.1 billion in 2010
 
  Achieved rapid cost reductions and production curtailments
 
  Business being transformed in readiness for the economic recovery
 
  During the course of the year, aluminium prices plummeted by as much as 70 per cent from 2008

 

Contribution to gross sales revenue
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Copper
The Copper group is one of the world’s largest producers of copper, with valuable by-products of gold and molybdenum. A diverse mix of operations and projects are located in North and South America, Africa, Asia and Australia. In addition to interests in some of the world’s largest copper mines, it is taking the lead in the development of three of the world’s largest new copper projects.
Number of employees: 7,612 (1)
Products
Copper, Gold, Molybdenum, Silver, Nickel
Key facts
  Strong operating performance in 2009 supported by recovering market
 
  Kennecott Utah Copper production up 37 per cent from 2008
 
  Copper industry faces future supply challenges
 
  Breakthrough agreement for development of major Mongolian copper-gold mine

 

Contribution to gross sales revenue
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Diamonds & Minerals
The group comprises Rio Tinto Diamonds (RTD), Rio Tinto Minerals (RTM) and Rio Tinto Iron & Titanium (RTIT). RTD accounts for about six per cent of the world’s production of rough diamonds by value. RTM is a global leader in borates and talc supply and of the science behind their use, and RTIT is a market leader in titanium dioxide feedstock, used in the manufacture of pigments for paints and plastics.

Number of employees: 7,375 (1)
Products
Diamonds, Borates, Titanium dioxide feedstocks, Talc, High purity iron, Metal powders, Zircon, Rutile
Key facts
  Businesses oriented to OECD demand hence difficult conditions
 
  Businesses showing signs of recovery, particularly in Asian markets
 
  Diavik Diamonds underground mine starts production in 2010
 
  Commencement of ramp up of Madagascar mineral sands mine
 

Contribution to gross sales revenue
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Energy
Rio Tinto is a leading supplier of thermal and coking coal to the Asian seaborne market as well as being one of the world’s largest uranium producers supplying uranium oxide to electric power utilities worldwide. Rio Tinto Coal Australia manages eight coal mines in Queensland and New South Wales. In the US, the group operates the Colowyo coal mine and has a 48 per cent interest in Cloud Peak Energy.

Number of employees: 7,613 (1)
Products
Thermal coal, Coking coal, Uranium
Key facts
  More robust seaborne coal markets emerging
 
  De-bottlenecking of Australian coal export ports under way
 
  New Clermont mine and Kestrel mine expansion on track
 
  Nuclear power comeback spells promise for uranium
Iron Ore
Rio Tinto Iron Ore is the second largest supplier to the world’s seaborne iron ore trade and produces direct saleable lump and fines ore, pellets and concentrates. It has a global supply capacity to serve both the Pacific and Atlantic markets, operating an integrated platform of mines, rail and port infrastructure including development projects designed to respond rapidly to changes in demand. It operates Dampier Salt located near its iron ore mines in Australia as well as Rio Tinto Marine.

Number of employees: 11,375 (1)
Products
Iron ore and Salt
Key facts
  Operated at full run rate of 220 million tonnes capacity in second half of 2009
 
  Developing plans to produce 330 million tonnes per year
 
  Uses automated mining technologies including driverless haul trucks
Global functions
Activities that support our businesses
Exploration
The role of the Exploration group is to add value to Rio Tinto by discovering or acquiring resources that can increase future cash flows. It is organised into regional multi-commodity teams, with head offices in the UK, the US and Australia, supported by commodity and commercial specialists. Programmes are prioritised on a global basis, with investment decisions driven not by location or choice of commodity but rather by the quality of each opportunity.
Technology & Innovation
Technology & Innovation has offices in Australia, Canada, the UK and the US. Its role is to identify, develop and promote best operational technology practice across the Group and to pursue step change innovation of strategic importance to orebodies of the future.


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Contribution to gross sales revenue
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Contribution to gross sales revenue
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Notes
 
(1)   This is the average Rio Tinto share of employees for managed businesses, excluding contractors and employees in businesses classified as assets held for sale during 2009.
      


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Overview
 
Chairman’s statement
A year of two halves

Jan du Plessis
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Thanks to a number of significant decisions on our part and assisted by a more favourable external environment, we have recovered our poise and steadied the ship.
 
 
 
 
 
 
 
      


During what was clearly a historic and tumultuous year for the global community, Rio Tinto found 2009 to be particularly testing. It certainly felt at times as if we were experiencing an amplified version of the global financial crisis and its knock-on effect on business confidence, demand for commodities and availability of credit.
However, despite the early trauma, for Rio Tinto it turned out to be a year of two halves. After the particularly difficult first few months, characterised by our balance sheet challenges, very weak demand, low product pricing and the contentious Chinalco transaction, our fortunes improved considerably as the year progressed. As a result of shareholder support for our rights issues, together with the success of our disposal programme and improved operating conditions, we ended the year with a much
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stronger balance sheet. In short, thanks to a number of significant decisions on our part and assisted by a more favourable external environment, we have recovered our poise and steadied the ship.
Chinalco
Looking at the year as a whole, our attempt to establish a strategic partnership with the largest Chinese resources group and our largest shareholder, Chinalco, was undeniably a very significant event for Rio Tinto. The proposed transaction would have allowed us to establish a highly important strategic link with the Chinese market, whilst at the same time enabling us to significantly recapitalise our balance sheet. Especially in the context of the situation prevailing at that time, the board considered the Chinalco proposition both strategically and financially attractive.
The transaction was nevertheless highly controversial. On becoming chairman in April it was evident to me that I needed to look for guidance from our shareholders. During the ensuing consultation process, I met with a large number of shareholder groups in the UK, Australia and elsewhere. It became clear to me that many shareholders had considerable misgivings about the proposed transaction.
These concerns related not only to the financial terms of the transaction, but there were high levels of discomfort about the structure of our relationship with Chinalco. The board could not ignore the strength and depth of these feelings although, in deciding not to proceed with that transaction, we deeply regretted the loss of a unique opportunity to establish a strategic partnership that would have fundamentally changed our relationship with our largest customer base. We will continue to work towards extending our
relationship with Chinalco and to pursue business opportunities that may be to our mutual benefit.
Improving prospects
In deciding that we were not able to pursue the transaction with Chinalco, the board was nevertheless delighted that it was able to announce the proposed production joint venture with BHP Billiton in relation to our respective iron ore assets in Western Australia. The joint venture will allow us to capture the enormous long term synergy benefits that would result from the integration of our production facilities. The value that could be captured has been estimated to be at least US$10 billion.
We simultaneously announced major rights issues which took place in the UK and Australia in June and July. These raised net proceeds of US$14.8 billion which were used to repay debt, well ahead of our original US$10 billion target. The rights issues attracted an extraordinary vote of confidence in Rio Tinto, with 97 per cent of shareholders taking up their rights in Rio Tinto plc, and a 95 per cent take up in Rio Tinto Limited. All of Rio Tinto’s directors, as well as Chinalco, took up their full entitlement of shares.
These decisions brought relief from some of the pressures of the earlier months of the year. It put the period of unusual corporate activity behind us and finally gave us a firm foothold to advance into the second half of the year. As we saw markets improve in the subsequent months, I was particularly pleased to see the executive team focused on first class operational delivery as a priority for the Group. We ended the year with a strong set of production figures and the achievement
      


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of a number of production and sales records. This of course also signalled a significant pickup in physical demand for our products.
Results and dividend
The strong production numbers, coupled with improved commodity prices, translated into a significant improvement in operating cash flow in the second half. This, together with the proceeds of our rights issues and the disposal of assets, significantly strengthened our balance sheet. Rio Tinto started 2009 with net debt of US$38.7 billion and a debt to equity ratio of 63 per cent. We had made the commitment in December 2008 to reduce net debt by US$10 billion during 2009. Net debt at the end of 2009 stood at US$18.9 billion with gearing much reduced to 29 per cent.
The Group’s underlying earnings in 2009 were US$6.3 billion, 39 per cent below 2008. Net earnings were US$4.9 billion compared with US$3.7 billion in 2008. Cash flow from operations decreased 33 per cent to US$13.8 billion.

With our balance sheet significantly strengthened and our prospects much improved, we are pleased to be able to reinstate the dividend. Total dividends declared for 2009 were 45 US cents per share. The Group expects that the total cash dividend for the 2010 financial year will be at least equal to the total cash dividend of US$1.75 billion paid in respect of 2008, albeit spread over an increased number of shares. From 2010 on, we are committed to a progressive dividend policy over the longer term.
Sustainable development
Rio Tinto conducts business in an ethical and socially responsible manner aimed at building a positive reputation and ensuring ongoing access to people, capital and mineral resources. Delivering on our commitment means making sustainable development considerations an integral part of our business plans and decision making processes.
Rio Tinto was again identified as a sustainable development leader during the year by retaining its listing on the Dow Jones Sustainability Index (DJSI) World Index and DJSI STOXX Index as well as the FTSE4Good. We have been included in the DJSI series since 2002 and the FTSE4Good since becoming eligible for inclusion in 2007. Rio Tinto’s long standing commitment to sustainable development and the quality of our sustainable development web pages have been recognised in the CSR Online Awards
“Global Leaders 2009”, published by Dow Jones Newswires and an Italian business daily.
Our recently completed mineral sands mine in Madagascar won South Africa’s prestigious 2009 Nedbank Environmental Award in the environmental category, for significant effort in protecting or improving the biophysical environment in which it operates.
Rio Tinto became a signatory to the UN Global Compact in 2000 and we were one of its early supporters. We also remain an active member of the World Business Council for Sustainable Development and the International Council on Mining and Metals, whose members are committed to superior business practices in sustainable development.
Governance and board
The board is committed to high standards of governance as the foundation of our ethical approach to business. In 2009, we strengthened our governance system by renewing our global code of conduct, The way we work, establishing a common Group wide code to replace business unit codes of conduct. The code serves to spread our values of accountability, respect, teamwork and integrity throughout the organisation by providing guidance on how employees should conduct themselves at work and when representing Rio Tinto. Our confidential whistleblowing programme, Speak-OUT, is a key element of The way we work, available in the language of the employee’s choice to alert senior management to any serious issues or inappropriate behaviour that employees do not feel able to discuss with management on site.
Your boards enjoy a balanced representation of viewpoints and a wealth of business experience. Sir David Clementi and David Mayhew will retire as directors at the conclusion of the 2010 annual general meetings. The boards thank them for their valuable contributions over many years. We welcomed Ann Godbehere, who has 25 years’ experience in the financial services’ industry, to the board on 9 February 2010. She will be chairman of the Audit committee. Robert Brown, who has considerable global business experience in the aerospace industry, will join the boards on 1 April 2010. Ann and Bob will be standing for election at the annual general meetings in April, along with Sam Walsh, chief executive, Rio Tinto Iron Ore and Australia, who joined the boards effective 5 June 2009.
Outlook
The outlook for mining and metals is improving but remains volatile and uncertain in the short term. The latest leading indicators for developed economies imply that we may have returned to expansionary territory, although no one knows to what extent or for how long. The pick up in metals demand at mid year was primarily driven by government stimulus measures and a recovery in economic activity which caused producers to return to buying raw materials.

The key driver for the mining industry continues to be demand from China. Record Chinese metals imports have served to offset weakness in other markets. However, we will also need to see OECD economies improve and a resumption in international trade flows to fully support a global economic recovery.

Similarly, there are concerns about the sustainability of Chinese demand in the short term. Longer term, China is likely to move towards more domestic, consumption led development.
Our people
Our year of two halves demonstrated commendable perseverance as we moved from difficulty to success. Facing up to setbacks and promoting recovery has shown Rio Tinto to be a high performing organisation. We have come through these testing times thanks in no small measure to the quality and commitment of our people. The downturn unfortunately necessitated a reduction of about 16,000 employees and contractors across the Group which took place mainly in the early months of the year. Since then we have stabilised the organisation and a renewed management structure has been introduced. These steps will provide the platform to mobilise and energise the workforce and give us the momentum to resume growth.
The board and I would like to express our collective appreciation to Group employees and contractors around the world for their strong commitment and unflagging efforts in 2009; for their focus on safety, operational excellence and delivery to customers, as well as for conducting our business in a socially responsible way.
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Jan du Plessis
Chairman


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Overview
 
Chief executive’s message
Well positioned for growth

Tom Albanese
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Over the course of 2009 management’s focus has been on strengthening the business after a period of prolonged corporate activity and a severe downturn. We are grateful for the support we received from shareholders in recapitalising the company and helping us regain our momentum. We were also helped by the capacity of our organisation to deliver strong operational performance in challenging economic circumstances.
The successful injection of US$14.8 billion from our rights issues, the efficiencies derived from our cash preservation measures, and significant progress with our divestment programme which realised sales and binding offers of US$5.7 billion in the year, have given Rio Tinto greater financial strength and flexibility.
I am proud of the way in which our employees have persevered in delivering the commitments we made during these demanding times. Unfortunately, these achievements have been overshadowed by four fatalities during the year at managed operations. Three of these took place in Africa and we have renewed our focus on embedding our safety systems in developing countries. I am pleased to say our key performance indicators for safety continued to improve during 2009 with a reduction in our all injury frequency rate of 16 per cent.
Reaching agreement to form the Western Australian iron ore production joint venture with BHP Billiton was an important highlight of the year. We expect it will achieve substantial benefits for stakeholders by delivering synergies and unlocking the full potential of the valuable Western Australian iron ore assets in an era of increasing demand for this vital commodity.
During 2009 we made some good decisions to improve our financial position. We have emerged from this testing year as a stronger and fitter business.
 
 
 
 
 
 
 
During 2009 we took steps to improve our aluminium business which was significantly affected by the economic downturn. Rio Tinto Alcan surpassed targeted integration synergies, adopted Rio Tinto HSE policies and standards, improved safety performance, implemented cost reductions, progressed with the permanent closure and divestment of high cost facilities and made temporary production curtailments. Taken together, these measures amount to a strong start to the transformation of that business.
To prepare ourselves for the next stage of Rio Tinto’s growth and to develop the next generation of leaders, I made changes to the structure of my senior management team. This included the reinstatement of the Diamonds & Minerals product group. Our structure ensures a tight focus on our core objective and allows for a broad range of investment opportunities to be generated, regardless of our portfolio.
Market conditions
A year ago, I said that we hoped to see some recovery in China’s gross domestic product (GDP) in the second half of 2009. The effect of the Chinese Government’s monetary stimulus package exceeded most commentators’ expectations – actual growth surpassed eight per cent – and we expect this strong growth to continue through 2010.
The improvements we have seen in most of our markets were primarily driven by this stronger Chinese GDP growth and its attendant effects on Chinese construction and infrastructure development. Whilst we remain cautious about the recovery in our markets, we believe that these trends are likely to continue for some time as China continues to urbanise and industrialise.
By contrast, the continuing strong China story was offset by a stagnant demand picture in OECD countries where consumer spending remains relatively weak. Australia was an exception, with its economy bolstered by the strong demand for commodities. In the US, Japan and Europe, pervasive economic concerns mean that we will continue to be cautious, especially as we begin to see the effects of the winding down of stimulus programmes.
Financial recovery
The speed and severity of the downturn in late 2008 exposed our levels of debt and made it more difficult to achieve the asset disposals we had planned for the repayment of debt. During 2009 we made some good decisions in difficult circumstances to improve our financial position and achieve a reduction in controllable cash costs of US$2.6 billion. We have emerged from this testing year as a stronger and fitter business.
Regarding divestments, we chose to postpone a number of sales. We made good progress with completion of the sale of our potash assets in the first half and the Brazilian iron ore operation in the second half. More importantly, in the second half we made significant progress with announced divestments on most of the former Alcan’s Packaging businesses, and our US coal operations. By the end of 2009, we had announced sales transactions of more than US$10 billion over the past two years.
Strategic direction and markets
We completed a thorough review of our strategy with our board and executive committee, leading to the reaffirmation of our longstanding core objective. This is to maximise our long term return to shareholders by investing in and operating large, long life, cost competitive mines and assets, driven not by choice of commodity but rather by the quality of each opportunity. This strategy will of course be recognisable to our long term shareholders. We will ensure that our structure and capabilities are tailored to meet the requirements of our customers and the marketplace.
Our diverse portfolio, high quality assets, people and expertise in technology and marketing give us the capability to supply a wide spectrum of customers and markets. This gives us exposure to worldwide markets at various stages of the development cycle. We will continue to improve our understanding of market dynamics and how we fit into the global picture, and apply this to our planning and investment proposals.
      


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To deliver on our objective, the Group will continue to concentrate on developing Tier 1 assets. These are assets that will safeguard our future cash flow and will operate profitably at every stage of the commodity cycle. Key to our way of operating is a commitment to sustainable development. It is an essential part of the way we work and is at the heart of everything we do.
This commitment is key to maintaining our licence to operate. We have a comprehensive sustainable development programme which is discussed more fully on pages 24-33. Carbon, water use and biodiversity are becoming increasingly topical in this context. We have taken a pro-active approach in all three areas and are progressively building them into our planning, especially as we see these three issues becoming increasingly inter-linked.
Priorities for growth
One of our key objectives for 2010 is to put the Group back on a growth path following the rights issues and strengthening of the balance sheet. We continued to invest in growth throughout 2009. Capital expenditure was US$5.4 billion of which US$3 billion was on major construction projects. In 2010, capital expenditure is expected to be US$5 to US$6 billion.
The strong demand for iron ore clearly provides the most obvious option for production growth. We are continuing work on staged growth projects in the Pilbara. We used the past 12 months to optimise our planned growth pathway, finding ways to ease input costs, capture savings from reduced lead times, and refining project design. We have commenced initiatives to expand capacity to 280 million tonnes per year by 2013 and 330 million tonnes per annum by 2015.
In 2009, we completed an unprecedented and technologically sophisticated integration of our iron ore operations in Western Australia through our Mine of the FutureTM programmes and the opening of our new Operations Centre in Perth. This will contribute to the US$10 billion synergy savings we expect to reap from the proposed production joint venture with BHP Billiton. The benefits from the production joint venture would be without equal in the mining industry, applied broadly across production and development activities, including combining adjacent mines into single operations, more efficient use and allocation of infrastructure and ore blending opportunities to maximise product recovery.
In Aluminium we completed the start up of the Sohar smelter in Oman, to which we
contributed our benchmark AP36 smelting technology. This is a good example of how Rio Tinto Alcan’s technology leadership can position us as a partner of choice. The portfolio will enable us to leverage our technology advantage, extensive project management expertise and strong operating capabilities.
Current projects involve investment in the Clermont thermal coal and Kestrel coking coal projects in Queensland, Australia, reflecting strong energy markets. We have options to expand at both of our uranium operations. Construction of the Yarwun 2 alumina refinery continues, albeit at a slower rate than originally anticipated in response to market conditions. In Diamonds, the Diavik and Argyle underground projects also continued at a slower rate. Each of these projects was approved before the global financial crisis, and we have continued to invest in them. We expect to see production begin at both Clermont and Diavik underground in 2010.
We increased our stake in the Oyu Tolgoi project through additional investment in Ivanhoe Mines. Rio Tinto has responsibility for developing and operating the mine. Following the signing of the Investment Agreement with the Government of Mongolia in October 2009, a project budget was agreed that covers the resumption in 2010 of shaft sinking, construction of a shaft headframe, continuation of underground development and installation of infrastructure. The size of the resource is consistent with our strategy of investing in large, long term, cost competitive mines and businesses.
China
An objective for 2010, and one that I am particularly focused on, is to strengthen our relationship with China. China is our largest source of short term demand growth. In 2009, it became the most important destination for our products and influences global pricing of most metals. It is also the home of our largest shareholder, Chinalco.
We were pleased to see Chinalco take up its full entitlement of shares in our rights issues and maintain its shareholding at 12 per cent of Rio Tinto plc and 9.3 per cent of the dual listed company overall.
I would like to add a word on our four employees who were detained on 5 July 2009 in Shanghai. We wish to see the completion of an expeditious and transparent legal process. Our continued priority is our duty of care to our colleagues and support for their families.
Outlook
Our markets and our balance sheet are much improved from last year, but we recognise that major short term uncertainties remain. Long term however, given continued growth and urbanisation of the developing world, the outlook for our industry is attractive.
The exponential growth of China’s demand for iron ore, copper, coal and aluminium is expected to continue over the next 15 years, as the average wealth of many millions of people increases. Their consumption of raw materials will rise accordingly. As China nears the top of the commodity intensity usage curve, India is expected to follow, supporting a further potential wave of strong commodity demand.
For Rio Tinto, 2009 marked a positive turning point from which we have emerged with our options for growth enhanced. Nevertheless, major challenges remain. The Tier 1 deposits that are the focus of our strategy are becoming harder to find and more technologically difficult to develop. There are pressures in countries well endowed with minerals for governments to gain a greater proportion of resource rents.
Together with the executive committee, I wish to join our chairman in expressing appreciation to all who work for Rio Tinto for their contribution to a very busy and successful year. All have played a part in strengthening the business for our next stage of growth. With our strong assets, growth options and great people, we can look forward to an exciting future for the Group.
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Tom Albanese
Chief executive


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Table of Contents

Overview
 
Market review
A global perspective for metals and minerals
     
 
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Competitive environment
Rio Tinto is a major producer in all of the metals and minerals markets in which it operates. It is generally among the top five global producers by volume in each such market. It has market shares for different commodities ranging from five per cent to 40 per cent. Rio Tinto’s activities are spread across the globe. Most of Rio Tinto’s competitors are private sector companies which are publicly quoted. Several are, like Rio Tinto, diversified in terms of commodity exposure, but others are focused on particular commodities.
High quality, long life mineral resources, the basis of attractive financial returns, are relatively scarce. Nevertheless, Rio Tinto holds interests in some of the world’s largest deposits. Rio Tinto expects world production volumes to grow in line with global economic growth. In addition, higher demand from China and potentially India, as a result of high rates of economic growth and urbanisation trends in those countries, could contribute further to increases in world production volumes in the long term.
Economic overview
Global economy
Following more than four years of rapid expansion the global economy started to deteriorate rapidly during the third quarter of 2008 as financial markets became increasingly unstable. The bankruptcy of Lehman Brothers became the defining moment of this period sparking significant increases in risk premiums and a sharp contraction in availability of finance. Governments around the world took action to restore confidence in financial markets but a decline in global economic
growth became unavoidable with most major developed economies moving into recession by the end of 2008.
The deterioration in global economic activity continued into 2009, leading to the greatest contraction in industrial production for over 30 years. Global trade ground to a halt, consumer confidence collapsed with rising fears about unemployment, and businesses responded to the credit crunch by cutting spending and reducing output in order to pare back high inventory levels. However, the introduction of large fiscal and monetary stimuli by governments around the world started to take effect towards the middle of the year, averting a second Great Depression.
Global trade started to recover during the second half of 2009, led by activity in Asia. Major developed economies gradually stabilised with most experiencing renewed GDP growth by the third quarter of 2009.
Most OECD economies are now in the early stages of recovery initially driven by inventory rebuilding, government spending and in some cases net trade. The normal pattern of recovery is that the process of inventory rebuilding and economic stimulus would generate job growth, increase business confidence, and create the basis for increased consumption. However at this stage there remain risks that the pace of recovery may not be sustained. This is mainly because consumer confidence has been so heavily weighed upon by high unemployment rates, the loss in wealth and the prospect of increased taxes to fund the current stimulus.
China
The collapse in global trade affected many developing economies including China. The lagged impact of policy tightening by the
Chinese government in early 2008 and a correction in a slightly overheating property market contributed to the slowdown in the pace of economic growth in China during the second half of 2008. By the first quarter of 2009 the annualised pace of GDP growth had fallen to nearly six per cent, a sharp contrast to the double digit growth that the Chinese economy had become accustomed to over the previous four years.
The Chinese Government reacted strongly and rapidly to the economic slowdown, announcing a Rmb 4 trillion stimulus package, equivalent to about 12 per cent of GDP, to be spent over two years. The Government also introduced a set of measures aimed at supporting demand in key sectors and boosting consumption in rural areas. The stimulus was accompanied by a massive surge in bank lending during the first half of 2009 with significant investment going into the development of infrastructure projects. All these measures were successful in boosting economic growth as early as the second quarter of 2009.
The growth momentum continued to build up during the second half of the year with activity in the property sector also starting to bounce back strongly. All of these developments bode well for the strength of China’s economy in 2010.
Commodity markets
The sharp fall in global economic activity has had a significant impact on the demand for metals and minerals. Contractions in end-use consumption have been amplified by heavy destocking at all stages of the supply chains. Metals such as aluminium, which tend to be more exposed to the construction and transport sectors of developed economies, have been affected most strongly leading to
      


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very rapid increases in excess stocks. Prices, which in many cases were trading well in excess of the marginal costs of production prior to the economic downturn, reacted quickly to falling demand and rising inventories. The price falls were especially steep for exchange traded commodities as the turbulence in the financial sector forced investors out of these markets.
Aluminium and copper experienced a peak-to-trough variation of about 60 per cent and 70 per cent respectively within just a couple of quarters. Meanwhile the iron ore contract price settled with Japanese customers in the second quarter of 2009 was about one third lower than the previous benchmark. The hard coking coal contract price also fell substantially by close to 60 per cent, whilst spot thermal coal prices fell 65 per cent between July 2008 and the end of the first quarter of 2009. Such price declines put significant pressure on mining companies, with, for some commodities, significant portions of the industry showing negative margins. This led to a shift in focus from maximising output to capital management, production curtailment and cost saving. These recent developments reinforced Rio Tinto’s strategy of investing in Tier 1 assets, which are generally able to generate positive margins over the whole of the economic cycle. The sharp price falls and credit restrictions also led to the cancellation or postponement of many mining projects.
The start of a stabilisation in the global economy from the second quarter of 2009 and more importantly the rapid turnaround of the Chinese economy triggered a sharp bounce back in commodity prices. Chinese imports of metals and minerals soared to new highs as a result of recovering
underlying demand, restocking, closure of high cost domestic capacity and some speculative activity facilitated by rising liquidity. Falls in scrap supplies as a result of slower industrial activity and lower prices also created a need for Chinese consumers to use and import a higher proportion of primary metals. This was especially acute in the case of copper throughout the first half of 2009. These high levels of Chinese imports absorbed some of the surpluses building up outside China, keeping some markets relatively tight.
Copper experienced one of the strongest rebounds with prices rising 140 per cent between the start and the end of the year, moving to within less than 20 per cent of the pre-crisis 2008 peak. Meanwhile, spot iron ore prices almost doubled over the second half of 2009 and aluminium recovered from a low of near US$1,300 per tonne during the first quarter of 2009 to just over US$2,200 per tonne by year end despite historically high visible stock levels. Movements in coal prices were more subdued during 2009 but started to trend up again towards the very end of the year.
Outlook for 2010
Forecasters have become progressively more optimistic about economic growth in 2010. The IMF is predicting global growth of nearly four per cent and Chinese GDP is expected to grow at between nine and ten per cent. Economy wide inventory rebuilding in the OECD should provide a short term boost to activity. Such growth acceleration would have positive implications for metals and minerals markets. Although it is still unclear whether a sustainable recovery in private sector confidence and economic activity will
emerge as the fiscal and monetary stimulus wanes or is removed over time.
Some risks to the outlook include the possibility of an aggressive tightening of monetary policies in Asian economies in response to concerns about consumer and/or asset price inflation. Also it is possible that consumer spending in the OECD will remain constrained due to concerns about employment prospects, housing wealth and increased tax burdens. Economic data releases and news flow will affect investors’ perceptions about the likelihood of such risks compared with the strength of the more positive forces on the markets. This will lead to negative and positive swings in sentiment affecting commodity prices through speculation.
Trend information
Demand for the Group’s products is closely aligned with levels of, and changes in, global GDP. Changes in the GDP of developing countries will generally have a greater impact on demand for commodities such as iron ore and coking coal, which are significant inputs in the development and improvement of infrastructure. Conversely, changes in the GDP of developed countries will have a greater impact on industrial minerals, which have many applications in consumer products. Aluminium and copper are used in a wide range of applications from infrastructure to consumer products and demand for these metals has tended to grow in line with or slightly faster than global GDP. Trends in production of the Group’s minerals and metals, gross sales revenue and underlying earnings are set out in the Performance reviews starting on page 22.


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Table of Contents

Overview
 
Strategy
A focused and integrated strategy

Summary
Rio Tinto’s vision is to be the global mining leader.
Our vision shapes our core objective, which is to maximise total shareholder return by sustainably finding, developing, mining and processing natural resources.
To deliver this objective, the Group follows a strategy of investing in and operating large, long term, cost competitive mines and businesses, driven not by choice of commodity but rather by the quality of each opportunity.

We have five business priorities for 2010 to enable us to deliver our strategy and improve our long term financial performance:
  Focus on operational delivery
 
  Pursue our growth path
 
  Complete the iron ore production joint venture
 
  Prudent balance sheet management
 
  Strengthen our relationship with China
Given our geographical reach, strong assets and reputation we believe we are well positioned for success.
Vision
Our vision of being the global mining leader means maintaining or achieving sector leadership, including operational excellence, sustainable development, exploration and innovation.
We are well placed to achieve this vision through our ownership of some of the world’s best assets. We focus on the development of Tier 1 orebodies – those that will give us large scale, long term and cost competitive operations. This will safeguard our future cash flow and ensure we can operate profitably at every stage of the commodity cycle.
The global reach of our operations and projects gives us the ability to respond to rising demand for metals and minerals from developed and emerging economies. We will use the advantages that our assets bring to deliver options for future growth.
Our diverse portfolio, high quality assets, and expertise in technology and marketing give us the capability to supply a wide spectrum of customers and markets. We can supply the raw materials needed for basic infrastructure and the high performance mineral grades needed for high tech applications. This gives us exposure to markets worldwide at various stages of the development cycle. By understanding what our customers value, we develop offerings which meet their needs and generate superior returns for Rio Tinto.
Effective supply chain integration with our operations and Rio Tinto Marine ensures that we meet customer needs and create value for ourselves by supplying the right products and services at the right time to the right place.
Rio Tinto has a strong reputation for operational excellence and sustainable development. This reputation gives us our licence to operate, and it is essential that we uphold it and build upon it.
Long term sustainable development is at the heart of everything we do. We must build upon recent improvements in our safety performance, and we must also continue, and extend, our leadership in areas such as community and government engagement; biodiversity; and land, carbon, water and energy management.
Our assets and reputation give us the capabilities to operate and grow our business on a global scale. And as we do so, we also have the scope and expertise to bring long term benefits to our local communities and host countries.
Priorities for 2010
The Group is focusing on five business priorities, which are the pathway to delivering our strategy and achieving our vision.
      


 
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Core objective
  Strategy   Priorities for 2010  
 
To maximise total shareholder return by sustainably finding, developing, mining and processing natural resources.
 
To invest in and operate large, long term, cost competitive mines and businesses, driven not by choice of commodity but rather by the quality of each opportunity.
 
We have five business priorities to enable us to deliver our strategy and improve our long term financial performance. These priorities will support our vision to be the global mining leader.
 
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Focus on operational delivery
We will pursue cost reductions and productivity improvements in order to strengthen our focus on operational delivery.
A key activity will be the continued transformation of the Aluminium business. Rio Tinto Alcan is now sharing common safety, internal compliance and human resource systems. As we complete the financial integration of Alcan, we expect to exceed US$1.1 billion per year in synergies.
Our capacity for innovation is an important driver of operational delivery improvements. We will continue to capitalise on our leading technologies and develop our capabilities in areas such as automation.
The delivery of capacity improvements along the supply chain is also a key part of this priority. This includes the mining, processing and shipping of our commodities.
Pursue our growth path
Our second priority is to grow our business through disciplined capital expenditure. The improved strength of our balance sheet in 2009 positions us well for growth. We have confidence in the projected increase in long term demand for our products, particularly from emerging markets, which will be the driver of this growth.
The growth opportunities that we focus on are aligned with our strategy, and so we will make investment decisions based on the quality of each opportunity rather than the choice of commodity. This may mean considering new commodities, as well as capitalising on the expansion potential that is held within our existing assets.
Complete the iron ore production
joint venture
A key achievement this year would be the completion of the proposed Western Australian Iron Ore production joint venture with BHP Billiton. After signing the binding agreements in December 2009, covering all aspects of how the joint venture will operate and be governed, we are now addressing the approvals required and integration planning. This transaction would enable us to deliver substantial synergies and unlock the true value of our significant assets in the Pilbara.
Prudent balance sheet management
We will focus on prudent management of our balance sheet, building on the successful measures we undertook to alleviate our debt position in 2009. We will continue with our operating and capital cost reduction initiatives as well as our asset divestment programme in order to optimise our financial position. Our objective in this area is towards achieving a single “A” credit rating. This priority links closely to the pursuit of growth through disciplined capital expenditure.
Strengthen our relationship with China
We will seek to strengthen our relationship with China: our largest trading partner, the home of our largest shareholder, and a market that will be one of the major drivers of future demand. China is strategically important to Rio Tinto and it is essential that we build durable and ongoing relationships there.

Sustainable development
Our commitment to sustainable development underpins our vision and every area of our business. It is an essential factor in maintaining and extending our licence to operate. This commitment provides opportunities for us to plan, implement and deliver sustainable contributions to social wellbeing, environmental stewardship and economic prosperity, within our strong governance systems.
Our approach helps us to manage risk, and our strong reputation as a socially responsible miner gives us improved access to land, people and capital – the three critical resources upon which our business success is built. A full review of our sustainable development performance begins on page 24.
Building relationships with all our internal and external stakeholders is a cornerstone of our sustainable development approach. A vital element of our relationship with our employees is to keep them healthy and safe. We believe that all incidents and injuries are preventable, and we must continue to make improvements in our key safety indicators.
Our aim is to create an environment where all employees and contractors have the knowledge, skills and desire to work safely, so that everyone goes home safe and healthy at the end of each day. Attracting, developing and retaining a skilled and engaged workforce is essential for our business performance.
Building enduring relationships with our local communities, host countries and governments is also fundamental to our sustainable development commitment, and helps us to be seen as the partner of choice for mineral development.














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1.   Focus on operational delivery
 
2.   Pursue our growth path
 
3.   Complete the iron ore production joint venture
 
4.   Prudent balance sheet management
 
5.   Strengthen our relationship with China
Key performance
indicators
Achievement of our strategy and goals are measured by a mixture of financial and non financial performance indicators, some of which are linked to executive remuneration.
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Overview
 
Key performance indicators
Measuring progress against strategy

Rio Tinto’s core objective and strategy dictate key performance indicators (KPIs) that the Group monitors, targets and measures. These KPIs fulfil three roles:
  To give senior management a means to evaluate the Group’s overall performance from an operational, growth and sustainable development perspective.
 
  To provide managers and their teams with clarity and focus on the areas that are critical for the successful achievement of the Group’s goals.
 
  To give guidance to the Remuneration committee in framing the Group’s remuneration policy.
KPI trend data
The Group’s performance against each KPI is covered in detail in later sections of the Annual report. Supporting the data is an explanation of the actions taken by management to maintain and improve the performance of each KPI.
Notes
 
(a)   The accounting information in these charts is drawn up in accordance with EU IFRS.
 
(b)   Underlying earnings is the key financial performance indicator which management uses internally to assess performance. It is presented here as an additional measure of earnings to provide greater understanding of the underlying business performance of the Group’s operations. Items excluded from net earnings to arrive at underlying earnings are explained in note 2 to the 2009 Financial statements. Both net earnings and underlying earnings deal with amounts attributable to equity shareholders of Rio Tinto. However, EU IFRS requires that the profit for the year reported in the income statement should also include earnings attributable to outside shareholders in subsidiaries.
           
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Definition
Rio Tinto’s continuous focus on safety in the workplace means that the AIFR is one of the Group’s most important non financial KPIs.
It is calculated based on the number of injuries per 200,000 hours worked. This includes medical treatment cases, restricted work day and lost day injuries for employees and contractors.
 
 
Underlying earnings is the key financial performance indicator used across the Group.
It is a measure of earnings that provides insight into the underlying business performance of the Group’s operations. Items excluded from net earnings to arrive at underlying earnings are explained in note 2 of the 2009 financial statements.
 
 
TSR measures the Group’s performance in terms of shareholder wealth generation through dividends and the share price. Rio Tinto’s TSR is calculated by an independent third party. The Group’s TSR performance compared to the FTSE 100 Index, the ASX All Ordinaries Index and the HSBC Global Mining Index, as well as the relationship between TSR and executive remuneration, is shown on pages 105-106.
 
 
Performance
At the end of 2009 our AIFR was 0.82, an improvement of 16 percent from 2008.
 
 
Underlying earnings in 2009 of US$6,298 million were US$4,005 million below the comparable measure for 2008. This was largely due to a US$6,879 million decrease due to price movements on all major commodities, partially offset by a US$484 million increase due to favourable movements in foreign exchange rates; a US$652 million increase from greater iron ore, copper and gold volumes; a US$742 million increase due to a reduction in cash costs; and an US$890 million increase from the reduction of exploration and evaluation expenditure.
 
 
Due to the rights issues in 2009, the adjusted share prices of Rio Tinto plc and Rio Tinto Ltd have changed, so the TSR values in the 2009 Annual report do not match up to the TSR values in the 2008 Annual report. At the end of 2009, the Group’s TSR was an increase of 172.5%, compared with a decrease of 71.5% for 2008.
 
 
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Definition
In December 2008, Rio Tinto announced its commitment to reduce net debt by US$10 billion in 2009.
Net debt is calculated as: the net total of borrowings, cash and cash equivalents, other liquid resources and derivatives related to net debt.
 
Capital expenditure tracks new and continuing investment in value adding sustaining and growth projects.
The Group’s capital projects are listed on page 61 in the Capital projects section.
 
Operating cash flows were introduced as a key element of the short term incentive plan in 2009. This measure is the same as that in the consolidated cash flow statement.
 
Rio Tinto accepts the urgent need for climate change action. Improvement in intensity is a reduction in total greenhouse gas emissions per unit of commodity production over time. Broadly consistent with the WBCSD/ WRI Greenhouse Gas Protocol, we calculate total greenhouse gas emissions as direct emissions (Scope 1) plus emissions from imports of electricity (Scope 2) minus electricity and steam exports and net carbon credits voluntarily purchased from, or sold to, recognised sources. We index our performance relative to 2008 as the base year.


 


      
Performance
During 2009, net debt decreased from US$38.7 billion to US$18.9 billion following the proceeds from the divestment programme, strong operating cash flows and net proceeds of US$14.8 billion from the rights issues. Net debt to total capital was significantly reduced to 29.1 per cent at 31 December 2009, compared with 63.3 per cent at 31 December 2008.
 
Capital expenditure was US$5,356 million in 2009, a decrease of US$3,132 million over 2008. Capital expenditure included the Brockman 4 and Mesa A iron ore mine developments in Western Australia, the expansion of the Yarwun alumina refinery, the construction of the Clermont thermal coal mine, the expansion of the Kestrel coking coal mine, the development of the underground diamond mines at Diavik and Argyle and the completion of the Madagascar ilmenite mine.
 
Operating cash flows, including dividends from equity accounted units, was US$13,834 million, 33 per cent lower than 2008, primarily as a consequence of lower commodity prices.
 
During 2009 we achieved a 7.5 per cent reduction in total greenhouse gas emissions intensity. This was largely as a result of divesting the Ningxia aluminium smelter in China, which is powered by coal based electricity, and reduced production at a number of operations with a higher than average emissions intensity.


 
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Overview
 
Principal risks and uncertainties

The following describes some of the material risks that could affect Rio Tinto. There may be additional risks unknown to Rio Tinto and other risks, currently believed to be immaterial, which could turn out to be material. These risks, whether they materialise individually or simultaneously, could significantly affect the Group’s business and financial results. It also outlines the exposure to risk without explaining the detail of how each is managed and mitigated, or how some risks could result in either a positive (upside) or negative (downside) impact. They should also be considered in connection with any forward looking statements in this document and the cautionary statement on the inside front cover.
External
Commodity prices and global demand for the Group’s products are expected to remain uncertain, which could have a positive or negative impact on the Group’s business.
Commodity prices and demand for the Group’s products are cyclical and strongly influenced by world economic growth. This is particularly so for our key customers, especially in the US and Asia (notably China). There is potential volatility in short to medium term commodity prices as various national stimulus packages are reduced. Muted consumer spending may result from concerns over unemployment. The Group’s normal policy is to sell its products at prevailing market prices and not to enter into price hedging arrangements. The recent improvement in commodity prices and demand for the Group’s products may not remain as strong, which would have an impact on Group revenues, earnings, cash flows, asset values and growth.
Continued growth in demand for the Group’s products in China could be affected by future developments in that country.
The Group’s iron ore is sold to Chinese customers predominantly at fixed prices rather than at spot rates. The 2009 benchmark prices were never officially agreed. Failure to agree on prices remains a source of tension between China and all the major iron ore suppliers.
The slowdown of China’s economy in 2009 contributed to a contraction in demand for aluminium and lower aluminium prices. If Chinese customers’ demand for the Group’s products fails to continue to recover or Chinese customers source such products from elsewhere, the Group’s business, financial condition and prospects could be affected.
Rio Tinto is exposed to fluctuations in exchange rates that could have an adverse impact on its overall business results.
The Group uses US dollars to denominate most of its sales, hold surplus cash, finance its operations, and present its external and internal results. Although many costs are incurred in US dollars, significant costs are influenced by the local currencies of the countries where the Group operates, principally the Australian dollar, Canadian dollar and Euro. The Group’s normal policy is to avoid hedging arrangements relating to changes in foreign exchange rates. Appreciation in the value of these currencies against the US dollar or prolonged periods of exchange rate volatility may adversely affect the Group’s business results.
Political, legal and commercial instability or community disputes in the countries and territories in which the Group operates could affect the viability of its operations.
The Group has operations in jurisdictions with varying degrees of political, legal and commercial stability. Commercial instability can be influenced by bribery and corruption in their various guises. Administrative change, policy reform, and changes in law or governmental regulations can result in civil unrest, increased regulation and potentially expropriation, or nationalisation. Renegotiation or nullification of existing agreements, leases and permits, changes in fiscal policies (including increased tax or royalty rates) or currency restrictions as well as significantly increased costs or impediments to operation are all possible consequences. Such instability could have an adverse effect on the profitability, the ability to finance or, in extreme cases, the viability of an operation.
Some of the Group’s current and potential operations are located in or near communities that may regard the operation as being detrimental to their environmental, economic or social circumstances. Community reaction could have an adverse impact on the cost, profitability, ability to
finance or even the viability of an operation. Such events could lead to disputes with national or local governments or with local communities and give rise to reputational damage. If the Group’s operations are delayed or shut down as a result of political and community instability, its revenue growth may be constrained and the long term value of its business could be adversely impacted.
The Group’s land and resource tenure could be disputed resulting in disruption to the operation or development of a resource.
The Group operates in several countries where title to land and rights in respect of land and resources (including indigenous title) may be unclear and may lead to disputes over resource development. Such disputes could disrupt or delay relevant mining projects, impede the Group’s ability to develop new mining properties, and may have an adverse effect on the Group’s results of operations or its prospects.
Changes in the cost and/or interruptions in the supply of energy, water, fuel or other key inputs could adversely affect the economic viability of the Group’s operations.
The Group’s operations are resource intensive and, as a result, its costs and net earnings may be adversely affected by the availability or cost of energy, water, fuel or other key inputs. If the prices of key inputs rise significantly more than expected, or if the Group experiences interruptions in, or constraints on, its supply of key inputs, the Group’s costs could increase and its results could be adversely affected.
Strategic
Failure of the Group to make or successfully integrate acquisitions could have an adverse effect on the business and results of operations.
Business combinations entail a number of risks including the effective integration of acquisitions (including the realisation of synergies), significant one time write-offs or restructuring charges, and unanticipated costs and liabilities. All of these may be exacerbated by the diversion of management’s attention away from other ongoing business concerns. The Group may also be liable for the past acts, omissions or liabilities of companies or businesses or properties it has acquired, which may be unforeseen or greater than anticipated.


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The Group’s business and growth prospects may be negatively affected by reductions in its capital expenditure programme.
The Group requires substantial capital to invest in greenfield and brownfield projects, and to extend the life and capacity of its existing operations. Reductions in capital expenditure (including sustaining capital) have resulted in the cancellation, slowing or deferral of projects until market conditions and commodity prices recover, and sufficient cash is available for investment. If significant variations in commodity prices or demand for our products occurs, the Group may reduce its capital expenditure further, which may negatively impact the timing of its growth and future prospects.
With the volatility of the commodity markets, the Group’s ability to take advantage of improvements may be constrained by earlier capital expenditure restrictions and the long term value of its business could be adversely impacted.
The Group’s exploration and development of new projects might be unsuccessful, expenditures may not be fully recovered and depleted ore reserves may not be replaced.
The Group develops new mining properties and expands its existing operations as a means of generating shareholder value. The Group seeks to identify new orebodies and mining properties through its exploration programme and has also undertaken the development or expansion of other major operations. There is a high degree of competition for opportunities to develop such orebodies. Certain competitors, such as state run interests, have access to significant resources and may be motivated by political or other non economic factors. The Group may be unable to find willing
and suitable joint venture partners to share the cost of developing large projects. There is no assurance, therefore, that the Group’s investment in exploration and project development will be recouped, or that depleted ore reserves will be replaced.
The Group’s proposed iron ore production joint venture with BHP Billiton in Western Australia may not yield the synergies anticipated, or may fail to be completed as currently envisaged.
Rio Tinto and BHP Billiton have proposed a production joint venture covering the entirety of both companies’ Western Australian iron ore assets. The binding agreements on the proposed joint venture were signed on 5 December 2009, and cover all aspects of how the joint venture would operate and be governed. The estimated US$10 billion net present value of the synergies may not be realised or may take longer to realise than expected. The proposed production joint venture requires regulatory approvals in a number of jurisdictions which may not be secured. Regulators may require the Group to relinquish ownership or control over certain assets prior to approving the production joint venture. Any or all of these could reduce the value anticipated from forming the production joint venture or result in a failure to implement the venture as currently envisaged.
Financial
The Group’s reported results could be adversely affected by the impairment of assets and goodwill.
An asset impairment charge may result from the occurrence of unexpected adverse events that impact the Group’s expected performances. In accordance with IFRS, the Group does not amortise goodwill but
rather tests it annually for impairment: such impairments cannot be reversed.
The Group will continue to test goodwill and may, in the future, record additional impairment charges. This could result in the recognition of impairment provisions (which are non cash items) that could be significant and could have an adverse effect on the Group’s reported results.
The Group’s net earnings are sensitive to the assumptions used for valuing defined benefit pension plans and post retirement healthcare plans.
Certain of the Group’s businesses sponsor defined benefit pension plans. The pension expense reported for these plans is sensitive to the assumptions used to value the pension obligations, and also to the underlying economic conditions that influence the assumptions. Changing economic conditions, particularly poor pension investment returns, may require the Group to make substantial cash contributions to its pension plans.
Actual investment returns achieved compared to the amounts assumed within the Group’s reported pension expense are reported in the table below (amounts for prior years have been adjusted to exclude defined contribution assets as explained in note 50 to the financial statements).
As at 31 December 2009, the Group had estimated pension liabilities (on an IAS19 accounting basis) of US$16.2 billion and assets of US$12.4 billion. After excluding those pension arrangements deliberately operated as unfunded arrangements, representing liabilities of US$1.1 billion, the global funding level for pension liabilities (on an IAS19 basis) was approximately 82 per cent. If the funding level materially deteriorates further, cash contributions from the Group may be needed, subject to local requirements.


      
Pension plan investment returns
                                         
US$ millions   2009     2008     2007     2006     2005  
 
Expected return on plan assets
    581       857       438       261       249  
Actual return on plan assets
    1,472       (2,451 )     309       517       365  
Difference between the expected and actual return on plan assets (loss)/gain (US$ million)
    891       (3,308 )     (129 )     256       116  
Difference as a percentage of plan assets
    7%       (36% )     (1% )     5%     3%
 


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Table of Contents

Overview
 
Principal risks and uncertainties continued

Operational
Estimates of ore reserves are based on many assumptions and changes in the assumptions could lead to reported ore reserves being restated.
There are numerous uncertainties inherent in estimating ore reserves including subjective judgements and determinations based on available geological, technical, contract and economic information. Assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may result in the reserves ceasing to be economically viable. Ultimately this may result in the reserves needing to be restated. Such changes in reserves could also affect depreciation and amortisation rates, asset carrying values, deferred stripping calculations and provisions for close down, restoration and environmental clean up costs.
Labour disputes could lead to lost production and/or increased costs.
Some of the Group’s employees, including employees in non managed operations, are represented by labour unions under various collective labour agreements. The Group may not be able satisfactorily to renegotiate agreements when they expire and may face tougher negotiations or higher wage demands. In addition, existing labour agreements may not prevent a strike or work stoppage, which could have an adverse effect on the Group’s earnings and financial condition.
Some of the Group’s technologies are unproven and failures could adversely impact costs and/or productivity.
The Group has invested in and implemented information systems and operational initiatives including new technologies. Some aspects of these technologies are unproven and the eventual operational outcome or viability cannot be assessed with certainty. The costs, productivity, value in securing business opportunities and other benefits from these initiatives, and the consequent effects on the Group’s future earnings and financial results may vary from expectations. If the Group’s technology systems fail to realise the anticipated benefits, there is no assurance that this will not result in increased costs, interruptions to supply continuity, failure of the Group to realise its production or growth plans or some other adverse effect on operational performance.

The Group’s mining operations are vulnerable to natural disasters, operating difficulties and infrastructure constraints, not all of which are covered by insurance, which could have an impact on its productivity.
Mining operations are vulnerable to natural events, including earthquakes, drought, floods, fire, storms and the possible effects of climate change. Operating difficulties such as unexpected geological variations that could result in significant failure, could affect the costs and viability of operations for indeterminate periods, including smelting and refining.
The Group requires reliable roads, rail networks, ports, power sources and power transmission facilities, water supplies and IT systems to access and conduct its operations. The availability and cost of infrastructure affects capital and operating costs, and the maintenance of planned levels of production and sales. In particular, the Group transports a large proportion of its products by sea. Limitations, or interruptions in, rail or shipping capacity at any port, including as a result of third parties gaining access to the Group’s integrated infrastructure, could impede the Group’s ability to deliver its products on time. This could have an adverse effect on the Group’s business and results of operations.
The Group uses an extensive information technology system and infrastructure. A significant failure of major parts of the system or malicious actions could result in significant interruption that could affect the Group’s reputation and operating results.
The Group’s insurance does not cover every potential risk associated with its operations. Adequate coverage at reasonable rates is not always obtainable. In addition, the Group’s insurance may not fully cover its liability or the consequences of any business interruptions such as equipment failure or labour dispute. The occurrence of a significant event not fully covered by insurance could have an adverse effect on the Group’s business, results of operations, financial condition and prospects.
Joint ventures and other strategic partnerships may not be successful and non managed projects and operations may not comply with the Group’s standards, which may adversely affect its reputation and the value of such projects and operations.
The Group participates in several joint venture arrangements and it may enter into further joint ventures. Although the Group has sought to protect its interests, existing

and future joint ventures necessarily involve special risks. Whether or not the Group holds majority interests or maintains operational control in its joint ventures, its partners may:
  have economic or business interests or goals that are inconsistent with, or opposed to, those of the Group;
 
  exercise veto rights to block actions that the Group believes are in its or the joint venture’s best interests;
 
  take action contrary to the Group’s policies or objectives with respect to its investments; or
 
  be unable or unwilling to fulfil their obligations under the joint venture or other agreements, such as contributing capital to expansion or maintenance projects.
Where projects and operations are controlled and managed by the Group’s partners, the Group may provide expertise and advice but it has limited control with respect to compliance with its standards and objectives. Improper management or ineffective policies, procedures or controls could adversely affect the value of related non managed projects and operations and, by association, damage the Group’s reputation thereby harming the Group’s other operations and access to new assets.
The Group may be exposed to major failures in the supply chain for specialist equipment and materials.
Rio Tinto operates within a complex supply chain depending on suppliers of raw materials, services, equipment and infrastructure to ensure its mines and process plants can operate, and on providers of logistics to ensure products are delivered. Failure of significant components of this supply chain due to strategic factors such as business failure or serious operational factors, could have an adverse effect on the Group’s business and results of operations.
      


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Sustainable development
Increased regulation of greenhouse gas emissions could adversely affect the Group’s cost of operations.
Rio Tinto’s operations are energy intensive and depend heavily on fossil fuels. There is increasing regulation of greenhouse gas emissions, progressive introduction of carbon emissions trading mechanisms and tighter emission reduction targets, in numerous jurisdictions in which the Group operates. These are likely to raise energy and production costs to a material degree over the next decade. Regulation of greenhouse gas emissions in the jurisdictions of the Group’s major customers and suppliers as well as in relation to international shipping could also have an adverse effect on the demand for the Group’s products.
The Group depends on the continued services of key personnel.
The Group’s ability to maintain its competitive position and to implement its business strategy is dependent on the services of key engineering, managerial, financial, commercial, marketing and processing people. Loss or diminution in the services of key employees, particularly as a result of an inability to attract and retain staff, or the Group not maintaining a competitive remuneration structure, could have an adverse effect on the Group’s business, financial condition, results of operations and prospects.
Competition for experienced people with international engineering, mining, metallurgy and geological expertise is high, due to a small pool of individuals against medium to high demand. This may affect the Group’s ability to retain its existing senior management, marketing and technical personnel and to attract qualified personnel on appropriate terms. Similar competition may be felt by the Group’s key contractors and equipment suppliers that, in turn, could affect the Group’s expansion plans.
The Group’s costs of close down, restoration, and rehabilitation could be higher than expected due to unforeseen changes in legislation, standards and techniques, or underestimated costs.
Close down and restoration costs include the dismantling and demolition of infrastructure and the remediation of land disturbed during the life of mining and operations. Estimated costs are provided for over the life of each
operation and updated annually but the provisions might prove to be inadequate due to changes in legislation, standards and the emergence of new restoration techniques. Furthermore the expected timing of expenditure could change significantly due to changes in commodity prices that might curtail the life of an operation. Total provisions at 31 December 2009 amounted to US$6,916 million (2008 restated: US$6,011 million) as set out in note 27 to the financial statements. These provisions could prove insufficient compared to the actual cost of restoration, or the cost of remediating or compensating for damage beyond the site boundary. Any underestimated or unidentified close down, restoration and environmental rehabilitation costs could have an adverse effect on the Group’s reputation as well as its asset values, earnings and cash flows.
Health, safety, environment and other regulations, standards and expectations evolve over time and unforeseen changes could have an adverse effect on the Group’s earnings and cash flows.
Rio Tinto operates in an industry that is subject to numerous health, safety and environmental laws, regulations and standards as well as community and stakeholder expectations. The Group is subject to extensive governmental regulations in all jurisdictions in which it operates. Operations are subject to general and specific regulations governing mining and processing, land tenure and use, environmental requirements (including site specific environmental licences, permits and statutory authorisations), workplace health and safety, social impacts, trade and export, corporations, competition, access to infrastructure, foreign investment and taxation. Some operations are conducted under specific agreements with respective governments and associated acts of parliament but unilateral variations could diminish or even remove such rights. Evolving regulatory standards and expectations can result in increased litigation and/or increased costs, all of which can have an adverse effect on earnings and cash flows.


(SIDE BAR)


www.riotinto.com   19


Table of Contents

Overview
 
Proposed iron ore production joint venture with BHP Billiton

How it will work
  The establishment and operation of the joint venture are governed by a Framework Agreement signed in June 2009 and binding agreements signed in December 2009.
 
  The establishment of the joint venture is conditional on regulatory and shareholder approvals.
 
  A new company, owned 50:50 by Rio Tinto and BHP Billiton, will be established as joint venture manager.
 
  The joint venture manager, with its own management team, will manage the joint venture as a standalone, production-only operation.
 
  The manager’s mandate will be to achieve synergies, minimise costs, maximise production and present options for expansion.
 
  Rio Tinto and BHP Billiton will each access a half share of the joint venture’s production (subject to some adjustments to recognise existing commitments to third parties).
 
  Each party will independently market its share of production.

Iron Ore Joint Venture Framework Agreement
On 5 June 2009, Rio Tinto and BHP Billiton signed a Framework Agreement to establish an iron ore production joint venture combining the operation and management of their respective Western Australian iron ore production assets.
The Framework Agreement contains exclusivity provisions preventing either party from soliciting or engaging in discussions with respect to a proposal that (in broad terms) enables a person to acquire an economic or security interest in assets within the scope of the joint venture; which may adversely impact on its benefits; which is likely to be inconsistent with completion of the joint venture; or which might require a restructuring of it.
The Framework Agreement provides for a mutual break fee of US$275.5 million payable in the event that either party: announces that it does not intend to proceed with the joint venture; after satisfaction of the key regulatory approvals, fails to recommend the joint venture to its shareholders or fails to take the steps necessary to obtain the approval of its shareholders; or breaches the exclusivity provisions. It also set out core principles that would apply to the establishment of the joint venture.
Description of binding agreements
On 5 December 2009, Rio Tinto and BHP Billiton signed binding agreements that set out the terms that will regulate the establishment of the joint venture and its ongoing operation. Those terms are consistent with the core principles set out in the Framework Agreement, except that the joint marketing of 15 per cent of output contemplated by the core principles will not take place: all output will be sold by Rio Tinto and BHP Billiton separately.
Scope of joint venture
The joint venture will encompass the management and operation of the economic interests of Rio Tinto and BHP Billiton in all current and future iron ore operations in Western Australia, including exploration interests, leases, mines, rail lines, ports and associated infrastructure, and all related employees and contractors. However, the joint venture will not include BHP Billiton’s Hot Briquetted Iron plant (HBI) or Rio Tinto’s interest in HIsmelt™, and its application to other secondary processing activities will be limited. Marketing activities and business development outside Western Australia are also outside the scope of the joint venture.
The parties to the joint venture will share the economic burden of all related liabilities, other than material undisclosed liabilities (with a minimum claim of US$300 million and a maximum claim period of ten years) and certain pre-July 2009 tax liabilities. It is intended that the joint venture will continue in perpetuity.
Conditions precedent
The binding agreements remain subject to satisfaction of certain conditions precedent, including satisfying relevant anti-trust requirements, obtaining Australian foreign investment clearance from the Commonwealth Treasurer and favourable rulings from the Australian Taxation Office and State revenue authorities, obtaining certain other government approvals, and obtaining the approval of BHP Billiton and Rio Tinto shareholders. The Framework Agreement and the binding agreements will terminate if the conditions precedent are not satisfied by 31 December 2010.
Financial adjustments
The economic interests of Rio Tinto and BHP Billiton in the joint venture will be equal. The


joint venture is a contractual arrangement and the parties will not be acquiring shares in each other’s iron ore companies or legal or beneficial interests in each other’s iron ore assets. The parties will obtain an economic exposure to each other’s iron ore production assets through each of them subscribing for debentures in an interposed company in the other’s group that holds shares in the other’s asset holding subsidiaries.
To equalise the net value of the parties’ asset contributions to the joint venture, BHP Billiton will also subscribe US$5.8 billion in cash for additional debentures in the Rio Tinto interposed company. This amount will be inflated from 1 July 2009 to completion at a rate of 6.5 per cent per annum, and will also be adjusted to reflect equalisation of net cash flows from 1 July 2009 in the manner described below.
The parties have agreed that they will bear the economic benefit and burden of the after-tax cash flows of their respective assets in the period from 1 July 2009 to commencement of the joint venture. To achieve this, the BHP Billiton cash subscription payment described above will be adjusted for 50 per cent of the difference between the net cash flows (after tax) from the Rio Tinto operations and the BHP Billiton operations during the period from 1 July 2009 until completion, inflated at a rate of 6.5 per cent per annum.
Governance of the joint venture
Management of the joint venture will be overseen by a “non executive” Owners’ Council comprised of four representatives of each party. All decisions of the Owners’ Council must be approved by both parties, subject to certain deadlock breaking mechanisms.
The initial chairman of the Owners’ Council will be Sam Walsh (Rio Tinto executive director and chief executive, Iron Ore), who will hold that office for a period of four years. The Owners’ Council will have the power to approve high level policies (such as accounting, business conduct, communities and health, safety and environment) relating to the joint venture, review the conduct of activities undertaken by the manager and give general direction to the manager.
The Owners’ Council will also have powers and functions, much like a board of directors, in relation to other matters, including: approval of business and synergy plans; approving major contracts and capital projects; reviewing performance of the joint venture; approving major asset acquisitions, disposals and closures; approving strategies for dealing with third party access requests; approving
      


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product types, volumes and specifications; approving entry into, or amendment of State Agreements; and approving the appointment and remuneration of senior executive team members. Standing and ad hoc committees comprised of an equal number of representatives of Rio Tinto and BHP Billiton will be established to advise the Owners’ Council in relation to the exercise of some of its powers and functions.
Management
The joint venture manager, a new entity owned equally by Rio Tinto and BHP Billiton, will manage all day to day activities of the joint venture without interference from Rio Tinto and BHP Billiton. In addition, the manager will develop plans for realisation of synergies and will present the Owners’ Council with annual business plans and budgets designed to achieve full utilisation of system capacity and options for maximisation of production capacity through expansion. The manager must ensure joint venture operations are conducted safely at all times, act equitably and fairly to the parties, and act in accordance with business plans and budgets approved by the Owners’ Council.
Senior management of the manager will be selected jointly, with broadly equal participation from Rio Tinto and BHP Billiton. The initial chief executive officer of the joint venture will be BHP Billiton Iron Ore President Ian Ashby, who will hold that office for a period of four years. Future chief executive officers will be appointed by the Owners’ Council.
Funding and default
The joint venture will operate with a minimum cash balance and will be financed entirely by the parties, through money subscribed for debentures and money advanced by loan to the relevant iron ore companies conducting operations. The manager of the joint venture will call for cash from Rio Tinto and BHP Billiton on a regular basis to fund the joint venture and capital expenditure programmes. The parties may elect to fund their proportionate share of an expansion or acquisition by way of project financing and may use their interests in the joint venture to secure corporate debt.
Failure to advance funds to meet calls made by the manager will give rise to a suspension of the defaulting party’s Owners’ Council voting rights and may trigger dilution of the defaulting party’s interest in the joint venture or a right to buy out the defaulting party.
Expansions and acquisitions
Sole risk rights will exist for expansion projects which involve capital expenditure exceeding US$250 million (indexed).
Disagreements in relation to preferred expansion pathways (where more than one option exists) will be resolved by the manager determining which expansion pathway has the highest net present value.
Proposals for new iron ore acquisitions or investments in Western Australia will be referred to the Owners’ Council and, if both parties agree, be undertaken within the joint venture. Absent this agreement, the opportunity may be undertaken by the proposing party as a sole risk project.
Marketing of product and adjustments
and tonnage supply
Rio Tinto and BHP Billiton will continue to compete and market iron ore to their customers separately. A separation protocol will ensure that the manager has no knowledge of Rio Tinto and BHP Billiton’s marketing strategies or sale terms relating to production from the joint venture. The manager will supply equal product volumes and specifications of product to each party to the extent possible. Where equal supply is not possible, adjustments will be made to ensure that each party receives equal value. These adjustments may include differential distributions on the debentures.
Disposal of interests
The parties will both be free to sell some or all of their respective interests in the joint venture without any pre-emptive rights or change of control restrictions applying (although certain principles and restrictions will apply depending on the nature and extent of the disposal). The right to vote on the Owners’ Council can, however, only be exercised by a person with an economic interest of more than 25 per cent of the joint venture, except in the unlikely scenario where neither party holds an economic interest above 25 per cent. Neither party will be entitled to sell the underlying assets or interests separately from the joint venture interest, and rights to create security interests over the underlying assets and interests are limited.


(SIDE BAR)


www.riotinto.com   21


Table of Contents

Performance
 
Group financial performance

Guy Elliott, chief financial officer
(GUY ELLIOTT PHOTO)

We are continuing to focus on achieving a single
“A” credit rating, through measures such as
completing divestments of non core assets.
 
(LOGO)     For further financial information please see the Financial review on pages 58 and 59 and the
         Financial statements from page 130.
 


                       
            Underlying      
            earnings     Net earnings 
            US$m     US$m 
2008
            10,303       3,676 
Prices
    (6,879 )              
Exchange rates
    484                
Volumes
    652                
General inflation
    (172 )              
Energy
    318                
Other cash costs
    742                
Exploration and evaluation costs (including disposals of undeveloped properties)
    890                
Interest, tax, other
    (40 )              
 
                 
 
            (4,005 )     (4,005)
Profits on disposal of interests in businesses
                    (971)
Net impairment charges
                    6,854 
Exchange differences and derivatives
                    (815)
Chinalco break fee
                    (182)
Restructuring/severance costs from global headcount reduction
                    (174)
Other
                    489 
 
2009
            6,298       4,872 
 

The Group uses a number of key performance indicators (“KPI“s) to monitor financial performance. These are summarised and discussed on pages 14 and 15 of this report.
Net earnings and underlying earnings
In order to provide additional insight into the performance of its business, Rio Tinto presents underlying earnings.
2009 underlying earnings of US$6,298 million and net earnings of US$4,872 million were US$4,005 million below and US$1,196 million above the comparable measures for 2008. The principal factors explaining the movements are set out in the table above.
Prices
The effect of price movements on all major commodities in 2009 was to decrease earnings by US$6,879 million compared with 2008. Prices declined for nearly all of Rio Tinto’s major commodities: average copper
and aluminium prices were 28 per cent and 35 per cent lower, respectively, while average molybdenum prices were 65 per cent lower than 2008. Gold prices in 2009 were 11 per cent higher than 2008. Diamond prices were severely impacted by the global economic downturn.
During 2009, Rio Tinto settled 2009 iron ore supply contracts with customers in Japan, Korea and Taiwan, with prices for fines declining 33 per cent and prices for lump declining 44 per cent on the prior year. Approximately half of the iron ore that Rio Tinto produced in the first six months of 2009 was sold on a spot market basis. In the second half of the year, deliveries to Chinese customers were priced primarily on a provisional basis in line with settlements with other Asian customers.
Thermal coal contracts for 2009 were settled in the US$70-72 per tonne range, a decrease of approximately 44 per cent on
the record levels of the previous year. Coking coal contracts for 2009 were settled in the US$115-130 per tonne range, a decline of approximately 60 per cent on the record levels of 2008.
Exchange rates
There was significant movement in the US dollar in 2009 relative to the currencies in which Rio Tinto incurs the majority of its costs. Compared with 2008, on average, the US dollar strengthened by eight per cent against the Australian dollar and by six per cent against the Canadian dollar. The effect of all currency movements was to increase underlying earnings relative to 2008 by US$484 million.
Volumes
Higher sales volumes from the expansion of iron ore capacity in the Pilbara region of Western Australia and higher copper and gold grades at Kennecott Utah Copper and Grasberg were partly offset by production
      


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cutbacks at Rio Tinto Alcan, Alcan Engineered Products, Diamonds, Iron & Titanium and Minerals in response to the economic downturn. The overall impact of volume movements was an increase in underlying earnings of US$652 million relative to 2008.
Energy, other cash costs and exploration
A reduction in cash costs during 2009 increased underlying earnings by US$742 million compared with 2008. Controllable operating cost savings of US$2.6 billion were achieved in 2009, exceeding the target set in December 2008 and delivered one year in advance. Lower unit costs in the Copper group, notably at Kennecott Utah Copper, were driven by higher production and a bottom-up cost reduction programme. The Iron Ore group benefited from lower unit cash costs in line with higher sales volumes and a reduction in contractor and maintenance costs. Decreased costs at Rio Tinto Alcan were driven by the major cost cutting initiatives undertaken in response to the global financial crisis including reduction of all non-critical, discretionary spending along with programmes to reduce operating costs across the production sites.
Lower energy costs across the Group boosted underlying earnings by a further US$318 million, reflecting the impact of a lower oil price. Evaluation work at many of the Group’s advanced projects was scaled back in 2009 and the central exploration budget was reduced by 60 per cent, which, together with the divestment of some exploration and evaluation properties, resulted in a favourable impact to underlying earnings of US$890 million compared with 2008. In line with Rio Tinto’s exploration policy, the US$797 million gain on disposal of the undeveloped potash properties in Argentina and Canada has been recognised within underlying earnings. This is reflected in the exploration variance in the table below net of the US$483 million gain on disposal of the undeveloped Kintyre uranium project in 2008.
Interest, tax, other
The effective tax rate on underlying earnings, excluding equity accounted units, was 24.8 per cent compared with 31.6 per cent in 2008. The decrease largely related to the one-off non taxable profit on disposal of the potash assets which was recognised in 2009. The Group interest charge was US$452 million lower than in 2008, mainly reflecting a decline in interest rates, and lower debt in 2009 following completion of the rights issues.
Exclusions from underlying earnings
                 
      2009     2008  
      US$m     US$m  
 
Underlying earnings
    6,298       10,303  
                 
Items excluded from underlying earnings
               
Profits on disposal of interests in businesses
    499       1,470  
Net impairment charges2
    (1,552 )     (8,406 )
Exchange differences and gains/ (losses) on derivatives
    28       843  
Chinalco break fee1
    (182 )      
Restructuring/severance costs from global headcount reduction
    (231 )     (57 )
Other
    12       (477 )
 
Net earnings
    4,872       3,676  
 
1   The Chinalco break fee was US$195 million pre-tax
 
2   Net impairment charges include impairment charges of US$1,103 million (2008: US$7,579 million) and loss after tax of discontinued operations of US$449 million (2008: US$827 million)
In 2009, the Group completed the divestments of its interests in the Ningxia aluminium smelter, the Corumbá iron ore operation, the Jacobs Ranch coal mine, Alcan Composites and the sale of 52 per cent of the Group’s interest in Cloud Peak Energy Resources LLC. Net gains on these transactions totalling US$0.5 billion have been excluded from underlying earnings as divestments of interests in businesses are considered to be outside the underlying activities of the Group.
The sale of the majority of the Alcan Packaging businesses to Amcor was completed on 1 February 2010. The sale of the Alcan Packaging Food Americas division to Bemis Company, Inc for a total all cash consideration of US$1.2 billion was completed on 1 March 2010. The sale of Maules Creek to Aston Resources was completed on 18 February 2010. The sale of the Alcan Packaging Medical Flexibles operations remains subject to regulatory approvals and other customary closing conditions. These divestments have not been reflected in the 2009 results, and will be reflected in the period in which the sales are completed.
Of the Group’s total post-tax impairment charge of US$1.6 billion, US$0.5 billion relates to Alcan Engineered Products, US$0.5 billion relates to Alcan Packaging, US$0.2 billion relates to the Group’s upstream aluminium businesses and US$0.4 billion relates to the Group’s diamond businesses. All impairments have been measured based upon an assessment of fair value less costs to sell. These impairments have been caused by continued weakness in the economic environment.
In 2009, Rio Tinto paid a break fee of US$195 million (US$182 million post-tax) to Chinalco which has been excluded from underlying earnings.
During 2009, the Group incurred restructuring and severance costs of US$231 million associated with its global headcount reduction programme.
-s- Guy Elliott
 
Guy Elliott
Chief financial officer


(SIDE BAR)

 
Group financial results by product group
                 
    2009     2008  
    US$m     US$m  
 
Iron Ore
    4,126       6,017  
Aluminium
    (578 )     1,271  
Copper
    1,866       1,597  
Energy
    1,420       2,581  
Diamonds & Minerals
    800       474  
Other operations
    (188 )     (133 )
Inter-segment transactions
    (28 )     25  
Other items
    (547 )     (366 )
Central exploration and evaluation
    5       (133 )
Net interest
    (578 )     (1,030 )
 
Group underlying earnings
    6,298       10,303  
Exclusions from underlying earnings
    (1,426 )     (6,627 )
 
Net earnings
    4,872       3,676  
 
      


www.riotinto.com   23


Table of Contents

Performance
 
Sustainable development review
We are focused on long term sustainable development

Our focus on sustainable development provides the framework in which our business operates. It allows us to maintain a highly regarded reputation that ensures ongoing access to people, capital and mineral resources. This in turn helps us to deliver better return for our shareholders, manage risk effectively, reduce environmental impacts, cut operating costs, attract and retain high calibre employees and provide more business development opportunities.
(MOUSE)   View more about our approach to sustainable development at www.riotinto.com
 
Strategy
Sustainable development is an integral part of the way in which Rio Tinto conducts its business, with leadership coming from the board of directors and the chief executive.
Our global code of business conduct, The way we work, reinforces our commitment to integrate sustainable development thinking in the way we make decisions about finding, acquiring, developing, and operating assets around the world. To assist our people to understand what is expected of them, we launched Leading at Rio Tinto in 2009. This requires seven leadership competencies to be demonstrated at each level of our organisation and includes promoting sustainable development. It is being incorporated in our recruitment and selection, performance management and development planning processes.
Sound governance and high standards of conduct are sources of competitive advantage for us. They contribute to long term business success by securing access to talent and capital, enhancing reputation and improving operational performance and supply chain management. Environmental performance, community relations, employee wellbeing and transparency are just as important to us as the technical aspects of mining and processing.
We remain an active member of the International Council on Mining and Metals (ICMM) (www.icmm.com), which evolved from the Global Mining Initiative in 1998 and which aims to provide leadership on scientific and policy matters, maintain dialogue with all stakeholders, and promote best practice performance standards employing sustainable development principles.
Key achievements
  The way we work, our global code of business conduct, and Speak-OUT, our confidential whistleblowing programme, were revised.
 
  Of the electricity we used in 2009, 70 per cent was from low carbon sources, mainly hydro.
 
  We achieved a 16 per cent reduction in our all injury frequency rate during 2009.
 
  We completed the health, safety and environment integration of Rio Tinto Alcan.
 
  Rio Tinto remains the largest private sector employer of indigenous Australians.
 
  Our new global leadership competency model, Leading at Rio Tinto, was launched.
      


Materiality assessment
We use a materiality assessment to focus our report on our most significant sustainable development impacts.
Our assessment process has been developed in line with the Global Reporting Initiative (GRI) G3 guidance on materiality and completeness. It involves identifying issues affecting our business and its stakeholders, prioritising their importance over the next three years from internal and external perspectives and validating issue prioritisation.
Performance data for our most material sustainable development issues are subject to external assurance.
Omission from the issues covered in our report does not mean that the issue is not managed by the company.
In line with the outcomes of our assessment, we have also further discussed the most material issues – financial performance, safety and greenhouse gas emissions – in the product group operating and financial reviews within this Annual report.
(PIE CHART)
      


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  Why gender matters, a resource guide for our Communities work, was published.
 
  Our Pandemic Influenza Preparedness Plan was developed and rolled out to manage the swine influenza (H1N1) pandemic.
 
  We retained our listing on the FTSE4Good, Dow Jones Sustainability Indexes and Climate Disclosure Leadership Index, and ranked first on the Resources Global Professionals corporate governance survey.
Key priorities
  Continue to reduce injury rates toward our goal of zero, including zero fatalities.
 
  Implement our improved contractor safety management system and our new health, safety and environment framework for major project development.
 
  Implement our wellbeing strategy to guide development of a global framework for local health and wellbeing programmes.
 
  Expand our employee diversity focus to address ethnicity and nationality.
 
  Continue engaging on and preparing for evolving energy and greenhouse gas (GHG) emission regulation.
 
  Embed our energy use and GHG emissions intensity reduction programmes.
 
  Explore ecosystem service values of our non operational landholdings, in particular carbon, water and biodiversity opportunities.
 
  Continue to strengthen our management systems by developing and implementing strategies to manage our key sustainable development risks and improve performance.
 
  Support our new Group wide health, safety, environment and communities performance targets, building on the successes and challenges of our previous targets.
Goals and targets
We have set 2008 – 2013 targets for a range of sustainable development metrics including:
  Measuring progress towards our goal of zero injuries and zero fatalities through our all injury frequency rate.
 
  Thirty per cent reduction in the rate of new cases of occupational illness.
 
  Ten per cent reduction in the rate of employees exposed to an eight hour noise dose of more than 85 decibels.
 
  Operations having in place locally appropriate, publicly reported social performance indicators that demonstrate a positive contribution to the economic
    development of the communities and regions where we work which are consistent with the Millennium Development Goals.
 
  Six per cent reduction in total greenhouse gas emissions per unit of production. We are also targeting a further four per cent reduction by 2015, to deliver an overall ten per cent reduction.
 
  Six per cent reduction in our freshwater use per tonne of product.
Performance data
Rio Tinto’s sustainable development data are reported for calendar years and, unless otherwise stated, our inventories represent 100 per cent of the parameter at each managed operation, even though Rio Tinto may have only partial ownership.
Data reported in previous years may be modified if verification processes detect material errors, or if changes are required to ensure comparability over time.
Wherever possible, data for operations acquired prior to 1 October of the reporting period are included. Divested operations are included in data collection processes up until the transfer of management control.
Former Alcan operations (with the exception of the Engineered Products and Packaging divisions, which are in the process of being divested) have adopted our reporting definitions and have been included in our inventories since 1 January 2008.
We report in line with the Global Reporting Initiative (GRI) G3 guidelines at Application level A+.
We have implemented ICMM’s ten sustainable development principles and disclosed the alignment of our policies, strategies, standards and practices with ICMM’s principles and position statements on our website.
The remainder of this section details the status and implementation of our systems and approaches to manage our material sustainable development issues and our performance in these areas. Further information on our data definitions, reporting criteria, our GRI report and our target setting and assurance processes can be found on our website www.riotinto.com.
Governance systems
The way we work reaffirms our commitment to corporate responsibility. It covers issues related to the workplace, human rights, communities and environment, business integrity, Group assets and information management and government, media and investor relations.
The way we work does not stand alone; it is supported by the Group policies, standards and guidance notes, which are available on our website, local laws and voluntary commitments. We are subject to the local laws of the many countries in which we operate. We build on compliance with these laws and where our policies and procedures are more stringent, we operate to those standards regardless of where our operations are located.
All employees are required to complete online or classroom training on The way we work every two years. Online training is available in 12 languages. We complete a variety of internal and external assurance activities to verify implementation of our Group wide systems and controls, see page 32.
Business integrity
Rio Tinto conducts its business with integrity, honesty and fairness, building from a foundation of compliance with relevant local laws, regulations and international standards wherever we operate.
Business integrity training is required for all managers, of which 6,279 completed training covering anti-bribery, anti-corruption and political involvement during 2008 and 2009. We do not directly or indirectly participate in party politics and we do not make payments to political parties or individual politicians.
Mining is a heavily regulated industry and we maintain continuous dialogue with governments and public authorities at national, provincial and municipal levels. We make representations on matters affecting our business interests and those of our stakeholders.
We were a founding supporter of the United Nations Global Compact (www.unglobalcompact.org), a voluntary initiative for businesses to align their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption.
We are active in promoting transparency and high standards of corporate governance more widely, and support a number of voluntary initiatives designed to counter bribery and corruption, to promote transparency and to protect human rights. In particular, through ICMM we are a company endorsing member of the Extractive Industries Transparency Initiative (EITI) (www.eitransparency.org). We engage in the promotion and implementation of the EITI in candidate countries where we operate.
Additionally, we have a long standing partnership with the Dundee University Centre for Energy, Petroleum and Mineral Law and Policy to sponsor postgraduate


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studies contributing to the creation of a stable international legal and investment environment (www.dundee.ac.uk).
Human rights
We support and respect human rights consistent with the United Nations Universal Declaration of Human Rights and we actively seek to ensure that we are not complicit in abuses committed by others. Rio Tinto endorses several international commitments and standards on human rights and remains dedicated to meeting them.
Training on human rights is provided for employees at the general manager level or above as well as our contract security personnel. Human rights training was completed by 2,797 employees during 2008 and 2009. There were no reported incidents of breaches of our human rights policy during 2009.
Richards Bay Minerals concluded its Broad Based Black Economic Empowerment transaction with a consortia of local businesses and community groups during 2009. It is now fully empowered in accordance with the South African Mining Industry Charter five years ahead of the required date in 2014.
Rio Tinto operates in a manner consistent with the UN Declaration on Indigenous Peoples and sovereign obligations. We respect the land connection of indigenous communities and work with them on their land in a spirit of reciprocity, transparency and recognition of their culture. We recognise that every indigenous community is unique and reach specific agreements with affected communities on how they want to engage with us in the development and performance of our operations.
Stakeholder engagement
Genuine engagement with stakeholders is a critical element of successful business practice. Issues such as climate change, water and poverty alleviation are globally complex and require stakeholders to work together to explore and develop appropriate solutions.
Building strong working relationships with those who are affected by, or have an interest in, what we do is essential to our operations. We engage with a broad range of organisations and individuals including our employees, investors, governments, communities, academia, industry bodies, and civil society groups to help us identify and manage risks. We then implement internal controls to minimise threats and capitalise on opportunities presented through this exchange of sustainable development thinking.
We provide clear and timely communication concerning business performance and corporate developments through meetings, newsletters, websites, videos, and social media such as Twitter (www.twitter.com/ riotinto) and YouTube (www.youtube.com/ RioTintoVideos).
We are a member of a number of industry associations and of representative bodies including the World Business Council for Sustainable Development (www.wbcsd. org) and maintain active partnerships with other organisations to achieve our shared goals more effectively. We work closely with international and non governmental organisations to develop appropriate standards and guidelines for our industry.
During 2009 the US$1 million annual Rio Tinto Prize for Sustainability continued to recognise significant contributions made by non profit, non governmental or civil society organisations promoting and implementing sustainable development. Trees, Water and People (www.treeswaterpeople.org), based in the US and working in Central America, Haiti and the American West, was the most recent recipient of the prize.
Closure
We have a multidisciplinary approach to closure planning, involving communities, human resource, environmental, engineering and financial specialists. Integrating closure planning into all aspects of our business, from the earliest stages of project development to the decommissioning of facilities, is essential to leave a positive legacy of sustainable development, minimise unforeseen financial impacts and ensure stakeholder expectations are met. Achieving a reputation for positive closure outcomes assists us to gain access for future projects.
At the end of 2009 our close down and restoration provisions were US$6,916 million. Our closure management plans are updated every five years to ensure they address key risks, incorporate sustainable development opportunities and include accurate financial provisions. Since 2005 43 closure management plans have been completed, including eight in 2009. Guidance and best practice examples are shared across the Group to improve performance.
During 2009 our closure standard and guidance were updated to incorporate considerations for long life industrial type facilities following the Rio Tinto Alcan integration.
We have established a team of specialists to manage our legacy sites, the majority
of which were introduced to us through acquisitions, to ensure our closure standard and sustainable development principles are applied in these areas.
Our closure standard and communities standard require our operations to engage regularly with stakeholders, including employees, traditional land owners, local communities and governments. Together, we identify preferred sustainable development options for closure and seek stakeholders’ endorsement. Examples include:
  Argyle diamond mine engages with Traditional Owners on rehabilitation methods for waste rock dumps and preferred vegetation types as it transitions to an underground operation.
 
  Kestrel coal mine, still with more than 20 years of predicted life, has surveyed local communities and employees on their expectations for closure and incorporated outcomes in post-closure land use plans as part of Rio Tinto Coal Australia’s Mine Life Planning programme.
 
  Rio Tinto Alcan applied a “regional industrial development” process during the decommissioning of the Lannemezan and Anglesey smelters. This involved engaging with stakeholders and encouraging new post-closure uses for industrial facilities so as to maintain regional socio-economic benefits.
We continue to participate in initiatives to enhance closure planning guidance for our industry through recognised bodies such as the International Council on Mining and Metals, the Responsible Jewellery Council (www.responsiblejewellery.com) and the Minerals Council of Australia (www.minerals.org.au).
Social wellbeing
We are committed to providing a safe and healthy workplace for our employees where their rights and dignity are respected. We set out to build enduring relationships with our neighbours that demonstrate mutual respect, active partnership, and long term commitment.
In 2009 we set new five year targets for a range of social wellbeing metrics which are discussed in the following sections.
Safety
Our goal is to achieve zero injuries and zero fatalities. We believe that all injuries are preventable and our aim is for everyone to go home safe and healthy at the end of each day. We strive to create a culture where everyone


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feels that they can make a difference in an environment where all employees and contractors have the knowledge, competence and desire to work safely.
Regrettably we did not meet our goal of zero fatalities in 2009. Four people were fatally injured while working at Rio Tinto managed operations. The fatal incidents occurred at the Lugo di Vicenza aluminium packaging operation in Italy, the Palabora copper mine and the Richards Bay Minerals titanium dioxide feedstock mine in South Africa, and at the Awaso bauxite mine in Ghana. We continue to provide support and counselling to the families and workmates who are impacted by these incidents. We shared the lessons from these and other serious incidents across our business.
We measure progress toward our goal of zero injuries through the all injury frequency rate (AIFR) which includes data for employees and contractors. At the end of 2009 our AIFR was 0.82, an improvement of 16 per cent from 2008. Over the last five years we have reduced our AIFR by 46 per cent. Our lost time injury frequency rate has also improved and was 0.43 per 200,000 hours worked in 2009.
Low injury rates do not mean that serious incidents will not happen. Our Semi Quantitative Risk Assessment (SQRA) process provides a rigorous approach to the identification and evaluation of higher consequence / lower frequency hazards. The risk reduction resulting from application of the SQRA process is used as a Group wide leading indicator for safety performance. Additionally we undertook seven process safety reviews of our higher risk facilities in 2009.
We have also implemented a significant potential incident reporting measure which promotes identification, investigation and sharing of lessons learnt from critical incidents and introduced streamlined root cause identification training for leaders to reinforce our incident investigation processes.
Contractor safety was a particular area of focus for us in 2009. Following a review of internal and external best practices, we strengthened our health, safety, environment (HSE) and quality management systems for supplier and contractor management and met with senior leadership of major contract companies to raise the profile of our HSE management expectations.
Our Safety Leadership Development Programme continued to be a pillar of our sustainable safety process. An updated programme focused on developing HSE skills within the Group was launched in 2009.
Rio Tinto has taken an active role in the Flight Safety Foundation, the world’s foremost independent aviation safety organisation. We co-championed development of new aviation standards for the global mining and onshore resources industry. These new standards are being supported by a growing number of major mining companies and are expected to improve aviation safety for everyone involved in our industry.
We also support the Australian Royal Flying Doctor Service. The Rio Tinto Life Flight provides free of charge emergency jet services to patients in need of evacuation when time and distance are critical.
We are developing a framework to ensure new projects are managed safely and in line with our sustainable development requirements throughout their development life cycle. This framework will define our expectations for implementation of Group standards and systems, requirements for and training of leaders, and the assurance process for health, safety and environment engagements.
Health
Our goal is no new cases of occupational illness. Whilst we have significantly reduced the number of occupational illness cases reported over the last five years, we have set a new Group target to further reduce the rate of new cases of occupational illness per 10,000 employees by 30 per cent between 2008 and 2013. The 2008 baseline for this target excludes operations that were divested or flagged for divestment during 2009. In 2009 we achieved a 21 per cent improvement.
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Reported illnesses are mostly related to stress, musculo-skeletal disorders, and noise induced hearing loss. Therefore ongoing reductions will require further improvements in the management of risks posed by manual handling and noise exposure, as well as supporting healthy lifestyles through workplace wellbeing programmes.
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We have also set a new Group target of a ten per cent reduction in the number of employees exposed to an eight hour noise dose of more than 85 decibels by 2013 from a 2008 baseline. In 2009, the number of employees reported as exposed increased by six per cent per 10,000 employees, primarily due to further improvements in monitoring programmes and operational changes such as moving from surface to underground


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activities, leading to changed exposure profiles at a number of our operations.
Assessing major noise sources and then implementing practical and cost effective noise controls is complex, particularly for heavy mobile equipment and noise sources in smelters. We have therefore established a community of practice to share learning and assist with the development of more effective noise reduction methods, including engineering solutions and alternative ways of working.
During 2009 our Pandemic Influenza Preparedness Plan was revised to incorporate the lessons we learned from the first wave of the H1N1 pandemic virus. Our European and North American sites were affected by the second wave, and the plan assisted them to manage the situation with minor disruptions to their daily activities.
We believe that supporting healthy lifestyles will reduce health related risks such as fatigue, stress and obesity, with resultant improvements in health and safety performance and productivity.
Our new health and wellbeing strategy will result in greater support for our employees to lead healthier lives. We have continued to roll out our “Achieve Health” programme at our Australasian businesses and more than 3,000 of our people around the world signed up for our Be Active challenge in 2009. Four months after the challenge ended 65 per cent of people surveyed rated their health as above average or excellent, compared with only 33 per cent before the challenge started.
Rio Tinto operates in countries where the prevalence of HIV, tuberculosis and malaria is high. We are working closely with the international community engaged with these problems not only in Africa, but globally. Where we have operations located in regions with a generalised HIV epidemic (as defined by UNAIDS) we actively encourage all employees to know their HIV status through voluntary testing. We also require that all employees and their nominated partner have affordable access to treatment, care and support, including antiretroviral drugs.
Our people
Rio Tinto employs on the basis of job requirements and does not discriminate on grounds of age, ethnic or social origin, gender, sexual orientation, politics, religion or disability. Group companies employ disabled people and accept the need to maintain and develop careers for them. If an employee becomes disabled and, as a result, is unable to perform his
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or her current duties, every effort is made to offer suitable alternative employment and to assist with retraining. We do not employ forced, bonded or child labour and we actively favour local employment where local candidates meet job requirements and laws allow. We recognise the right of all employees to choose to belong to a union and seek to bargain collectively. We strive to build a workforce that is aligned with our values, and that represents the diverse communities and geographies in which we operate.
In 2009, we employed 102,000 people, including the Group’s proportionate share of consolidated companies and equity accounted units. Of these approximately 28,000 were located in North America, 28,000 in Europe, 20,000 in Australia and New Zealand, 8,000 in Africa and 7,000 in Latin America.
As a result of the impact of the global financial crisis on Rio Tinto, we reported a planned reduction of 14,000 roles globally (8,500 contractor and 5,500 employee roles) in 2008. The workforce was reduced by around 16,000 with careful monitoring to ensure no discrimination occurred and that the organisation has the talent necessary to deliver shareholder value in the future.
A diverse and skilled workforce is critical to our business success in the long term. Excluding the chief executive, 20 per cent of the chief executive’s executive committee are women. However, we have not met our target of 20 per cent representation of women in senior management by 2009, achieving a 13 per cent representation. In 2010, our diversity focus will be expanded to address ethnicity and nationality.
By engaging with our employees about the business and their career aspirations, implementing individual development planning, coaching and feedback processes and valuing each individual’s contribution, we position the organisation to achieve change and improvement in this key risk area.
Our total rewards strategy is designed to attract, retain and motivate our workforce. Base pay is reviewed regularly and adjusted taking into account the individual’s role and local market trends as necessary. We also offer allowances, bonuses, share plans and healthcare benefits appropriate to the local markets. Short term incentive plans allow individuals to participate in the financial success of the business, while long term incentive plans help align individual objectives with shareholder interests.
As a result of the first Group wide employee engagement survey in 2008, targeted actions were implemented across the Group to increase levels of employee engagement in the areas of business leadership and direction, image and corporate social responsibility, and safety. The impact of these actions will be measured in a further survey in 2010.
Approximately 380,000 attendances were recorded for training courses in health, safety, environment, sustainable development and technical/operational skills in 2009. This is a significant increase on 2008 and is primarily due to increased availability of technology based learning.
We employ graduates from many disciplines including mining and process engineering; geology and geosciences; finance; human resources; health, safety and environmental sciences. In 2009, 200 graduates attended our Graduate Development Programme and we employed over 600 apprentices. Our targeted representation of women in the graduate intake fell slightly to 29 per cent in 2009.
Our local employment commitments are often managed through directly negotiated community benefit agreements. For example, in 2009:
  We remained the largest private sector employer of indigenous Australians and maintained our proportion of indigenous Australian employees at eight per cent of our Australian workforce.
 
  In Madagascar a transparent job seeker database was developed to assist with employment of local people. We now have 512 local employees and a Malagasy managing director.


      

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  In Oman, where there is not an established pool of highly skilled potential employees, we almost met our five year commitment to locally hire 70 per cent of the Sohar Aluminium smelter workforce within its first year of operation.
Rio Tinto expects all employees to treat each other and external contacts with integrity, fairness and respect in line with our values. Our Speak-OUT programme was revised and reinforced in 2009, providing employees with an independent and confidential means of reporting concerns to senior managers.
Community engagement and regional economic development
By understanding our socio-economic interaction in the regions where we operate, we optimise benefits and reduce negative impacts for communities and our operations alike. This interaction includes relationships with local suppliers, training and local employment, support for small to medium enterprises, optimal distribution of taxes and royalties, and support for multilateral socio-economic programmes. Infrastructure developed for our mines or processing plants can also benefit local communities and local businesses and governments.
Increased cash availability and wealth resulting from our presence in regions where there was previously little can inflate the price of goods and services locally. We manage such scenarios to avoid these negative outcomes. At our mineral sands project in Madagascar, for example, we developed and implemented influx and inflation mitigation strategies together with the local community.
Women in communities often disproportionately bear the burden of change brought about by mining and other developments. In recognition of this, we have launched Why gender matters, a guide to better incorporate gender considerations in our communities work. The guide is available on our website, www.riotinto.com.
To enable us to target the delivery of socio-economic programmes reflecting the priorities of local communities, we conduct community baseline, social impact and social risk assessments to identify potential positive and negative impacts of our presence, including human rights impacts. We use this information along with community input to develop multi-year communities plans at each operation.
During 2009 we completed 19 site managed community assessments, and we improved how we monitor progress
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of findings and corrective actions identified through these assessments.
We have systems that actively involve communities in decision making processes about issues affecting them. At our Weipa bauxite mine, land management processes ensure that all relevant traditional landowners are consulted and their inputs sought together with our staff about land clearing on the mining lease.
In 2009, Rio Tinto businesses supported 2,479 socio-economic programmes covering a wide range of activities including health, education, business development, housing, environmental protection and agricultural development.
We spent an estimated US$119 million on community assistance programmes in 2009 and payments into benefits receiving trusts set up in directly negotiated community impact benefit agreements. This is in addition to direct and multiplier economic contributions.
Without a planned approach to local enterprise development, local and sustainable supply chain opportunities can be eroded by a global approach to procurement. Accordingly, Rio Tinto Procurement developed a strategy to specifically nurture local business linkages in 2009. Similarly, Rio Tinto Alcan’s regional industrial development programme seeks to facilitate downstream and diversified economic development.
In 2009 we established a Communities target, which requires all operations to have in place by 2013 locally appropriate, publicly reported social performance indicators that
demonstrate a positive contribution to the economic development of the communities and regions where we work, consistent with the Millennium Development Goals.
Environmental stewardship
We continue to proactively manage climate change, water, land stewardship, biodiversity, mineral and non mineral waste, air quality and closure. These programmes include input from our local communities as well as from experts in these fields, and are supported by our external partnerships with BirdLife, Earthwatch, Fauna & Flora International and Royal Botanic Gardens, Kew.
In 2009 we set new five year targets for a range of environmental metrics which are discussed in the sections below. We also made progress with the development of a formal relationship with IUCN.
Greenhouse gas emissions
We accept the urgent need for climate change action and recognise the issue as being one of our greatest challenges and opportunities. Reducing the greenhouse gas (GHG) emissions intensity of our production is a key performance indicator for the Group and we aim to improve the energy intensity of all our operations. We are also working to identify step change opportunities to improve our performance over the longer term.
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As a result of the Alcan integration, the emissions intensity of our production decreased by ten per cent between 2007 and 2008, reflecting the high percentage of low carbon energy within Alcan’s smelter portfolio. Removing the effect of this acquisition, our intensity would have increased in 2008.


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In 2009 we set a new target to reduce our total GHG emissions intensity by six per cent between 2008 and 2013. A further four per cent reduction is targeted to give an overall ten per cent reduction by 2015 as a result of the expected completion of planned capital projects. We index our performance relative to 2008 as the base year.
During 2009, our GHG emissions intensity reduced by 7.5 per cent, largely as a result of divesting the Ningxia aluminium smelter in China, which is powered by coal based electricity, and reduced production at a number of operations with a higher than average emissions intensity. We expect some reversal of this positive performance in future years as production levels increase.
Our total GHG emissions, defined as the sum of on site emissions and those from the net purchase of electricity and steam minus net carbon credits voluntarily purchased from, or sold to, recognised sources, were 41.0 million tonnes of carbon dioxide equivalent, nearly nine million tonnes lower than in 2008. This is the result of asset divestments and reduced levels of production at some operations. Rio Tinto’s on site emissions were 26.1 million tonnes in 2009.
We operate in an energy intensive sector and we seek to improve the greenhouse gas emissions over the full life cycle of our products. For instance, Rio Tinto Alcan is a leader in the development of energy efficient aluminium smelting technology. While it represents 71 per cent of the Group’s energy use, it only produces 64 per cent of our total GHG emissions due to its low carbon energy portfolio.
We recognise that there are significant GHG emissions associated with the transportation, processing and use of Rio Tinto’s products. In 2009, the three most significant sources of indirect emissions associated with our products were:
  Approximately 4.5 million tonnes of CO2-e associated with third party transport of our products and raw materials.
 
  An estimated 120 million tonnes of CO2-e associated with customers using our coal in electricity generation and steel production.
 
  Approximately 330 million tonnes of CO2-e associated with customers using our iron ore to produce steel. These emissions are not in addition to the coal use emissions above, as some customers use both our iron ore and our coal to produce steel.
Emissions associated with third party transport and combustion of our coal reduced significantly in 2009 with the divestment of Rio Tinto Energy America.
Due to global demand, coal is likely to remain a significant source of energy for the foreseeable future. We are therefore investing in developing and commercialising carbon capture and storage (CCS) technology. In particular, we continued to progress our studies on the Hydrogen Energy California project, a joint venture with BP. Rio Tinto is a founding member of the Global CCS Institute and supports other collaborative efforts to deploy the technology, such as the CO2CRC’s Otway Basin geosequestration project in Australia.
Where we can influence our customers, we work to develop efficient downstream processes, and our metals and minerals can bring energy and emissions benefits. For example:
  Uranium is used in low carbon power generation.
 
  Our high purity ductile iron is used in the production of wind turbines.
 
  Aluminium makes cars lighter, reducing the amount of fuel used during their operation, and it can be efficiently recycled.
During 2009 climate change legislation was debated in a number of jurisdictions in which we operate. Rio Tinto continued to participate in collaborative efforts to promote effective public policy frameworks to address climate change, including the US Climate Action Partnership and submissions on proposed legislation to governments in Australia, the US, the EU and Canada. A comprehensive programme is under way to prepare the Group for climate legislation.
Rio Tinto’s operations are exposed to the physical risks of climate change. In 2009 our Energy & Climate Strategy group commenced a review of progress in identifying, managing and communicating these risks to better coordinate and support the integration of projected physical climate change risks in project planning and operations.
Energy use
Rio Tinto both consumes energy in its operations and produces it, with significant electricity generation at our hydropower facilities in Canada and in other locations. Our smelting and mineral processing operations are energy intensive and depend on hydroelectricity, nuclear power, coal, oil, diesel and gas to keep them running.
This year our energy use decreased from 553 to 497 petajoules. This change has been influenced by the divestment of the energy intensive Ningxia aluminium smelter and reduced production for some commodities.
Rio Tinto uses a significant portfolio of hydro, nuclear and other renewable power sources
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in its energy mix, which represented 70 per cent of our electricity use in 2009. A number of new projects and technology upgrades that are either under way or planned will ensure that we use electricity available from our hydroelectric sources with greater efficiency.
To drive improvement in energy efficiency our businesses have set a range of local energy targets that cover nearly three quarters of the Group’s energy use.
The Group is working to reduce the energy intensity of new projects through demand reduction using asset design and the development of alternative sources of energy supply. We are also currently developing step change technologies for several of our products, including the drained cathode cell for aluminium production. This has the potential to significantly reduce the amount of energy required to produce aluminium.
Water
Our water strategy provides a framework for addressing water related business risk and improving performance, and we focus on ways to minimise the amount of water we remove from the environment, reuse it whenever we can, and return it to the environment meeting regulatory limits.
Following the increase arising from the inclusion of water withdrawal data for the former Alcan operations in 2008, our freshwater withdrawal decreased by six per cent to 487 billion litres in 2009, with lower water demand at a number of operations where production was reduced.
We set a new Group water target to reduce our freshwater use per tonne of product


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by six per cent by 2013 from a 2008 baseline. Freshwater use excludes water that is extracted for ground control and discharged without use in our processes. In 2009 we increased our freshwater use per tonne of product by four per cent. Although total freshwater use did decrease this year, the scale efficiencies achieved with high production rates in 2008 were not maintained as water use is not directly related to production rates at all operations. Internal local recycling and ecological targets support the Group water target.
We continued to support the development of water strategies at our businesses aligned with the Rio Tinto water strategy, and supported new projects to ensure that efficient practices are in place at mine commencement. Our water risk reviews support this strategic work and a total of 40 operations and new projects have completed reviews since 2005, including five in 2009.
Rio Tinto engages with governments on emerging water policy. We chair a water working group as part of the Minerals Council of Australia with the main focus in 2009 being development of a water account for Australian industry as part of a government-industry project to report on consistent water metrics across industry. We also engage on key water initiatives with organisations committed to sustainable water management such as the World Economic Forum.
Land
We manage just over 41,000 square kilometres of land, excluding our exploration leases. At the end of 2009 our activities had impacted nine per cent of this area. Our disturbance
footprint doubled in 2009, primarily because the land utilised for Rio Tinto Alcan’s hydroelectric dams in Quebec was reported for the first time in terms of Rio Tinto’s reporting definitions, following full implementation of our land use stewardship standard by former Alcan operations.
In line with leading practice, we aim to rehabilitate land as it comes out of mining use rather than waiting until all operations at the site have ceased. By the end of 2009, 24 per cent of our disturbed land (excluding land disturbed for hydroelectricity dams) had been rehabilitated. An internal rehabilitation target helps to drive performance improvements.
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In 2009 we formalised a programme to explore the threats and opportunities for the Group arising from emerging green markets in biodiversity, carbon, water and other ecosystem services. The Natural Capital Project has commenced exploring the ecosystem service values of our extensive non operational landholdings. Through our collaboration with the IUCN economics group we have undertaken a preliminary assessment of the biodiversity value of forest conservation projects in Madagascar. This groundbreaking work is being developed as a pilot project as part of the WBCSD Ecosystem Valuation Initiative. Rio Tinto also sponsored an IUCN paper on the cost of Reducing Emissions from Deforestation and Degradation (REDD). This paper was published as part of the Copenhagen Climate Change discussions in December 2009.
Biodiversity
The potential for impact on biodiversity makes our projects sensitive for external
stakeholders and employees. Rio Tinto’s future success depends on our ability to manage these issues. Our biodiversity strategy, launched in 2004, provides this management framework with a goal to have a “net positive impact” (NPI) on biodiversity.
We continue to work with our conservation partners to improve implementation of the strategy and have commenced piloting offset methodologies in Madagascar and the Hunter Valley, Australia.
Tools and methodologies have been developed to assess the biodiversity values of Rio Tinto’s landholding. In 2009 a methodology for developing biodiversity action plans (BAPs) was completed in collaboration with Fauna & Flora International (FFI). A public version of this methodology is available on the FFI website (www.fauna-flora.org).
Thirty two per cent of our operations where the baseline biodiversity status had been fully assessed ranked as having very high biodiversity values and 21 per cent ranked with high values in 2009. Our biodiversity values assessment has now been rolled out to the former Alcan operations, enabling implementation of our biodiversity strategy.
2009 also saw a strong focus on the implementation of BAPs at sites with very high and high biodiversity values. Rio Tinto Coal Australia completed regionally focused BAPs for five sites in New South Wales and Queensland. BAPs are under development at a further 23 sites in seven countries. Biodiversity action planning will continue through 2010 at sites that have been ranked as having very high and high biodiversity values. An internal target supports our goal of achieving NPI at these sites.
Economic prosperity
We use our expertise to harness resources, creating prosperity for our shareholders, employees, communities, governments and business partners.
Our direct economic contribution into the local and regional economies where we operate was US$44,844 million in 2009. This amount includes:
  US$6,696 million spent on wages and salaries.
 
  US$21,363 million in value add, equivalent to the sum of all labour payments, the taxes and royalties disbursed to governments and others, plus all returns to capital.
Supply chain
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and encouraging those along the supply chain to adopt similar practices.
In 2009, we spent US$23,481 million on goods and services with over 58,000 suppliers, a US$6,172 million reduction compared to last year, due to reduced capital spending, capacity curtailment and cost reductions. Our programme of supplier engagement includes sustainable development criteria in its contracts, and our statement of procurement principles is available on our website.
Payments to suppliers are a major benefit to the economy, generating employment and creating wealth. As an example in 2009 a US$200 million mining contract was awarded to a joint venture between native title holders the Eastern Guruma and a mining services company, NRW. The contract to build, mine and transport iron ore from Rio Tinto’s Western Turner Syncline deposit is the first significant mining joint venture for the Eastern Guruma people, and continues the comprehensive Rio Tinto commitment to indigenous contracting in the Pilbara region of Western Australia.
We develop and regularly update lifecycle assessments for all our major products, including aluminium, iron ore, copper, coal, uranium, gold and silver. By understanding the health and environmental impacts and benefits of our products over their complete life cycle, we gain knowledge on how to improve our processes, expand our information to the marketplace, and differentiate our products from our competitors.
This knowledge is also used to ensure compliance with new chemicals regulations, such as the European Union Registration, Evaluation, Authorisation and Restriction of
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Chemicals legislation and the UN Globally Harmonized System of Classification and Labelling of Chemicals.
Rio Tinto is engaged in industry wide stewardship initiatives to support responsible production and help develop leading practices and recognised standards. We are an active member of the Responsible Jewellery Council, and of stewardship initiatives for other commodities such as uranium, copper, steel and aluminium.
The supply of our products often involves marine transportation which can impact oceans, and we have joined the World Ocean Council to help create a responsible ocean business community. We completed a strategic review of environmental risk related to our shipping activities as part of our marine stewardship programme.
Non managed operations
Rio Tinto holds ownership interests in companies it does not manage. However, we remain closely engaged through membership of the boards of directors and of technical committees. We believe that the principles in The way we work are universal. In our dealings with joint venture partners and non controlled companies in which we participate, we therefore make every effort to ensure that the standards of conduct in The way we work are respected at all times.
Examples include Escondida copper mine in Chile, the Grasberg copper-gold mine in Indonesia, and the Oyu Tolgoi copper project in Mongolia.
Rio Tinto has a 30 per cent interest in Escondida, which is managed by BHP Billiton. Our seats on the mine’s Owners’ Council allow us regular input on strategic and policy matters. We also played a part in establishing the Escondida Foundation, which is funded by one per cent of the mine’s pre-tax profits and is the vehicle through which Escondida fulfils some of its social responsibilities.
The Grasberg mine is majority owned and operated by Freeport-McMoRan Copper & Gold. Rio Tinto has a 40 per cent joint venture interest in Grasberg’s 1995 mine expansion and is represented on the joint venture’s operating committee. There were two fatalities at Grasberg in 2009.
Both Rio Tinto and Freeport-McMoRan support the Voluntary Principles on Security and Human Rights and continue to work together to ensure practice is consistent with these principles. At least one per cent of the mine’s net sales are committed to support village based programmes which represents cumulative funding of US$400 million since 1996.
The mine continues to refine its management of its tailings discharge, including containment, understanding revegetation and long term closure options. There have been significant improvements in tailings management at the Grasberg mine, including construction of lateral dikes to limit the surface area disturbed by tailings deposition in the lowlands and protect adjacent river systems, diversion of the Ajkwa river system to preserve its water quality and enhance tailings retention within the deposition area, successful progressive rehabilitation of the now inactive tailings within the Ajkwa diversion area and of new islands forming at the mouth of the diversion area, and completion of an ecological risk assessment.
Rio Tinto and Ivanhoe signed an Investment Agreement with the Mongolian Government to develop the Oyu Tolgoi copper-gold project in 2009. As a result we increased our stake in Ivanhoe to 19.7 per cent.
This 30 year agreement commits all parties to supporting the regional development of the South Gobi region. It also commits Oyu Tolgoi to employing a minimum of 60 per cent Mongolian workers, including contractors, during construction and 75 per cent Mongolian workers, including contractors, during operations. It further commits Oyu Tolgoi to no less than a 90 per cent Mongolian workforce as direct employees of the business throughout the life of the operation. There was one fatality at Oyu Tolgoi in 2009.
Assurance
Our Corporate Assurance function has accountability and responsibility for providing assurance to the board that:
  Rio Tinto’s policies, standards and controls are adequately designed and effective for their intended purpose; and that
 
  These policies, standards and controls are consistently implemented by all Rio Tinto sites on a timely basis and as designed.
In addition, we engaged an independent external assurance organisation, PricewaterhouseCoopers (PwC), to provide the board of directors of Rio Tinto plc and Rio Tinto Limited assurance on selected sustainable development subject matter, as explained below.
PwC’s assurance statement satisfies the requirements of subject matters one through four of the ICMM assurance procedure while our online GRI report has been checked by GRI, satisfying subject matter five of the ICMM procedure.
      


32 Rio Tinto 2009 Annual report


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(PRICEWATERHOUSECOOPERS LOGO)
Independent Assurance Report to the Directors of Rio Tinto plc and Rio Tinto Limited on selected sustainable development subject matter
For the purposes of this Report, the Group comprises Rio Tinto plc and Rio Tinto Limited and the entities they control as at 31 December 2009 (hereafter “Rio Tinto”). As a founding member of the International Council on Mining and Metals (‘ICMM’) Rio Tinto has committed to obtaining assurance over specified subject matter in its Report in line with ICMM’s Sustainable Development Framework: Assurance Procedure (‘the ICMM Assurance Framework’).
We have been engaged to provide limited assurance on selected sustainable development subject matter (the “selected subject matter”) included in the Sustainable Development Review Section (“SDR Section”) of Rio Tinto’s Annual report (the “Annual Report”) for the year ended 31 December 2009.
The selected subject matter
The selected subject matter was chosen by Rio Tinto with consideration given to the subject matters contained within the ICMM Assurance Framework (“ICMM Subject Matters”). It comprises the following information reported within the SDR Section of the Annual report:
  Rio Tinto’s assertion that it has incorporated the requirements of the ten Sustainable Development principles of the ICMM into its own policies, strategies and standards (“ICMM Subject Matter 1”)
 
  Rio Tinto’s assertions regarding the approach that it has adopted to identify and prioritise its material sustainable development risks and opportunities included within the SDR Section of the Annual report (“ICMM Subject Matter 2”)
 
  Rio Tinto’s assertions regarding the existence and status of implementation of systems and approaches used to manage the following sustainable development risk areas (“ICMM Subject Matter 3”):
    Safety
 
    Health
 
    Greenhouse gas emissions
 
    Energy use
 
    Water
  The following performance data related to the material sustainable development risks identified under ICMM Subject Matter 3 (“ICMM Subject Matter 4”):
    All injury frequency rate
 
    Lost time injury frequency rate
 
    Number of fatalities
  New cases of occupational illness per 10,000 employees
 
  Employees exposed to an 8 hour noise dose of more than 85 dB(A) per 10,000 employees average over a full shift.
 
  Total greenhouse gas emissions
 
  Total energy use
 
  Total freshwater withdrawn
We note that the selected subject matter did not extend to:
  Rio Tinto’s self declared application level of the Global Reporting Initiative (“GRI”) G3 Sustainability Reporting Guidelines (“ICMM Subject Matter 5”) or
 
  The alignment of Rio Tinto’s sustainability policies against ICMM position statements.
Respective responsibilities of Rio Tinto management and PricewaterhouseCoopers
The directors of Rio Tinto are responsible for preparing the selected subject matter based on Rio Tinto Criteria for Reporting on Sustainable Development Performance (the “Reporting Criteria”). The Reporting Criteria are available on Rio Tinto’s website www.riotinto.com/ourapproach.
Our responsibility is to express a conclusion on the selected subject matter based on our procedures. The procedures selected depend on our judgment, including an assessment of the risks of material misstatement.
We read other information included within the SDR section in the Annual report and consider whether it is consistent with the knowledge obtained through our procedures. We consider the implications for our report if we become aware of any apparent material inconsistencies with the selected subject matter. Our responsibilities do not extend to any other information.
This report, including the conclusion, has been prepared for Rio Tinto to assist the directors in reporting Rio Tinto’s sustainable development performance. We consent to the inclusion of this report within the Annual report to enable Rio Tinto’s members to verify that the Directors have discharged their governance responsibilities by commissioning an independent assurance report in connection with the selected subject matter. We do not accept or assume responsibility for our work or this report to anyone other than the directors as a body and to Rio Tinto save where terms are expressly agreed and with our prior consent in writing.
Inherent limitations
Non-financial performance information is often subject to more inherent limitations than financial information, given the
characteristics of the subject matter and the methods adopted for the definition and gathering of information. Qualitative interpretations of relevance, materiality and the accuracy of sustainable development data and assertions are subject to individual assumptions and judgements. It is important to read the subject matter in the context of Rio Tinto’s Reporting Criteria.
Assurance work performed
We conducted our assurance engagement in accordance with International Standard on Assurance Engagements 3000 (Revised) – “Assurance Engagements other than Audits and Reviews of Historical Financial Information” issued by the International Auditing and Assurance Standards Board (“ISAE 3000”). Our procedures applied to the selected subject matter primarily comprised:
  Making enquiries of relevant management of Rio Tinto
 
  Evaluating the design of the key processes and controls for managing and reporting the subject matter
 
  Testing, on a selective basis, the preparation and collation of the subject matter prepared by the management of Rio Tinto
 
  Undertaking analytical procedures over the reported data
 
  Reviewing a sample of relevant management information and documentation supporting assertions made in the subject matter
A limited assurance engagement is substantially less in scope than a reasonable assurance engagement under ISAE 3000. It generally excludes procedures such as testing the operating effectiveness of controls and corroborative data testing.
Conclusion
Based on our review, which is not an audit, nothing has come to our attention which causes us to conclude that the selected subject matter for the year ended 31 December 2009 has not been prepared in all material respects in accordance with the Reporting Criteria.
-s- PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers
-s- Liza Maimone
 
Liza Maimone, Partner
Melbourne, 5 March 2010
Liability Limited by a Scheme under Professional Standards Legislation


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Table of Contents

Performance
 
Aluminium

Jacynthe Côté, chief executive, Rio Tinto Alcan

(Jacynthe Côté PHOTO)

Transforming the Aluminium business
The Aluminium product group, Rio Tinto Alcan, is a global leader in the aluminium industry. Its operations are closely integrated across the globe, and include mining high quality bauxite, refining alumina for both primary aluminium production and specialty alumina markets, and producing primary aluminium at some of the lowest cost, most technologically advanced smelters in the industry. Rio Tinto Alcan is renowned for its technology leadership as well as its advantaged position among aluminium producers in generating clean, renewable hydroelectricity.
 
     
(LOGO)   For production and reserves see page 62
 


2009 Operational highlights
         
US$ million        
 
Revenue
    12,038  
Operating cash flow
    688  
Underlying earnings
    (578 )
Capital expenditure
    1,690  
Net operating assets
    35,992  
 
(GRAPH)
Strategy
  Deliver on our baseline commitments including customer service, sustainable development, and ensuring the safety of our employees.
  Continue our journey of transformation and deliver on cost improvements.
  Surpass our synergy target and complete the integration process, which includes accelerating our cultural integration.
  Protect and enhance our superior growth options while preserving cash.
Achievements
  Reduction of 22 per cent in the all injury frequency rate from 2008 to 2009.
  Delivered after tax synergy benefits of US$924 million during 2009 with an annualised sustainable run rate of US$1.1 billion at the end of 2009.
  Transformational change to both administrative and production costs drove further efficiencies across the entire organisation.
  Strategically managed sustaining capital expenditure allocations, and completed value improvement exercises at major capital project sites to improve long term costs.
  Adjusted production of bauxite, alumina and aluminium to align with the downturn in market demand.
Key priorities
  Improve safety performance towards the objective of zero harm.
  Maintain focus on transformational change to enhance margins, reduce operating costs and optimise efficiencies at all operations worldwide.
  Continue to align production levels with market requirements.
  Drive additional value growth initiatives such as capital efficiency projects and research and development programmes.
  Strategically progress key projects including the Yarwun 2 expansion project (Australia), Kitimat Modernisation Project, AP50 pilot plant and Shipshaw optimisation (Canada).
Outlook
  Rio Tinto Alcan remains committed to delivering on operational efficiencies and improving its baseline cost structure.
  Major cost reduction measures and further aligning production with market demands are expected to position Rio Tinto Alcan to continue to lead the restructured global aluminium industry going forward.
  To build stronger margins and remain long in bauxite and alumina, the group holds the world’s largest bauxite reserves and a competitive position in the alumina sector.
  Carbon trading and emissions regulations will factor strongly in the coming years, particularly in OECD countries, and the group’s AP technology and clean energy sources are expected to provide advantages in a carbon constrained marketplace.


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Performance
In 2009, Rio Tinto Alcan’s annual bauxite production was 30.7 million tonnes, down from 35.0 million tonnes in 2008 mainly due to production curtailments at Weipa, Australia. The group has a leading position in alumina refining and full ownership or participation in 21 aluminium smelters with a total annual capacity of nearly 4.0 million tonnes (Rio Tinto’s share), the vast majority of which are located in OECD countries.
In the current environment of weaker than average demand, the group retains a competitive advantage, as about 80 per cent of its aluminium is produced in the first half of the industry cost curve and it has curtailed higher cost production. Rio Tinto Alcan’s favourable cost position, especially with regard to energy inputs, has benefited the business during the current global economic downturn.
In 2009, Rio Tinto Alcan’s contribution to underlying earnings was a negative US$578 million, a decrease of US$1,849 million from 2008. This is mainly due to the sharp decline in LME prices experienced during the first half of 2009, coupled with the continuing economic downturn in most markets. The effects of the LME and market conditions were partially reduced by improved raw material costs through negotiation of prices, lower oil prices, and lower cash costs due to cash initiatives, production curtailments, and ongoing synergy benefits. Second half EBITDA improved by over US$1 billion compared to the first half as transformational initiatives enabled Rio Tinto Alcan to be well positioned for the aluminium price recovery.
The average aluminium market price in 2009 was US$1,701 per tonne compared with US$2,620 per tonne in 2008. The group’s average realised price for ingot products in 2009 was US$1,833 compared to US$2,753 in 2008.
Strategy
Rio Tinto Alcan will continue to deliver on its baseline commitments, including customer service, sustainable development and ensuring employee safety. The group will also remain focused on delivering value through large scale, long term cost competitive assets.
Financial performance will be founded on continued transformational change, a reduced cost structure, and robust cash management. Cash preservation and optimisation of working capital remain key ongoing priorities. Synergy targets and completing integration, including cultural integration by aligning systems
and exchanging personnel with other Rio Tinto businesses, will also be key.
Strategically protecting and enhancing our superior growth options has meant slowing growth oriented capital expenditures. Value improvement projects at selected sites are targeting 20-30 per cent reductions in capital costs for major projects. In the medium term, previously announced modernisations or closures are expected to move our portfolio even further down the industry cost curve. This will allow us to create value throughout future economic cycles and reduce our global carbon footprint.
Our business strategy also includes being long in bauxite and alumina. This supports our growth and ensures that the group is not exposed to the asymmetric alumina pricing risk when the global alumina market falls into deficit. Expansion of the Yarwun refinery in Australia will increase alumina production by two million tonnes per annum. Slowing of construction has resulted in a revised completion date for the second half of 2012.
Key achievements
Synergies from the integration of Alcan were delivered ahead of target despite economic pressures and capital constraints. This was achieved using only 70 per cent of the planned operational expenditure, and 23 per cent of the planned capital expenditure. Furthermore, full recurring synergies delivered are expected to exceed the previously stated US$1.1 billion target.
At the end of 2009, Rio Tinto Alcan had closed, sold or curtailed approximately ten per cent of its aluminium smelting production, which represents the removal of a significant portion of its capacity in the top half of the cost curve. The group has also slowed selected projects, using the delay to complete value improvement exercises aimed at improving costs for the long term.
Transformational change to both administrative and production costs drove further efficiencies across the entire organisation.
In addition to completion of the Ningxia joint venture sales transaction in China, strategic divestments included the sale of the group’s 80 per cent interest in the Ghana Bauxite Company, including the Awaso bauxite mine, as it was not aligned with our long term strategy. The sale was completed on 1 February 2010.
The Sohar Aluminium smelter in Oman, which poured its first metal in 2008, reached its full capacity of 360,000 tonnes per annum in 2009. The state of the art
smelter uses Rio Tinto Alcan’s benchmark AP36 technology – a highly efficient and environmentally friendly smelting technology.
Energy efficiency improved by one per cent over last year in North America due to aggressive improvement targets at each of the group’s smelters, energy self audits to reduce natural gas consumption at anode baking furnaces, and auxiliary natural gas consumption reductions. These initiatives required no additional investment from Rio Tinto Alcan.
Despite economic pressures, safety was a top priority and overall, the group achieved a 22 per cent reduction in the all injury frequency rate from 2008 to 2009.
Safety
Rio Tinto Alcan and its employees have integrated Rio Tinto safety performance standards and risk management practices throughout its businesses. The ultimate goal remains zero harm. Regrettably, one fatality occurred at the Ghana Bauxite Company site in August 2009.
A key priority has been the reduction of major risks through the implementation of Rio Tinto HSE performance standards and risk management practices. At critical sites, Process Safety Management to prevent collapse, fire, and explosion as well as the release of toxic, reactive, flammable, or explosive materials has progressed significantly.
During 2009, the integration process was successfully completed including key elements of the Rio Tinto HSEQ management system and deployment of the Safety Leadership Development Programme.
(BAR GRAPH)


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Performance
 
Aluminium continued

Completion of this work lays the foundation for establishing clear global priorities and common business standards.
Rio Tinto Alcan’s all injury frequency rate (AIFR) of 1.04 at the end of 2009 represented a 38 per cent reduction over the 2007 integrated former Rio Tinto Aluminium and Alcan baseline.
Greenhouse gas emissions
Total greenhouse gas emission intensity at Rio Tinto Alcan reduced by 9.9 per cent for aluminium. This is the result of the divestment of the Ningxia joint venture smelter in China, closure of some older operations, curtailment of production at selected facilities and increased operational efficiency.
Rio Tinto Alcan is a leader in the generation of low GHG intensity power, with projects in place to continue improvements to overall site performance, as well as leverage energy efficiency, best practice sharing, and research and development efforts to achieve both GHG reductions and low carbon targets.
(BAR GRAPH)
Rio Tinto Alcan contributes 64 per cent of Rio Tinto’s total GHG emissions. Our achieved and continued reductions also contribute significantly to the Rio Tinto Group’s overall intensity improvements.
Furthermore, Rio Tinto Alcan products play an important role in attaining sustainable downstream GHG savings across numerous commercial and civilian sectors, notably in automobiles, trucks, buses and trains. Aluminium can also be recycled indefinitely without compromising its quality.
Integration of Alcan
The integration of Alcan delivered after tax synergy benefits of US$924 million during 2009 with an annualised sustainable run rate of US$1.1 billion at the end of 2009. Despite economic turbulence and capital constraints, the integration programme has successfully achieved its US$1.1 billion target for 2010 using only 70 per cent (US$173 million) of the planned operational expenditure, and 23 per cent (US$122 million) of the planned capital expenditure. As remaining projects realise their full potential in 2010, the full recurring synergies delivered are expected to be US$1.2 billion per year, which exceeds the stated target of US$1.1 billion.
The delivered benefits are derived from a range of business areas such as logistics and operations. The operating synergies are driven primarily by cost reduction initiatives in procurement and combining knowledge and resources between business units, by optimising Australian bauxite production which, when ramped up, is expected to result in synergies of US$24 million annually. Within the worldwide Primary Metal Research & Development function, optimisation and coordination of research project streams generated annualised savings of US$22 million.
As we conclude the integration programme, synergies will become embedded into normal business operations. Deferred projects will be transferred to Business Improvement teams for future realisation, and best practices will continue to be shared across Rio Tinto.
Review of operations
In addition to meeting synergies and integration targets, cash preservation and optimisation of working capital remain key priorities. Improvement programmes and reductions have targeted both structural and cyclical elements such as the cost of key inputs including coke, caustic and pitch. To sustain input cost reductions over the longer term, Rio Tinto Alcan widened its specification ranges, capitalised on logistic opportunities, and leveraged its position as a part of the Rio Tinto Group during procurement negotiations.
Rio Tinto Alcan permanently closed or divested higher cost facilities to centre its asset base on top tier, large scale assets. The Beauharnois smelter in Quebec ceased smelting operations in April and the Anglesey Aluminium Metal joint venture in the UK closed in September. Regional industrial development teams have assisted both sites to reduce the impact of the closure on the
community and identify potential long term projects such as a remelt and recycling centre at Beauharnois and a standalone casting centre at Anglesey. The sale of Rio Tinto Alcan’s share of the Ningxia smelter in China was completed in 2009.
The group also temporarily curtailed production capacity at selected facilities worldwide. Globally, the business has closed, sold or curtailed approximately ten per cent of its aluminium smelting production as at the end of 2009, which represents the removal of a significant portion of its capacity in the first half of the cost curve.
Bauxite and alumina production was also adjusted to align with market demand and internal requirements. Bauxite production was curtailed by 12 per cent globally, including a 3.8 million tonne reduction at Weipa, and alumina capacity was curtailed by two per cent. Cost reduction and cash conservation initiatives included slowing construction of the Yarwun alumina refinery expansion in Australia, introducing a flexible production model at the Jonquière (Vaudreuil) refinery in Canada and lowering operating costs. At year end, 76 per cent of bauxite production and 36 per cent of alumina production were situated in the lower half of their respective cost curves.
Primary Metal operations in North America delivered 182 per cent on anticipated synergies and integration targets. Efficiency was greatly improved by a strong commitment to Business Improvement and quick, integrated deployment of Improving Performance Together (IPT) asset management and LEAN methodologies. Primary Metal, Asia Pacific also exceeded its synergy targets by 47 per cent at its smelting operations.
To further global competitiveness, a restructuring programme is under way in France to improve productivity by 20 per cent and align production costs with the global industry average. This will position both the smelters and alumina operations to take advantage of potential carbon constraints and the benefits of nuclear electricity.
After registering a low of US$1,367 per tonne in February, average monthly LME prices trended upward during the rest of the year, reaching US$2,213 per tonne in December. Automobile production in the US, Japan and Western Europe has begun to increase. Industrial production and semis shipments in these regions have also moved upward since reaching a trough in the April-June 2009 period.


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The Chinese aluminium market moved from being a slight net exporter during the last five years to a net importer. But as a result of slower economic growth earlier in the year and dramatic capacity curtailments in the domestic aluminium industry, an energy surplus has emerged, pushing down the cost of production and encouraging restarts of aluminium capacity. It is likely that the energy situation will prove to be temporary. Ongoing urbanisation and increases in standards of living will drive competition for energy, moving China back into an energy deficit and placing upward pressure on costs.
Because the aluminium industry took a significant amount of high cost capacity offline in 2009, average industry costs have declined, resulting in a flattening of the aluminium cost curve. This is likely to be temporary and to reverse as demand picks up and causes some restarts of higher cost smelters. If this occurs, a steeper cost curve will emerge, favouring low cost producers such as Rio Tinto Alcan.
The group has therefore prioritised the protection and enhancement of its superior growth initiatives, although no new capacity is planned before 2012 and large scale projects worldwide have been slowed. This delay has been used to complete value improvement exercises aimed at reducing costs for the long term. Both the AP50 pilot plant in Quebec and the Kitimat Modernisation Project in British Columbia are working to implement the latest in low energy consumption technology, maximise their use of existing infrastructure, and apply lean construction principles in the years ahead.
Rio Tinto Alcan has also signed a memorandum of understanding with the Government of Cameroon in preparation for a greenfield project that includes a hydropower dam, aluminium smelter and port facilities. Construction is expected to begin toward the end of 2011, with first metal in 2016.
The Shipshaw power station optimisation is on budget and on schedule, and is expected to improve this major component of Rio Tinto Alcan’s extensive hydroelectric network in Quebec, which has a total installed capacity of approximately 2,900 megawatts.
Outlook
In the short term, Rio Tinto Alcan remains committed to delivering on operational excellence and improving its baseline cost structure. By maintaining major cost reduction measures made in 2009, we expect that the business will be in a strong position to lead the restructured global aluminium industry going forward. Rio Tinto Alcan will continue aligning production with sales and marketing needs. As part of an ongoing reorganisation of its operating structure in France, the group will adopt cost reduction measures for selected European aluminium and specialty alumina operations.
Global aluminium consumption growth is expected to grow in the range of four to six per cent during the next decade, supported by China’s continued urbanisation, industrialisation and economic development, as well as that of developing economies such as India, Indonesia and Brazil. Our analysis suggests that by 2020, meeting increased demand will require the equivalent of one new Quebec smelting system every nine months, as well as the equivalent of a fully expanded Yarwun every year, and a Weipa every three years.
Because Rio Tinto Alcan’s energy costs are believed to be less linked to pricing on the London Metal Exchange than other large producers, we are well positioned to capture value when prices rise. The group intends to leverage this advantage through growth and additional efficiency initiatives.
Carbon trading and emissions regulations will factor strongly for aluminium in the coming years, particularly in OECD countries. The New Zealand government has a legislated Emissions Trading Scheme, expected to include the NZAS joint venture from July 2010, and the Australian government has proposed a carbon pollution reduction scheme to commence in July 2011. As of 2013, Rio Tinto Alcan sites within the European Union will join the European Trading Scheme and therefore be covered by all applicable regulations.
Rio Tinto Alcan’s growth portfolio includes projects that centre on clean energy sources as well as high performance technologies as means of reducing emissions. Our comprehensive, proprietary AP technology suite also makes Rio Tinto Alcan a partner of choice for project development, driven by a disciplined, proven engineering and technology delivery process. We continue to develop the next generation of our smelting technology as an ideal complement to strong, renewable power assets. An AP50 pilot
plant is under construction in the Saguenay, Quebec, Canada, and the AP-Xe suite is being designed to be retrofitted to previous AP series cells.
In addition to its modern, low cost smelting fleet, Rio Tinto Alcan is a fully integrated aluminium producer. The group can leverage various supply chain benefits from mine to metal, and expects sufficient supplies to sustain its long term growth strategy. It holds interests in three of the four largest bauxite mines in the world (Weipa, Porto Trombetas and Sangaredi), situated in the top three bauxite reserve countries (Australia, Brazil and Guinea). This provides optionality through size, expandability and proximity to key growth markets.
Rio Tinto Alcan’s bauxite reserves in north eastern Australia, Weipa and Gove mines, and alumina refineries at Gove, Yarwun, and Queensland Alumina have made this region in particular a hub for future optimisation opportunities.


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Table of Contents

Performance
 
Copper

Andrew Harding, chief executive, Copper

(ANDREW HARDING PHOTO)

Growth through innovation
Rio Tinto’s Copper group is a world leader in copper production. Operations include Kennecott Utah Copper in the US and interests in the producing copper mines of Escondida in Chile, Grasberg in Indonesia, Northparkes in Australia and Palabora in South Africa. In 2009, the group produced approximately 800,000 tonnes of copper, which places it among the top five copper producers in the world. Gold and molybdenum are also valuable by-products of the group’s mines. In addition to its producing assets, the group has interests in three of the world’s largest undeveloped greenfield copper projects. The group also includes major nickel deposits in the US and Indonesia.
 
     
(LOGO)   For production and reserves see page 62
 


2009 Operational highlights
         
US$ million        
 
Revenue
    6,206  
Operating cash flow
    2,223  
Underlying earnings
    1,866  
Capital expenditure
    553  
Net operating assets
    5,028  
 
(PIE CHART)
Strategy
  Deliver shareholder value by significantly increasing copper production in the medium term.
  Be an innovative, disciplined acquirer and developer of value creating assets.
  Optimise and develop the group’s existing assets.
  Continue to invest in innovative technologies such as block caving and sulphide leaching to maintain leadership in the mines of the future.
  Leverage the diverse portfolio of producing and developing mines to adapt to changing economic conditions.
Achievements
  At Kennecott Utah Copper (KUC), the concentrator set multiple plant production records, including total ore milled and copper in concentrate produced.
  Also at KUC, the resource development team identified a new copper-molybdenum-gold porphyry system.
  KUC and Escondida both successfully negotiated new mutually beneficial collective bargaining agreements with their work forces in 2009.
  A landmark investment agreement with the Government of Mongolia progressed the development of the Oyu Tolgoi project. Rio Tinto increased its stake in Ivanhoe Mines to 19.7 per cent.
  Kennecott Eagle Nickel successfully addressed certain key legal challenges to its mine permits in the US.
Key priorities
  Exceed the improved safety performance in 2009 with a focus on embedding process safety risk reviews.
  Development of the world class Oyu Tolgoi copper-gold deposit in Mongolia.
  At KUC, progress the molybdenum autoclave project and continue life of mine extension through local drilling programmes.
  Complete the Northparkes E48 development and ramp up to full production.
  The Copper Projects function will maintain and maximise options around key projects and pursue opportunities to accelerate the start of production.
Outlook
  Industry fundamentals support a strong outlook on price, with robust long term demand and supply side constraints.
  Continued price volatility with upside potential.
  Industry will be challenged by mines of increasing depth, decreasing grade profiles and increasing exposure to higher risk regions.
  Gradual transition to underground mines which require higher capital costs and investment in innovative technologies.


38 Rio Tinto 2009 Annual report


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Performance
As markets recovered from the turbulence of 2008, the Copper group achieved an increase in underlying earnings of 17 per cent in 2009. This was achieved through cost reductions and higher volumes. Performance highlights included mined copper production in 2009 up 15 per cent over 2008 and refined copper production up 28 per cent over 2008, following higher grades and a further improvement in performance at Kennecott Utah Copper.
The Copper group’s contribution to underlying earnings increased by US$269 million to US$1,866 million due to higher production at Kenncott Utah Copper and Grasberg as well as cost improvements across the product group. This was offset by lower copper and molybdenum prices.
Strategy
The Copper group’s strategy is to deliver shareholder value through significantly increasing copper production in the medium term. This will be achieved by continuing to optimise and develop the group’s existing assets and by proactively seeking opportunities to grow the copper portfolio. Key components of the strategy include exploring opportunities to improve and expand existing operations, accelerating the development of key projects, maintaining an emphasis on exploration activities, and pursuing other opportunities for growth.
The group’s strategy is based on industry fundamentals that support a strong outlook on prices, particularly in the medium term. Emerging economies, particularly China and India, are expected to continue to drive copper demand over the coming decade. On the supply side, the challenges associated with finding and developing new projects will mean that copper supply will likely be constrained in the medium to long term.
The group has a set of world class operating assets and a strong portfolio of long term greenfield projects that allows it the flexibility to adapt to changing economic conditions. Investment plans are rigorously evaluated in light of evolving market conditions.
While certain investments have been delayed in response to recent macro-economic conditions, Rio Tinto believes it has the capability and experience to develop and expand its portfolio of assets when economic conditions improve further. Rio Tinto is investing in the application of innovative technologies including block caving, automation, flash converter smelting and sulphide leaching. As copper mining shifts
from open pit to underground, Rio Tinto’s block caving expertise will enable mine life extensions through access to new high grade deposits at greater depths. Rio Tinto has developed its block caving expertise through its interests in Northparkes, Palabora and Grasberg. Future developments are expected to rely on large scale block caving and include Oyu Tolgoi, Resolution and Bingham Canyon.
The Copper group is not constrained by geographic considerations and can work where development opportunities exist. It is committed to the principles of Rio Tinto’s code of conduct The way we work, with a focus on responsible environmental performance and a commitment to strong community relations.
Key achievements
The group saw significant achievements at operations and projects during 2009. At KUC, the Copperton concentrator set multiple plant production records, including total ore milled (7.6 per cent increase) and copper in concentrate produced (28 per cent increase over the previous year). Gold and silver in concentrate exceeded 2008 levels by 58 per cent and 43 per cent respectively.
KUC and Escondida both successfully negotiated new mutually beneficial collective bargaining agreements with their workforces in 2009.
At Grasberg, expansion of the currently producing Deep Ore Zone mine to 80,000 tonnes per day is essentially complete.
At the Oyu Tolgoi project, the Investment Agreement with the Government of Mongolia was completed in October and subsequently Rio Tinto increased its stake in Ivanhoe Mines to 19.7 per cent with fixed price options to further increase the stake to 43 per cent.
At Palabora, the Broad Based Black Economic Empowerment transaction required under South Africa’s new Mining Charter is progressing well. In April, Palabora submitted a Transaction Framework Agreement bearing the signatures of its Broad Based Black Economic Empowerment partners.
At the Kennecott Eagle nickel project, a judge affirmed the Michigan Department of Environmental Quality’s issuance of key permits for the mine. This put all of the necessary state permits for the project into effect. Production is being targeted for 2013.
Safety
Safety continued to be a major focus in 2009 at all operations. Despite the continued emphasis, there was one fatality at Copper group managed operations during the year,
which occurred at Palabora. Overall, the group realised a significant improvement in the all injury frequency rate (AIFR) in 2009 with an annual rate of 0.67 compared to 1.06 in 2008.
At KUC, the safety strategy is defined in a three year safety plan which is supported by improvement action plans at the plant, department and individual level. Key safety improvement achievements during 2009 included implementation of the Rio Tinto Significant Potential Incident (SPI) reporting and investigation process; development and roll out of a substantial front line safety leadership skills improvement programme; and implementation of new safety controls for delivery drivers. During 2010, KUC will continue safety improvement efforts with specific focus on process safety and contractor safety.
(BAR CHART)
Greenhouse gas emissions
The Copper group is committed to continual improvements in energy management and efficiency. Spending on improvement projects in 2009 led to substantial progress on embedding behavioural energy management initiatives such as reductions in idling of light duty vehicles and improving electrical energy demand management systems at KUC.
In 2009, KUC reported for the first time to the Climate Registry, a multi-state voluntary greenhouse gas reporting system. KUC’s overall greenhouse gas emissions intensity decreased, primarily due to efficiencies associated with higher copper production.
In 2010, the Copper group anticipates additional progress in greenhouse gas and energy management across the business portfolio.


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Performance
     
 
Copper continued

(PERFORMANCE GRAPH)
Operations
Kennecott Utah Copper
(Rio Tinto: 100 per cent)
KUC operates the Bingham Canyon mine, Copperton concentrator and Garfield smelter and refinery complex near Salt Lake City, Utah.
In 2009 the Copperton concentrator set multiple plant production records. Milled ore of just under 53 million tonnes topped the record established in 2008 by 7.6 per cent. Copper in concentrate also reached a new high in 2009 of 303,536 tonnes, a 28 per cent increase over the previous year. Gold and silver in concentrate improved in 2009, exceeding 2008 levels by 58 per cent and 43 per cent respectively, whilst molybdenum concentrate production increased 11 per cent.
Recent exploration at the Bingham Canyon mine has identified a new copper-molybdenum-gold porphyry system beneath the current open pit (disclosed in March 2009). The molybdenum deposit is between 450-550 million tonnes at a grade of 0.1-0.15 per cent molybdenum. The average grade of the molybdenum in the open pit reserve is 0.045 per cent molybdenum.
Current ore reserves are expected to enable open pit operations to continue until 2020 with additional mineral resources potentially extending the open pit mine life to 2032.
Evaluation of open pit expansion options at the mine continued through the Keystone project. A pre-feasibility study is expected to be completed in 2010 potentially allowing conversion of significant open pit resource to reserve. Study of the underground expansion option was temporarily halted in 2009 due to the global economic downturn.
Escondida (Rio Tinto: 30 per cent)
The Escondida copper mine located in Chile’s Atacama Desert is the largest copper mine in the world in terms of annual production. BHP Billiton owns 57.5 per cent of Escondida and is the operator and product sales agent.
During the first half of 2009, concentrate production was impacted by the Laguna Seca SAG mill being operated at a reduced rate to limit the risk of failures. These problems were successfully resolved during a 32 day full stoppage of the concentrator in July and August. The combined effect of lower ore head grade and increased ore hardness resulted in lower recoveries and reduced concentrate production. This was partially offset by an increase in cathode production due to improved recoveries and increased ore stacking on the leach stockpiles.
Future growth options at Escondida are driven by current brownfield exploration activities. There is a significant exploration drilling programme on a number of potential deposits around the Escondida lease area, with positive results already announced at Pampa Escondida.
Grasberg
(Rio Tinto: 40 per cent of joint
venture production)
Grasberg, located in the province of Papua in Indonesia, is one of the world’s largest copper and gold mines in terms of reserves and production. It is owned and operated by Freeport Indonesia (PTFI), which is 91 per cent owned by US based Freeport-McMoRan Copper & Gold Inc. The Government of Indonesia owns the remaining nine per cent of PTFI. The joint venture gives Rio Tinto a 40 per cent share of production above specified levels until 2021 and 40 per cent of all production after 2021, as well as representation on operating and technical committees.
Operations in 2009 accelerated mining higher grade sections of the Grasberg pit, resulting in higher grades than in 2008. Grasberg’s 2009 production levels were well above the level at which metal becomes attributable to Rio Tinto, and were substantially higher than in 2008. The expansion of the currently producing Deep Ore Zone mine to 80,000 tonnes per day is essentially complete.
Palabora (Rio Tinto: 57.7 per cent)
Palabora Mining Company is a publicly listed company on the Johannesburg Stock Exchange and operates a mine and smelter complex in South Africa. Palabora achieved a 42 per cent rate of employing
historically disadvantaged South Africans in management positions. This key milestone is a crucial step in securing New Order Mineral Rights in terms of the Mining Charter. The Minerals and Petroleum Resource Development Act required mines in South Africa to be at least 15 per cent owned by historically disadvantaged South Africans by April 2009. This requirement will increase to 26 per cent by 2014. On 30 April, 2009 Palabora signed and submitted a Transaction Framework Agreement bearing the signatures of its Broad Based Black Economic Empowerment partners. Palabora is working with the other parties to the transaction to finalise this agreement and present it to shareholders of Palabora for approval in the first half of 2010.
Copper concentrate production was 5.5 per cent lower than 2008 mainly due to a 58 per cent decrease in tonnes of low grade concentrate reclaimed from settling ponds. Diamond drilling has been re-initiated to delineate the copper reserves immediately below the current mining horizon.
Northparkes Mines
(Rio Tinto: 80 per cent)
The Northparkes copper-gold mine in central New South Wales, Australia, operates both underground block cave mines and open-cut mines on its mining leases. Northparkes is a joint venture with the Sumitomo Group (20 per cent). In November 2006, the joint venture partners approved the development of the E48 block cave project, which is expected to cost US$160 million and extend the mine’s life to 2023. As a response to economic conditions at the end of 2008 the completion of the E48 project was deferred but restarted in October 2009. Copper production at Northparkes exceeded 2008 production by 38 per cent. Underground production was largely sourced from the E26 Lift 2 North block cave, with production from the E48 block cave project in the last quarter. Open cut production was used to maintain full mill capacity. The E22 open pit produced 6.8 million tonnes, which exceeded plan by 14 per cent during the year. The E22 mining sequence is expected to be completed by August 2010. Higher volumes of ore were processed in 2009 due to a higher proportion of softer underground ore.


 
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Development projects
Resolution Copper (Rio Tinto: 55 per cent)
The Resolution copper deposit is located in Arizona, US and within the most prolific copper producing belt in North America. Though evaluation is ongoing, the Resolution project appears to host the largest copper deposit in North America, capable of producing an estimated 600,000 tonnes of copper per annum. Although the ultimate size of the deposit has not been fully defined, it is characterised by consistent plus one per cent copper mineralisation over an area of at least two kilometres in an east-northeast direction and 1.5 kilometres in a north-northwest direction. Before the pre-feasibility studies can be completed and the mine developed, Resolution Copper needs to acquire title to the small Oak Flat area that lies adjacent to existing unpatented mining claims hosting the mineralisation. In return for this land, Resolution Copper will transfer to the US government over 2,200 hectares of high priority conservation lands. The Southeast Arizona Land Exchange and Conservation Act has been formally introduced in both houses of Congress to achieve this goal. The 2010 work programme will focus primarily on completing studies to support the preparation of an environmental impact study in order to satisfy the terms of the land exchange bill.
La Granja (Rio Tinto: 100 per cent)
The La Granja copper project is located in the Cajamarca region of northern Peru and is in the pre-feasibility study phase.
As part of the pre-feasibility study that is in progress, recent drilling results at La Granja further confirm the mineral resource estimate and enable a wider range of mining and processing options than previously considered. The full extent of the porphyry, breccia and skarn-hosted deposit has yet to be determined, and drilling is planned to continue during 2010 with investigation of the options, both to improve the business case and to define the potential size and life of a mining operation.
Previously the pre-feasibility study focused on demonstrating the possibility of recovering copper metal from various porphyry systems in which chalcopyrite dominant ore would use heap leach technology. The study wound down in 2009 due to financial constraints, and evaluation work entered a divergent phase to assess the potential of the new geological discoveries and to identify higher value, lower risk options for development. Other options now being investigated include concentrator only and hybrid (heap leach
and concentrator) concepts, with initial indications of enhanced value.
Kennecott Eagle Minerals
(Rio Tinto: 100 per cent)
The Eagle deposit located in Michigan, US, is nearing readiness to commence construction and has the potential to form the foundation of a profitable long term nickel business for Rio Tinto. The project is located in North America near well developed infrastructure. Rio Tinto’s privately owned mineral title of about 182,000 hectares in this region is extensive and is highly prospective for the discovery of additional deposits of greater size and equal or better mineralisation. By late 2009, Eagle was successful in addressing legal challenges to issued mine permits by local opponents and received final approval of all necessary state permits.
Sulawesi Nickel (Rio Tinto: 100 per cent)
The Sulawesi Nickel project is on the island of Sulawesi in Indonesia. Rio Tinto was granted a mining permit (IUP) from the Indonesian Ministry of Energy and Mineral Resources on 25 February 2010. This tenure was granted under the new mining law (Minerba) which came into effect in mid January 2009.
Rio Tinto will now move forward with reviewing development options for the project with increased certainty. Rio Tinto is also working closely with the regional governments and communities as planning for the project progresses.
Oyu Tolgoi (Rio Tinto: 19.7 per cent interest in Ivanhoe Mines Limited)
In October 2006 Rio Tinto purchased a stake of just under ten per cent in Ivanhoe Mines Limited in order to jointly develop the Oyu Tolgoi copper-gold resource in Mongolia’s South Gobi region. Ivanhoe Mines owns 66 per cent of Oyu Tolgoi. In October 2009 Rio Tinto completed its second tranche with Ivanhoe Mines Limited to increase its ownership by 9.8 per cent to 19.7 per cent. On 1 March 2010 Rio Tinto agreed to acquire a further 2.7 per cent to bring its ownership to 22.4 per cent. Rio Tinto has the right to progressively increase its stake to 43 per cent over the next three years at pre-determined prices.
Also in October 2009 Rio Tinto signed an Investment Agreement with the Mongolian Government. The agreement outlines substantial benefits to the local community and the people of Mongolia. Since the initial discovery, more than 4,000 Mongolians have been employed and currently 90 per cent of the project workforce is Mongolian as
promised in the agreement. Oyu Tolgoi has a potential average production rate of 450,000 tonnes of copper per year over the mine life with significant gold by-products. It is also geographically positioned to supply growing Asian copper markets.
Outlook
There is significant opportunity for a long term increase in copper demand, with growth in China being a major driver. Prices may be volatile, but this highlights the value of long life assets. Copper supply will be constrained in the long term and trends in copper mining may also lend support to higher prices. The industry will be challenged by decreasing grade profiles, new developments in higher risk regions and deeper deposits, leading to increased production from underground workings.
Although global copper reserves and resources are sufficient for several decades, reserve and resource grades are progressively declining. Greenfield exploration in under explored countries offers some potential to reverse this trend through new surface copper discoveries. However, the full potential of these countries to support major production may be undermined by sovereign risk factors.
Deeper discoveries are appearing in known districts as exploration occurs around surface deposits such as Bingham Canyon. Some of these brownfield discoveries have unusually high copper and byproduct grades. Innovation in mining and processing technology may reduce the costs of production from underground resources.
Given future demand forecasts, future copper prices will depend on the relative success of greenfield discovery, brownfield discovery and innovation in mining and processing. With Rio Tinto’s portfolio of world class assets, combined with its strategy of significantly increasing copper production, the group is expected to remain an industry leader for years to come.


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Performance
     
 
Diamonds & Minerals
Harry Kenyon-Slaney, chief executive, Diamonds & Minerals

(PHOTO OF HARRY KENYON-SLANEY)
2009 Operational highlights
         
US$ million      
 
Revenue
    2,618  
Operating cash flow
    528  
Underlying earnings
    800  
Capital expenditure
    519
Net operating assets
    4,612
 
 
(PIE CHART & BAR GRAPH)

Differentiation in the marketplace
The Diamonds & Minerals group comprises diamonds, borates, talc, titanium dioxide feedstock, high purity iron, metal powders, zircon and rutile mining and refining operations. Rio Tinto Diamonds (RTD) accounts for about six per cent of the world’s production of rough diamonds by value. Its business model is to be the preferred supplier of rough diamonds. The Minerals part of the group comprises Rio Tinto Minerals (RTM), a global leader in borates and talc supply and of the science behind their use, and Rio Tinto Iron & Titanium (RTIT), a market leader in titanium dioxide feedstock, high purity iron, zircon, rutile and metal powders production.
(IMAGE) For production and reserves charts see page 62-63.

 
Strategy
  To safely and efficiently maximise shareholder value.
 
  To be the preferred supplier of natural rough diamonds, borates, talc and titanium dioxide.
 
  To be responsible and transparent in relations with neighbouring communities.
 
  To differentiate in the marketplace through superior service and technical support.
 
  To continue to invest in growth projects in the existing businesses and seek Tier 1 development opportunities in new mineral sectors.
Key achievements
  First shipments of ilmenite from QIT Madagascar Minerals (QMM).
 
  Broad Based Black Economic Empowerment restructuring completed at Richards Bay Minerals.
 
  EBITDA for RTM maintained at 2008 levels through strong cost reductions and positive pricing despite significantly lower volumes.
 
  Licences renewed for Jadar lithium-borate development project in Serbia.
 
  Potasio Rio Colorado (PRC) project in Argentina and a second potash project near Regina in Canada sold to Vale for a combined gain of US$797 million, included in underlying earnings.
 
  Construction of Diavik Diamonds underground mine in Canada substantially completed.
 
  Progressed the Bunder hard rock diamond discovery in India.
  Business improvement programmes delivered significant cost reductions in response to global economic conditions.
Key priorities
  Continue to strive for zero harm to people across all operations.
 
  Manage production and maximise cash flow in line with global economic recovery.
 
  Continue to operate in a responsible and sustainable manner.
 
  Continue to differentiate Rio Tinto from other diamond and industrial minerals suppliers by providing superior product quality, supply reliability and customer service.
 
  Retain and continue to develop the best people.
Outlook
  The diverse markets being served by the group’s operations continue to be affected by the health of the global economy.
 
  In Diamonds, rough prices are expected to improve during 2010 although this is dependent on the recovery in the US and consumption from emerging markets.
 
  Market weakness in the minerals business in 2009 is expected to slowly reverse in 2010, with more rapid recovery in Asia and emerging economies.
 
  Declines in the housing and automotive sectors will be offset to some degree by government incentive programmes, but will continue to affect sales.


      


 
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Strategy
The Diamonds & Minerals group’s core purpose is to safely and efficiently maximise shareholder value from mining and marketing diamonds and minerals. The group focuses its resources on efficiency and sustainability in its operations and developments; responsibility and transparency in its relations with neighbouring communities; and differentiation in the marketplace through superior services and technical support. The group has a long and successful track record in developing large scale, long life, cost competitive assets.
Our business model focuses on being the preferred supplier of natural rough diamonds, borates, talc and titanium dioxide and associated by-products of high purity iron, steel, metal powders and zircon. We intend to continue to invest in growth projects in the existing businesses and seek Tier 1 development opportunities in new mineral sectors.
Diamonds
Rio Tinto’s strategy is to be the preferred global supplier of natural rough diamonds and to continue to operate, manage and develop world class diamond resources safely, efficiently and to the highest possible environmental standards.
Rio Tinto has been in the diamond business for 25 years, following the discovery and development of the Argyle mine in Western Australia. Rio Tinto Diamonds is managed from London with a facility in Antwerp undertaking the sale and marketing of rough diamonds. Rio Tinto Diamonds also has representative offices in Mumbai and New York. Rio Tinto’s high value pink diamond sales from the Argyle mine are managed from Perth in Western Australia.
Rio Tinto is essentially a wholesaler of rough diamonds, providing support for its customers in their downstream activities.
In 2009 the unprecedented financial turmoil severely affected demand for rough diamonds which is highly reliant on the US economy. Rio Tinto acted quickly to minimise operating and capital costs and slowed the transition to underground mining at both the Argyle and Diavik mines, as well as reducing production.
In the second half of 2009 the diamond market began to recover as both prices and sales volumes improved. The medium to long term fundamentals for the diamond industry are positive with an anticipated material supply shortfall which will drive future price growth.
Minerals
The strategy of the minerals businesses focuses on optimising volumes and product mix to supply high value growth sectors in both mature and emerging markets. RTM’s foundation businesses have been leaders in the borate and talc industries for more than a century while RTIT’s subsidiary, QIT, was the first company to produce titanium dioxide slag at its site in Sorel, Quebec in 1950.
Minerals markets include automotive, construction, telecommunications, agriculture and consumer products industries. This close tie to consumer purchasing patterns resulted in a 30 per cent decline in demand for minerals products in 2009. The businesses reduced production and instituted stringent cost control and business improvement efforts early in the year to maintain their resilience in response to the downturn. Economic recovery and government subsidies helped to stabilise these markets toward the end of 2009.
The group maintains R&D facilities in Europe, Canada and the US to develop new products and support customers.
Key achievements
Diamonds
Construction of the Diavik underground mine was substantially completed during 2009. First ore production from the new mine is expected in 2010. Argyle successfully implemented a major cost cutting exercise.
A bulk sample processing plant was commissioned at the Bunder project in Madhya Pradesh, India. Capable of processing ten tonnes per hour, the plant will help further assess the value and grade of the diamond deposit.
The completion of a new processing module at the Murowa mine will ensure the continued viability of the mining operation in the face of hardening ore.
Minerals
The first shipments of ilmenite ore from QMM to Canada, and of finished titanium slag product to a customer, were made in 2009. These were major landmarks in a project which, notwithstanding many complex environmental, social and technical challenges, could become a model for future projects in the developing world.
In December 2009, RTIT concluded a Broad Based Black Economic Empowerment transaction at Richards Bay Minerals (RBM) in South Africa. Under this transaction, 24 per cent of the equity of RBM was sold to a
consortium of historically disadvantaged groups, with a further two per cent transferred to a trust for the benefit of RBM employees. The remaining 74 per cent is split equally between BHP Billiton and Rio Tinto with Rio Tinto having been appointed as the manager. Through this transaction, RBM has met the ownership requirements of South Africa’s Mining Industry Charter five years ahead of the required empowerment date of 2014.
The greenfield Potasio Rio Colorado (PRC) project in Argentina and a second potash project near Regina in Canada were sold to Vale for a combined gain of US$797 million, included in underlying earnings.
Efforts to divest the borate and talc businesses were constrained by economic conditions in 2009; the talc divestment process will be renewed in 2010. Rio Tinto intends to retain ownership of the borates business.
Safety
Safety performance and awareness continued to be a major focus of all operations. In 2009 the all injury frequency rate (AIFR) was 0.71 compared to 0.58 in 2008. The group mourned the loss of a colleague at Richards Bay Minerals who died in a fatal incident in December 2009.
RTIT’s Rio Tinto Fer et Titane (RTFT) improved its safety performance with AIFR improving by six per cent. QMM and RTM’s injury rates deteriorated year on year, but remain low.
(BAR GRAPH)
For Diamonds, the AIFR improved to 0.66 compared to 0.93 in 2008. The Diavik mine with an AIFR of 0.72 achieved its best


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Performance
 
Diamonds & Minerals continued

safety performance since the mine began production in 2003. The Bunder project in India remained injury free in 2009.
Greenhouse gas emissions
As part of the group planning process each business unit submits a greenhouse gas (GHG) performance review.
(BAR GRAPH)
RTM’s global operations reduced greenhouse gas emissions by three per cent per tonne of product from 2003 to 2008 and set new reduction targets in 2009. During 2009 RTIT sites undertook audits to identify opportunities for GHG and energy reduction.
At Argyle, greenhouse gas intensity per carat produced increased in 2009 as a result of processing lower grade ore. Argyle is investigating increasing the use of hydroelectricity in mine operations and improving the diesel efficiency of the power station. Greenhouse gas intensity per carat produced at Diavik increased in 2009 as construction of the underground mine continued. Diavik is working on various projects focused on reducing fuel consumption.
Review of operations
Sales revenue of the Diamonds & Minerals group was US$2,618 million in 2009, US$1,202 million less than in 2008 largely as a result of the global economic downturn and the impact it had on consumer confidence and spending. Underlying earnings of US$800 million (US$474 in 2008) included a contribution of US$797 million from the sale of potash assets in Argentina and Canada.
The borates and talc businesses secured price increases which partially offset the 20 to 30 per cent declines in demand related to the sluggish housing and automotive sectors. Titanium dioxide feedstock prices held steady, however RTIT’s revenue decreased by 33 per cent mainly due to lower volumes of titanium dioxide and a reduction in the price of metallics resulting in reduced margins on iron, steel and powder products. The minerals businesses experienced a significantly stronger fourth quarter as major markets started to show signs of economic recovery. Decreased rough diamond prices and sales volumes across all producing diamond assets adversely affected earnings and cashflow during 2009. All operations implemented stringent cost reduction efforts through the year.
An impairment charge of US$348 million after tax was recognised on the diamonds portfolio assets to reduce their carrying value to an estimated recoverable amount. This is not included in underlying earnings.
Rio Tinto Diamonds
Argyle (Rio Tinto: 100 per cent)
The Diamonds group owns and operates the Argyle diamond mine in Western Australia. Argyle owns a niche polished pink diamonds business which sells and markets the loose polished pink diamonds. Production from Argyle’s open pit mine is expected to continue through to 2012 after which it is anticipated that the mine will transition to underground operations. Underground mining is expected to operate until at least 2018.
During 2009 construction of the underground project was slowed by reducing the project workforce and delaying completion of development under a programme referred to as the Low Cost Continuation Plan. First production from the underground operation is now expected in 2012. In addition, processing in the surface operations was suspended for 12 weeks due to the deterioration in global market conditions.
Diavik (Rio Tinto: 60 per cent)
The Diamonds group operates the Diavik Diamond Mine, located approximately 300 kilometres north east of Yellowknife, Northwest Territories, Canada. It is an unincorporated joint venture between Rio Tinto and Harry Winston Diamond Corporation. Production from Diavik’s open pit operations will continue through to 2012 after which the mine will transition to full production from the underground. Construction on the underground project was substantially completed during 2009.
First ore is expected during the first quarter of 2010 with full production expected to be achieved in 2013.
In 2009, operations at Diavik were suspended for six weeks in July as a result of the deterioration in global market conditions.
This suspension, together with lower grade feed ore reduced diamond production in 2009 to 3.3 million carats (Rio Tinto share) from 2008 production of 5.5 million carats. Open pit mining in A154 neared completion in 2009, with activity transitioning to the lower grade A418 pipe. A successful winter road transportation season saw the movement of 2,779 truck loads of supplies and materials to the site.
Murowa (Rio Tinto: 77.8 per cent)
The Murowa mine has been operating as a small open pit since 2004 and is owned by Rio Tinto (77.8 per cent) and Rio Zim Limited (22.2 per cent), a listed entity.
The Diamond group’s share of production in 2009 of 97,000 carats was below the 205,000 in 2008 as a result of lower ore grade and a delayed project to deal with changing ore characteristics.
Murowa is considering expanding the existing open pit to increase production. The previous feasibility study for this expansion is currently being reviewed and discussions are being held with the Zimbabwean Government on the investment environment that is required to underpin this project.
Bunder (Rio Tinto: 100 per cent)
The Bunder diamond project in India was transferred from Rio Tinto Exploration to the Diamonds group in November 2008 upon completion of the order of magnitude study. During 2009 a ten tonnes per hour bulk sampling treatment plant was commissioned. The plant has commenced processing of bulk samples for further evaluation work.
Rio Tinto Minerals
Rio Tinto Minerals (Rio Tinto: 100 per cent)
The business comprises borates and talc mines, refineries, and shipping and packing facilities on five continents that operate under the Rio Tinto Minerals banner.
Approximately 815,000 tonnes of refined borates are produced at Boron Operations, the principal borate mining and refining operation in California’s Mojave Desert.
The business operates talc mines – including the world’s largest, in southern
      


 
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France – and processing facilities in Austria, Australia, Belgium, Canada, France, Italy, Japan, Mexico, Spain and the US.
In 2009 total borates production fell by 30 per cent from 610,000 tonnes of boric oxide in 2008 to 424,000 tonnes in 2009, with reduced demand in Asia Pacific and in the North American housing industry. Total talc production declined by 24 per cent from 1,163,000 tonnes in 2008 to 888,000 tonnes in 2009, with sales in Europe offsetting volume declines in North America.
Rio Tinto Iron and Titanium
Rio Tinto Fer et Titane
(formerly QIT) (Rio Tinto: 100 per cent),
Richards Bay Minerals
(Rio Tinto: 37 per cent)
QIT Madagascar Minerals
(Rio Tinto: 80 per cent)
RTIT comprises the wholly owned Rio Tinto Fer et Titane (RTFT) in Quebec, Canada, an 80 per cent share in the QMM ilmenite project in Madagascar and a 37 per cent interest in and management of Richards Bay Minerals (RBM) in KwaZulu-Natal, South Africa.
Both RTFT and RBM produce titanium dioxide feedstock used by customers to manufacture pigments for paints and surface coatings, plastics and paper and the production of titanium metal. They also produce iron, steel and zircon co-products. QMM produces ilmenite from beach sands which is shipped to Canada for onward processing into titanium dioxide slag.
The QMM project was completed on schedule; however, cost inflation and foreign exchange effects increased the cost to US$1.16 billion from the original estimate of US$1.03 billion. First ilmenite production occurred at the end of 2008 and in 2009 the first shipments were made to RTIT’s facilities in Canada for processing into titanium dioxide feedstocks.
In 2009, titanium dioxide production decreased by 25 per cent compared with 2008 as RTIT responded to reduced demand in its markets following the knock on effect of the slump in construction activity and the weak automotive sector in the second half of the year. This included an eight week summer shutdown of the ilmenite mine and smelting operations at RTFT.
Markets for iron and steel co-products weakened from 2008, resulting in a significant decrease in earnings. A modest recovery in metallics pricing has been evident in late 2009 and early 2010.
Outlook
The diverse markets being served by the group’s operations continue to be affected by the health of the global economy albeit differentially due to both geography and market sector. However, steps towards recovery have been seen in a number of these market sectors.
Diamonds
Rough prices recovered in the second half of 2009 though not to the high levels seen in the middle of 2008. The market will continue to be dependent on the recovery of US consumer sentiment though the robust growth of jewellery consumption in the smaller but important Chinese and Indian markets will provide some underlying support to both prices and volumes.
Minerals
The minerals businesses experienced a significant slowdown during 2009, and this market weakness is expected to slowly reverse in 2010.
Sales volumes are forecast to partially recover, with more rapid demand recovery in Asia and emerging economies. Demand is improving in electronics (eg flat panel displays, circuit boards, and other components) and insulation fibreglass, paints and coatings. Building products are expected to improve slowly in terms of both volumes and prices as the housing and automotive markets recover.


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Performance
     
 
Energy
Doug Ritchie, chief executive, Energy

(PHOTO OF DOUG RITCHIE)
2009 Operational highlights
         
US$ million        
 
Revenue
    6,709  
Operating cash flow
    2,576  
Underlying earnings
    1,420  
Capital expenditure
    686  
Net operating assets
    2,538  
 
 
(PIE CHART & BAR GRAPH)

Strong production and sales
The Energy group comprises thermal coal, coking coal and uranium operations. Its coal interests are located in Australia and the US and supply the seaborne traded and Australian and US domestic markets. These interests comprise: Rio Tinto Coal Australia (RTCA) which manages the group’s interests in eight coal mines in Queensland and New South Wales; and the open cut mine Colowyo in Colorado, US and an interest in Cloud Peak Energy in Montana and Wyoming, US. Rio Tinto Uranium produces uranium oxide from its majority owned mines in Australia and Namibia for electric power utilities worldwide.
(IMAGE) For production and reserves charts see page 63.
 
Strategy
  The Energy group’s core purpose is to maximise the value it creates for shareholders from supplying the world’s mineable energy needs.
 
  The group focuses its resources on excellence in operations; large scale, long life, cost competitive assets.
 
  Opportunities for brownfield expansions are being progressed across the business.
Achievements
  Australian thermal and semi soft coal production of 37.4 million tonnes (Rio Tinto share 23.1 million tonnes) – a five per cent increase on 2008.
 
  Record production and sales results throughout the year from many operations.
 
  Safety performance improved at most operations.
 
  Successful divestment of numerous energy assets in line with the Group divestment strategy.
 
  Separation from Rio Tinto Energy America (RTEA) and transition to a standalone business in 2009 by Colowyo Coal Company.
 
  A milestone achievement of 100 indigenous employees at Energy Resources of Australia (ERA), representing almost 20 per cent of ERA’s workforce.
 
  Continued delivery of operational excellence programmes in all businesses to systematically eliminate waste, reduce process variability, and engage and empower our workforce.
Key priorities
  Continuing to improve HSE performance, including contractor safety.
  Maximising free cash flow and continuing to operate in a responsible and sustainable manner.
 
  Timely delivery of current expansion projects.
 
  Continuing work with industry, government and infrastructure providers to resolve coal supply chain bottlenecks and increase export capacities.
 
  Positioning the group as the supplier of choice as the global economy recovers.
 
  Retaining and continuing to develop the best people.
 
  Aligning business growth strategies with climate change and energy strategy.
Outlook
  Rio Tinto believes the outlook for seaborne coal remains very positive.
 
  The supply-demand balance for both thermal and metallurgical coals remains tight and towards the end of 2009 prices were increasing across all types of coal.
 
  The rising domestic prices in China have supported the demand for imported coal, while traditional importing markets continue to increase imports in line with a broader economic recovery.
 
  A global resurgence in nuclear power is under way, driven in large part by the need for energy security and baseload electricity generation that minimises emissions of greenhouse gases.
 
  Uranium prices are likely to increase if many new uranium projects, which were looking less financially attractive due to the effect of weaker uranium prices, are delayed.


      


 
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Performance
The Energy group’s 2009 sales revenue was US$6,709 million and its contribution to underlying earnings was US$1,420 million, a reduction of 45 per cent from 2008, due to lower realised Australian coal prices which were partially offset by an increase in US thermal coal price.
Rio Tinto Coal Australia’s (RTCA) 2009 contribution to underlying earnings was US$1,013 million, US$708 million lower than in 2008, attributable to lower prices and a changed sales mix partly compensated by a weaker Australian dollar and increased efficiencies. RTCA’s total coal production was 46.6 million tonnes (Rio Tinto share 30.6 million tonnes).
Hard coking coal production was 9.2 million tonnes, in line with 2008. Higher production of other coal was achieved at Blair Athol despite loss of volume in January and February due to severe flooding.
In the Hunter Valley total production in 2009 was slightly higher than 2008 levels. Production of semi soft coal recovered strongly in the second half of 2009 in response to firming global demand, and was one per cent lower than the rate of semi soft coking coal production in 2008. Vessel queues in New South Wales (NSW) were relatively stable in 2009, but began to increase in the second half of the year.
In the US, earnings from all coal interests of US$257 million were US$110 million above 2008, with improved prices and lower cash costs offsetting the impact of lower volumes in line with Rio Tinto’s reduced ownership. Colowyo Coal Company’s 2009 production totalled 3.2 million tonnes. The reduction was a result of the need to have adequate reserves to satisfy the remaining long term sales contracts out to 2017 from its existing reserve base.
The contribution of Energy Resources of Australia (ERA) in 2009 to underlying earnings was US$138 million, US$3 million below 2008. Higher market prices and the expiration of older contracts containing price caps contributed to an average realised price at ERA in 2009 of US$50.84 per pound, an increase of 56 per cent compared to 2008. In 2009 ERA also increased sales of 12.1 million pounds compared to the 2008 volume of 11.6 million pounds.
Rössing Uranium earnings of US$24 million were US$77 million below 2008 attributable to lower realised prices, due to a decline in the uranium price over the year, and adverse exchange rate movements. Earnings recovered in the second half of the year when
some sales occurred from volumes deferred from the first half. Rössing has continued on its growth path, producing 9.15 million pounds in 2009, which was slightly higher than the 2008 production (8.97 million pounds), which was a 20 year high.
Strategy
Rio Tinto believes the abundance, reliability and affordability of coal will see it continue to be a major part of the global energy mix, and a key source of energy for many developed and developing countries. A key part of the Energy group’s strategy is to ensure it is a leading advocate of, and investor in, the sustainable future uses of coal. In 2009 the group continued to dedicate resources and funds to the development of low emission coal technology through investment in the carbon capture and storage technology on the Hydrogen Energy California project, the COAL21 voluntary levy to support low emission coal projects managed by Technology & Innovation in Australia, and in several low emission coal research organisations in the US and Australia.
A resurgence globally in nuclear power is under way, driven in large part by the need for energy security and baseload electricity generation that minimises emissions of greenhouse gases. Rio Tinto aims to maintain its position as one of the world’s leading uranium suppliers to power this growth.
A number of opportunities for brownfield expansions exist at the Coal & Allied operations in the Hunter Valley and the Hail Creek mine in Queensland.
A number of opportunities for further low cost brownfield expansions are under consideration at ERA’s Ranger mine and at Rössing. ERA owns the Jabiluka deposit; the second largest undeveloped uranium deposit in the world, while adjacent to the Rössing lease, a significant new discovery has been made by Extract Resources Ltd in which Rio Tinto has a stake through its 14.7 per cent interest in Extract Resources Ltd and 13.5 per cent interest in Kalahari Minerals plc.
Key achievements
Australian thermal and semi soft coal production was up five per cent on 2008. Australian hard coking coal production in 2009 and full year uranium production was comparable with the prior year.
Significant progress was made on the development of the Clermont coal mine, which is on track to meet its first scheduled production in 2010, while construction continued on an extension of the Kestrel underground coal mine.
ERA’s Ranger mine achieved a total sales milestone of 100,000 tonnes of uranium oxide since commencing operations. The Rössing mine is the only other mine in the world to reach this level of total sales.
ERA has begun preparing an Environmental Impact Statement for a proposed heap leach facility at the Ranger mine, targeting the extraction of 33 million to 44 million pounds of uranium oxide from low grade ores, and has started planning for an underground exploration decline to further define the Ranger 3 Deeps mineral resource.
During 2009 the group successfully sold a number of its energy assets in line with Rio Tinto’s divestment strategy. Transactions included:
  The sale of Rio Tinto Energy America’s (RTEA) Jacobs Ranch mine to Arch Coal for a cash consideration of US$764 million, completed on 1 October 2009.
 
  The balance of RTEA’s assets (excluding Colowyo) were transferred to Cloud Peak Energy Resources LLC (CPER). Rio Tinto received total proceeds of US$741 million in connection with Cloud Peak Energy Inc’s initial public offering and related transactions. As a result, Rio Tinto now indirectly holds a 48.3 per cent interest in the Antelope, Cordero Rojo and Spring Creek mines and a 24.1 per cent interest in the Decker mine.
 
  The sale of Coal & Allied’s Maules Creek project to Aston Resources, a private Australian company, for A$480 million (US$379 million) was completed on 18 February 2010.
 
  Coal & Allied’s Vickery asset was sold to Whitehaven Coal (ASX listed) for A$31.5 (US$26.5) million, with an effective date of 4 February 2010.


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Performance
 
Energy continued

Safety
(BAR GRAPH)
Safety performance and awareness continued to be a major focus for all operations. The group’s all injury frequency rate (AIFR) in 2009 improved, and was 0.71 compared to 0.87 in 2008.
RTCA recorded a 11 per cent improvement on its AIFR compared with 2008; ERA achieved a 39 per cent improvement; and Rössing achieved a 20 per cent improvement. Colowyo’s AIFR increased in 2009 however it achieved a significant reduction in injury severity rate.
Greenhouse gas emissions
The Energy group is continuing to dedicate resources to the development of clean coal technology.
On a life cycle basis, nuclear power generation emits very low levels of greenhouse gases. Rio Tinto is positioning its uranium business for the strong demand for uranium which will arise as the world moves to lower greenhouse gas emissions.
As part of the group planning process each business unit submits a greenhouse gas (GHG) performance review. This includes a discussion on targets and performance and a list of proposed and implemented projects noting project progress, savings, costs and NPV (net present value). All businesses have a number of NPV positive optimisations and energy reduction projects being researched or implemented. For example, Colowyo Coal began design and implementation of haul road optimisation work with a targeted reduction in GHG of two per cent, while Coal & Allied’s Mount Thorley Warkworth
operation is conducting a coal seam methane trial to assess the potential to significantly reduce greenhouse gas emissions.
Greenhouse gas emissions intensity remained flat across the Australian coal businesses.
(BAR GRAPH)
Review of operations
Rio Tinto Coal Australia
(Rio Tinto: 100 per cent)
Rio Tinto Coal Australia manages the group’s Australian coal interests. These include, in Queensland: the Blair Athol (Rio Tinto: 71 per cent), Kestrel (Rio Tinto: 80 per cent), and Hail Creek (Rio Tinto: 82 per cent) coal mines and the Clermont mine development (Rio Tinto: 50.1 per cent).
RTCA also provides management services to Coal & Allied Industries (Coal & Allied) for operation of its four mines located in the Hunter Valley in NSW. Coal & Allied (Rio Tinto: 75.7 per cent) is publicly listed on the Australian Securities Exchange and had a market capitalisation of A$6.9 billion (US$6.2 billion) at 31 December 2009. Coal & Allied wholly owns Hunter Valley Operations, has an 80 per cent interest in Mount Thorley Operations, a 55.6 per cent interest in the contiguous Warkworth mine, and a 40 per cent interest in the Bengalla mine which abuts its wholly owned Mount Pleasant development project. Coal & Allied also has a 36.5 per cent interest in Port Waratah Coal Services which operates the Kooragang Coal Terminal and Carrington Coal Terminal in Newcastle.
The global economic crisis impacted traditional markets for thermal coal, reducing demand within the Asian region in the first
half of the year. The second half saw demand in developed nations begin to recover.
China’s demand for imported coal in 2009 was particularly strong and this supported improved prices by year end, however prices were lower than the records achieved in 2008. Global steel demand was also weak in the first half of 2009 for most markets other than China, but improved in the second half of the year and has led to strong demand for coking and semi soft coking coal.
Hard coking coal production was comparable with 2008, despite a planned longwall changeover at the Kestrel mine in October 2009. There was a five per cent increase in the production of other coal in 2009 compared with 2008, primarily attributable to an increase in port allocation in the fourth quarter of 2009.
The group’s main coal development projects in Australia are the extension of the Kestrel mine, and the construction of the new Clermont mine to replace the nearby Blair Athol mine which will cease operations in 2016. Both projects have supply contracts in place. Due to the economic slowdown, work on the Kestrel mine extension was slowed in 2009 however the project remains on track to meet its first scheduled production in 2012. Clermont is due to start production in mid 2010.
In 2008, Coal & Allied completed an engineering feasibility study on the Mount Pleasant coal mine project located adjacent to the Bengalla coal mine near Muswellbrook in the Hunter Valley. As certainty regarding infrastructure capacity has grown significantly, Coal & Allied is initiating a revised pre-feasibility study to define a development path with lower capital demand.
An investment programme by the owners and operators of the coal ports at Newcastle and Dalrymple Bay on the eastern seaboard of Australia is expected to result in additional capacity from 2010.
Coal & Allied has entered into long term take or pay contracts for port allocation with Port Waratah Coal Services which take effect from 1 January 2010. It follows the signing of new port access agreements between the state government, Port Waratah Coal Services and Newcastle Infrastructure Group which provide for long term contracts to underpin future expansion. Similar long term take or pay contracts to secure equivalent rail track access and rail freight are still being negotiated.
      


 
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Colowyo Coal Company
(Rio Tinto: 100 per cent)
Colowyo Coal Company produces thermal coal in north west Colorado. The company intends to fulfil long term contracts with two power generators located in north west Colorado until 2017, with the intention to cease production in 2018.
Energy Resources of Australia
(Rio Tinto: 68.4 per cent)
Energy Resources of Australia (ERA) is a publicly listed company and had a market capitalisation of A$4.6 billion (US$4.1 billion) at 31 December 2009.
Since 1980 ERA has mined ore and produced uranium oxide at its Ranger open pit mine, 250 kilometres east of Darwin in Australia’s Northern Territory. ERA also has title to the adjacent Jabiluka mineral lease, which in 2003 was put on long term care and maintenance. Ranger and Jabiluka are surrounded by, but remain separate from, the World Heritage listed Kakadu National Park. ERA’s operations are subject to stringent environmental requirements, and governmental oversight.
The Ranger mine is the second largest uranium mine in the world and ERA is the fourth largest producer.
ERA’s capital expansion projects to radiometrically sort low grade ores and process laterite ore were commissioned during 2008 and 2009 respectively. The laterite processing plant will contribute approximately 0.88 million pounds per annum of uranium oxide to production from 2008 through to 2014. The radiometric sorter will upgrade lower grade ore and allow an additional 2.4 million pounds of uranium oxide to be produced over a five year period from 2008.
ERA continued to work with the Mirarr, traditional owners of the land on which the mining lease is located. The Mirarr continued delivery of a cultural awareness programme to all new ERA employees and participated in environmental and cultural heritage management programmes. Increasing indigenous employment is a significant focus including the provision of training and employment opportunities.
ERA continued studies into a proposed heap leach facility at Ranger, targeting the recovery of 33 million to 44 million pounds of uranium oxide from low grade ores. ERA commenced the formal environmental approval processes for the proposed facility with the Australian and Northern Territory governments and intends to lodge an Environmental Impact Statement during 2010.
The company also began detailed planning for a proposed underground exploration decline, to conduct close spaced exploration drilling to further define the extent of the Ranger 3 Deeps mineral resource identified in late 2008.
Rössing Uranium (Rio Tinto: 68.6 per cent)
Rössing Uranium produces and exports uranium oxide from Namibia to power utilities globally. Its core purpose is to maximise the value delivered to shareholders by being a safe, significant and growing long term supplier of uranium.
Rössing continues to play a major role in the Namibian economy, both in terms of GDP contribution of around 3.8 per cent as well as employment, education and training opportunities. Through the various education and training programmes of the Rössing Foundation, the company is recognised as a major contributor to national human capital development.
In August 2009 the Rössing board of directors approved the latest Life of Mine operating plan, which extends the mine life to 2023.
A technical improvement project was initiated during 2009 to secure improvements in resource estimation, grade control and operational throughput. In parallel, the construction of a heap leach pilot plant is close to completion, with commissioning planned for 2010. The heap leach project will remain a key focus as a way of reducing operating costs. Associated projects to support this include a new tailings facility and a new acid plant.
Deep drilling commenced in 2009 to investigate the extent of ore below the current pit and to firm up geological/geotechnical knowledge that will improve the mine plan and design.
In response to the financial crisis the company implemented numerous efficiency improvements and significantly reduced capital expenditure and reduced costs on a number of key major consumables, whilst continuing with key projects which will provide for future growth.
Outlook
Energy markets have been adversely affected by the global economic downturn, however this has been muted compared to other commodity sectors due to electric power demand being relatively inelastic. This is especially true for low cost, base load power stations such as those fired by uranium or low cost thermal coal.
The Energy group continues to respond to the economic downturn by focusing management attention on cash conservation. Non essential capital expenditures have been deferred wherever possible, and a range of initiatives are in place which focus on working capital reductions, operating cost efficiencies, procurement efficiencies, and some head count reductions.
Demand for thermal and coking coal in both domestic (US) and seaborne traded coal markets, and globally for uranium remains robust. Prices for seaborne traded coals, both thermal and coking, are expected to be higher for 2010 than for 2009. Outlook for the uranium market remains positive, with uranium prices in the longer term expected to remain well above the levels seen for most of the last two decades.


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Performance
 
Iron Ore
Sam Walsh, chief executive, Iron Ore and Australia
(PHOTO OF SAM WALSH)
2009 Operational highlights
         
US$ million        
 
Revenue
    12,598  
Operating cash flow
    7,389  
Underlying earnings
    4,126  
Capital expenditure
    2,148  
Net operating assets
    11,263  
 
(BAR GRAPH)

Record performance, strong outlook
Rio Tinto’s Iron Ore group is the second largest producer supplying the global seaborne iron ore trade, having expanded its capacity over the past decade in tandem with the rise of China as the world’s largest and fastest growing single market. The group is the largest single contributor to Rio Tinto’s earnings, and remains ideally placed to take advantage of the continued recovery and growth of the world’s leading economies.
(IMAGE) For production and reserves see page 63.
 
Strategy
  The strategy is to maximise the return to shareholders from iron ore assets worldwide.
 
  Focus will remain on reducing costs and building on cash generation initiatives.
 
  Increasing or maintaining return from existing assets through brownfield developments where possible, particularly to contribute to sustaining capacity.
 
  Advancement of expansions under study to achieve 330 million tonnes per annum capacity in the Pilbara by 2015, within ongoing capital expenditure constraints.
 
  Continue detailed planning on integration for implementation of the proposed Pilbara production joint venture with BHP Billiton, as various regulatory approvals are sought.
Achievements
  Global iron ore production of more than 217 million tonnes (Rio Tinto share 171.5 million tonnes), a 12 per cent increase on 2008.
 
  Maintained integrity of operations despite weather and global financial crisis setbacks.
 
  Milestone of three billion tonnes exported from Rio Tinto’s operations in the Pilbara.
 
  Yandicoogina became the first mine in Australia to record 50 million tonnes annual production.
 
  Operations Centre established for remote control of mines, rail and ports.
Key priorities
  Achieving a proper, expeditious and fair resolution of the case of the four Shanghai colleagues detained by China in July 2009.
  Building on 2009’s success in removing bottlenecks to achieve sustained production at or above nameplate capacity.
 
  Fully extracting benefits from operations integration though advances such as the Operations Centre and improved planning and scheduling.
 
  Continuing to improve the business’ safety performance, notwithstanding the escalation of business activity and expansion work.
 
  Securing approval for and implementing the proposed production joint venture in the Pilbara with BHP Billiton.
 
  Advancing the Orissa, India, and Simandou, Guinea, development projects.
Outlook
  The outlook for global iron ore remains very positive, with seaborne iron ore trade continuing to expand to meet major Asian demand.
 
  Growth fundamentals remain unchanged from before the financial crisis, and continue to be dominated by the rise of China, where urbanisation continues apace.
 
  China’s increase in steel intensity is following or exceeding market expectations, and Rio Tinto expects steel consumption to double by 2020. India is expected to follow that same path, though at a less rapid pace.
 
  Growth in the more stable markets of Japan, Korea, Taiwan, Western Europe and North America should remain relatively constant.


      


 
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Performance
Rio Tinto’s global iron ore business achieved a record performance in 2009, despite the severe and sudden impact of the global financial crisis and significant weather related interruptions in the Pilbara early in the year.
Across operations, rapid measures were taken to reduce expenditure in the face of the downturn in markets, putting in place cash preservation efficiencies and managing operations so as to enable a quick ramp up as markets recovered. Pilbara iron ore production managed to run in excess of nameplate capacity throughout the second half of the year, despite the disruptions.
Iron Ore’s contribution to 2009 underlying earnings was US$4,126 million, US$1,891 million lower than in 2008, mainly due to lower benchmark and spot prices, partly offset by higher volumes from the recently completed expansions and lower unit cash costs.
Sales volumes from the Pilbara region of Western Australia set a new record in 2009 at 204 million tonnes (100 per cent basis), an increase of 19 per cent on 2008. Shipments to all major markets, including the largest single market, China, were maintained at a high level throughout 2009. In the first half of the year approximately half of Rio Tinto’s iron ore production was sold on a spot market basis. In the second half, sales were primarily priced on a benchmark or its equivalent basis.
In September 2009, Rio Tinto completed the sale of the Corumbá operation and the associated river logistics operations in Paraguay for US$750 million. The profit on disposal from this divestment has been excluded from underlying earnings.
The Iron Ore Company of Canada (Rio Tinto 58.7 per cent) completed a five week Summer shutdown and all pellet lines have resumed production. The HIsmelt® plant in Kwinana, south of Perth, remained on care and maintenance throughout 2009.
Strategy
The 2010 strategy is linked to the pace of recovery in world iron ore markets. The business will aim to achieve superior returns and cash flow, focusing on continuous improvement to build on the previous year’s record performance.
As China continues to comprise more than 90 per cent of the global iron ore trade, Rio Tinto will seek to protect and enhance its market share in this and other key markets, seeking an improvement in relationships with China. Expansion options will be identified to optimise the development sequence of mines, for example using brownfield developments to increase or maintain return from existing assets.
An ongoing priority will be the early identification and adoption of technologies that improve performance and deliver value from operations, as was the case with the Operations Centre in 2009. Early returns from the Autonomous Haulage System trial (with Komatsu) of driverless trucks and the autonomous drill and blast projects at West Angelas mine show great promise. Rio Tinto remains committed to establishing its Mine of the Future™ vision in the Pilbara and elsewhere.
Planning for the implementation of an integrated production joint venture with BHP Billiton remains the most important strategic consideration of 2010.
Key achievements
Besides the binding agreement to form a production joint venture with BHP Billiton – which required a massive commitment of organisational resources – the key achievement of 2009 was maximising efficiency through a year of unprecedented change.
Not only were new production and sales records set – notably global iron ore production in excess of 217 million tonnes (Rio Tinto share 171.5 million tonnes), a 12 per cent increase on 2008 – but they were achieved despite a very challenging first half. Major flooding through the west Pilbara cut off most mines from ports, necessitating a significant reconstruction effort. Operations were able to make up the shortfall allowing in bound ore supply to meet all contractual obligations.
The first stage of the Operations Centre in Perth was successfully completed, enabling the management of all mine, port and rail assets from a single location for the first time.
The finalisation of the sale of the Corumbá iron ore mine to Vale was also a significant achievement. The group completed negotiations for a mine gate sales agreement with Pilbara junior company Iron Ore Holdings (IOH) for up to 1.5 million tonnes a year from its Phil’s Creek project to be fed into production. The agreement also included a six months’ exclusive right to examine IOH’s Iron Valley asset strategically placed near the Yandicoogina mine.
Efforts were intensified to maximise the participation of Traditional Owners and other indigenous Australians in the Pilbara operations. Already among the largest private sector employers of Aboriginals, a historic decision late in 2009 saw Rio Tinto award a A$200 million contract for the Western Turner Syncline project to a joint venture involving the Eastern Guruma people.
Rio Tinto continued its longstanding support for community organisations as well as launching new partnerships with the Kings Park Botanical Gardens and the Royal Flying Doctor Service, the latter to provide the first aeromedical jet to service remote Western Australia.
Safety
There was a significant improvement in safety performance for the Iron Ore group in 2009, with the all injury frequency rate (AIFR) dropping to 0.81, an 11 per cent improvement on 2008. The AIFR achieved was better than the year’s target of 0.86, and compares with the 0.91 AIFR achieved in 2008.
(BAR GRAPH)
A Chief Executive’s Safety Award was presented to the Expansion Projects division for achieving an outstanding all injury frequency rate (AIFR) of 0.57 and implementing a number of safety initiatives. One of these was reporting and recording significant potential incidents (SPIs), a programme started at Iron Ore operating divisions in 2009.
Expansion Projects achieved the outstanding rate of three SPIs reported per 100 site employees, and started the Fatality Prevention Programme to identify, eliminate or control potentially fatal events. Management worked with construction contractors to provide a strong focus on safety leadership, including safety forums and inductions with a focus on group interaction and learning.
The Safety Leadership Development Programme was implemented across iron ore sites in Western Australia.


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Performance
 
Iron Ore continued

Greenhouse gas emissions
The Iron Ore group’s total greenhouse gas (GHG) emissions intensity improved to 9.1 kilograms of carbon dioxide equivalent per tonne of iron ore in 2009, from 10.5 in the previous year.
(BAR GRAPH)
Progress continued on the replacement of ageing power infrastructure in the Pilbara, with a new generation plant ready for commissioning in 2010. Implementation of the cleaner technology will result in 25 per cent less GHG at the same production level compared with the existing steam power generation. Four gas turbines will be progressively commissioned in 2010 with the option to retrofit combined cycle equipment to further reduce GHG emissions.
Another technological improvement occurred with the integration of 51 Evolution™ Series locomotives into the Pilbara railway fleet. The new generation General Electric diesel electric locomotives replace the less efficient Dash 7 and 8 locomotives.
A number of localised innovative projects to reduce GHG emissions continued across the group. At the Tom Price mine, locally produced biodiesel has been secured to provide fuel for drilling blasts in 2010. Energy efficient devices continue to be introduced to housing and buildings on sites and in towns. Research into electricity generation, hybrid engines and alternative fuels continue through the Mine of the Future™ programme.
Review of operations
From November 2008 through to February 2009, the sudden impact of the global financial crisis on world iron ore demand
forced the business to re-cast its options and priorities for the year ahead.
Rio Tinto’s Iron Ore business rapidly implemented a series of measures designed to curtail operating costs and capital expenditure, as its customers’ liquidity challenges and its own corporate priorities demanded.
Most expansion work was suspended, and a number of assets were put on temporary shutdown or prolonged care and maintenance to preserve cash and protect shareholder value.
The proposed strategic relationship with Chinalco, announced in February, involved a significant commitment of management resources, as did from June the agreement for an operational joint venture with BHP Billiton.
An early priority of the realignment of the business was the focus on preserving operations in good shape for market recovery, and therefore a number of maintenance projects were brought forward to capitalise on the downturn. For example, a new ship loader was installed at the East Intercourse Island terminal at Dampier, several months ahead of schedule.
The focus on maximising the return from existing assets continued through the year, with the ramping up of Hope Downs mine (Rio Tinto share 50 per cent) the most significant single development, feeding 20.6 million tonnes into overall production.
The rapid repair of the rail track that was flood damaged in February allowed the Mesa J mine at Pannawonica to produce 25.2 million tonnes in 2009, a marginal increase on the previous year.
Expansion work continued on two new mines in the Pilbara – Mesa A in the Robe Valley (Rio Tinto share 53 per cent) and Brockman 4 near Tom Price (Rio Tinto share 100 per cent). Both mines are expected to be producing ore by mid 2010.
Work continued on the US$500 million power station at Dampier and work started on adding incremental tonnage at Dampier port.
Hearings before the Australian Competition Tribunal on the issue of third party rail access to Rio Tinto’s rail operations in the Pilbara continued through the latter part of 2009, with a decision expected in 2010.
In September state authorities upheld the validity of Rio Tinto’s tenure of the Rhodes Ridge joint venture (Rio Tinto share 50 per cent), confirming its claim of occupancy rights on a key project for future development of the Pilbara.
Studies were completed on the Hope Downs 4 project in the east Pilbara, and environmental
approval is being sought as the 50:50 joint venture partners Rio Tinto and Hancock Prospecting consider development options.
In late 2009 Rio Tinto relaunched its expansion plans, covering two incremental five million tonne expansions in Dampier port capacity, and outlining a two step process to arrive at an overall Pilbara annual capacity of 330 million tonnes by 2015. The key components include a second wharf at Cape Lambert, six new mine developments or expansions and a major increase in supporting infrastructure and workforce developments.
At Iron Ore Company of Canada the sale of pellets was lower than the previous year, reflecting the summer shutdown and the slower recovery of traditional markets. Improved production later in the year followed the resumption of pellet lines and the benefit of additional heavy mobile equipment.
The Orissa joint venture project (Rio Tinto share 51 per cent) in India is close to finalisation, providing a potentially valuable foothold in an under explored world class province, with great capacity to service India’s growing domestic market.
The Simandou project (Rio Tinto share 95 per cent) in the west African nation of Guinea, a potential development of world class significance and one which would confirm its status as a Pilbara class iron ore province, remains a work in progress. A number of issues related to security of tenure remain to be resolved with the new Government of Guinea.
Discussions continue following the negotiation of a binding agreement with BHP Billiton in December 2009 for a production joint venture. A series of regulatory approvals and related processes is under way. The joint venture, to be chaired by Iron Ore chief executive Sam Walsh, is a critical project for both partners, aiming to unlock more than US$10 billion in synergies and realise the full potential of their iron ore assets in the Pilbara.
The joint venture encompasses the iron ore resources, capabilities and infrastructure of both companies, but marketing arrangements will remain completely separate and competitive.
Minerals
Dampier Salt (Rio Tinto: 68.4 per cent)
In 2008 Iron Ore took responsibility for Dampier Salt (DSL). DSL achieved record underlying earnings of US$88 million in 2009, up from US$40 million in 2008.
Salt production for DSL was 8.6 million tonnes (100 per cent), marginally down on nine million tonnes in 2008. The downturn
 


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was mainly attributable to the softening in Asian markets in response to the global financial crisis.
The Dampier site achieved record shipments of four million tonnes despite a first quarter impacted by bad weather. The site also established a new nameplate capacity of 4.4 million tonnes per annum resulting from various process improvements. At the end of the year the 100 millionth tonne of salt was shipped from Dampier since salt production began there in 1972.
A new 3,500 tonnes per hour shiploader and feed conveyor system was installed at Port Hedland to replace the original port infrastructure. The salt transport function in the harvest process at Port Hedland was successfully brought in house from a contractor, improving the business risk profile.
In April Lake MacLeod celebrated 40 years of salt and gypsum production.
Marine
In early 2009, the Iron Ore business assumed responsibility for Rio Tinto Marine operations (Group ship ownership and contracting).
The centralised Marine group consists of approximately 75 shipping professionals, located principally in Melbourne, Singapore, London and Montreal, supporting Rio Tinto businesses globally in assisting with vessel selection, operational safety, scheduling, port efficiency and cost management. During 2009, Rio Tinto Marine managed 168 million tonnes of seaborne volume consisting of iron ore, coal, salt, bauxite, alumina and other dry cargo, a 68 per cent increase on 2008 volume.
Rio Tinto Marine leverages the Group’s substantial cargo base to obtain a low cost mix of short, medium and long term freight cover. It seeks to create value by improving the competitive position of the Group’s products through freight optimisation. Rio Tinto’s product diversity and global coverage affords Rio Tinto Marine the ability to combine internal and complementary external trade flows to increase vessel utilisation and profitability.
The group’s HSE and vessel assurance standards for freight are set and maintained by Rio Tinto Marine, one of three equal shareholders in RightShip, a ship vetting specialist, promoting safety and efficiency in the global maritime industry. Rio Tinto Marine will continue safety improvement efforts to instil a high standard of safety performance aboard vessels under management and throughout the organisation.
During 2009 Rio Tinto Marine took possession of two new bulk carriers, RTM Twarra and RTM Gladstone, being the final two vessels in a series of five. These vessels will be used principally for the transportation of bauxite from Rio Tinto Alcan’s mine at Weipa, Queensland. The purpose built ships deliver volume and efficiency advantages on niche trade routes, guaranteeing supply and eliminating freight cost variability.
Outlook
Rio Tinto remains positive about the outlook for iron ore in 2010 as markets continue their recovery in the medium and longer term. It is important to retain some caution, as the recovery is strong but not without fragility. In particular, the sustaining benefit of the various government stimulus packages remains to be seen.
Despite this, the outlook remains far better than it appeared this time a year ago. Not only has China weathered the financial crisis better than other major markets, its greater steel consumption as a result of demographic shifts towards urbanisation has resulted in continued strong underlying demand for iron ore.
While the near future will see steel consumption stimulated by financial measures focused on infrastructure development and exports, longer term growth is expected to continue to be driven by urbanisation in coastal provinces, later spreading inland to the rural economy.
This strong demand has left China increasingly reliant on lower cost iron ore imports, emphasising the importance of Rio Tinto’s position in the lowest quartile of cost per tonne for iron ore production.
There has been a resurgence in the iron ore spot price, however Rio Tinto has emphasised its willingness to align with customers’ supply requirements. While Rio Tinto has long been an advocate for a robust benchmark pricing system – one able to accommodate the realities of the demand-supply balance while helping support future expansions of capacity – it does not limit itself to one preferred avenue of delivery.
The outlook for pellets is improving as the steel industry capacity utilisation has started rising at IOC’s traditional North American and European markets.
      


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Performance
 
Exploration
Adding value through discovery

The Group has had a sustained commitment to exploration since 1946 and considers exploration to be one of its core competencies. Mature Group operations, such as Weipa, the Pilbara and Rössing, were Tier 1 greenfield discoveries by Rio Tinto. The value of these discoveries is still being realised by both mine production and successful brownfield exploration after more than 40 years.
Continuing this legacy, since 2000, the Exploration group has identified two of the largest copper opportunities in the world at Resolution in Arizona, US and La Granja in Peru. Exploration has also delivered one of the world’s largest known undeveloped high grade iron ore deposits, at Simandou in Guinea, as well as the Caliwingina channel iron deposits in the Pilbara, Australia. Exploration identified the Sulawesi nickel laterite deposit in Indonesia, the Mutamba titanium deposit in Mozambique and the potash deposits at Potasio Rio Colorado and Regina, in Argentina and Canada respectively, which Rio Tinto sold to Vale in 2009. In 2009, Exploration handed over to the Diamonds & Minerals product group for further evaluation the Jadar lithium borate deposit in Serbia.
A significant proportion of the Exploration group’s expenditure is returned to Rio Tinto through the sale of Tier 2 discoveries. Over the ten year period 2000 to 2009, divestment of Exploration group projects has returned US$1,209 million for a net pre tax spend of approximately US$78 million. Over the period this translates to an average Tier 1 discovery cost of less than US$10 million per deposit.
The following table shows the Exploration group’s Tier 1 discoveries since 2000:
             
Year   Discovery   Commodity   Location
 
2000
  Potasio Rio   Potash   Argentina
 
  Colorado        
2002
  Resolution   Copper   US
2004
  Simandou   Iron ore   Guinea
2005
  La Granja   Copper   Peru
2005
  Caliwingina   Iron ore   Australia
2008
  Sulawesi   Nickel   Indonesia
2008
  Mutamba   Titanium   Mozambique
2009
  Jadar   Lithium /   Serbia
 
      Borates    
 
At the end of 2009, the Exploration group was actively exploring in 17 countries, and assessing opportunities in a further five, for a broad range of commodities including bauxite, copper, coking coal, iron ore, diamonds, nickel and uranium.
Strategy
The purpose of Exploration is to add value to the Group by discovering or acquiring resources that can increase future cash
flows. A fundamental element of the Group’s business strategy is a clear focus on finding and mining only the largest, lowest cost, resources that are profitable at all parts of the natural price cycle and that deliver a sustainable competitive advantage. These are described as Tier 1 resources.
The Exploration group is organised geographically into regional multi-commodity teams, with head offices in London, Salt Lake City and Brisbane. Greenfield exploration, which aims to establish completely new operating business units, involves geographic or commodity diversification away from existing Group operations. Brownfield exploration is directed at sustaining or growing existing Group business units. The Exploration group manages and is accountable for greenfield programmes and provides technical assistance to the business units on brownfield programmes.
Greenfield exploration programmes are prioritised on a global basis so that only the most attractive opportunities are pursued. Investment decisions are driven not by location or choice of commodity but rather by the quality of each opportunity.
Safety
The Exploration group all injury frequency rate has fallen from 0.97 at the end of 2008 to 0.61 at the end of 2009. This improvement has in part come from a reduction in the scope of field activities, but also reflects a focus on reducing injuries through enhanced contractor management.
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2009 operating performance
The Tier 1 greenfield lithium borate deposit at Jadar, Serbia, was transferred to the Diamonds & Minerals product group for
further evaluation. The Crowsnest coking coal deposit in British Columbia, Canada, was identified as a non core asset and has been prepared for divestment. Options for progressing the Altai Nuurs coking coal deposit in Mongolia continue to be assessed.
In response to Group cost reduction targets for 2009, activity at order of magnitude projects Tamarack in the US (nickel-copper) and Amargosa in Brazil (bauxite) was curtailed. These projects have now been reinvigorated and are expected to be advanced to a decision point in 2010.
In the brownfield environment, Exploration handed over the Leisker iron ore deposit in the Pilbara, Australia, to Rio Tinto Iron Ore. In Utah, US, drilling within three kilometres of the Bingham Canyon copper mine identified a new copper-molybdenum-gold porphyry system. Delineation drilling is now under way with numerous other geophysical targets within the Bingham mine orbit to be tested in 2010.
Gross cash expenditure on exploration and evaluation in 2009 was US$514 million. The decrease of US$620 million over 2008 gross expenditure reflects steps taken across the Group to reduce controllable costs. Gross expenditures are offset by US$ 894 million (pre-tax) proceeds from the divestment of exploration properties, including US$818 million pre-tax (US$797 million post-tax) from the divestment of undeveloped potash assets in Argentina and Canada.
Outlook
The Exploration group will explore for a range of commodities across at least 17 countries in 2010. Continued improvement in commodity demand forecasts will underpin the reactivation of major drilling programmes on the Tamarack nickel-copper and Amargosa bauxite projects. Focus will also be placed on reinvigorating the early stage target generation and testing required for sustained exploration success.
Divestment of Tier 2 assets will continue where real value can be realised, with a target of 100 per cent of the annual greenfield exploration budget being returned to the Group.
The next crop of potential discoveries:
             
Project   Commodity   Country   Stage
 
Tamarack
  Nickel/copper   US   Order of magnitude
Amargosa
  Bauxite   Brazil   Order of magnitude
 
      


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Progress of a project
The evolution of a project from target testing to commissioning can take ten to 20 years involving a series of study stages to reach investment approval and implementation. Sustainable development decision making criteria are applied throughout the project development cycle.
The early stages represent a progressive increase in confidence in the technical and economic parameters used to determine whether the project meets Rio Tinto’s investment criteria. Early stages of project evolution are broadly termed Exploration. These stages of work are the responsibility of the Exploration group.
Target generation and testing involves the progression from concept to proof of mineralisation at the prospect.
A Project of Merit is defined where mineralisation has been identified through drilling to be of a grade and quantity sufficient to be potentially economic by analogy with peer deposits currently in production.
Projects which attract the interest of the relevant Rio Tinto product group are progressed to Order of Magnitude Study. This involves an assessment of all possible options to establish if there could be a viable project, and whether its potential value is sufficient to justify committing significant sums of money to a detailed investigation programme. Any potential “showstoppers” are identified during this stage.
A successful Order of Magnitude Study results in the declaration of a discovery and the transfer of project management from the Exploration group to the relevant Rio Tinto product group. Further work on these projects is broadly defined as Evaluation.
The two main Evaluation Study phases are Pre-feasibility and Feasibility Studies. Pre-feasibility involves an evaluation of project options, yielding a far clearer understanding of the preferred project concept and the key issues. The Feasibility Study sees the focus switch to optimisation and engineering of a single scenario identified through the Pre-feasibility Study. This finally freezes and fully defines the scope in order to tie the project down with a high degree of certainty as to the specifications of what will be constructed.


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Opportunities are tested and screened by several different stages of work
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Performance
 
Technology & Innovation
Step change to confer advantage

Technology & Innovation (T&I) consists of a central team of technology professionals and a number of technology centres that develop leading practice and promote improvements in mining, processing, asset management, strategic production planning, energy use, and project development, execution and evaluation. Emphasis is given to shared and visible measures of operational effectiveness, the improvement of analytical tools and development of staff capabilities.
Most work is focused on improving current technologies and operations. In addition, the Innovation Centre focuses on technology step changes that will confer competitive advantage in development of orebodies likely to be available to the Group in the future. The Energy & Climate Strategy Centre focuses on improving the Group’s use of energy, reducing greenhouse gas emissions and understanding the effects of climate change on the Group’s operations and prospects.
The total number of employees in T&I at year end was 267 compared with 351 at year end 2008. As a result of the global downturn T&I has focused staff on delivery of the most value accretive opportunities.
Strategy
T&I’s strategy is to:
  Maintain and promote a safe working environment.
 
  Continue to embed operational excellence in business units.
 
  Maximise the contribution of technology to the Group’s vision of industry leadership.
 
  Deploy technology solutions that increase earnings.
 
  Design and build valuable new investment projects.
 
  Position the Group to unlock orebodies that require innovative mining solutions.
 
  Lead the Group’s response to climate change.
Safety
T&I is committed to the safe operation of its facilities and to the safe deployment of its personnel. As a consequence of a single, low severity medical treatment case, the T&I 2009 all injury frequency rate was 0.32 compared with 0.24 in 2008.
2009 operating performance
Key achievements
The Improving Performance Together (IPT) asset management programme was key to Rio Tinto Alcan cultural integration
and value delivery in 2009, resulting in significant improvement in maintenance work management performance, higher plant reliability and lower maintenance costs.
The IPT processing programme was instrumental in improving operational performance at processing plants across the Group by focusing on core metallurgical capability and delivery. For example at Kennecott Utah Copper, the collaborative IPT engagement improved underlying concentrator performance by up to 14 per cent through a combination of sustainable improvements in throughput, recovery and cost reductions
The IPT payload management initiative delivered further improvements across many of the Group’s mines in 2009. The average load carried by the Group’s haul truck fleet increased by an annualised rate of more than 100 million tonnes – more than the annual tonnes mined by the Mount Tom Price iron ore mine. The initiative reduced load variability by five per cent from 2008. At several of the Pilbara Iron sites this improved control of loading was the key factor in increasing the design capacity of new truck bodies.
The T&I gross cost in 2009 was US$134 million, compared with US$158 million in 2008.
Innovation
T&I’s Innovation Centre identifies, evaluates and implements value accretive step change mining technologies with Group wide application.
The Group continues to pursue the strategic Mine of the Future™ programme, which is a set of interlinking projects aimed at delivering demonstrable step change improvements in productivity, cost and environmental performance, and product quality in surface and underground mining operations and associated mineral recovery technologies.
A breakthrough delivered through the Mine of the Future™ programme is the development and deployment of autonomous blast hole drilling technologies in the Pilbara. The programme had three autonomous drill rigs at the end of 2009 and remains an exciting test programme with the potential to deploy a world first autonomous drilling solution Rio Tinto wide. Results indicate a significant improvement in blast drill accuracy plus associated hole quality, lower cost of consumables, and the ability to better utilise skilled operator resources by remotely supervising multiple autonomous drills.
The surface Mine of the Future™ programme is currently focused on the operation of the first significantly autonomous iron ore mine,
designated “Pit A”, which is located at the West Angelas mine in the Pilbara. Pit A combines autonomous drilling, semi-autonomous blast loading with autonomous trucks, and a wide range of advanced sensing and telecommunications technologies. The Pit A site is fully integrated with the Iron Ore Operations Centre in Perth. The Pit A trial programme moved into full trial operation in the second quarter of 2009 and continued throughout 2009 with a zero lost time injury record. The autonomous haul fleet moved approximately 16.2 million tonnes in 2009.
In September 2009, Rio Tinto announced the formation of the “Río de Cobre” technology alliance with the Chilean copper producer Codelco. The alliance allows for an unparalleled level of technical collaboration to take place between the two companies, which will help develop solutions to tackle the challenges posed by the need for massive, increasingly underground, copper production in the decades to come.
The Group’s capabilities in the field of mineral recovery were enhanced by the formation of a long term partnership with the Julius Kruttschnitt Mineral Research Centre in Brisbane, Australia. The Rio Tinto Centre for Advanced Mineral Sorting will continue work on advancing breakthrough technology targeted to remove barren material, initially from copper ore, in order to either significantly lift current head grades or recover economically viable head grade feed from mineralised waste streams.
Energy & Climate Strategy
The Energy & Climate Strategy Centre was established in 2008 to lead the Group’s response to the challenges of climate change. The team engages with governments and other stakeholders on the design of climate policy, develops internal strategies to reduce energy usage and greenhouse gas emissions, and identifies low carbon pathways for the Group’s products.
The Group recognises that climate policy will require significant business changes, but believes that concerted government action in the near term will allow a transition which minimises long term costs. Clarity on the direction of climate policy will also reduce risks associated with long term investment in new assets.
The year 2009 was an important one for climate policy, with the Copenhagen Climate talks in December, and legislative proposals in Australia, New Zealand, the US and Europe. The Group continued actively to support the development of legislation through direct engagement with governments
      


 
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and involvement in advocacy groups such as the US Climate Action Partnership.
The Energy & Climate Strategy team also supported the business units in preparing for future emissions trading systems. The quality of the Group’s reporting was again recognised by the Carbon Disclosure Project. Rio Tinto scored top in the FTSE 350 materials sector and second in the Global 500 materials sector.
The Energy & Climate Strategy team manages the Group’s work on carbon capture and storage (CCS). In late 2009 the Group decided to focus the majority of its investment in carbon capture and storage (CCS) technology on the Hydrogen Energy California project, a proposed new hydrogen powered electricity facility that will capture and store most of its carbon related emissions to produce clean electricity. This decision necessitated a restructuring of the broader Hydrogen Energy joint venture with BP. Rio Tinto sold its 50 per cent interest in Hydrogen Energy International Ltd, which owns an interest in the Hydrogen Power Abu Dhabi project, to BP for an undisclosed sum.
Mineral Technology Services
The Mineral Technology Services Centre comprises a central team of technology professionals deployed from six regional offices in North America, Australia and the UK who partner with business units in the delivery of large, measurable increases in earnings and value. This team provides technical service to business units in the areas of geology, mining, mineral processing, geotechnics, hydrometallurgy, process control, asset management and the environment.
The Centre is also responsible for the delivery of the IPT processing solution that focuses on identifying, understanding and reducing product losses that occur during mineral processing. The sustainability of improvements is monitored through the use of shared, global performance measures for concentrators and other fixed plants. The IPT processing programme continued to deliver strong results in 2009 and assisted the operating units in realising over US$300 million in pre-tax cash flow benefits.
Asset Management
The Asset Management Centre focuses on the effective choice and deployment of the Group’s equipment for mining and processing. During 2009, it focused on the continued reliability and performance of equipment across the Group, including the implementation of asset management standards, standard business processes and work practices, technical systems and
global metrics to compare and monitor the performance of both heavy mobile equipment and fixed plant equipment.
The IPT programme for Asset Management continued to deliver strong results in 2009, assisting the business units to realise over US$200 million in pre-tax cash flow benefits. There was also a significant effort to work jointly with Rio Tinto Alcan to deploy the programme across sites in North America, Europe and Australia resulting in additional pre-tax cash flow benefits of over US$50 million.
Mining Technology
The focus of the Mining Technology Centre is to establish leading practice and develop, share and implement Group wide solutions in the core mining production processes of surface mining, underground mining, strategic resource development, resource and reserve estimation, orebody knowledge and mine planning. IPT mining initiatives in 2009 included payload management, drill and blast and off road tyre demand reduction. The IPT programme for mining technology continued to deliver strong results in 2009 and assisted business units in realising over US$150 million in pre-tax cash flow benefits in 2009.
The Mining Technology Centre also includes a Strategic Production Planning (SPP) team, which focuses on developing and establishing leading practice. A key element of the SPP process is cooperation with business units to develop comprehensive plans and valuations of strategic development options. Results from SPP provide a logical resource development framework for more detailed studies and investment decision making. The Centre also oversees the Group’s resource and reserves estimation and reporting process as well as the core technical systems.
Project Development
The Project Development Centre provides guidance, support and training for all aspects of capital projects, from pre-feasibility through to execution and commissioning. It also performs a governance function by conducting project reviews and reporting back to Group operations. The Centre manages feasibility studies and the execution of capital projects on behalf of the business units. At the end of 2009 it was responsible for the implementation of the Argyle Diamonds underground project, Kestrel mine extension, Clermont coal mine project, Yarwun 2 project and the feasibility study for the Energy Resources of Australia heap leach project. During 2009, the Centre continued to make improvements in overall safety performance at these projects.
Technical Risk Evaluation
The Technical Risk Evaluation Centre ensures that Rio Tinto’s investment decisions are based on independent, thorough technical review and evaluation and provides advice on the adequacy of risk identification and management at key points in the project approvals process. The Centre also sets standards for Risk Analysis and Management more generally across the Group. In 2009 it began implementation of a Group wide risk management and reporting system that will ensure the Group understands, manages and reports its risk effectively.
Outlook
In 2010 T&I will continue to maintain a culture that places a high priority on safety and safety improvements. T&I will continue to work with Group businesses to deliver measurable increases in earnings and will continue to assist from a technology viewpoint in the selection of the most attractive investment opportunities. T&I will continue to focus on the safe and efficient implementation of projects and will build systems to support management of projects across the Group. The pursuit of the Mine of the Future™ programme and the development of innovative alliances and relationships that will create competitive advantage for the Group remain a significant focus in the coming year. T&I will also focus efforts on delivering improvements in the Group’s energy efficiency, long term business decarbonisation options, compliance processes and performance, and carbon markets participation.




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Performance
 
Financial review

Cash flow
A full consolidated cash flow statement is contained in the 2009 Financial statements. Cash flow from operations, including dividends from equity accounted units, was US$13,834 million, 33 per cent lower than 2008, primarily as a consequence of lower prices.
Tax paid for 2009 decreased to US$3,076 million, US$823 million lower than for 2008 largely due to the decrease in taxable profits. Net interest paid of US$1,136 million for 2009 was US$402 million lower than 2008, largely due to lower amounts of debt, following the repayment of part of the US$40 billion Alcan acquisition facility, using the US$14.8 billion net proceeds from the rights issues in July 2009.
Capital expenditure on property, plant and equipment and intangible assets was US$5,388 million in 2009, a decrease of US$3,186 million over 2008. This included the Brockman 4 and Mesa A iron ore mine developments in Western Australia, the expansion of the Yarwun alumina refinery, the construction of the Clermont thermal coal mine, the expansion of the Kestrel coking coal mine, the development of the underground diamond mines at Diavik and Argyle, and the completion of the Madagascar ilmenite mine.
Net cash proceeds from disposals and acquisitions in 2009 were US$2,028 million, and related to the disposal of Corumba, Jacob’s Ranch mine and Alcan Composites; along with the proceeds from the initial public offering of Cloud Peak Energy Inc and related transactions; partly offset by the payment to acquire an additional 9.8 per cent in Ivanhoe Mines. Net disposals were US$2,563 million in 2008 and related to Cortez, Greens Creek and Alcan’s aerospace service centres business.
Dividends paid in 2009 of US$876 million were US$1,057 million lower than dividends paid in 2008, following the cancellation of the interim dividend. Other financing cash flows include the net proceeds of the rights issues of US$14.8 billion, repayments of borrowings of US$22.2 billion and proceeds from additional borrowings of US$5.8 billion.
Statement of financial position
Net debt decreased from US$38.7 billion to US$18.9 billion following receipt of the proceeds from the divestment programme, strong operating cash flows and net proceeds of US$14.8 billion from the rights issues. Net debt to total capital was 29.1 per cent at 31 December 2009 (2008: 63.3 per cent), and interest cover was nine times compared to ten times in 2008.
In addition, the Group’s share of the third party net debt of equity accounted units totalled US$1.1 billion at 31 December 2009.
Provisions for post-retirement benefit plans increased owing to an increase in the value of the obligations resulting from lower discount rates, as well as liabilities relating to Alcan Packaging’s pension plans that were reclassified from Assets Held For Sale into continuing operations. This was offset, to some extent, by the increase in the value of assets held in the pension plans. This increase in the provision resulted in an actuarial loss of US$1.0 billion being recognised directly in equity.
Net assets attributable to Rio Tinto shareholders increased by US$23.2 billion. The increase reflected the net proceeds from the rights issues of $14.8 billion, profit after tax attributable to Rio Tinto shareholders of US$4.9 billion, less US$0.9 billion of dividends paid. In addition, there was a positive currency translation effect of US$4.9 billion as the Australian dollar, the Canadian dollar and the Euro all strengthened against the US dollar at year end, compared with 2008.
Financial risk management
The Group’s policies with regard to financial risk management are clearly defined and consistently applied. They are a fundamental part of the Group’s long term strategy covering areas such as foreign exchange risk, interest rate risk, commodity price risk, credit risk, liquidity risk and capital management. Further details of our financial risk management are disclosed in note 33 “Financial risk management”, to the 2009 Financial statements.
The Group’s 2009 Annual report and financial statements show the full extent of its financial commitments, including debt. The principal risks and uncertainties, to which the Group is subject, that are thought to be of particular importance are summarised on pages 16 to 19. The effectiveness of internal control procedures continues to be a high priority in the Rio Tinto Group. The boards’ statement on internal control is set out on page 102.
Liquidity and Capital risk management
Details of our Liquidity and Capital risk management are contained within note 33 “Financial risk management”, part (v), to the 2009 Financial statements.
Dividends and capital management
Dividends paid on Rio Tinto plc and Rio Tinto Limited shares are equalised on a net cash basis; that is without taking into account any associated tax credits. Dividends are determined in US dollars. Rio Tinto plc dividends are declared and paid in pounds sterling and Rio Tinto Limited dividends are declared and paid in Australian dollars, converted at exchange rates applicable to the US dollar two days prior to the announcement of dividends. Holders of American Depositary Receipts (ADRs) receive a US dollar dividend at the rate declared. Changes in exchange rates could result in a reduced sterling or Australian dollar dividend in a year in which the US dollar value is maintained or increased.
On announcing the US$15.2 billion rights issues on 5 June 2009, the Group stated that the interim dividend for 2009 had been cancelled. Following satisfactory trading results, good progress with the divestment programme and prevailing market conditions, the boards have approved a final dividend for 2009 of 45 US cents per share, a total payout of US$882 million. Rio Tinto Limited shareholders will be paid dividends which will be fully franked. The boards expect Rio Tinto Limited to be in a position to pay fully franked dividends for the reasonably foreseeable future.
The boards expect that the total cash dividend for the 2010 financial year will be at least equal to the total cash dividend payment for 2008 of US$1.75 billion, albeit over an increased number of shares. The interim dividend for 2010 is expected to be 45 US cents per share. From that point on, the boards are committed to a progressive dividend policy over the longer term.
Treasury management and financial instruments
Details of our Treasury management and financial instruments are contained within the introductory paragraphs of note 33 Financial risk management, to the 2009 Financial statements.
     


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Off balance sheet arrangements and contractual commitments
Information in relation to our material off balance sheet arrangements, principally contingent liabilities, commitments for capital expenditure and other expenditure, and commitments under operating leases at 31 December 2009, is provided in note 35 Contingent Liabilities and Commitments to the financial statements. We expect that these contractual commitments for expenditure, together with other expenditure and liquidity requirements will be met from internal cash flow and, to the extent necessary, from the existing facilities described in note 33 Financial risk management, part (v), to the 2009 Financial statements.
Information regarding the Group’s pension commitments and funding arrangements is provided in note 50 to the 2009 Financial statements.
Information regarding the Group’s close-down and restoration obligations is provided in note 27 to the 2009 Financial statements.
Foreign exchange
Details of our exposure to foreign currency fluctuations and currency derivatives, and our approach to currency hedging, are contained within note 33 Financial risk management, part (i), to the 2009 Financial statements.
Interest rates
Details of our exposure to interest rate fluctuations are contained within note 33 Financial risk management, part (ii), to the 2009 Financial statements.
Commodity prices
Details of our exposure to commodity price fluctuations are contained within note 33 Financial risk management, part (iii), to the 2009 Financial statements.
Credit risks
Details of our exposure to credit risks relating to receivables, financial instruments and cash deposits, are contained within note 33 Financial risk management, part (iv), to the 2009 Financial statements.
Disposals and acquisitions
Information regarding disposals and acquisitions is provided in note 41 Purchases and sales of subsidiaries, joint ventures, associates and other interests in businesses, to the 2009 Financial statements and on the next page.
Critical accounting policies and estimates
Many of the amounts included in the financial statements involve the use of judgement and/ or estimation. These judgements and estimates are based on management’s best knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in note 1 Principal accounting policies to the 2009 Financial statements, and/or the other notes to the 2009 Financial statements. The key areas are summarised below.
  Dual listed company reporting
 
  Asset carrying values
 
  Asset lives
 
  Ore reserve estimates
 
  Close down, restoration and clean up obligations
 
  Overburden removal costs
 
  Deferred tax on fair value adjustments
 
  Exploration
 
  Functional currency
 
  Underlying earnings
 
  Post retirement benefits
 
  Deferred tax potentially recoverable on Group tax losses
 
  Contingencies
 
  Acquisition accounting
  Alcan businesses earmarked for divestment
The following businesses, which were acquired as part of Alcan Inc., have been identified for divestment, and therefore, are not included within the analyses relating to the Aluminium product group. Alcan Engineered Products is included within Other operations, and Alcan Packaging is included within assets held for sale.
Alcan Engineered Products
Alcan Engineered Products is a global sector-leading business, with 73 operating sites in 30 countries, strongly committed to developing innovative, value-added aluminium products for a broad range of markets and applications. The current portfolio consists of four downstream manufacturing businesses: Global Aerospace, Transportation & Industry; Specialty Sheet; Extrusions & Automotive Structures; and Cable, as well as a global sales organisation, International Network.
On 30 November 2009, Rio Tinto completed the sale of Alcan Composites to Schweiter Technologies of Switzerland for a total consideration of US$349 million. The sale process for the remaining Alcan Engineered Products businesses is ongoing.
The rapid collapse in market conditions experienced in the latter stages of 2008, persisted through most of 2009. Sales revenues fell 35 per cent year on year, as demand reached historically low levels, with those businesses serving the aerospace, automotive, road transport, and industrial markets being the hardest hit. Alcan Engineered Products responded to the difficult environment by aggressively pursuing a wide range of countermeasures that generated approximately $300 million of cost savings.
Alcan Packaging
Alcan Packaging is a global leader in value-added specialty packaging, with 130 operating sites in 31 countries around the world. It ranks first in flexible food, flexible pharmaceutical, plastic cosmetics and tobacco packaging. Alcan Packaging’s strategy is to achieve operating excellence, moving towards fewer, larger, more specialised plants and to grow its business through innovation, partnership with multinational customers and development in emerging countries and regions. The business delivers innovative packaging solutions using plastics, engineered films, aluminium, paper, paperboard and glass to customers worldwide.
On 1 February 2010, Rio Tinto announced that it had completed the sale of the Alcan Packaging global pharmaceuticals, global tobacco, food Europe and food Asia divisions, to Amcor. A binding offer was made by Amcor on 16 August 2009, and it was accepted by Rio Tinto on 23 December 2009.
On 1 March 2010, Rio Tinto announced that it had completed the sale of its Alcan Packaging Food Americas division to Bemis Company, Inc. for a total all cash consideration of US$1.2 billion. The Group had previously announced on 6 July 2009 that it had signed an agreement to sell its Alcan Packaging Food Americas division to Bemis Company, Inc.
The process for the sale of the remaining Beauty sector is in progress.


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Performance
     
 

Acquisitions and divestments
During 2009 Rio Tinto acquired an additional interest in Ivanhoe Mines, owner of the Oyu Tolgoi copper-gold project in Mongolia. The Group announced asset sales totalling US$7.2 billion of which US$3.7 billion completed in 2009. Since February 2008, Rio Tinto has announced agreed asset sales of US$10.3 billion.
Acquisitions
             
    Cost      
Asset   US$ m     Status
 
Acquired in 2009
           
 
           
 
Copper – Ivanhoe Mines
    388     The purchase of an additional 9.8% interest increasing the Group’s total holding to 19.7%
 
 
           
Acquired in 2008
           
 
           
 
None
         
 
 
           
Acquired in 2007
           
 
           
 
Aluminium – Alcan Inc.
    38,652     Acquisition of Alcan Inc announced in July 2007 and completed in October 2007
 
Energy – Hydrogen Energy (Rio Tinto: 50%)
    35     Joint venture with BP
 
Iron Ore – Dampier Salt (Rio Tinto: 3%)
    19     The purchase of a 3% interest in Dampier Salt from a minority shareholder that increased the Group’s total interest to 68.4%
 
Divestments
             
    Proceeds      
Asset   US$ m     Status
 
Divested in 2009
           
 
           
 
Energy – Jacobs Ranch
    764     Sold to Arch Coal, Inc
 
Iron Ore – Corumbá mine
    814     Sold to Vale
 
Diamonds & Minerals – Exploration projects in Argentina and Canada
    850     Sold to Vale
 
Aluminium – Ningxia smelter (Rio Tinto: 50%)
    125     Sold to Qingtongxia Aluminium Group
 
Exploration – sundry assets
    68     Sold to multiple parties
 
Energy – Cloud Peak
    741     IPO and connected debt offering
 
Alcan Engineered Products – composites
    349     Sold to Schweiter Technologies
 
 
           
Divested in 2008
           
 
           
 
Energy – Kintyre project
    495     Sold to a joint venture
 
Copper – Greens Creek mine (Rio Tinto: 70%)
    750     Sale completed to Hecla Mining, the Group’s minority partner
 
Copper – Cortez Joint Venture (Rio Tinto: 40%)
    1,695     Sold to Barrick Gold, the Group’s majority partner, for cash plus a deferred bonus payment and contingent royalty interest
 
Exploration – sundry assets
    134     Sold to multiple parties
 
 
           
Divested in 2007
           
 
           
 
Diamonds & Minerals – Lassing and Ennsdorf
    6     Rio Tinto Minerals disposed of its operations at Lassing and Ennsdorf in Austria
 
      


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60 Rio Tinto 2009 Annual report

 


Table of Contents

 

Capital projects
Capital and major evaluation projects
Capital expenditure for 2010 is expected to be at least US$5 billion with potential for a further US$1 billion for new investments. The focus for 2010 will be on the following capital projects:
             
Capital project Rio Tinto share       Estimated capital    
100% unless stated   Approved project funding   spend in 2010    
US$ billion   US$bn   US$bn   Status / milestones
 
 
Iron ore – sustaining and expansion of Pilbara iron
ore mines and infrastructure capacity beyond 220mtpa
  3.6    1.1    Expansion of Hope Downs from 22mtpa to 30mtpa (US$350 million on 100% basis – Rio Tinto share is 50%) was completed during the first half of 2009. Work progressed on or ahead of schedule on the Mesa A and Brockman 4 mines. Mesa A came onstream in early February 2010 and Brockman 4 is expected to commence production in the second quarter of 2010.
 
 
Alumina – expansion of Yarwun alumina refinery
from 1.4 to 3.4mtpa
  1.8    0.3    Work has been slowed in response to market demand. The change to the construction schedule will result in a completion date in the fourth quarter of 2012.
 
 
Aluminium – construction of a new 225MW turbine at
the Shipshaw power station in Saguenay, Quebec, Canada
  0.2    0.1    Approved in October 2008, the project remains on budget and on schedule to be completed in December 2012.
 
 
Aluminium – modernisation of the Kitimat
smelter in British Columbia, Canada
  0.5    0.1    The project timing has been slowed. Intensive value improvement exercise exploring all options for reducing cost, and optimising project capital expenditures and returns.
 
 
Aluminium – AP50 pilot plant in Saguenay,
Quebec, Canada
  0.4    0.1    The project has been slowed. Construction of the electrical substation to be completed along with site preparation for potrooms and foundation of the busbars room.
 
 
Coking coal – Kestrel (Rio Tinto share 80%)
extension and expansion
  1.0    0.4    The project continues to target scheduled production of coal in 2012.
 
 
Thermal coal – Clermont (Rio Tinto 50.1%)
replacement of Blair Athol
  1.3    0.2    The project remains on track with first coal expected in the first quarter of 2010, ramping up to full capacity of 12.2mtpa by 2013.
 
 
Diamonds – Argyle underground development,
extending life to 2018
  1.5    0.1    The project has been slowed to critical development activities. The project continues through 2010 and is being reviewed to determine the appropriate ramp-up timing.
 
 
Diamonds – Diavik (Rio Tinto 60%)
underground development
  0.8      The project has been largely completed with first production expected in early 2010
 
Sustaining capital expenditure for 2010 is estimated to be US$2.1 billion (Rio Tinto funded). In addition to these capital projects, the Group will continue to fund a number of major evaluation projects in 2010. Studies will continue into the step change expansion of iron ore production capacity in the Pilbara to 330 million tonnes per annum by 2015. Detailed design and engineering work of the Cape Lambert port expansion are scheduled to be completed by the end of 2010. Other major evaluation projects include the Simandou iron ore project and the La Granja and Resolution copper projects.


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Table of Contents

Production and reserves
     
 
Summary

(BAR GRAPHS)
      


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62 Rio Tinto 2009 Annual report

 


Table of Contents

 
(BAR GRAPHS)


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Table of Contents

Production and reserves
     
 
Metals and minerals production

                                                         
            2009 Production     2008 Production     2007 Production  
    Rio Tinto             Rio Tinto             Rio Tinto             Rio Tinto  
    % share (a)     Total     share     Total     share     Total     share  
     
ALUMINA (‘000 tonnes)
                                                       
Gardanne (France) (b) (c)
    100.0                   38       38       21       21  
Gove (Australia) (b)
    100.0       2,519       2,519       2,325       2,325       405       405  
Jonquière (Vaudreuil) (Canada) (b)
    100.0       1,125       1,125       1,370       1,370       252       252  
Queensland Alumina (Australia) (b) (d)
    80.0       3,959       3,167       3,842       3,074       3,816       1,766  
São Luis (Alumar) (Brazil) (b)
    10.0       1,657       166       1,504       150       288       29  
Yarwun (Australia)
    100.0       1,347       1,347       1,293       1,293       1,260       1,260  
Specialty Plants
(Canada/France/Germany) (b) (c)
    100.0       492       492       758       758       144       144  
     
Rio Tinto total
                    8,815               9,008               3,877  
     
ALUMINIUM (‘000 tonnes)
                                                       
Alma (Canada) (b)
    100.0       435       435       424       424       80       80  
Alouette (Sept-Îles) (Canada) (b)
    40.0       573       229       572       229       109       44  
Alucam (Edéa) (Cameroon) (b)
    46.7       73       34       91       43       19       9  
Anglesey (UK) (e)
    51.0       106       54       118       60       147       75  
Arvida (Canada) (b)
    100.0       171       171       172       172       32       32  
Beauharnois (Canada) (b) (f)
    100.0       11       11       50       50       10       10  
Bécancour (Canada) (b)
    25.1       420       105       415       104       80       20  
Bell Bay (Australia)
    100.0       177       177       178       178       177       177  
Boyne Island (Australia)
    59.4       556       331       556       330       548       325  
Dunkerque (France) (b)
    100.0       244       244       254       254       49       49  
Grande-Baie (Canada) (b)
    100.0       215       215       212       212       40       40  
ISAL (Reykjavik) (Iceland) (b)
    100.0       190       190       187       187       35       35  
Kitimat (Canada) (b)
    100.0       224       224       247       247       47       47  
Lannemezan (France) (b) (g)
    100.0                   5       5       5       5  
Laterrière (Canada) (b)
    100.0       235       235       234       234       44       44  
Lochaber (UK) (b)
    100.0       38       38       43       43       8       8  
Lynemouth (UK) (b)
    100.0       109       109       165       165       33       33  
Ningxia (Qingtongxia) (China) (b) (h)
          10       5       163       81       31       15  
Sebree (US) (b)
    100.0       193       193       197       197       37       37  
Shawinigan (Canada) (b)
    100.0       99       99       100       100       18       18  
Sohar (Oman) (i)
    20.0       351       70       49       10              
SORAL (Husnes) (Norway) (b)
    50.0       98       49       171       86       32       16  
Saint-Jean-de-Maurienne (France) (b)
    100.0       101       101       130       130       25       25  
Tiwai Point (New Zealand)
    79.4       271       215       316       250       351       279  
Tomago (Australia) (b)
    51.6       528       272       523       270       97       50  
     
Rio Tinto total
                    3,808               4,062               1,473  
     
BAUXITE (‘000 tonnes)
                                                       
Awaso (Ghana) (b) (j)
    80.0       440       352       796       637       216       173  
Gove (Australia) (b)
    100.0       7,185       7,185       6,245       6,245       985       985  
Porto Trombetas (MRN) (Brazil) (b)
    12.0       15,645       1,877       18,063       2,168       3,392       407  
Sangaredi (Guinea) (b)
    (k )     11,216       5,047       13,181       5,931       2,502       1,126  
Weipa (Australia)
    100.0       16,235       16,235       20,006       20,006       18,209       18,209  
     
Rio Tinto total
                    30,696               34,987               20,900  
     
BORATES (‘000 tonnes) (L)
                                                       
Rio Tinto Minerals – Boron (US)
    100.0       411       411       591       591       541       541  
Rio Tinto Minerals – Tincalayu (Argentina)
    100.0       13       13       19       19       19       19  
     
Rio Tinto total
                    424               610               560  
     
COAL – HARD COKING (‘000 tonnes)
                                                       
Rio Tinto Coal Australia
                                                       
Hail Creek Coal (Australia)
    82.0       6,308       5,173       6,049       4,960       5,012       4,110  
Kestrel Coal (Australia)
    80.0       2,868       2,294       3,089       2,471       2,586       2,069  
     
Rio Tinto total hard coking coal
                    7,467               7,431               6,179  
     
(IMAGE) See notes on page 67
 
      


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64 Rio Tinto 2009 Annual report

 


Table of Contents

 

      
                                                         
            2009 Production     2008 Production     2007 Production  
    Rio Tinto             Rio Tinto             Rio Tinto             Rio Tinto  
    % share (a)     Total     share     Total     share     Total     share  
     
COAL – OTHER* (‘000 tonnes)
                                                       
Rio Tinto Coal Australia
                                                       
Bengalla (Australia)
    30.3       5,466       1,655       5,357       1,622       5,155       1,561  
Blair Athol (Australia)
    71.2       11,325       8,068       10,194       7,262       7,924       5,645  
Hunter Valley Operations (Australia)
    75.7       11,232       8,504       10,751       8,139       10,094       7,642  
Kestrel Coal (Australia)
    80.0       849       679       929       744       1,035       828  
Mount Thorley Operations (Australia)
    60.6       3,342       2,024       2,949       1,786       2,924       1,771  
Tarong Coal (Australia) (m)
                      262       262       4,510       4,510  
Warkworth (Australia)
    42.1       5,162       2,172       6,039       2,540       5,775       2,430  
     
Total Australian other coal
                    23,103               22,356               24,388  
     
US Coal
                                                       
Antelope (US) (n)
    48.3       30,865       29,031       32,474       32,474       31,267       31,267  
Colowyo (US) (o)
    100.0       3,214       3,214       4,446       4,446       5,077       5,077  
Cordero Rojo (US) (n)
    48.3       35,687       33,361       36,318       36,318       36,712       36,712  
Decker (US) (n)
    24.1       4,161       2,017       5,939       2,970       6,340       3,170  
Jacobs Ranch (US) (p)
          26,537       26,537       38,206       38,206       34,565       34,565  
Spring Creek (US) (n)
    48.3       16,035       15,360       16,341       16,341       14,291       14,291  
     
Total US coal
                    109,520               130,755               125,083  
     
Rio Tinto total other coal
                    132,623               153,111               149,471  
     
COPPER (mined) (‘000 tonnes)
                                                       
Bingham Canyon (US)
    100.0       303.5       303.5       238.0       238.0       212.2       212.2  
Escondida (Chile)
    30.0       1,061.2       318.3       1,281.7       384.5       1,405.5       421.6  
Grasberg – Joint Venture (Indonesia) (q)
    40.0       269.3       107.7       17.8       7.1       70.9       28.4  
Northparkes (Australia)
    80.0       34.3       27.4       24.8       19.8       43.1       34.5  
Palabora (South Africa)
    57.7       82.6       47.6       85.1       49.1       71.4       41.2  
     
Rio Tinto total
                    804.7               698.5               737.9  
     
COPPER (refined) (‘000 tonnes)
                                                       
Escondida (Chile)
    30.0       327.2       98.2       257.5       77.3       238.4       71.5  
Kennecott Utah Copper (US)
    100.0       274.2       274.2       200.6       200.6       265.6       265.6  
Palabora (South Africa)
    57.7       69.4       40.0       75.9       43.8       91.7       52.9  
     
Rio Tinto total
                    412.4               321.6               390.0  
     
DIAMONDS (‘000 carats)
                                                       
Argyle (Australia)
    100.0       10,591       10,591       15,076       15,076       18,744       18,744  
Diavik (Canada)
    60.0       5,565       3,339       9,225       5,535       11,943       7,166  
Murowa (Zimbabwe)
    77.8       124       97       264       205       145       113  
     
Rio Tinto total
                    14,026               20,816               26,023  
     
GOLD (mined) (‘000 ounces)
                                                       
Barneys Canyon (US)
    100.0       2       2       5       5       11       11  
Bingham Canyon (US)
    100.0       582       582       368       368       397       397  
Cortez/ Pipeline (US) (r)
                      72       29       538       215  
Escondida (Chile)
    30.0       144       43       144       43       187       56  
Grasberg – Joint Venture (Indonesia) (q)
    40.0       1,072       429                   1,058       423  
Greens Creek (US) (s)
                      18       12       68       48  
Northparkes (Australia)
    80.0       34       27       32       26       79       63  
Rawhide (US) (t)
    100.0       19       19       18       9       19       10  
Others
            13       8       14       8       19       11  
     
Rio Tinto total
                    1,111               501               1,233  
     
GOLD (refined) (‘000 ounces)
                                                       
Kennecott Utah Copper (US)
    100.0       479       479       303       303       523       523  
     
* Coal – other includes thermal coal and semi-soft coking coal.
(IMAGE) See notes on page 67
 


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Table of Contents

Production and reserves
     
 
Metals and minerals production

                                                         
            2009 Production     2008 Production     2007 Production  
    Rio Tinto             Rio Tinto             Rio Tinto             Rio Tinto  
    % share (a)     Total     share     Total     share     Total     share  
     
IRON ORE (‘000 tonnes)
                                                       
Corumbá (Brazil) (u)
          1,509       1,509       2,032       2,032       1,777       1,777  
Hamersley Iron – six wholly owned mines (Australia)
    100.0       106,808       106,808       95,553       95,553       94,567       94,567  
Hamersley – Channar (Australia)
    60.0       11,041       6,625       10,382       6,229       10,549       6,330  
Hamersley – Eastern Range (Australia)
    (v )     9,318       9,318       8,186       8,186       6,932       6,932  
Hope Downs (Australia) (w)
    50.0       20,634       10,317       10,936       5,468       64       32  
Iron Ore Company of Canada (Canada)
    58.7       13,844       8,129       15,830       9,295       13,229       7,768  
Robe River (Australia)
    53.0       54,417       28,841       50,246       26,631       51,512       27,301  
     
Rio Tinto total
                    171,547               153,394               144,707  
     
LEAD (‘000 tonnes)
                                                       
Greens Creek (US) (s)
                      4.6       3.2       17.0       11.9  
     
MOLYBDENUM (‘000 tonnes)
                                                       
Bingham Canyon (US)
    100.0       11.3       11.3       10.6       10.6       14.9       14.9  
     
PIG IRON (‘000 tonnes)
                                                       
HIsmelt® (Australia)
    60.0                   144       87       115       69  
     
SALT (‘000 tonnes)
                                                       
Dampier Salt (Australia) (x)
    68.4       8,555       5,848       8,974       6,135       7,827       5,242  
     
SILVER (mined) (‘000 ounces)
                                                       
Bingham Canyon (US)
    100.0       4,871       4,871       3,414       3,414       3,487       3,487  
Escondida (Chile)
    30.0       5,424       1,627       6,167       1,850       7,870       2,361  
Grasberg – Joint Venture (Indonesia) (q)
    40.0       3,685       1,474       549       220       1,193       477  
Greens Creek (US) (s)
                      1,815       1,275       8,646       6,075  
Others
          757       596       655       417       914       602  
     
Rio Tinto total
                    8,569               7,176               13,002  
     
SILVER (refined) (‘000 ounces)
                                                       
Kennecott Utah Copper (US)
    100.0       4,050       4,050       3,252       3,252       4,365       4,365  
     
TALC (‘000 tonnes)
                                                       
Rio Tinto Minerals – talc (Australia/Europe/North America) (y)
    100.0       888       888       1,163       1,163       1,281       1,281  
     
TITANIUM DIOXIDE FEEDSTOCK (‘000 tonnes)
                                                       
Rio Tinto Iron & Titanium (Canada/South Africa) (2) (aa)
    100.0       1,147       1,147       1,524       1,524       1,458       1,458  
     
URANIUM (‘000 lbs U3O8)
                                                       
Energy Resources of Australia (Australia)
    68.4       11,500       7,865       11,773       8,052       11,713       8,011  
Rössing (Namibia)
    68.6       9,150       6,275       8,966       6,149       6,714       4,605  
     
Rio Tinto total
                    14,140               14,200               12,616  
     
ZINC (‘000 tonnes)
                                                       
Greens Creek (US) (s)
                      13.9       9.8       50.8       35.7  
     
(IMAGE) See notes on page 67
 
      


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66 Rio Tinto 2009 Annual report

 


Table of Contents

 

      
Production data notes:
Mine production figures for metals refer to the total quantity of metal produced in concentrates, leach liquor or doré bullion irrespective of whether these products are then refined onsite, except for the data for bauxite and iron ore which represent production of marketable quantities of ore.
(a)   Rio Tinto percentage share, shown above, is as at the end of 2009 and has applied over the period 2007 – 2009 except for those operations where the Rio Tinto ownership has varied during the year; the weighted average ownership for each year is shown below. The Rio Tinto share varies at individual mines and refineries in the “others” category and thus no value is shown.
 
   
Rio Tinto share %
                                 
    See                    
Operation   Note     2009     2008     2007  
 
Queensland Alumina
    (d )     80.0       80.0       46.3  
Antelope
    (n )     94.0       100.0       100.0  
Cordero Rojo
    (n )     94.0       100.0       100.0  
Decker
    (n )     47.0       50.0       50.0  
Spring Creek
    (n )     94.0       100.0       100.0  
Dampier Salt Limited
    (x )     68.4       68.4       67.0  
 
(b)   Rio Tinto acquired the operating assets of Alcan with effect from 24 October 2007; production is shown as from that date. The Rio Tinto assets and the Alcan assets have been combined under the Rio Tinto Alcan name.
 
(c)   Production of smelter grade alumina at Gardanne ceased at the end of 2008. Production continues from the Gardanne specialty alumina plant.
 
(d)   Rio Tinto held a 38.6 per cent share in Queensland Alumina until 24 October 2007; this increased to 80.0 per cent following the Alcan acquisition.
 
(e)   The Anglesey smelter ceased smelting operations at the end of the third quarter of 2009.
 
(f)   The Beauharnois smelter ceased smelting operations in the second quarter of 2009.
(g)   The Lannemezan smelter closed in the first quarter of 2008.
 
(h)   Rio Tinto sold its 50 per cent interest in the Ningxia aluminium smelter with an effective date of 26 January 2009.
 
(i)   Production at the Sohar smelter commenced in the third quarter of 2008.
 
(j)   Rio Tinto Alcan had an 80 per cent interest in the Awaso mine but purchased the additional 20 per cent of production. Rio Tinto Alcan sold its interest in Ghana Bauxite Company, owner of the Awaso mine, with an effective date 1 February 2010.
 
(k)   Rio Tinto has a 22.95 per cent shareholding in the Sangaredi mine but receives 45.0 per cent of production under the partnership agreement.
 
(l)   Borate quantities are expressed as B2O3.
 
(m)   Rio Tinto sold its 100 per cent interest in Tarong Coal with an effective date of 31 January 2008; production data are shown up to that date.
 
(n)   As a result of the initial public offering of Cloud Peak Energy Inc. on 20 November 2009, Rio Tinto now holds a 48.3 per cent interest in the Antelope, Cordero Rojo and Spring Creek mines and a 24.1 per cent interest in the Decker mine. These interests were formerly reported under Rio Tinto Energy America but are now managed by Cloud Peak Energy.
 
(o)   During 2008, Rio Tinto acquired a 100 per cent interest in the Colowyo mine, having previously held a partnership interest. All of Colowyo’s production was already included in Rio Tinto’s share of production.
 
(p)   Rio Tinto sold its 100 per cent interest in the Jacobs Ranch mine with an effective date of 1 October 2009. Production data are shown up to that date.
 
(q)   Through a joint venture agreement with Freeport-McMoRan Copper & Gold (FCX), Rio Tinto is entitled to 40 per cent of additional material mined as a consequence of expansions and developments of the Grasberg facilities since 1998. Total production reflects the total quantities attributable to the joint venture.
(r)   Rio Tinto sold its 40 per cent interest in the Cortez/ Pipeline joint venture effective within the end of February 2008. Production data are shown up to that date.
 
(s)   Rio Tinto sold its 70.3 per cent share in the Greens Creek joint venture with an effective date of 16 April 2008. Production data are shown up to that date.
 
(t)   On the 28 October 2008, Rio Tinto increased its shareholding in the Rawhide Joint Venture from 51 per cent to 100 per cent. The previous Joint Venture shareholder continued to be entitled to 49 per cent of production until 31 December 2008; thereafter Rio Tinto has been entitled to 100 per cent.
 
(u)   Rio Tinto sold its 100 per cent interest in the Corumbá mine with an effective date of 18 September 2009. Production data are shown up to that date.
 
(v)   Rio Tinto’s share of production includes 100 per cent of the production from the Eastern Range mine. Under the terms of the joint venture agreement (Rio Tinto 54 per cent), Hamersley Iron manages the operation and is obliged to purchase all mine production from the joint venture.
 
(w)   Hope Downs started production in the fourth quarter of 2007.
 
(x)   Rio Tinto increased its shareholding in Dampier Salt Limited to 68.4 per cent at the beginning of July 2007.
 
(y)   Talc production includes some products derived from purchased ores.
 
(Z)   Quantities comprise 100 per cent of Rio Tinto Fer et Titane and 50 per cent of Richards Bay Minerals’ (RBM) production until late 2009 when RBM concluded a Broad Based Black Economic Empowerment transaction. Rio Tinto Iron & Titanium’s share of RBM production reflects a decrease from 50 to 37 per cent with effect from 9 December 2009.
 
(aa)   Ilmenite mined in Madagascar is being processed in Canada with effect from June 2009.
Production figures are sometimes more precise than the rounded numbers shown, hence an apparent small difference may result where the Rio Tinto share is totalled.


(IMAGE)


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www.riotinto.com 67
 


 


Table of Contents

Production and reserves
     
 
Ore reserves

Ore reserves and mineral resources for Rio Tinto managed operations are reported in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, December 2004 (the Australian Joint Ore Reserves Committee (JORC) Code) as required by the Australian Securities Exchange (ASX). Codes or guidelines similar to JORC with only minor regional variations have been adopted in South Africa, Canada, the US, Chile, Peru, the Philippines, the UK, Ireland and Europe. Together these Codes represent current best practice for reporting ore reserves and mineral resources.
The JORC Code envisages the use of reasonable investment assumptions, including the use of projected long term commodity prices, in calculating reserve
estimates. However, for US reporting, the US Securities and Exchange Commission require historical price data to be used. For this reason, some reserves reported to the SEC in the Form 20-F may differ from those reported below.
Ore reserve and mineral resource information in the tables below is based on information compiled by Competent Persons (as defined by JORC), most of whom are full time employees of Rio Tinto or related companies. Each has had a minimum of five years relevant estimation experience and is a member of a recognised professional body whose members are bound by a professional code of ethics. Each Competent Person consents to the inclusion in this report of information they have provided in the form and context in which
it appears. Competent Persons responsible for the estimates are listed on page 77, by operation, along with their professional affiliation, employer and accountability for reserves and/or resources. Where operations are not managed by Rio Tinto the reserves are published as received from the managing company.
The ore reserve figures in the following tables are as of 31 December 2009. Summary data for year end 2008 are shown for comparison. Metric units are used throughout. The figures used to calculate Rio Tinto’s share of reserves are often more precise than the rounded numbers shown in the tables, hence small differences might result if the calculations are repeated using the tabulated figures.


                                                                                                         
                    Proved ore reserves     Probable ore reserves     Total ore reserves 2009                
                    at end 2009     at end 2009     compared with 2008             Rio Tinto share  
    Type                                                                                              
    of mine                                                                                     Interest     Recoverable  
    (a)             Tonnage     Grade     Tonnage     Grade             Tonnage             Grade             %     mineral  
                                                    2009     2008     2009     2008                        
BAUXITE (b)                   millions             millions             millions     millions                                     millions  
                  of tonnes     % Al2O3     of tonnes     % Al2O3     of tonnes     of tonnes     % Al2O3     % Al2O3                     of tonnes  
     
Reserves at operating mines
                                                                                                       
Gove (Australia)
    O/P               140       49.4       46       49.2       186       175       49.4       49.4               100.0       186  
Porto Trombetas (MRN) (Brazil)
    O/P               150       49.7       64       49.2       214       205       49.6       50.6               12.0       26  
Sangaredi (Guinea)
    O/P                               130       52.4       130       133       52.4       52.4               23.0       30  
Weipa (Australia)
    O/P               339       51.9       1,360       53.0       1,699       1,736       52.7       52.4               100.0       1,699  
     
Total
                                                                                                    1,941  
     
                                                                                                         
                                                                                                    Marketable  
                                                                                                    product  
BORATES (c)                   millions             millions             millions     millions                                     millions  
                  of tonnes             of tonnes             of tonnes     of tonnes                                     of tonnes  
     
Reserves at operating mines
Rio Tinto Minerals – Boron (US) (d)
    O/P               14.8               9.8               24.6       21.3                               100.0       24.6  
     
 
                                                                                                       
COAL (e)                                                                                                        
                                                                                                         
                                                                                    Avg. %        
                                                    Marketable     Marketable     yield        
            Coal     Reserves     Marketable Reserves     reserves     coal quality     to give        
            type     Proved     Probable     Proved     Probable     Total     Total                     marketable     Marketable  
            (f)     at end 2009             at end 2009     2009     2008     (g)     (g)     reserves     reserves  
                                                                     Calorific     Sulphur                        
                    millions     millions     millions     millions     millions     millions     value     content                     millions  
                    of tonnes     of tonnes     of tonnes     of tonnes     of tonnes     of tonnes     MJ/kg     %                     of tonnes  
     
Rio Tinto Coal Australia
                                                                                                            
Bengalla (Australia)
    O/C     SC     86       81       64       62       126       132       28.21       0.47       75       30.3       38  
Blair Athol (Australia) (h)
    O/C     SC     21       0.5       18       0.3       18       29       26.17       0.31       82       71.2       13  
Hail Creek (Australia) (i)
    O/C     MC     108       302       61       149       209       167       32.20       0.35       51       82.0       172  
Hunter Valley Operations (Australia) (j)
    O/C     SC + MC     314       89       218       60       278       330       28.99       0.54       69       75.7       210  
Kestrel Coal (Australia)
    U/G     SC + MC     56       97       47       81       128       131       31.60       0.59       83       80.0       102  
Mount Thorley Operations (Australia)
    O/C     SC + MC     31       5       21       3       24       24       29.41       0.43       65       60.6       14  
Warkworth (Australia)
    O/C     SC + MC     228       185       149       121       270       278       30.68       0.44       65       42.1       114  
     
Sub-total
                                                                                                    663  
     
(IMAGE) See notes on page 71
 
      


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68 Rio Tinto 2009 Annual report

 


Table of Contents

 

COAL continued (e)
                                                                                                         
                                                            Marketable     Marketable     Avg. %
yield to give
marketable
       
    Type
of mine
    Coal
type
    Reserves     Marketable Reserves             reserves     coal quality         Rio Tinto share  
                                         
            Proved     Probable     Proved     Probable     Total     Total                         Interest     Marketable  
    (a)     (f)     at end 2009             at end 2009     2009     2008     (g)     (g)     reserves     %     reserves  
 
                                                                    Calorific     Sulphur                        
                    millions     millions     millions     millions     millions     millions     value     content                     millions  
                    of tonnes     of tonnes     of tonnes     of tonnes     of tonnes     of tonnes     MJ/kg     %                     of tonnes  
US Coal (US)
                                                                                                       
Antelope (US) (k) (l)
    O/C     SC     255       10       255       10       265       296       20.59       0.24       100       48.3       128  
Colowyo (US) (m)
    O/C     SC     14       3       14       3       17       20       23.92       0.44       100       100.0       17  
Cordero Rojo (US) (k)
    O/C     SC     289       84       289       84       372       365       19.54       0.29       100       48.3       180  
Decker (US) (k) (n)
    O/C     SC     2               2               2       9       21.87       0.40       100       24.1       1  
Jacobs Ranch (US) (o)
    O/C     SC                                   346                                
Spring Creek (US) (k)
    O/C     SC     234       38       234       38       272       287       21.75       0.33       100       48.3       131  
 
Sub-total
                                                                                                    456  
 
Total reserves at operating mines
                                                                                                    1,119  
 
Other undeveloped reserves (p)
                                                                                                       
Rio Tinto Coal Australia
                                                                                                       
Clermont (Australia)
    O/C     SC     193       5       185       4       189       189       27.90       0.33       96       50.1       95  
Mount Pleasant (Australia)
    O/C     SC             459               350       350       350       26.73       0.51       76       75.7       265  
 
Total undeveloped reserves
                                                                                                    360  
 
                                                                                                         
                    Proved ore reserves     Probable ore reserves                     Total ore reserves 2009                      
                    at end 2009     at end 2009                     compared with 2008                      
                                 
                                                                                    Average                
                                                                                    mill                
                                                                                    recovery             Recoverable  
                    Tonnage     Grade     Tonnage     Grade             Tonnage             Grade     %             metal  
 
                                                    2009     2008     2009     2008                        
 
COPPER                   millions             millions             millions     millions                                     millions  
                  of tonnes     %Cu     of tonnes     %Cu     of tonnes     of tonnes     %Cu     %Cu                     of tonnes  
 
Reserves at operating mines
                                                                                                       
Bingham Canyon (US) (q)
    O/P               317       0.53       207       0.39       524       618       0.47       0.47       85       100.0       2.105  
Escondida (Chile)
                                                                                                       
– sulphide
    O/P               726       1.15       933       1.00       1,659       1,690       1.07       1.10       82       30.0       4.375  
– sulphide leach
    O/P               640       0.58       1,738       0.53       2,377       2,202       0.54       0.54       33       30.0       1.274  
– oxide (r)
    O/P               66       0.69       56       0.96       121       137       0.81       0.94       68       30.0       0.201  
Grasberg (Indonesia)
    O/P+ U/G               816       1.12       1,774       0.95       2,590       2,665       1.00       1.01       89       (s )     7.061  
Northparkes (Australia)
                                                                                                       
– open pit and stockpiles
    O/P               9.9       0.47       0.4       0.44       10.3       9.8       0.47       0.48       85       80.0       0.033  
– underground (t)
    U/G                               70       0.89       70       81       0.89       0.83       89       80.0       0.442  
Palabora (South Africa) (u)
    U/G               75       0.60                       75       91       0.60       0.62       88       57.7       0.228  
 
Total
                                                                                                    15.719  
 
Reserves at development projects
                                                                                                       
Eagle (US)
    U/G                               3.6       2.93       3.6       3.6       2.93       2.93       95       100.0       0.102  
Oyu Tolgoi (Mongolia) (v)
                                                                                                       
– Southern Oyu
    O/P               127       0.58       803       0.48       930       930       0.50       0.50       87       19.7       0.794  
 
Total
                                                                                                    0.896  
 
                                                                                                    Recoverable  
                                                                                                    diamonds  
 
DIAMONDS (b)                   millions     carats     millions     carats     millions     millions     carats     carats                     millions  
                  of tonnes     per tonne     of tonnes     per tonne     of tonnes     of tonnes     per tonne     per tonne                     of carats  
 
Reserves at operating mines
                                                                                                       
Argyle (Australia)
    O/P+ U/G               23       1.1       62       2.4       85       89       2.1       2.1               100.0       178.1  
Diavik (Canada)
    O/P+ U/G               9       3.1       11       2.9       20       20       3.0       3.1               60.0       35.8  
Murowa (Zimbabwe)
    O/P                               21       0.7       21       21       0.7       0.7               77.8       10.8  
 
Total
                                                                                                    224.7  
 
(IMAGE) See notes on page 71
      


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www.riotinto.com 69


Table of Contents

Production and reserves
 
Ore reserves continued

                                                                                                 
            Proved ore reserves     Probable ore reserves                     Total ore reserves 2009                
            at end 2009     at end 2009                     compared with 2008             Rio Tinto share  
                                                                            Average              
    Type                                                                     mill              
    of mine                                                                     recovery     Interest     Recoverable  
    (a)     Tonnage     Grade     Tonnage     Grade             Tonnage             Grade     %     %     metal  
 
                                            2009     2008     2009     2008                        
 
            millions     grammes     millions     grammes     millions     millions     grammes     grammes                     millions  
GOLD
          of tonnes     per tonne     of tonnes     per tonne     of tonnes     of tonnes     per tonne     per tonne                     of ounces  
 
Reserves at operating mines
                                                                                               
Bingham Canyon (US) (q)
    O/P       317       0.27       207       0.22       524       618       0.25       0.27       62       100.0       2.630  
Grasberg (Indonesia)
    O/P + U/G       816       1.07       1,774       0.77       2,590       2,665       0.86       0.89       69       (s )     13.006  
Northparkes (Australia)
                                                                                               
– open pit and stockpiles
    O/P       9.9       0.33       0.4       0.29       10.3       9.8       0.33       0.34       76       80.0       0.067  
– underground (t)
    U/G                       70       0.34       70       81       0.34       0.31       73       80.0       0.446  
 
Total
                                                                                            16.149  
 
Reserves at development projects
                                                                                               
Eagle (US) (w)
    U/G                       3.6       0.29       3.6             0.29             73       100.0       0.025  
Oyu Tolgoi (Mongolia) (v)
                                                                                               
– Southern Oyu
    O/P       127       0.93       803       0.27       930       930       0.36       0.36       71       19.7       1.497  
 
Total
                                                                                            1.522  
 
                                                                                    Marketable  
                                                                                    product  
 
IRON ORE (b)           millions             millions             millions     millions                             millions  
          of tonnes     %Fe     of tonnes     %Fe     of tonnes     of tonnes     %Fe     %Fe             of tonnes  
 
Reserves at operating mines
                                                                                       
Corumbá (Brazil) (x)
    O/P                                     209             67.0              
Hamersley wholly owned (Australia)
                                                                                       
– Brockman 2 (Brockman ore) (y)
    O/P       13       62.7       3       62.8       15       20       62.7       62.7       100.0       15  
– Brockman 4 (Brockman ore)
    O/P       366       62.2       255       61.9       621       621       62.0       62.0       100.0       621  
– Marandoo (Marra Mamba ore) (z)
    O/P       39       61.8       10       60.3       49       59       61.5       61.7       100.0       49  
– Mt Tom Price (Brockman ore)
    O/P       34       63.8       59       63.5       93       93       63.6       64.4       100.0       93  
– Mt Tom Price (Marra Mamba ore) (aa)
    O/P       20       61.4       3       59.0       23       34       61.1       61.2       100.0       23  
– Nammuldi (Marra Mamba ore) (bb)
    O/P       16       61.4       2       60.1       18       24       61.2       61.3       100.0       18  
– Paraburdoo (Brockman ore)
    O/P       9       63.1       5       63.1       15       14       63.1       63.4       100.0       15  
– Paraburdoo (Marra Mamba ore)
    O/P                                         0.9             63.1       100.0        
– Turee Syncline Central (Brockman Ore) (cc)
    O/P                       74       61.9       74             61.9             100.0       74  
– Western Turner Syncline (Brockman ore)
    O/P       222       62.5       92       60.5       314       313       61.9       61.9       100.0       314  
– Yandicoogina (Pisolite ore HG)
    O/P       206       58.5       3       58.5       209       229       58.5       58.5       100.0       209  
– Yandicoogina (Process Product) (dd)
    O/P       102       58.9